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Is Renting Really Just “Throwing Your Money Away”?

Fri, 24 Sep 2021 17:31:00 GMT

If you’ve ever bought a house — or explored the idea of it — you’ve probably heard the phrase, “rent is just throwing your money away.” In fact, there’s a good chance that either your real estate agent or loan officer was the one who said it.

It makes sense, from a distance: when you own a house, you have equity. It’s an investment . Renting, on the other hand, is just money in exchange for being able to live in a certain place for a certain period of time.

So with that in mind, shouldn’t you try to own a house as soon as you can afford to?

Not so fast, grasshopper.

For most people, at some point in their life, it does make sense to own a home.

But not necessarily from an investment point of view (though that’s part of it), but rather from an emotional point of view. Emotional and non-tangible things factor into real estate and homeownership far more than “experts” give them credit.

When considering buying a home, you need to do a bit of soul-searching and ask yourself “why.” If the answer is, “because I’ll miss out on a better deal if I don’t” then you need to do some reevaluating.

Here are several things to consider each time you hear the phrase “rent is just throwing your money away”:

What really matters is investing your money…not whether you rent or own.

The concept of “own, don’t rent” is a red herring.

People easily misunderstand it and think that owning a home is the best or perhaps even only type of investment they can or should make.

That is simply not true.

Think about it: the S&P 500 typically has a return rate of 10-11% per year. Compared to that, real estate is around 8%.

Even if we highball that estimate and put real estate at 10% a year (as is the case with a really good investment), remember that stocks are a liquid asset, unlike real estate. You can cash out your investment in the stock market at any time. With a house, it takes time to find a buyer and finalize the process.

“Okay, but I don’t plan to sell my house. I just don’t want to deal with inflation.”

That’s one good reason for owning a home, but again, you have to consider it in the context of all the other factors. For example…

Consider the hidden costs of housing.

Several years ago, my wife and I were going to live in a certain area of Florida, temporarily. We decided to buy instead of rent.

By the time we sold the house and moved, we did the calculations and realized our “investment” had been no different than if we had just decided to rent. In fact, it had been more of a hassle.

How?

By the time we factored in closing costs, paying our agent, taxes, and the interest we paid on the mortgage, we realized we had paid the same as if we had just rented.

Here are the costs to owning a home that many buyers overlook:

These expenses add up fast and can take the glamor out of homeownership quickly. For a house purchase to make sense, financially, you need to live there at least five years — ideally longer.

When you invest in the stock market you also need to hold onto your stocks for about that long to see stable returns…but at least with stocks, you can live your day-to-day life however you want. With a house, you are committing to live in the same place, in the same structure, for a relatively long period of time.

This leads to an important question you should ask yourself:

“ What are my reasons for buying?”

Buying a house is a very emotional process.

That’s not a bad thing. There are good emotional reasons and bad emotional reasons for buying a house.

Examples of good emotional reasons:

Examples of bad emotional reasons:

Have an honest conversation with yourself (and partner/family, if they are involved) and ask what the emotional factors driving you are.

What about logical factors?

As we explored earlier, buying a house can be a great investment if you are able to comfortably afford all the costs that come with it.

Should you buy a house if you can afford it? Maybe not if your dream life involves investing in the stock market and traveling around the world slowly. Owning a house is not a “one size fits all” lifestyle hack to happiness.

But if you can comfortably afford a house, plan to live there a while so you build equity, and have good emotional reasons for doing so then buying a house is the way to go.

Just remember to…

Be especially careful in today’s market.

Unless you find an opportunity that you can afford without stretching, that’s not overvalued, I would exercise caution right now with buying.

The current housing market is in a great deal of flux right now. While the market certainly never stays the same, this is an unprecedented time in many ways with many strange and unusual factors at play.

While I certainly don’t expect a “crash” like we saw back in 2008, I also don’t believe the current market growth is sustainable. A market in which people are actively competing with each other to buy property sight unseen, waiving inspection fees and bidding well over asking price is not “normal.”

If you find a truly great deal that you can afford during this time, by all means go for it. There’s never a bad time to buy if you find the right deal.

But if you are afraid of “missing out” on affording a house, if you are stretching to afford one, if you are hoping to find something before “all the good houses are gone” — not unlike the rush on toilet paper we saw at the beginning of the pandemic — then you are letting negative emotions drive your decisions. And that’s never a good thing.

In summary:

For most Americans, the “American Dream” includes owning a home. Owning a home, however, is not living the dream if you are house-rich and cash-poor.

Last I checked, the original American Dream was “life, liberty and pursuit of happiness.” You’re not going to feel very free or very happy being stuck with a home you’re struggling to afford or no longer enjoy.

However, you will be quite happy if you love your home, plan to live in it for a while, and can comfortably afford the monthly mortgage.

Ask yourself these questions and it’ll be much harder for you to go astray:

And finally, remember:

5 Books to Help You Get Started with Investing

Fri, 10 Sep 2021 18:34:00 GMT

No matter how long you’ve studied and practiced making good investments, it’s a good idea to keep reading new books to expand your knowledge base.

While the books I reference in this article are specifically aimed at newcomers to investing, just about anyone can benefit from reading them – especially if it’s your first time doing so.

A short explanation first:

These books I’m sharing aren’t about real estate per se . They cover the fundamentals of understanding and managing finances, managing your time and other resources, adjusting your mindset about money and making sound investments to grow wealth.

Before you delve into the specifics of the real estate world it’s necessary that you have a grasp on the broader principles of money and investment. I didn’t know much about real estate when I got started, but luckily, I read and listened to some wise financial authorities and that equipped me with the principles of how to make good investments.

Going forward, it was much easier for me to understand how to make good real estate investment decisions. In other words: start with the basics, and then the specifics will be much easier to master.

Here are 5 of the most formative and helpful books I read in my earlier years as a real estate investor. Though some of them have been around a while, they are full of timeless wisdom and practical knowledge.

1. Financial Fundamentals , by Larry Burkett

Before there was Dave Ramsey, there was Larry Burkett. Burkett was a big influencer during the 80’s and 90’s; while his books are usually flavored with a Christian perspective, they teach common sense concepts that everyone can benefit from.

From Burkett I learned the basics of budgeting and money managing – two concepts that you really need to learn before moving onto anything else.

2. The Millionaire Next Door, by Thomas J. Stanley and William D. Danko

This one was a huge mindset-changer for me.

This book teaches you the difference between how society presents millionaires, and what millionaires actually look like. The reality is surprisingly different. From this book I learned what sort of mentality I needed to cultivate if I wanted to become a millionaire.

Spoiler alert: millionaires usually don’t drive fancy cars and spend their money on “stuff”. The guy you see driving an old pick-up is just as likely (if not more) to be a millionaire than the guy driving a brand-new Mercedes.

3. Rich Dad, Poor Dad, by Robert Kiyosaki

This is another mindset-changing book. One of Kiyosaki’s core principles is understanding the difference between an asset and a liability – between things that add value and things that lose value.

It helped me understand what types of things I should be spending money on if I wanted wealth in the long-term.

4. EntreLeadership, by Dave Ramsey

This is a great read for understanding general business principles in addition to how to be a great leader. In particular, it taught me the importance of social skills and relationships.

After over twenty years in the real estate world, I know from experience how crucial people skills are. It’s also been my experience that people who go into investing (including real estate investing) don’t realize just how important the social aspect of a business is. For that reason alone, this book is worth reading.

5. The E-Myth, by Michael Gerber

The big “ah-hah” moment with this book for me was understanding how to leverage processes and procedures, and time (both your own and other people’s) in order to scale your business. Growing a business requires a lot of moving parts, so the key is to do it as efficiently as possible. This book shows you how to do that.

Honorable Mentions

There are a number of other great reads out there that are worth pursuing. These books will continue to deepen your understanding of sound investing and more broadly, a mindset of discipline and success:

Think and Grow Rich, by Napoleon Hill

The Richest Man in Babylon, by George S Clason

The Seven Habits of Highly Effective People, Stephen Covey

Money: Master the Game , by Tony Robbins

In addition to these resources, I highly recommend reading books and content from Robert G Allen, a big-time financial and investment influencer. Start with his website, www.robertallen.com

The Moratorium on Evictions: What You Can Do as a Landlord

Fri, 27 Aug 2021 21:43:00 GMT

Since the nationwide moratorium on evictions was established last year, things have been topsy-turvy for a lot of landlords — especially ones who rely on their rental income to support themselves.

