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SHOW NOTES FOR EPISODE 160: TRUE CONFESSIONS OF A REAL ESTATE INVESTOR
Real estate investors are generally an optimistic group of people. But are they always being transparent? Are they reluctant to share facts about real estate investing that are not so wonderful? In this revealing episode, Bill bares it all — the good, the bad and the ugly of real estate investing as he sees it.
Introduction
You’re probably wondering why in the world I would start with such a strange and funky title for today’s Fun Fact Friday podcast. Well, I have to say, this may not necessarily be the “funnest” Fun Fact Friday but it’s something that needs to be addressed anyway. In fact, what I’m to share today may even hurt a bit.
If you’ve been listening to this podcast for a while, I hope you know by now that it’s really important that I be completely honest and transparent with all of you. One reason… if not the MAIN reason I started this podcast, is to be a source of credible real estate investing information from someone who isn’t selling something, not looking for the “upsell opportunity” and isn’t afraid to tell to tell you something negative about real estate investing in the fear that you might not buy my programs, seminars or high-priced consulting service (which I don’t have).
First off, I will be the first to say, I don’t have all the answers. In fact, in many ways, I’m still a student – in the trenches, still learning the ropes in real estate investing. I just happen to be blessed with talking to some of the top real estate investing professionals on the planet on a weekly basis on my podcast. But on Fridays, I share with you my wins AND my losses in the hopes that I can prevent you from making a wrong move or mistake that might cost you. But I also understand that the mistakes are part of the package – part of the “school of hard knocks” — an educational process that we all must go through. Something we don’t like but, at the same time, we should embrace because these challenges as part of the learning curve — where we’re all learning how to do this real estate thing right!
Can we just get real here? I don’t ever want to mislead or misconvey what real estate investing is or is not… and that’s the real the reason I’m having this podcast today!
I value transparency in others and especially with other businesses I deal with on a day-to-day basis and I wouldn’t expect any less from this show. I’m just a regular guy, trying to make this thing work, just like you! What you see is what you get! Pimples and all! I’ll share the wins as well as the losses.
But before I get all “doom and gloom” on you, I will be the first to clearly say that, despite the challenges, I still think real estate investing is one of the best – if not the best – investment vehicle out there! And I have a long list of why I love this crazy world of buy ‘n hold, rental properties and cash flow!
The top reasons why I love real estate investing
- It’s the best option for retired folks:
- You can control your results
- Set your own hours
- Set your own salary
- It’s relatively easy to learn
- It’s a relatively safe investment. The market can go down but almost always rebounds, and unlike stocks, you own a tangible asset, the land.
- You already know the basics. If you’ve purchased your own home, you have a basic understanding of how real estate works.
- Upfront costs can be minimal. You can invest out-of-state, in your hometown, can leverage seller financing and outside investors.
- Income is steady. With a rental property, you get paid monthly from the start and on a regular basis. Plus, you benefit from tax advantages at tax time and equity when you sell.
- You can invest from home.You can set your own hours and work as much or as little as you want.
- That’s just to name a few…
But you must be realistic, too
- You are dealing with people and the more properties you have, the more people you are dealing with
- Property managers buffer that but the people don’t go away
So, what I would like to do is share with you a few of the realities or, as I might say here “True Confessions” of real estate investing that you need to be aware of going forward.
CONFESSION #1 – It’s not all a bed of roses, Baby
- I know, there are those of you out there that are saying, “What? But what about the Ferarris and bikini-clad supermodels in my driveway that are in the commercials.
- I hate when you see those guys with the driveway full of exotic cars and bikini-clad supermodels
- These guys aren’t real estate investors, they’re marketers – and they’re selling a lifestyle that selling their webs to investor wannabees
- Of course, how many people would buy their programs if that should a more “realistic” video of some guy in a bathroom, on the floor, hugging a toilet, clothes covered with (well, you know what) pulling tennis shoes and tampons out of a toilet saying, “Yep, I own this beautiful building… I’m a real estate tycoon!”
- I’m not saying either scenario is 100% accurate, however, some may be saying the second picture is truer than not!
CONFESSION #2 – The three key words in real estate are not location, location, location. They are patient, patient, patient.
- Things don’t happen overnight unless you have a BIG chunk of money that you can pay the high priced experts to make it happen NOW!
- Most of us need to work this thing
- You need to get your other investments in order, manage them well before you can leverage them to acquire more
CONFESSION #3 – Bad property managers can break you!
