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SHOW NOTES FOR EPISODE 674: GETTING REAL WITH REAL ESTATE
Real estate investing is truly the best way for the average person to become wealthy. However, don’t be deceived! It doesn’t mean it will be an easy journey. In this episode, Bill shares his personal experience and how he learned the hard way that real estate investing is not “easy money” and how you can better prepare!
Introduction
For those of you who missed my announcement last week, I announced that the podcast will stop after Jan 4th and, until then, I’m going to share my personal REI journey, mistakes I’ve made, things that worked well and other tips that will hopefully help you achieve financial independence in 6 years or less.
This is the first of those podcasts
Yes, real estate is a great way to become financially independent and to help you in your retirement years BUT… I want to get real about real estate so you can set your expectations – not have a misconception that way too many “real estate gurus” are presenting.
Real estate investing IS, I believe, the best way for the average person to become wealthy but, you need to be prepared to work hard. When I set my goal of 1,000 units in 6 years, I was ready and willing to work as hard as I had to reach that goal – including working 14 hour days, 6 days a week!
Real estate investing can be very labor intensive – especially if you are an ACTIVE vs. a PASSIVE investor as I was. But, keep in mind, even if you become a passive investor (as I am now), there’s some still work involved if you want to be successful.
Active vs. Passive Investing
Let’s take a look at active investing vs. passive.
Active Investing
I know there’s many types of active investing – flipping, wholesaling, lease options, land flipping, and, of course, and the one I know best, rental properties and being a landlord.
3 Things to Consider Before You Become a Real Estate Investor
- When you’re a new landlord, you never know what you are getting yourself into. Some people think that being a landlord is just about collecting rent and unclogging a toilet every now and then. I wish that was all it was but unfortunately, it was much more for me. Things like working with the police on a prostitution sting operation, battling a bed bug break-out in an apartment, cleaning up after a fire or flooding, and much more.
- It’s not really about exotic cars and bikini clad supermodels in your driveway. Don’t fall for the commercials that make rental property investing something it’s not! Landlording can be rough. I’ve dealt with drug dealers, prostitutes, thieves and lawsuits. I’ve had leaky roofs, clogged toilets, mold, asbestos and you name it! Not that I ever would want the cars and supermodels in the first place, but you need to get a good dose of reality before you step into landlord shoes.
- But it’s not all that bad either! It’s a joy to provide quality housing for people in need. It’s wonderful when someone tells you they love the place they rent from you. It’s also great when the numbers work and the income comes streaming in like it’s supposed.
When you’re investing in rental property, you also need to find the right properties
- Finding a good property takes work
- Creating and working with a team
- Realtors/brokers
- Attorneys
- CPAs
- Bookkeepers
- Contractors
- Insurance brokers
- Title companies
- Networking
- Local REI and Investment clubs
- Mastermind Groups
- Researching markets
- Property inspections
- Working with contractors
- Managing tenants or
- Managing property managers
However, Not All Real Estate Investing Involves Landlording
Yes, I chose the landlord route, but I didn’t have to. There really are a lot of other different real estate investment strategies beside owning rental properties: Investing in REITS, crowdfunding, ETFs, deeds, liens, raw land, AirBNBs, billboards, wholesaling, flipping, hard money lending, private lending, self-storage, and passive investing in syndications, to name a few.
However, whatever you choose, make sure you do your homework first before jumping in. Look before you leap. Pick the strategy that’s truly best for you and then learn it well.
Passive Investing
Many people think that owning rental property is passive. Passive income has become a big buzzword. The allure of collecting steady paychecks without “actively” working for it is stronger than ever.
One of the most popular ways to create a passive income stream is through real estate — well, yes and no – that’s right at least in theory.
The process goes something like this: You borrow money from a bank, buy a property, and the tenant pays off your mortgage and then some. Once you accumulate more equity, you repeat the process, buy more properties, scale up … and boom! You are a real estate mogul.
Dave Ramsey is a real estate investor and still likes real estate as an asset class but warns that investors should know what they are getting into.
He says, “I love real estate. It does give you a better rate of return that other investments don’t have, but when I hear someone say passive income and real estate in the same sentence, it means they’ve been on get-rich-quick websites.”
Of course, the reality is different.
If you want to be a landlord, you need to find reliable tenants, collect rent, and handle maintenance and repair requests (out of your own pocket).
That’s why I separate rental property investment as an active investment from other more passive investments.
As I mentioned, passive investments include such strategies as Investing in REITS, crowdfunding, ETFs, deeds, liens, raw land, AirBNBs, billboards, wholesaling, flipping, hard money lending, private lending, self-storage, and passive investing in syndications, etc.
Yes, it’s true that passive investing is not as labor intensive as active investing but, if you want to reduce risk and make safer passive investments, you need to put in the time and effort first:
- Conduct deep due diligence on each passive investment you are considering
- Inspect potential properties
- Extensively screen the sponsor/GP and other managers of the project
- Do market research on the market you are investing in
Also, for many of the best passive investing deals, you will have to be an Accredited Investor, which requires that you…
Now, once you’ve selected and made your investments, you really don’t have much to do except to receive your monthly or quarterly checks or direct deposits into your account
The Market
Another very important factor is the market you are investing in. Although with passive investing, someone else picks the market, it’s your job to confirm that that market is good! This is very important. Is it growing, expanding, and improving? Is it in the path of progress? Are there lots of jobs? Is there a housing shortage? Is there a lot of crime?
In a good market:
- Your rents will regularly go up
- You will get a higher quality of tenant
- The equity in your property will increase significantly
- All good stuff!
In a bad market
- Rents can stay the same or even go down
- Your equity can stay the same or decrease
- Good tenants are hard to find
- Your property can get trashed
- Crime will bring down values and scare good tenants away
Also, you need to constantly monitor the economy and economic trends
The Economy
You also need to monitor what is going on in the US and global economy. Inflation and recession are already here in America but what is the end game. How should we invest in real estate and not get burned?
Many economists are projecting what could happen and there are projections on both extreme – there are those saying that GOLD ONLY because dollars will be worth nothing and that the fed may likely tap into your back accounts (which they have a legal right to do) to make up for federal deficits.
And there are others who say no, we’re not really in a recession. Everything is going to be alright.
However, many real estate investors are holding on to their cash waiting for the real estate deals that will be on the market at bargain basement prices.
I don’t know what the future holds but, in the meantime, I have diversified my portfolio significantly: apartments, mobile home parks, corporate debt, car washes and ATMs, to name a few.
And, yes, I am one of those holding funds to purchase when prices go down significantly – just in case!
In Conclusion
Now, I don’t want to scare anyone away from investing in real estate. I still feel it is the best place to invest – especially in times like these. That’s not the point. It’s just that you need to be ready to invest smart in real estate!
In my next episode, I’m going to share the things you need to get prepared and to become that smart investor who grows their portfolio significantly!.
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