Recently the Supreme Court struck down extending the moratorium, but certain states continue to have their own ban on evictions. It’s definitely a frustrating time to be a landlord, especially if you have not yet been able to receive federal aid, but you have a few options.

Do your research

Real estate is local — that includes laws about evictions and rental property. Certain states are more “tenant-friendly,” while other states are more “landlord-friendly.” When searching the Internet for information, keep your searches focused on your state.

Here is a handy link that serves as a quick reference for what the moratorium situation is, state by state: https://www.nolo.com/evictions-ban

Get help from an attorney

Because laws surrounding eviction can be complicated, especially in these unprecedented times, it’s a good idea to get the help of an attorney. This is especially true if you are currently dealing with unpaid rent and/or difficult tenant behavior as a result of the moratorium (some tenants, unfortunately, have taken advantage of the fact they can’t be evicted for failure to pay rent).

If your tenant has violated your lease in respects other than failing to pay rent and is uncooperative, there may still be a legal road to eviction. In this worst-case scenario, an attorney can help you navigate the details.

Look into your local apartment owner’s association, or real estate investment groups

These organizations will have the most relevant and up-to-date resources for you and will help you to know what your options are. Being part of an organization also means feeling supported, and less isolated.

Don’t go to an eviction court without an attorney

In normal times the eviction process, in most places, is fairly straightforward and doesn’t require the help of an attorney while in court.

Since these are not normal times, the wisest thing to do if you are able to/wish to process an eviction is to be sure you have an attorney with you when you go to court. The additional expense is worth mitigating the potential headache you could face.

Look into non-profit rental assistance programs for your tenants

In an ideal situation, your tenant is able to stay while you are still able to receive compensation for rent. This arrangement benefits both parties and provides the most peace of mind.

Unfortunately, the recent federal aid that’s been intended to help with rental assistance has been slow to roll out, and the process has been both bureaucratic and complicated. In the meantime, it may make sense to instead look into smaller, non-profit programs to help your tenants qualify for rental assistance.

Not every tenant will be motivated or able to qualify, but ideally most will — especially with a bit of initial guidance on your end. Good communication and trust are vital between landlord and tenant, and this includes giving resources to your tenant wherever possible.

Starting looking for opportunities by searching your zip code here: https://www.rentassistance.us/ .

Conclusion

No one foresaw the COVID-19 pandemic, nor the rippling economic consequences. Part of being a real estate investor includes the risk that events such as this may occur.

It also involves being prepared and taking advantage of any available resources. With any luck, the tide will turn before too long and you will be able to continue maintaining your real estate investments.

Since the nationwide moratorium on evictions was established last year, things have been topsy-turvy for a lot of landlords — especially ones who rely on their rental income to support themselves.

Recently the Supreme Court struck down extending the moratorium, but certain states continue to have their own ban on evictions. It’s definitely a frustrating time to be a landlord, especially if you have not yet been able to receive federal aid, but you have a few options.

Real estate is local — that includes laws about evictions and rental property. Certain states are more “tenant-friendly,” while other states are more “landlord-friendly.” When searching the Internet for information, keep your searches focused on your state.

Here is a handy link that serves as a quick reference for what the moratorium situation is, state by state: https://www.nolo.com/evictions-ban

Because laws surrounding eviction can be complicated, especially in these unprecedented times, it’s a good idea to get the help of an attorney. This is especially true if you are currently dealing with unpaid rent and/or difficult tenant behavior as a result of the moratorium (some tenants, unfortunately, have taken advantage of the fact they can’t be evicted for failure to pay rent).

If your tenant has violated your lease in respects other than failing to pay rent and is uncooperative, there may still be a legal road to eviction. In this worst-case scenario, an attorney can help you navigate the details.

These organizations will have the most relevant and up-to-date resources for you and will help you to know what your options are. Being part of an organization also means feeling supported, and less isolated.

In normal times the eviction process, in most places, is fairly straightforward and doesn’t require the help of an attorney while in court.

Since these are not normal times, the wisest thing to do if you are able to/wish to process an eviction is to be sure you have an attorney with you when you go to court. The additional expense is worth mitigating the potential headache you could face.

In an ideal situation, your tenant is able to stay while you are still able to receive compensation for rent. This arrangement benefits both parties and provides the most peace of mind.

Unfortunately, the recent federal aid that’s been intended to help with rental assistance has been slow to roll out, and the process has been both bureaucratic and complicated. In the meantime, it may make sense to instead look into smaller, non-profit programs to help your tenants qualify for rental assistance.

Not every tenant will be motivated or able to qualify, but ideally most will — especially with a bit of initial guidance on your end. Good communication and trust are vital between landlord and tenant, and this includes giving resources to your tenant wherever possible.

Starting looking for opportunities by searching your zip code here: https://www.rentassistance.us/ .

Conclusion

No one foresaw the COVID-19 pandemic, nor the rippling economic consequences. Part of being a real estate investor includes the risk that events such as this may occur.

It also involves being prepared and taking advantage of any available resources. With any luck, the tide will turn before too long and you will be able to continue maintaining your real estate investments.

How to Choose Good Tenants

Fri, 13 Aug 2021 23:15:00 GMT

Real estate is a people business.

As long as you are buying, selling or renting properties you will continually meet and interface with a wide variety of people, from bankers and attorneys to realtors — to tenants.

The last one is for many people, the trickiest category to deal with. A well-behaved and responsible tenant makes your real estate life fairly easy, but what about those nightmare stories you’ve heard about tenants who fail to pay their rent and trash the place when they’re done?

First of all, remember, there is no reward without risk. Furthermore, greater rewards come with greater risks. This is true for any type of investment.

One of the risks of real estate investment is accepting a tenant who just might fail to uphold the terms of the lease, whether it be failure to pay rent or violating certain rules. This is never a fun situation but once you acknowledge that the occasional difficult tenant is part of the package it’s easier to take it in stride.

Still, there’s a number of things you can do to carefully vet the people who reside on your property. These measures break down into roughly two categories:

Objective criteria (personal minimums)

More subjective indicators (behavior, impression)

Objective Criteria

In flight school there is a term pilots use, “personal minimums.” This refers to a bare minimum set of conditions the pilot needs in order to operate the aircraft safely.

I’ve found this principle also works beautifully when it comes to renting real estate. For both your and your future tenant’s sake, it’s important to establish a set of personal minimums upfront.

Just as you wouldn’t want a pilot who had too few hours in training to operate a commercial flight, you wouldn’t want a tenant to rent from you if their monthly paycheck is too low compared to the rent you charge. In either case you and the other people involved are taking very unnecessary risks.

A few logical criteria will go a long way in making sure you and a prospective tenant are the right match. Here are some examples of personal minimums to have:

Credit scores

Credit scores aren’t everything, but they are usually a pretty good indicator of whether a tenant is responsible with money (and honoring their obligations). If their credit score is not the greatest there may be a valid reason, but be willing to dig deeper and find out why.

Income

A tenant can’t pay rent if their income is insufficient. Make sure that their monthly income is at least 2x but ideally 3x the amount of the rent they will owe each month. This piece of criteria accounts for the other expenses in their lives, including unexpected ones.

Security Deposits

Requiring a certain amount of money that is not refundable until the tenant reaches the end of their lease agreement helps ensure that the tenant is responsible and forward-thinking.

This amount shouldn’t be so high that it discourages honest prospective tenants, but it should be enough of a requirement for them to commit to the lease terms. In the case they still fail to uphold the terms of the lease, the security deposit amount will help to offset your loss.

Recommendation From Former Landlord

Social proof is a powerful thing. A prospective tenant who hesitates to give you the contact information of their former residences is usually a red flag. Be sure to ask for addresses and phone numbers and make contact with a prospective tenant’s former property manager, landlord or employer.

Keep in mind that these personal minimums, while very helpful, are not a guarantee. And while nothing is a guarantee, you can minimize your risk by paying attention to any signs the prospective tenant may be giving off during the interview process.

More Subjective Indicators

Your personal interactions with prospective tenants offer you a wealth of clues about their character and modus operandi . These indicators are more subjective, but should be taken into account along with everything else. Body language, attitude and other behavior are important factors when getting to know a person.

Was the tenant on time for their interview with you? If they needed to reschedule, did they let you know sufficiently in advance? Did they do everything they promised to, such as returning your calls and filling out the necessary paperwork?

