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SHOW NOTES FOR EPISODE 229: ASK BILL! NEWBIES WITH NO MONEY, STARTING REI AT 48, DECLINING POPULATION & RENTAL DEMAND
This is our monthly Fun Fact Friday “Ask Bill!” episode, where Bill answers specific real estate investing questions received during the month from e-mails, in-person conversations, phone calls or through online portals such as BiggerPockets.com and Quora.
One of our goals here at the Old Dawg’s REI Network is to help to educate/enlighten fellow real estate investors, to share what little knowledge we have by answering your questions, and to help other investors to broaden their understanding of real estate investing and to, hopefully, avoid some of the mistakes that can cost you later.
In today’s “Ask Bill” episode, Bill answers questions from a newbie investor wondering how he can get started in real estate investing if he doesn’t have much money, a 48 year old New Yorker who is wants to start real estate investing out-of-state and a person who wants to know if smaller US families means a decline in rental property demand in the future.
Question #1 – Tips for Newbies with Little or No Money
Hey Bill! I recently listened to you talk on the Bigger Pockets podcast. I am currently a sophomore in college I attend Central Michigan University, and I recently became interested in expanding my financial intelligence and creating a better cash flow for myself. I am interested in learning more about real estate and learning how to invest in real estate. I was wondering what tips you have for me as a beginner in real estate investing with little money to work with, and what you think I could do right now to help me get started on this journey? Thanks a ton in advance! Nick
Answer to Question #1
Congratulations, Nick! You are already on the right track because you have discovered, while you are still young, the value of real estate investing as a means to generate cash flow and to create financial independence!
You mention that you want to:
- Learn more about real estate
- Learn how to invest
- Tips as a beginner with little money
- What you can do right not to get started on the journey
My first suggestion would be to get educated on the basics and fundamentals of real estate investing.
Now there are many types of real estate investing. For example…
- You can be a passive investor and invest in REITs, crowdfunding and syndications
- Rental Properties
- Air BNB/Vacation Rentals
- Commercial Real Estate
- Fix ‘n Flip
- Wholesale
- Speculation
- Lease Options or Rent-to-Own
- Buy trust deeds, tax liens
- Raw land
- Hard money lender
- Self Storage
- Mobile Home Parks
- Ground-up Development
One thing you need to determine early is to determine your strategy and niche. But that will come in your first phase, which is EDUCATION.
This is where you will read, listen to podcasts, watch webinars/YouTube videos, read blogs and more to explore the various real estate investing options out there.
I would recommend that you listen to Old Dawg podcast #006 entitled “How to Get Started in Real Estate Investing.” That podcast outlines the 6 steps to becoming a successful real estate investor.
Secondly, if you don’t have much money, you should also learn the basics of “low and no money down investing.” Yes, it’s real and people do it all the time. But know, it takes more effort and time than conventional investing. It will also take a little longer to get started and find those types of deals that qualify.
Some people start out by learning wholesaling, which is a great way to get started when you have little or no money. In wholesaling, you can find distressed properties and/or desperate sellers, get their permission to sell their property without really buying it. Basically, you get paid from the money over and above what the seller wants. Wholesalers can make a few thousand or tens of thousands of dollars per property. It just depends. This is a great way for you to get you the funds you need to starting buying rental properties.
If that seems too complicated, then my suggestion would be to find a relative or friend that could partner with you (provide you the funds you need to purchase properties in exchange for a piece of the action) on your first couple of deals. Once you get some cash flowing properties that are building up equity, then you can leverage those properties to purchase others. Check out the following podcasts on leverage.
204: The Power of Leverage – May 11, 2018
Understanding Leverage in Commercial Real Estate – August 30, 2017
217: Husband & Wife Turn $50K Home Equity Loan into $56 Million Real Estate Portfolio in Just 5 Years – June 25, 2018
You can also “House Hack.”
My son just graduated high school and is moving out of state to go to college. At age 18, with a part-time job, he was able to qualify for an FHA loan. He and his buddy will be living in one unit of a four-plex, or one room of a larger house they’re buying, and renting out the other three units – living, in essence, rent-free! It’s called “house hacking.” After one year, they will meet the “owner-occupied” requirement of the loan and they can find another small multifamily property to do the same. Their hope, before they complete college, is to have 3–4 rental properties to begin their careers as real estate investors.
There are a number of young people discovering that early entry into real estate investing can be a smart route to go, even before you graduate college. There’s a great book entitled “Set for Life” written by Scott Trench, which shows young people that, by starting out with a life of frugality, smart investing and building up passive cash flow, you can position yourself, early on for financial independence.
In other words, you don’t have to worry about graduating and jumping into a job you hate just so you can pay back your student loans. Instead, you can still get your degree but you can do it free of the burden of student loans and with less pressure to jump into a job you hate just to pay back your student loans.
Instead, you can establish financial independence at a young age, while you can still enjoy it, travel the world and enjoy your youth. You can even work in a job you actually love, no matter what it pays, or even volunteer and not have to worry about making enough money to pay back student loans or making ends meet.
Scott Trench, the author of Set for Life, was a guest on the Old Dawg podcast where he shared exactly what he is doing to be set for life. To listen to the podcast interview, click here: 149: How to be Set for Life
This interview is packed with some great “how to” information that will give you an idea of what is required to be “set for life.”
I hope this helps answer your question or at least helps you get started.
