Let’s get straight to this. Our country is in a recession, the news channels are swamped with statistics about unemployment and decreasing housing values, and banks are paying 1% on your money, if you are lucky.
I don’t watch the news. I don’t watch the news because I get tired of hearing the ‘woe as me’ topics, which are just nonstop on any news program. I agree, housing values are in the toilet, stocks have plummeted, and unemployment is all over the place. Sure, this is a horrible state for a lot of people, but as I always say, perspective is everything.
Beating the recession is absolutely dependent on your perspective. Lucky for you, I’m all over the positive perspective of our downed market, and I think you should be too. This is a real estate investor’s dream market!
Let’s reflect for a minute. Have you read much about the real estate investors who started in the 1980s and made money when mortgage interest rates were 17%? One of my favorites is Kim Kiyosaki, wife of Rich Dad Poor Dad author Robert Kiyosaki, bought her first rental property which brought in $25 a month. Kim now runs a multi-million dollar real estate portfolio. Thinking about people making millions despite a 17% interest rate and $25 cash flow per month, fancy this- I just closed on a rental property with a 4.875% interest rate and am I’m getting ~$500 per month! Told you, it’s an investor’s dream!
People, it’s a gold mine out there today. These numbers are unheard of! I am making a 32% return on my money. Shall I revisit now that banks are paying 1% on your money?
I know what just happened. You got really excited. You thought, “Wow, 32% and $500 a month! I want that!” I know you did, because who wouldn’t get excited about that. But then a quick montage of horror stories (a.k.a. rumors) about real estate investing ran through your head and the excitement left you. Its ok, I’ve heard the horror stories (a.k.a. rumors) too. I’ll get to those later. But I promise, real estate investing doesn’t have to be as hard as it’s made out to be.
Why You Should Humor Me
Because I’m just like you. I’m not some financial advisor who gives advice, and very expensive advice at that, which I don’t actually take myself. I’m not a billionaire (yet) who is trying to teach someone in the middle class how to invest, which would be like a brain surgeon trying to teach a 3rd grader how to perform a craniectomy. I’m also not trying to make a profit by pushing products and classes on you. I actually don’t even have a product or a class to offer you even if I wanted to.
About me: I’m 30 years old, I just spent the last four years working as an aerospace engineer, I love flying airplanes, I have two small dogs who think they are cats, and I want to be a go-go dancer when I grow up. The only credibility I can offer in terms of experience in real estate investing is that I have somehow fallen into the world of it, after studying every book I can, and I am absolutely in love with it. When it comes to business, investments and money, I confess, I’m a snob. I won’t work with partners who are less than absolute rockstars, and I only buy into investment deals that give me rockstar returns. Too high of a standard, you ask? No way. If rockstar people exist, and rockstar deals exist, why buy into anyone or anything less than the best?
In case in my rambling you missed the answer to my ‘why you should humor me’ comment, here it is- I am just like you, I’m not someone so rich and great (yet) that I don’t really understand you, I’m human, I have studied and practiced enough to know what I’m doing, I don’t have a “how-to” video to sell you, and I can provide you rockstar people and rockstar stuff. Oh, and all of the rockstar people I work with are experts in their fields, so I’m always in good hands when it comes to brainpower.
What Am I Even Talking About?
I’m a real estate investor. Why am I a real estate investor? I make anywhere from 10 to 30% return on my money, that’s why. Oh, and in some cases I make infinite returns, because I don’t use my own money.
Shall I again revisit that banks are paying about 1% on your money? Ok I’m done now.
There are multiple ways of investing in real estate. I buy rental properties. There are a lot of advantages to buying rental properties over other methods of real estate investing. The biggest perk? Tax advantages! Huge, tax advantages. Flipping houses, watch out, you will get eaten up with taxes. Remember, how much you pay in taxes has a direct effect on your success as an investor; the less you pay in taxes = the more money you make. In addition to the tax advantages, income from rental properties is passive income, meaning I don’t have to do any work for the money. Owning rental properties is also a long-term strategy, in terms of cash flow which can last for as long as I want it too, i.e. until I sell the property, if ever.
I also don’t just buy any rental properties. Properties shown to you by a real estate agent, or ones found online, aren’t deals. At the point a property is listed to the public, 5-7 investors, on average, have already passed on the property. That means professional investors have decided the property is not a deal, for some reason or another. I trust the pros and assume I shouldn’t go for the property either. I’m not above piggybacking on someone else’s work.
The best investors find properties before they are listed to the public.
How to Find Unlisted Properties
A whole book could be written on the many ways to find unlisted properties, and I’m sure many have been, but just so you realize how this can happen, I will give you a couple of examples.