Behaviors like these from a prospective tenant can give you a taste of what it might be like to have them as an actual tenant.

Pay attention to what they tell you about themselves. Does the story they tell you add up? Are they straightforward and easy-going or do they act cagey when you ask them questions?

A pattern I’ve noticed over the years is that many less-reliable tenants are often overly eager to move into a new place. This is because they have burned their bridges and need to find another option as soon as possible. A good tenant should be excited to move in, but not in a rush.

On the other hand, it could also be a red flag if the prospective tenant acts blase or lackadaisical about moving in. Signing a rent agreement is a big commitment, time-wise and money-wise, for all involved. For this reason you don’t want anyone moving in who does not treat the process with the consideration it requires.

Each person and each encounter will differ in some unique way, so ultimately it’s up to you to listen to your gut and decide whether you and the prospective tenant will be a good match.

Final Thoughts

After doing your best to choose the right tenant, always be prepared for the unexpected. People are idiosyncratic and unique. You may have a few weird experiences, but they will offer valuable lessons and in many cases storytelling fodder later on down the road.

Remember that your tenant, once you have drawn up a lease with them, is in a sense your partner. You have an agreement that goes both ways, and any serious drama that comes into their life could well end up affecting you.

For this reason, it’s best to never lower your standards — your personal minimums. The risk just isn’t worth it.

At the same time, be sure to treat everyone you come across with grace and respect, and be sure to be a good communicator as well. As you do so you will be more likely to attract and keep the kind of tenants you want, creating a win-win situation for both parties.

Real estate is a people business.

As long as you are buying, selling or renting properties you will continually meet and interface with a wide variety of people, from bankers and attorneys to realtors — to tenants.

The last one is for many people, the trickiest category to deal with. A well-behaved and responsible tenant makes your real estate life fairly easy, but what about those nightmare stories you’ve heard about tenants who fail to pay their rent and trash the place when they’re done?

First of all, remember, there is no reward without risk. Furthermore, greater rewards come with greater risks. This is true for any type of investment.

One of the risks of real estate investment is accepting a tenant who just might fail to uphold the terms of the lease, whether it be failure to pay rent or violating certain rules. This is never a fun situation but once you acknowledge that the occasional difficult tenant is part of the package it’s easier to take it in stride.

Still, there’s a number of things you can do to carefully vet the people who reside on your property. These measures break down into roughly two categories:

Objective Criteria

In flight school there is a term pilots use, “personal minimums.” This refers to a bare minimum set of conditions the pilot needs in order to operate the aircraft safely.

I’ve found this principle also works beautifully when it comes to renting real estate. For both your and your future tenant’s sake, it’s important to establish a set of personal minimums upfront.

Just as you wouldn’t want a pilot who had too few hours in training to operate a commercial flight, you wouldn’t want a tenant to rent from you if their monthly paycheck is too low compared to the rent you charge. In either case you and the other people involved are taking very unnecessary risks.

A few logical criteria will go a long way in making sure you and a prospective tenant are the right match. Here are some examples of personal minimums to have:

Credit scores

Credit scores aren’t everything, but they are usually a pretty good indicator of whether a tenant is responsible with money (and honoring their obligations). If their credit score is not the greatest there may be a valid reason, but be willing to dig deeper and find out why.

Income

A tenant can’t pay rent if their income is insufficient. Make sure that their monthly income is at least 2x but ideally 3x the amount of the rent they will owe each month. This piece of criteria accounts for the other expenses in their lives, including unexpected ones.

Security Deposits

Requiring a certain amount of money that is not refundable until the tenant reaches the end of their lease agreement helps ensure that the tenant is responsible and forward-thinking.

This amount shouldn’t be so high that it discourages honest prospective tenants, but it should be enough of a requirement for them to commit to the lease terms. In the case they still fail to uphold the terms of the lease, the security deposit amount will help to offset your loss.

Recommendation From Former Landlord

Social proof is a powerful thing. A prospective tenant who hesitates to give you the contact information of their former residences is usually a red flag. Be sure to ask for addresses and phone numbers and make contact with a prospective tenant’s former property manager, landlord or employer.

Keep in mind that these personal minimums, while very helpful, are not a guarantee. And while nothing is a guarantee, you can minimize your risk by paying attention to any signs the prospective tenant may be giving off during the interview process.

More Subjective Indicators

Your personal interactions with prospective tenants offer you a wealth of clues about their character and modus operandi . These indicators are more subjective, but should be taken into account along with everything else. Body language, attitude and other behavior are important factors when getting to know a person.

Was the tenant on time for their interview with you? If they needed to reschedule, did they let you know sufficiently in advance? Did they do everything they promised to, such as returning your calls and filling out the necessary paperwork?

Behaviors like these from a prospective tenant can give you a taste of what it might be like to have them as an actual tenant.

Pay attention to what they tell you about themselves. Does the story they tell you add up? Are they straightforward and easy-going or do they act cagey when you ask them questions?

A pattern I’ve noticed over the years is that many less-reliable tenants are often overly eager to move into a new place. This is because they have burned their bridges and need to find another option as soon as possible. A good tenant should be excited to move in, but not in a rush.

On the other hand, it could also be a red flag if the prospective tenant acts blase or lackadaisical about moving in. Signing a rent agreement is a big commitment, time-wise and money-wise, for all involved. For this reason you don’t want anyone moving in who does not treat the process with the consideration it requires.

Each person and each encounter will differ in some unique way, so ultimately it’s up to you to listen to your gut and decide whether you and the prospective tenant will be a good match.

Final Thoughts

After doing your best to choose the right tenant, always be prepared for the unexpected. People are idiosyncratic and unique. You may have a few weird experiences, but they will offer valuable lessons and in many cases storytelling fodder later on down the road.

Remember that your tenant, once you have drawn up a lease with them, is in a sense your partner. You have an agreement that goes both ways, and any serious drama that comes into their life could well end up affecting you.

For this reason, it’s best to never lower your standards — your personal minimums. The risk just isn’t worth it.

At the same time, be sure to treat everyone you come across with grace and respect, and be sure to be a good communicator as well. As you do so you will be more likely to attract and keep the kind of tenants you want, creating a win-win situation for both parties.

How to Deal with Evictions (and Avoid Them in the First Place)

Fri, 30 Jul 2021 15:19:00 GMT

If you are a real estate investor, the odds are that you’ll be renting to tenants at some point.

And if you’re renting to tenants, at some point you will need to file an eviction. It’s not a matter of if — it’s a matter of when.

Every opportunity comes with its downsides. For real estate investors, dealing with evictions is an unfortunate reality. But , there are things you can do to make them less painful (for both you and the tenant) as well as things you can do to avoid them from happening in the first place.

The eviction process has evolved over time to be a civil way of resolving uncorrected tenant violations. It’s a process that allows time for the tenant to either appeal or correct their violation. There’s no need for you to get “tough” and “take things into your own hands.”

In fact, one of the nice things about living in a society that upholds laws is that you are technically not the one who’s making the final decision — it’s the legal system that does.

A simple, “I’m sorry, but it’s important that we follow the due process of the law” is going to be far more effective when explaining things to your tenant than a shouting lecture. In fact, a tenant is far more likely to correct his or her error if you are pleasant and respectful rather than angry. Even in the event that you do have to have to evict a tenant, you’ll feel better throughout the process if you keep a positive attitude as much as possible.

Remember also that eviction laws vary by region. Be aware of what those laws are and never overstep them.

In many cases, I’ve been able to avoid the eviction process altogether by coming to terms with the tenant first.

One time I had a couple of young guys renting an apartment unit who I (and the police) discovered had been involved with some illegal matters. After the charges were pressed I sat down with them and asked if I could help them find a better place to live. They quickly agreed to move out as soon as possible.

In cases like these, you can have an “opt-out” agreement prepared that they can sign, relieving them of their obligations in return for leaving by a certain date (the sooner, the better). This way there is “no harm, no foul” and neither of you has to go through the drawn-out legal process.

There’s only so much you can do about a tenant you’ve already let in who you have to evict — but when it comes to avoiding that problem, there’s a lot you can do upfront.

I always recommend finding a good attorney to help you write up a lease. Think carefully about everything you want to go into the lease, and be sure that any new tenant understands and has read it thoroughly before signing. A well-written lease will make the eviction process easier later on since you will have it as a continual reference.