Question #2 – 48 and Seeking First Real Estate Deal Deal
Hi Bill
Thank you for all the content. I really enjoy your podcasts. I am brand new and have not done a deal yet. 48 years of being comfortable got in the way. I have been a super in NYC for the past 14 years I have managed 1500 units in that time. I live onsite and love my job and make a very good salary. I don’t have enough capital to play in ny. Distressed properties are $400,000.
I wanted to start buying real estate and after hearing your podcast a couple of weeks ago with (james wise). I reached out to him. (He) never emailed me back – I thought it was strange. I want to start my portfolio do you recommend a turnkey company that will respond. Sorry for the long winded email. Thanks, Clinton
Answer to Question #2
Well, Clinton, it sounds like you are off to a great start. And, you already have a huge advantage – your extensive property management background will be a BIG plus as you pursue real estate investing – plus you have a good salary to start with. It is much easier, from a financing standpoint, to get started when you have strong W2 income.
First off, just a comment about guests. My apologies that our guest did not get back to you. I’m not really happy about the fact that he did not he back to you. Just because I have someone on as a guest does not imply that I endorse or recommend that guest. We try to screen and pick people that are legit, have good information for our listeners and are reliable but sometimes, unfortunately, that does not happen. I’m sure James is just busy but I think it’s important to get back to people who are interested in your services. My suggestion for you and any of our listeners is that you always carefully screen any guest you may hear on this or ANY podcast before doing business with that person. Check the Better Business Bureau, various online reviews and scam alert sites.
Anyway, on to your question: First, a few comments on real estate investing with turnkey companies.
If you’ve listened to this podcast for any amount of time, you may be aware of the fact that I am not a big fan of turnkey rental companies. I’m not implying that they are all bad but I just have a problem with the business model and my personal experience with three different turnkey companies that did not end well. Also, I get feedback from a lot of listeners who have had problems with turnkey companies.
And finally, a few comments on starting later in life…
48 is, by no means, too late to get started. As you may know, I started in my late 50s and I’ve had numerous other successful guests who have started later in life as well. I think there are definitely some advantages starting later, including:
- More life experience and maturity
- Usually, older people have set a few funds aside for the future
- And we are less likely to take big risks because we have worked hard for what we have and our time is limited
What’s important in starting with real estate investing later in life is that you know exactly what you want to do and how you want to do it! In other words, establish a strategic plan. In that plan, you will outline exactly what you plan to accomplish by a certain milestone dates. That way, you aren’t just spinning your wheels or chasing down multiple rabbit holes.
I also recommend that you listen to a recent podcast interview (episode #231) with a teacher from San Diego, Mike “Swanny” Swan, with a low salary, who started out at in real estate investing at 46 years of age. After many mistakes and some winning strategies, he now, at age 53 has amassed $7 million in rental properties and is earning an annual cash flowing income approaching $200,000. After you listen to the podcast, I’d recommend calling Swanny and speaking to him personally about how he set up his plan. I know he’ll get back to you. I’m also willing to chat with you too and share my plan, as well.
Either way, I think you’ll see how you can make it happen. It just takes determination, persistence and, of course, taking that first step!
Question #3 – Is US Population Decreasing?
Answer to Question #3
First off, when investing in real estate, you really need to look at the market from a local level. Find an emerging market (a city or small region of the country) and track their population (and job) growth. Follow the trends. If the region has had 5-10 years of consistent strong population growth, that could be a good area to invest. If all the other factors look good like jobs/economic growth, rental demand, rent rate increases, rising property values and other key indicators, then it’s worth digging deeper.
Regarding the data you are looking at regarding U.S. population, you’ll really need to understand projected population levels in the U.S., besides just the numbers pertaining to existing US residents/citizens. You must also factor in immigration. This is an often overlooked area.
Even though the average number of children per family in the U.S. for the last two decades in 2.4 children, the population of the US continues to grow exponentially today, driven by a high level of immigration. The latest data from the Census Bureau shows that US population growth is running at between 0.7% and 0.9% per year. A 2015 Census Bureau Report suggests that growth will slow somewhat, and projects a 2060 population of 417 million, with the country crossing the 400 million threshold in 2051.
However, more than 43.7 million immigrants resided in the United States in 2016, accounting for 13.5 percent of the total U.S. population of 323.1 million, according to American Community Survey (ACS) data. Immigrants and their U.S.-born children now number approximately 86.4 million people, or 27 percent of the overall U.S. population, according to the 2017 Current Population Survey (CPS). In 2016, about 49 percent of immigrants (21.2 million) were naturalized citizens. The remaining 22.5 million included lawful permanent residents, unauthorized immigrants, and legal residents on temporary visas (such as students and temporary workers).
Of the 21.2 million naturalized citizens, more than 25 percent were naturalized between 2010 and 2016, 32 percent between 2000 and 2009, and 44 percent prior to 2000.
In addition, you have to look at the average number of children per household. Some of the groups immigrating to the U.S. have more children per family than American averages of 2.4 children family. The U.S. average household is much smaller than some of the immigrant groups entering the U.S. both legally and illegally.
Once you factor in the high immigrant populations, you will see that the U.S. population is growing at a much more rapid pace than you would expect. Over a very short period of time, the ethnic mix and population levels will shift dramatically.
Therefore, all that to say, the demand for housing will only continue to increase significantly.
According to a Wall Street Journal article dated March 18, 2018, America is facing a new housing crisis. A decade after an epic construction binge, fewer homes are being built per household than at almost any time in U.S. history.
The demand is greater than the supply. Therefore, especially as home prices increase, the demand for rental properties will skyrocket in the near to distant future.
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