I know an investor who gets tax assessor lists from various counties and based on those lists, cold calls owners of his choice and simply asks them if they want to sell their house. He offers an obnoxiously small amount o f money to the owner, with the justification being ease of getting rid of the property without stress. The owners usually decline his offer initially, but often call back in six months and ask if the offer is still on the table so they can accept. This investor bought three perfectly good properties in Atlanta, GA for only $15,000 each.
Deal in mass. Anytime you buy anything in a large quantity, you typically get a reduced price per unit. The same goes for investment properties. A buyer who purchases 500 houses from one seller is going to get each house significantly cheaper than if he buys only one. Since he gets each house so cheap, he can then resell each house, or multiple houses, at a cheaper price and still make a profit. A private equity firm works this way. A private developer buys up, say, 500 foreclosed houses, rehabs them, and resells all 500 to a private equity firm.
My preferred way of finding properties? Partner with investors who serve the same role as the private equity firms (the buy/sell in mass), and then I buy properties from them. But don’t think I have to buy all 500 of the properties; I may only buy 1-5 properties, but I still get them at the same (lower) price as if I had bought all 500.
I’m a hands-off investor; I let other people to the dirty work of finding the deals the mass opportunities, and then I come in as a buyer.
As the saying goes, it’s all in who you know. I don’t believe the best private channels for buying unlisted deals come from anyone on a how-to video, but rather from organic networking connections. Some of the best investors I know have no problem sharing their buying channels with fellow investors. I like to say, I’m not in the business of selling information, as so many people are; I’m in the business of sharing rockstar investment opportunities with other investors.
What Makes a Rockstar Investment?
Anything that produces positive cash flow is a good investment. Anything that produces > 7% cap rate (net annual income / total purchase price) is an awesome investment. Anything that produces an awesome cap rate and has additional perks (property is freshly rehabbed, cap rate is >10%, income or repair guarantees are offered, seller helps with closing costs, tenants are already in place…) is a rockstar investment. Buying beat up foreclosures can be a good deal if you are an expert at rehabbing or have a team of contractors you trust, but for me that is way too much effort. Plus, once the house is finally rehabbed, you still have to find tenants and worry about either landlording yourself or finding a property manager. As I already mentioned, I’m a hands-off investor; I don’t want to do that much work.
Instead of dealing with rehabbing and finding tenants and managers, I go the “turnkey” route. The houses are rehabbed, tenants are placed in the house, and property managers are standing by to take over once I buy the house. In my opinion, this method is the ticket to lifestyle design. Minimal work is required on my part, and I’m free to do anything I want with my days, rather than be stuck worrying about rehabs and landlording. I also buy properties that have perks of some sort. I have one with a 12-month rental guarantee, meaning if no tenant is in the house I still get paid the full rent each month. All of my properties are newly rehabbed. I have one property that has tenants under a lease option, so they sign three-year leases instead of one-years, so vacancy is a lot less likely.
In today’s market, don’t buy any real estate investment that isn’t a rockstar investment. If you wonder if a deal is a rockstar, feel free to send it my way and I’ll give you my opinion.
How to Be a Rockstar Real Estate Investor
- Work with a rockstar team!
Your team should include other investors, accountants, lawyers, friends, mentors, property managers, and inspectors. If you feel sketchy about someone, go with your feeling. Let people prove themselves to you. Anytime someone new approaches me about investment options, I start out as a pessimist and assume it is a scam. I ask a lot of questions. If the person becomes obviously annoyed at my questions, I quit. If the person can’t, or won’t, answer my questions, I become leery and ask more.
My favorite saying is, “Don’t take advice from people you wouldn’t trade shoes with.” My second favorite thought is, “Don’t work with anyone whose name you wouldn’t shout from a rooftop.” If you would shout from a rooftop to the whole world about how awesome someone is, stick with that person.
- Don’t lose money!
I said earlier that any investment that provides positive cash flow is a good investment. Make sure, though, you are conservative with your calculations so you aren’t blind-sided if unanticipated expenses come up. I’ll be writing a blog soon that goes through the calculations I run on every property I think about buying. If you run numbers on a rental property and you calculate that you will be making $1 per month, which, yes, is positive cash flow, think about the margin between that $1 and negative cash flow. $1 margin isn’t a lot. In today’s market, I consider $100/month not a lot of margin for rental properties. Make sure you are conservative with your calculations, but even with the conservative numbers, make sure you have a decent margin.
- Keep reading my blogs!
Even better than that, get in touch with me! I will connect you with all of the rockstars I work with and you can be on the road to financial success. I plan to give advice through my blogs, I’ll show you available rockstar unlisted deals you can buy for yourself, and I will include you on all of the fun I get to experience on a regular basis.
Keep an eye out for blogs coming your way! I’ll talk about the rumors related to buying real estate, how to run numbers on properties, general life advice and how that advice ties into investing, and I even plan to include fun stories that have absolutely nothing to do with real estate. I may also bring in guest bloggers, just to shake things up a little bit.
Here’s to a future full of real estate fun (and lots of money)!