You may ask: do I need an attorney with every eviction proceeding? Not necessarily — it depends again on state/local laws. It’s always a good idea to have one in your contacts list, though, depending on what situations you may find yourself in at some point in time.

Prospective tenants may be annoyed by the need for credit checks and proof of income/employment, but there’s a vital reason you need these criteria when you select a tenant.

A proof of income is not a 100% guarantee your tenant will pay the rent every time, but it’s the one of the most accurate metrics you can use. I recommend requiring that tenants earn 3x (monthly) the amount of the rent — this leaves a cushion for them with other expenses, including the unexpected.

Credit checks are not solid proof of responsibility, either, but they are still a good indicator. If your tenant has had a dip in their credit, be sure to find out the reason. Make sure they are doing their best to build their credit back up.

Finally, a list of references is always good to have. Being able to talk to an employer or former landlord should help you get a real feel for the level of responsibility in your prospective tenant.

What about “second chances”…?

“Everyone deserves a second chance” is a refrain we’ve all heard many times. You may wonder how this applies to evicting a tenant. Should you decide to give some tenants a second chance, based on their situation and your “gut feel”?

The problem with this approach is that it quickly becomes inconsistent. How do you know for sure that this person over here deserves another chance, while the other person over there does not?

The legal process of eviction usually has second chances built right into it. Typically tenants have at least a month and sometimes multiple months from the time you file for eviction until the time the law enforcement comes to escort them away. During this time, the tenant has the continual opportunity, at any point, to correct their violation.

Evictions are not a fun topic, and these days they can be downright controversial. However, remember that they are a part of the legal system, and at least in theory the laws are designed to be fair to both tenant and owner. They are a “last resort” after doing everything you can do on your part to remind, warn and implore your tenant.

Finally, having a good vetting system in place ensures that you will have to do far fewer evictions. Hold to your standards, and both your and your tenants will be happier for it.

Bubble or “New Norm”? Some Thoughts on the (Near) Future Real Estate Market

Fri, 23 Jul 2021 23:40:00 GMT

Start typing in the Google search bar “Is the real estate market in a bubble right now?” and you’ll quickly see that thousands of other people are asking the same question.

No one knows what will happen, but it’s human nature to keep hoping for an answer.

And since no one has an answer, the next best thing is a well-educated guess.

And the best-educated guesses about the real estate market are the most open-ended ones.

In other words: it depends. It depends on several things, actually.

Before I go into what those things are, I think it’s important to mention that the real estate market is still in a state of flux right now . Come back in a month and I might have a different response.

There are several drivers behind the sky-high demand in the current market. These include low interest rates, immigration patterns, demographics, supply chains, and inventory.

For each of these, there is more than one possible scenario.

This is probably the most obvious driver. Plenty of prospective homeowners feel that now is the time to buy since interest rates have hit record lows.

If interest rates continue to stay low, we will most likely see continued demand for homes — leading to prices remaining high.

However, inflation tends to be the consequence of policies and other artificial measures to keep interest rates low. If inflation becomes more serious, interest rates will inevitably rise, leading to a cooling off of the market.

Also consider that even if interest rates remain low, at some point real estate prices will hit some kind of ceiling. The higher prices go, the fewer buyers there will be out there who can afford those prices, even at an “affordable” interest rate.

2. Immigration Patterns

This is one of the most interesting factors at play with today’s real estate market.

The pandemic of 2020 launched what was essentially a nationwide game of musical chairs: people from cities (and suburbs) left their homes to move to the suburbs and even rural areas. Many of these people moved out of state. The novelty of being a homeowner and living somewhere else, thanks to being able to work from home, became a huge motivator.

The question is, will these recent immigration patterns remain fixed? Now that the pandemic is mainly on the retreat in this country, employers are starting to require their employees to spend more time at work in person.

People will continue moving to hotspots like Florida and Texas for the time being, but it’s also very possible that there will be a tapering off of immigration overall, once the FOMO and novelty of living elsewhere/working from home begin to wear off.

We won’t know for sure either way how the game will end until the music stops.

3. Demographics

Millennials took a lot of heat for a number of years for being okay with living in their parents’ basements.

Now it appears that many Millennials are ready to start forming their own households and clearly, they are doing so. They are a key demographic in the current demand for homes.

Whether enough of them will find homes for the time being (or content themselves with waiting) will be a factor, most likely, in where home prices are at.

An exacerbating factor, arguably, are Baby Boomers who are not ready or willing to sell their homes yet. Traditionally the older generations begin to move on to retirement homes to make room for the younger. But as long as Boomers continue to prefer living in their houses we may see a continued housing shortage, leading to continued demand.

4. Supply Chains

This is one that I see being rectified over the next year or so. Because the pandemic came on so suddenly (not to mention unexpectedly), suppliers (lumber, appliances, etc.) were simply not able to keep up with demand.

Of course, there have been some complicating factors: a shortage of employees in blue-collar industries has made it harder for manufacturers to step up their output, for one thing.

It may take longer or shorter for supply chains to catch up with demand, but unless something untoward happens, I see this as happening at some point before too long.

5. Inventory

At the end of this month, the federal moratorium on evictions will be lifted. While a few states will continue to use state-wide measures to prolong the moratorium, we should see a number of property evictions happening at the beginning of next month.

As a result, property owners who are tired of being landlords will be ready to sell.

The main question here is: how many properties will return to the market when this happens? Will it be a flood or more of a trickle?

Besides the moratorium, there are a few other ways that inventory could increase. People who were previously too nervous about putting their homes on the market due to the pandemic and uncertainty of the times may now feel more emboldened.

Some older folks may also be ready to make the jump to a retirement community now that they don’t have to worry about “lockdown” and not being able to leave — although as I said earlier, more and more people seem to be choosing to stay put, even as they age. Mortality and health ultimately will decide where they (and their homes) go, and it’s still too early to tell.

Bottom Line

All of these drivers are currently influencing the real estate market. There is also no question that things will continue to change: there will be evictions after moratoriums are lifted, interest rates will fluctuate, and so on.

The real question is, which of these things will be the main driver for determining the near-future real estate market? I don’t necessarily think we’re in a bubble, but things never stay static either.

Which of these drivers do you think is the biggest?

And are there any other important drivers I may have overlooked? Let me know in the comments below!

Commercial Vs. Residential Real Estate: What Are the Big Differences?

Fri, 16 Jul 2021 21:08:00 GMT

I was recently talking to a friend who said this about commercial real estate:

“It’s not that different from residential. It’s just more numbers and zeroes.”

For the most part, I agree. Both commercial and residential are similar when it comes to the fundamentals. Both involve careful cost-benefit benefit analyses. Both involve tenants, taxes and leveraging debt.

There are some big differences, though, as well.

Just like with most things out there, both have their pros and cons. (I love and invest in both residential and commercial, for the record).

Here’s a quick preview of some of the key differences:

Lease structure

Valuation (price and ROI)

Transaction process

Sophistication/level of education required

Before diving into the differences, though, some quick semantics first:

“Residential” properties are recognizable to almost all of us in the forms of houses and other buildings people dwell in.

“Commercial”, on the other hand, takes a wide variety of forms — anywhere from business offices to restaurants to shopping complexes to storage units.

On a technical level, a residential building (like an apartment complex) can be considered a “commercial” property from the perspective of a lender when it comes to certain finer points.

But to keep things simple, in this article when I use the word “commercial” I’ll be referring to properties with business operations.

#1 Lease Structure

When you are renting out a house or apartment unit to a tenant, the lease tends to be year-to-year; maybe a little longer, maybe a little shorter.

Commercial real estate, on the other hand, usually involves longer leases — upwards of ten or even fifteen tears. The upside of this is pretty obvious. It’s great to have a tenant who most likely won’t be going anywhere anytime soon.

The downside is, when you eventually do lose a tenant, the space can be harder to fill. Side note: for this reason, if you invest in commercial real estate it is especially important to have a strong network.

In residential real estate leases, the owner is generally responsible for maintenance and care of the building. When it comes to commercial real estate, this typically isn’t the case — instead, the business owner is responsible for maintenance in addition to paying rent.

This is certainly a positive aspect of commercial real estate for investors who can afford it. Something to keep in mind, though, is that the process of structuring the lease may be more complex and even require the help of an attorney.

#2 Valuation

This is one of the most important differences between residential and commercial real estate.