- If you have bad property managers, you need to lose them and find someone who cares about your investment and is willing to work with you as a partner
CONFESSION #4 – I work my butt off!
- Like I mentioned earlier, you control your hours so this one I can blame on no one but myself
- The reason I work my butt off is that I have a very high aggressive goal that I want to accomplish in a short period of time – 1,000 units by 2020!
- The reason I am working so hard right now is that I know I only have to do this until 2020
- After that, I “hope” to shift into “autopilot” (and that I will explain in future episodes).
CONFESSION #5 – Your plans don’t always turn out the way you would have hoped!
- Keep in mind, there are always variables that you can’t control
- I know, I just got through saying you can “control” your outcome but, there are factors you can’t control. Things like:
- Interest rates
- Natural disasters (floods, tornados, hurricanes, and earthquakes)
- The national and global economy
- Lawsuits
- To name a few
- But that’s also why you learn to have to develop plans B, C, D, etc.
CONFESSION #6 – Sometimes I have my “I hate my rentals” moments
- When something goes wrong that hurt the bottom line (evictions, vandalism, theft, etc.
- Tax Increases
- Competition
CONFESSION #7 – When the real freedom comes!
The real “Freedom” comes when you have enough properties and income that you can A) not feel it when a major repair happens, flood hits or they close the military base that supplies you with 50% of your tenants. Or B) you make enough money that you can hire others to deal with the headaches while you lie back on the beach in San Tropes on autopilot and let them deal with it! haha.
How to do that? Make your “freedom number” – the goal amount you need to live comfortably – be TWICE what you actually need. That way, if your goal is way over what you need to live, then, when you fall short (and you will) you may be disappointed but won’t have to suffer too much from it
CONFESSION #8 – The OD Principle
You’ve heard of the Peter Principle: What can go wrong will go wrong! Well, what do you call it when something goes wrong that you NEVER anticipated! (I call that the “OD Principle” – stands for Old Dawg not overdose). And it basically says, “Things can and will happen that you never expected.” We can do our best to strategically plan for all kinds of outcomes, but sometimes things will happen that were never part of your Plan B,C,D,E or F.
Case in point:
Bought these turn-key properties in Memphis when I was very green
- Got ‘em at a great price
- Neighborhoods were not that great
- Had trouble getting good tenants
- Went through three property managers
- My current PM is great
- We put section 8 tenants in all properties
“Section 8 is Great!”
- Payments like clockwork
- Tenants have to be good or they’re kicked out of the program they had to wait 3 years to get in
- Tenants required to take care of the property or penalized
- Great solution for “hard to rent” C, C-, D properties
“Section 8 definitely has its problems. But it’s Great Until… it’s not!
- I’ve had multiple section 8 tenants just walk out on their lease, trash the place, etc. – even though they have to wait 3 years to even qualify for the program!
- Each inspection costs. Sometimes in the thousands of dollars
- Or, how about this:
HCV ALERT!!!!!
The Housing Choice Voucher Program is funded through the federal government’s continuing resolution. As a result, there is a potential funding shortfall for the remainder of 2017-2018 operating cycle, which may cause a delay in the U.S Department of Housing and Urban Development (HUD) providing our Housing Choice Voucher funds.
What does that mean? We are not going to receive any rental income on those properties until this issue is resolved AND I can’t kick out the tenants as long as they are paying their share of the rent due!
Wow! That was not something I planned for!
CONFESSION #9 – REI really is the best investment
- The people I interview, especially the old timers, reaffirm the great value of real estate
- The complainers tend to be people who tried it, managed the properties themselves and came to hate it
- The trick is holding on the properties, not selling all the time. If you’re selling every 3-5 years, you’re just a flipper – you’re in a full-time job – it’s the long-term hold that reaps the big benefits
- Samuel Freshman’s quote…
Well, that’s my list of a few “Let’s Get Real” confessions for you. And there are and will be others along the way.
My point here is not to be negative but to NOT BE BLIND either going into this endeavor! There are and will continue to be challenges. But, you can mitigate these challenges by educating yourself, getting good advise, planning well listening to podcasts and networking others that share the good, the bad and the ugly!
Get a well experienced mentor who has been there and done that!
Network with other investors and learn from them!
Write and follow a strategic plan and review and revise it as necessary. And try to stick with it as best you can!
Yes, real estate investing has its challenges! But overall, I still feel it’s still the best option out there for me.
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