With residential real estate, you are comparing properties to each other to get a feel for what a “good deal” is. When you buy a property, you’re often hoping to increase its value within a short time frame (anywhere from weeks to a few years).

On the other hand, commercial real estate values tend to be more stable and fluctuate less. When you buy a commercial property, you aren’t focused on “profit” so much as you are “return on investment.” Each commercial property has a different value based on its individual qualities, with a certain % of return you can expect if you decide to purchase it.

In other words, it’s a more stable and fixed investment. You’re not likely to suddenly see an increase in your property’s value but you’re also not likely to see a sudden drop.

#3 Transaction

When you’re buying a residential property like a single family home, there’s a good chance that at some point you will be dealing with either an end-use buyer or seller. These people see the transaction as more than just money changing hands — it’s an emotional process for them involving a home, with values that aren’t always as tangible.

With commercial real estate the mood of the transaction process is different — generally speaking, it’s “all business.” Humans are emotional, of course, so that doesn’t mean that commercial real estate transactions are robotic and flawless, but there definitely is a different dynamic at play.

#4 Education

By now it’s pretty clear that commercial real estate is more complex than residential. There is more paperwork involved and there is more jargon involved.

If you already have experience buying or selling residential real estate — even if it’s just your own home — that’s great. That’s a good start to your education. In order to have a good handle on investing in commercial real estate you will need to further your education. A great way to do this is to find a mentor: someone who has successfully invested in commercial real estate and is willing to spend a little of their time with you explaining what they know and answering questions.

In summary:

To this I will add:

Most people, for obvious reasons, start out in residential real estate and work their way “up” to commercial real estate. The buying and selling process for a single-family home is more familiar (and usually more affordable) to most of us than the process of buying and selling a business complex. It makes sense to start smaller and to start with what you know.

Some people choose to only focus on one or the other. I love and invest in both, and there’s no reason you can’t too. In fact, investing in both is a great balance. The key with commercial real estate is furthering your education to get your foot in the door.

Should I Buy or Wait? A Closer Look at the “Post”-Pandemic Market

Fri, 09 Jul 2021 04:41:00 GMT

If there’s one thing that most people — investors and non-investors alike — agree on, it’s that no one saw the pandemic of 2020 coming.

Since then, we’ve seen a lot of ups and downs in the world…in the real estate market, though, it’s been mostly “up.” This is good news for those who simply want to sell. It’s a bit trickier if you’re an investor.

The million-dollar question everyone is Googling right now is: “What’s going to happen to the real estate market?”

Tied to that is the question of: “Should I buy now or wait?”

Unfortunately, I do not happen to own a Magic 8-Ball (if that changes, though, I will be sure to let you know). What I am able to offer you are some possible scenarios, tied to several key factors.

These key factors are:

Interest rates

Forbearance/foreclosures of mortgages and homes

Supply and prices of lumber and other goods

Comfort level of sellers

Note: these are not the only factors involved — just the ones that I find are the most relevant. The topic of the pandemic and how it has affected the economy is obviously both broad and disputed.

Let’s take a look at each of these and see what the possible scenarios are. In some scenarios, buying now may be a better choice, while the smarter idea may be to wait in other scenarios.

It’s hard to say for sure which scenario is more likely, but knowing what the possibilities are will help you to look for the signs and be ready to make a move either way.

Interest rates

This has been one of the biggest drivers for rising demand in the real estate market. Who wouldn’t want to lock in a 15 or 30-year-loan at less than 3%?

If rates continue to stay low for a good while, there isn’t necessarily a reason to rush. On the other hand, if inflation continues to grow, we might see rates go back up before too long.

Does that mean you should try to “lock in” a loan with a low interest rate now, before it’s “too late”?

If you’re talking about a fixed-rate mortgage and you are able to find something within your price range, that may indeed be a good move. The trickiest part here is finding something within your price range, especially since the continual demand for properties has driven prices upwards to the point that a property in today’s market with a lower interest rate does not always mean a better “deal.”

Also, if you go with an adjustable-rate loan there is always the risk of being hurt by rising interest rates later. So while lower interest rates are a good thing in and of themselves, a good deal of homework should still be involved with any acquisition you make.

Forbearance/foreclosures of mortgages and homes

When COVID hit, many homeowners were given forbearance to pay their mortgage to prevent mass foreclosures from happening and causing another recession.

Some of the thinking with this was: once the economy “reopens”, people will be able to go back to paying their mortgages.

Will that be the case once the moratoriums are lifted nationwide in a couple of months from now, or will homeowners still be empty-handed and forced to foreclose? Certainly, there will be cases of both, but which situation will be the majority?

If the latter, then we can expect to see a sudden influx of homes on the market when that happens. However, depending on how high demand continues to stay (or even rise), we may not necessarily see much of a drop in home prices. (Also, it will depend on where those interest rates are at).

Supply and prices of lumber and other goods

The sky-high price of lumber was one of the most bizarre consequences of the pandemic, and yet in hindsight, it does make sense.

Homeowners with time and stimulus money on their hands decided to do home improvement projects — including expansion. Meanwhile, demand for houses also meant a demand for the materials for building houses.

Part of what was so crazy was just how high the lumber prices went.

A similar situation is happening with other materials and appliances needed for construction. Builders are struggling to finish their projects on time, and the delays are adding to the problem of low inventory.

Surely these shortages have to end sometime, right? Of course, but as always, the question is when .

My best guess is that we’ll see things settle quite a bit within the next twelve months or so as suppliers get a better handle on stocking items and adjusting to demand, while demand itself may drop a bit during the cooler months when construction is more difficult in the colder parts of the country.

Comfort level of sellers

During the peak of the pandemic and ever since then, many sellers have been hesitant to put their homes on the market. Part of this is due to fear they won’t be able to find an affordable deal somewhere else, but part of it is also fear related to COVID — specifically, engaging in social interactions with buyers and other people involved in the selling process.

Keep in mind, too, that plenty of older people who may have planned to move into a retirement community also put those plans on hold once the pandemic hit.

Now that things are continuing to revert back to normal there’s a likelihood that at least some of these individuals will be ready to downsize or otherwise move on and sell their homes, adding to the supply.

One More Consideration …

One other thing I should add:

Each geographical location has its own “micro-economy.” The housing market in Detroit right now is different from the one in Austin, to take an obvious example.

Whether it makes more sense to buy or wait depends on location as well as the other things we’ve mentioned.

While real estate value goes up over time, generally speaking, there are some locations where that is far truer than in others. Even though the current housing market situation we are witnessing applies to the country, generally speaking, you still need to do your homework when it comes to geographic considerations.

In particular, take stock of the economy of the area you are looking to buy in. Has there been a lot of recent growth? Is further growth sustainable? Are more people coming into the area than leaving? These are all helpful indicators.

Conclusion

All of the factors I’ve mentioned will happen in some form, sooner or later. The big unknown here is when, and to what extent.

Will interest rates rise enough to dampen buyers’ demands within the next couple of years? How much will moratoriums and evacuations add to supply? How many people who currently own will feel comfortable enough to sell in the next few months or years?

Because we don’t have a Magic 8-Ball to hand us the answer, the smartest thing — in my opinion — is to wait a bit and see. That doesn’t mean you should not buy in the meantime. By all means, if you find something within your budget that has the potential for positive cash flow then buy.

But fear of a “worst-case scenario” should not be your driving motivator to make a decision. Right now the dust is still settling and it’s hard to see in which direction yet all the pieces will fall. While it can be hard to be patient, now may be a better time than ever to put those patience skills to use.

Do your due diligence, keep an eye on changes in the market, have a positive attitude, and you will find the right deal for you, at the right time.

What is a “Good Deal”? Here’s Some Simple Math

Fri, 02 Jul 2021 15:34:00 GMT

Image by Shutterbug75 from Pixabay

As a real estate investor you’ll need to be able to do some math to know if you’re making a good investment or not.

But don’t worry — you don’t have to be a whiz or create an Excel file. I’m talking about the kind of math that’s easy enough to do with your phone calculator.

Over the years I’ve come up with a fairly simple formula. Other investors have come up with it independently of me, so that tells you it’s a pretty solid one.

The formula involves 3 numbers, plus something called the 1% Rule.

The 3 numbers are…

What you buy the property for

What it costs to renovate it

What you rent/sell the property for

This should be pretty straightforward. Of course you will need to sell the property for more than you paid, even after the cost of renovation.

If you plan to rent, this is where the 1% Rule comes in.

Here’s how the 1% rule works:

Monthly rent = 1% of total investment cost

For example: You buy a property for $100,000. Once you figure in purchasing and renovation costs as well, the total amount of your investment is $150,000. 1% of 150,000 is $1,500. Therefore, you need to be able to rent your property for at least $1,500 a month.

(Side note: always make sure you factor in renovations and other upfront costs, not just the price of the property itself).

Now, does a purchase prospect have to meet the 1% Rule? Not necessarily. But it’s definitely a good, conservative rule of thumb that will act as a guard rail.

The 1% Rule gained traction back when interest rates were higher than they are now. It may be possible for you to have a positive cash flow while pulling in less than 1% a month, but let’s put it this way: if you are able to earn 1% or more a month, you’ll have a positive cash flow and a safety cushion as well.

If the property is going to earn you less than 1% a month, it may or may not be worth pursuing. You will need to go back to the drawing board and do some “less simple” math at this point.

All good so far?

There’s actually one more step you need to add, once you’ve figured out your monthly rent payment.

The step looks like this:

Actual cash flow = ½ of your monthly rent

A lot of investors aren’t prepared for all the costs that come with owning a rental property. These costs include things like insurance and maintenance as well as vacancies.

To have a realistic estimate of what you will actually pull in each month, make sure that you halve the amount of your anticipated monthly rent.

Sticking with our earlier example, that means that your actual cash flow each month will be $750 (half of $1,500).

The other $750 is going towards those other expenses. In fact, it’s a good idea as a property owner to have a “maintenance reserve” fund for exactly these types of expenses. It’s very possible for you to have a cash flow that’s greater than half your monthly rent — just remember, that the smart thing to do is start out with an estimate that’s more conservative.

My final two cents:

Time is valuable, so don’t waste your time or efforts on a property if you’re not sure whether or not it will be worth it.

There are other properties out there (even in today’s crazy market) and good opportunities exist, if you look far enough. It may actually be wiser to sit out a certain prospect and spend your day at the beach than to rush in and buy something that doesn’t jibe with the simple math.

With both time and some good simple math calculations, you’ll find the opportunity that’s right for you.

As a real estate investor you’ll need to be able to do some math to know if you’re making a good investment or not.

But don’t worry — you don’t have to be a whiz or create an Excel file. I’m talking about the kind of math that’s easy enough to do with your phone calculator.

Over the years I’ve come up with a fairly simple formula. Other investors have come up with it independently of me, so that tells you it’s a pretty solid one.

The formula involves 3 numbers, plus something called the 1% Rule.

The 3 numbers are…

This should be pretty straightforward. Of course you will need to sell the property for more than you paid, even after the cost of renovation.

If you plan to rent, this is where the 1% Rule comes in.

Here’s how the 1% rule works:

Monthly rent = 1% of total investment cost

For example: You buy a property for $100,000. Once you figure in purchasing and renovation costs as well, the total amount of your investment is $150,000. 1% of 150,000 is $1,500. Therefore, you need to be able to rent your property for at least $1,500 a month.

(Side note: always make sure you factor in renovations and other upfront costs, not just the price of the property itself).

Now, does a purchase prospect have to meet the 1% Rule? Not necessarily. But it’s definitely a good, conservative rule of thumb that will act as a guard rail.

The 1% Rule gained traction back when interest rates were higher than they are now. It may be possible for you to have a positive cash flow while pulling in less than 1% a month, but let’s put it this way: if you are able to earn 1% or more a month, you’ll have a positive cash flow and a safety cushion as well.

If the property is going to earn you less than 1% a month, it may or may not be worth pursuing. You will need to go back to the drawing board and do some “less simple” math at this point.

All good so far?

There’s actually one more step you need to add, once you’ve figured out your monthly rent payment.

The step looks like this:

Actual cash flow = ½ of your monthly rent

A lot of investors aren’t prepared for all the costs that come with owning a rental property. These costs include things like insurance and maintenance as well as vacancies.

To have a realistic estimate of what you will actually pull in each month, make sure that you halve the amount of your anticipated monthly rent.

Sticking with our earlier example, that means that your actual cash flow each month will be $750 (half of $1,500).

The other $750 is going towards those other expenses. In fact, it’s a good idea as a property owner to have a “maintenance reserve” fund for exactly these types of expenses. It’s very possible for you to have a cash flow that’s greater than half your monthly rent — just remember, that the smart thing to do is start out with an estimate that’s more conservative.

My final two cents:

Time is valuable, so don’t waste your time or efforts on a property if you’re not sure whether or not it will be worth it.

There are other properties out there (even in today’s crazy market) and good opportunities exist, if you look far enough. It may actually be wiser to sit out a certain prospect and spend your day at the beach than to rush in and buy something that doesn’t jibe with the simple math.

With both time and some good simple math calculations, you’ll find the opportunity that’s right for you.

BRRRR: The Good and the Bad

Fri, 25 Jun 2021 17:51:00 GMT

Believe it or not, the popular so-called “BRRRR” method has been around long before people actually started calling it that. It was the method I used in the beginning of my real estate career — I sort of “discovered” it along the way — and I still use it to this day.

Does that mean it’s the best and only way to invest in real estate?

Not necessarily. There are definite pluses but a few pitfalls as well. As a quick review, here’s what the acronym stands for:

B uy

R enovate (or R ehab, if you prefer)

R ent

R efinance

R epeat

In theory, it’s a process that you can use on repeat to build your wealth. The reality is a bit more complicated. You can definitely make BRRRR work for you, you just have to be smart about it.

What’s Awesome about BRRRR

You don’t need a lot of money to get started! (Remember how I said this was the method I used in my early days? That’s exactly why).

The idea with BRRRR is that you leverage the capital you’ve put in as a down payment or other means to use on your next property, after you have refinanced. This is what allows you to repeat the process.

Refinancing your property also allows you to find a better lender and get a better interest rate.

BRRRR is like a very skilled game of leapfrog. You are able to leverage your first acquisition to buy your next and so forth, without (theoretically) having to sell any of your properties to make your next purchase.

If you don’t have a lot of capital to invest upfront, but are willing to do the careful work of acquiring the right kind of properties that will allow you to refinance at a rate rate later, BRRRR may be the right method for you.

What the Drawbacks Are

Almost everything good in life comes with a catch. BRRRR is no exception to the rule.

The BRRRR method works really well, but only within certain parameters. You need to be able to increase the value of your property enough to be able to pull off the trickiest step: refinancing.

You can quickly run into trouble with BRRRR, for example, if your appraiser decides the property isn’t worth as much as you think it should be worth.

Increasing the value of a property is not a cut and dry, “money = value” process. Spending $50,000 to renovate your property, in other words, does not automatically make your property worth $50,000 more.

While renovation is important, it’s just as important that you buy a property with good potential in the first place — this includes factors outside your direct control, such as the quality of the neighborhood.

Also, removing the cash equity from your property to make your next purchase always comes with a risk. Make sure you have added real value to your property after renovating it, otherwise you will have little to no equity left besides what you originally put into it as cash.

Some Other Things to Think About

One thing that will help you succeed with BRRRR is having a good exit strategy. By “exit” I am referring to the “refinance” phase — the point at which you are ready to move on to your next property.

Having a good lender (especially on the back end) and having the right conversations with them ahead of time is key.

Be sure to ask all the necessary questions, such as, “what kind of things are you looking for in the properties you refinance?” and, “how much time needs to pass between purchasing and refinancing?”

Knowing this information ahead of time allows you to develop a strategy and a realistic timeframe. It will help you know how to add value to your property and keep you from trying to rush into the next property too quickly.

Just like with any investment strategy, remember to focus on the 1% rule. Cash-flow is the lifeblood of real estate investing. The amount of rent you earn needs to be relative to the cost of renovations.

Conclusion

The BRRRR method is popular for a good reason. It allows investors who don’t have as much cash upfront to still invest in multiple properties and grow their wealth.

However, there are always two sides to the coin. Having less money means more risk at every stage in the process, especially with renting and refinancing. You can mitigate these risks by doing your homework, being careful about your renovation budget, and having good communication with a good lender ahead of time.

Why You Should Always Get a Home Inspection

Fri, 11 Jun 2021 18:50:00 GMT

Luckily for me, one of the biggest mistakes I ever made was early into my real estate career.

It’s such a simple yet important lesson that it would be crazy of me to not devote a blog post to it.

The lesson is this: Always have a home inspection done before buying a property. There are no exceptions to this “rule.”

Here’s how I learned that the hard way…

In my early days of investing, I didn’t have a lot of money. (Note: it’s way easier to make a mistake or take too big a risk when you are financially inflexible. We’ll talk about this a little bit later).

As a result, a lot of the properties I chose to invest in were big-time fixer uppers. Nothing wrong with that. The problem was that I tried to cut corners every way I could to be “financially savvy.”

This tactic backfired on me one fateful day.

A good friend of mine helped me find a property that seemed like a great deal. Together we decided that I didn’t need a home inspection done. This was our rationale:

A home inspection would cost me 500 dollars (back in the 90’s, this was a bigger amount than it is today). To save that valuable money, I wouldn’t pay an inspector — my friend and I would “inspect” the property ourselves.

After all, we could tour the property and see for ourselves what needed fixing, right?

For example, we could turn on the faucets to see if the plumbing worked, and check if all the lights turned on. And since we were going to renovate the whole thing anyway, how much did it really matter?

Fast forward a few weeks…

I got a call from my general contractor who was working on the property. He told me that there seemed to be some sort of problem with the electricity. He was having a hard time getting consistent power to his tools.

Having a bad feeling about all of this, I hired an electrician to come over and take a look. He opened up the service panels and low and behold, about half of them were on the edge of crumbling. It was a fire disaster waiting to happen.

Needless to say, the power company arrived in minutes and shut the whole operation down. In the end, repairing all the electrical panels cost me far more than the $500 for a home inspection.

If I had paid upfront for a home inspector I would have known about the electrical fiasco waiting to happen. This means that I would have either:

A: Been able to choose to not buy the property after all, knowing it would cost a lot upfront in repairs

Or B: I would have been prepared beforehand and been able to budget for the repair

What actually ended up happening was me being completely surprised (and then panicking) and having to react without much choice.

A few hundred dollars would have saved me from all that stress, and it would have saved me more time and money in the long run. Having the information about a property that only a professional can give you puts you in the driver’s seat of decision-making and is well worth the cost.

The Penny-Wise, Pound-Foolish Catch 22

Did I decide to forgo the home inspection because I was simply being cheap? Not exactly.

As I mentioned earlier, I was a bigger risk-taker back in those days because I had way less money. There is a fine line between sensible frugality and unsensible risks. The latter was what I ended up doing.

Real estate investing is a risk to begin with — profitable rewards usually come after taking sensible risks. On the other hand, it rarely pays to make your choices unnecessarily risky. Trying to pocket some cash by forgoing a procedure like a home inspection is a classic example of how you can end up, in the long run, actually paying way more money and time than if you had done the more conservative thing upfront.

Bonus Lesson:

There’s actually another “rule” in real estate, related to this, that I may as well mention now:

Do not buy a property “sight unseen.”

The exception to this is if you are a big-time investor backed by plenty of funds, are buying multiple properties, and can afford to have a few of them not be profitable. I am guessing (just a hunch) that this is not the case for you.

Plenty of people buy sight unseen, whether it’s because they are living in a different part of the country or they have too much FOMO and feel like they have to put in an offer before they have time to even head out the door.

While this can still work out alright in the end, my advice is to never (at least, with very few exceptions) buy sight unseen.

The bottom-line of it all, to quote an old-school maxim: “haste makes waste.”

In more modern terms: Taking extra risks to save money, as well as being in a hurry, are more likely than not going to backfire on you at some point.

Summary:

The Mentality of Buying

Fri, 04 Jun 2021 21:39:00 GMT

Buying a new property is one of the most fun parts of the real estate business. It’s natural to feel excited — even giddy — about a “good buy” and all the potential that comes with it.

In the excitement of the buying process, it’s all too easy to overlook the “fine print.” There are unexpected costs and factors that will pop up when you buy a property. Also, consider that a property that seems like a great acquisition may not be quite as great after you’ve done a little more homework.

I’ve made the mistake myself of getting too carried away with the emotional side of buying, only to deal with issues I wasn’t prepared for afterward (sometimes to almost disastrous consequences, I might add).

Few properties are “perfect”, and not every find needs to be a golden opportunity. Just make sure you do your due diligence ahead of time and go in with your eyes wide open. Here are three factors that will help guide you in doing this.

When I was getting my pilot’s license, my flying instructor shared with me some very interesting advice. It’s since turned out to be invaluable in how I purchase properties.

“When it’s time to make a descent,” he told me, “your mentality needs to be, ‘ make me want to land!’”

At first I thought his words were a bit counterintuitive. After all, you need to land the plane, right?

But his point was: there are many dangers and unknowns when flying, especially so when landing. You should not actually land the plane until you have checked all the boxes that you’re safe and clear to do so. Even a small mistake could lead to regret or even catastrophe.

While buying real estate (usually) doesn’t come with the same mortality risks, there are still a number of risks involved. Especially ones that are easy to overlook in the euphoria of finding a place that “feels” right.

It’s important to stay as detached as possible all the way until the day you close on the property. You may have heard the advice “don’t fall in love with a home,” and there’s a lot of truth to that.

This doesn’t mean you need to be cynical or cautious to the point of obsession. It does mean doing your due diligence before buying and keeping your expectations neutral. Save that champagne bottle for the day you actually close.

When landing a plane, I had to learn what all the “boxes” were that I had to check to make sure I was safe and ready.

Buying properties also involves boxes that need to be checked. Some of these boxes are easy to overlook or even forget. Know ahead of time all the things you need to consider so that when you find a property you’ll have your list ready to go (and hopefully you’ll be able to check all the boxes!).

Here are several examples:

Have a checkbox ready to go before you even get serious about buying a property. It will be a valuable resource and streamline the whole touring/inspecting/purchasing process.

One of the greatest things about investing in real estate is the wide variety of people you meet, many of whom offer a wealth of insight and experience that they’re only too happy to share with you — all you have to do is ask.

Some of the best decisions I ever made were thanks to the help of friends who were investors like me, but with more experience. Their advice was free but invaluable.

Make sure you take the time to network and surround yourself with those who are more experienced than you. People who have been in this business a long time love sharing their insights and are usually only too happy to help. Besides, a second (or third) opinion always helps you stay as objective as possible.

Summary

You can stay smart while buying a property and still have fun in the process. In fact, buying a new property, I’d argue, is more fun when you are empowered with the right tools and information going in.

Good investment opportunities come along all the time. Be ready to take the leap, but only after you’ve taken a good look first. Review all the checkboxes until you have no good reason not to land.

Finally, take the time to talk to mentors and friends who you trust. They’ll be happy to share their advice and honest opinions. Having trustworthy people to consult is not only a lifesaver, it’s a very meaningful part of the process as well. Due your due diligence and you’ll be rewarded not just with a good investment, but with peace of mind.

Putting Together a Team

Fri, 28 May 2021 23:44:00 GMT

Being part of a team is probably not the first thing you think of when you start investing in real estate. You may be doing most (or all) of the work on your own — or hiring an extra pair of hands to help out here and there.

Real estate investing, though, is a business. And just like any good business, you will eventually need multiple reliable people working alongside you.

These people may work for you, but they will bring with them knowledge and experience that you lack. It’s important to have an attitude of respect for these people and a sense of being part of a team — not only will you go further, you will also find the whole journey of real estate investing far more enjoyable.

Here is a quick look at the type of people you’ll need on your team, sooner or later:

Bookkeeper

Attorney

CPA

Home Inspector

Realtor-broker

Lender

Subcontractor

This is not an exhaustive list. If you get serious about marketing, for example, you’ll need your own website, which will require creatives and other people qualified to help with digital matters.

However, this list is a good starting point.

Before going through it in more detail, it’s important to keep in mind that you shouldn’t try to build your team all at once. People come into the picture as needs arise and as your business grows. It is a process that should happen strategically but also organically.

Bookkeeper

A bookkeeper is probably one of the first people you should add to your team (besides subcontractors for maintenance work).

Managing data such as receipts and other information saves you invaluable time. Also, an extra pair of eyes keeping tabs on things ensures that nothing goes awry — especially as your business grows and becomes more complex.

Bookkeeping is not a particularly specialized field, making it easy for you to train whoever it is you decide to take on. This is a person you will be working with continually, so be sure to choose someone you are temperamentally compatible with.

CPA

Unless you majored in accounting with a specialty in “real estate”, you will want a really good CPA. Their focus should be helping you make the most savvy decisions possible throughout the tax year so that you don’t get hit with taxes you aren’t prepared for.

Attorney

The existence of attorneys is evidence of the flawed world we live in.

Hopefully it happens later rather than sooner, but at some point, you will probably need at least one attorney. If your taxes or financial situation are complicated, it may be wise to find a good tax attorney.

You may also want an attorney specializing in real estate to help you with matters such as purchasing property, leasing, and evictions.

If you are in a situation where lawsuits are relatively likely (if you a own large, multi-unit property, for example) then you will want to find a good attorney specialized to help you with this as well.

Remember, you don’t have to find all these people at once! Look for an attorney with a specialty that’s the most relevant to your current situation.

Realtor-Broker

A good realtor-broker is invaluable. They will have their hand on the pulse of the market and by the time they’ve achieved their position, they have accumulated a lot of valuable experiences.

These people have the potential to not just work “for” you, but to be your mentors and advisors — those who you can look up to and learn from, especially as you’re getting started.

Lender

A good relationship with a good lender is critical if you plan to fund your purchases with a loan (which is the majority of us). Be sure you fulfill all your obligations and go the extra mile wherever you can so that they will continue to do business with you.

If you invest in different types of properties, you will need to form a relationship with more than one lender, since lenders specialize. Some lenders focus on single-family homes, while others are more geared toward commercial properties. Choose a lender (or lenders) who specializes in your type of property.

Home Inspector

I have learned from hard-earned experience that this is a job you do not want to outsource.

A home inspector saves you invaluable time and money by inspecting the property beforehand and alerting you to any maintenance issues (and possible red flags). A good home inspector helps you keep your eyes wide open so that you aren’t blinded by a “good deal” or become too emotionally attached to a prospect before you decide to buy.

Subcontractor

Unless you are a wiz at every type of maintenance issue there is, you will need to hire at least one subcontractor — and most likely, more than one.

Certain types of maintenance are going to be more specialized than others. Heating and air systems, for example, are usually best left to a specialist.

Plumbing is another maintenance concern that will occupy a lot of your focus and can quickly get out of hand if not handled expertly. It’s one thing to unclog a toilet by yourself — it’s quite another to fix a “mystery” leak that’s getting more serious by the moment.

Just like with the other members of your team, you can add new subcontractors as needed. Treat your subcontractors well so they will want to come back and work for you again. It saves more time and money than you might imagine to be able to depend on the same person or crew, month after month (and year after year), rather than looking for someone new.

Conclusion

Many people who go into real estate don’t realize what a “social” business it can be. It’s important to know ahead of time that you will be meeting, interacting with and depending on multiple people with very different backgrounds and specialities.

Look at this as an opportunity to broaden your horizons and enrich your knowledge. Choose good, trustworthy people to work with and you will have many meaningful experiences as you invest in real estate.

Outsourcing vs. DIY How to be Efficient

Fri, 21 May 2021 22:17:00 GMT

Passive income should be the end game as a real estate investor, but it takes a while to get there.

In the meantime, you will need to invest both money and time (and possibly physical energy) upfront.

But what if you’re limited in both of these resources? Most people don’t have unlimited time or money when they start investing in real estate.

The key is to be as efficient as possible.

And being efficient means knowing your strengths .

For example, when I started out as a real estate investor, I did my best to save money by doing all the maintenance work myself. (As much as I could handle, anyway). This included all the plumbing.

I am not shy about confessing that I am a terrible plumber. I soon discovered this while working on the plumbing issues of my various properties.

It usually took hours, or even the entire day for me to get a certain plumbing task accomplished. I may have saved money by not outsourcing a plumber, but I also lost money by spending all my time working on that plumbing project — time that I could have spent more efficiently in other ways.

For example, I could have instead used that time to talk more with my realtor-broker and other colleagues and mentors, learning about how to find better value properties to purchase that maybe didn’t have quite as serious plumbing issues (or other structural problems).

If I had done that, I would have been investing in my education and in my strengths (self-education and networking), which would have led to a more efficient outcome overall.

It’s okay to do some of your own maintenance in the beginning. In fact, unless you are already blessed with an impressive financial portfolio, you will probably need to do some of your own maintenance work (as well as busywork).

What I recommend doing when you start out is two things:

Here’s an example of what your vision might be:

“I want to have a team that includes at least maintenance contractors in one year’s time. By that point in time I want to only be doing less-specialized maintenance work, like knocking down old walls. Or paint jobs.”

Having a vision (or a goal) gives you a timeframe, and motivates you to then figure out a solution.

How are you going to make sure you can afford and manage three new contractor’s within a year’s time? That’s where your strengths come in.

Here’s an example of what your strengths might be:

“I am really good at searching the Internet and finding the best people and the best value possible. I am good with search filters and knowing what to look for. I’m also really good at people skills, and emailing and calling lots of people in a short amount of time.”

Having this vision and list of your own strengths in front of you, it should now be much easier for you to come up with a strategy.

You will probably realize that instead of doing specialized maintenance tasks yourself, you can start outsourcing these tasks, one at a time, to a contractor. You will be able to afford it because you have the skill of being able to network and find people who can do a good job at a great value. You may have to invest a little more money at the very beginning, but if it’s a good value, you will save far more money over time.

Focusing on your strengths also brings meaning to your experience as a real estate investor. Too many people get burned out and overwhelmed trying to do everything at once, and trying to do too much right away. Or from simply having unrealistic expectations.

In the beginning you don’t need to know everything. You just need to know some basics. What matters is that you have a vision and a strategy. And the common sense to know what your strengths are, what you enjoy doing, and how that translates into being as efficient as possible.

One final important thing: mistakes (including lack of efficiency) are also a part of the learning process! Have realistic expectations and a resolve to keep learning, and I can all but guarantee that you will succeed in the long run.

Location vs. a “Good Deal”: How to Choose

Fri, 14 May 2021 21:39:00 GMT

Most of us have heard the phrase “location, location, location.” It’s a common perception that location matters more than anything — and there is some truth to that.

But what if you find a great deal in a “not quite as good” location? Is it still a worthwhile investment?

It’s a great question that many people have asked me before. The short answer is, “it depends.”

Location for living, versus location for investing

When people say, “location, location, location,” they’re usually referring to choosing a property you plan to live in.

But when it comes to an investment property, you won’t be the one living there. Does this change things? Actually, it does.

You may, for example, find an incredible deal in a less-than-ideal neighborhood. Even though you wouldn’t personally want to live in that neighborhood, there may be plenty of other people who do. The key is finding a good, stable tenant in this scenario. If you do, then you have a great situation on your hands.

Unsurprisingly though, the less desirable the location, the harder it will be to find a quality tenant for your property. So location certainly does play a factor in how well your investment comes out.

Think of it this way:

When you are investing in a property, you want to think in terms of how you’re going to come out of the investment.

It may be a great “deal” now, but the cost of the property is just one factor. Does the price seem “too good to be true”? There may be a structural problem accounting for that. Hopefully not a nuclear reactive cesspool buried under the house — but a serious enough issue that you would need to look into.

If the price is related to the location, and the location is a less than ideal one, consider whether that may change over the years. If you see potential in the quality and security of the area in the long term — if there is the possibility of the location value going up in the future — then it may make sense as an investment.

The Bigger Picture

Here is a shortlist of factors to help you determine “location” versus “good deal”:

– What kind of tenant are you interested in having? More reliable and responsible tenants are likely to be in better neighborhoods (with more expensive properties). The trade off for a great deal on a property in a lower-quality neighborhood is often a less responsible tenant. There are always plenty of exceptions to the rule, but this is the broader reality.

-Think about structure, not just location. Location matters, but you want to make sure the structure itself is solid. If there are structural issues, be prepared to factor that into how much you will need to invest, financially. Sometimes a good deal is truly a good deal — other times it’s a red flag.

-What is the potential for appreciation? A great deal now isn’t as meaningful if the property won’t appreciate much over the years (or even loses value).

The bottom line: when in conflict, go with “location” over a great deal.

A good location is much more likely to keep appreciating, meaning that you will come out of your investment well.

But if you find a truly good deal in a not-as-great location that you have researched and believe you can make a good return on, whether in the short-term or long-term, then it may indeed be the right choice to go with. Careful research and weighing of options are all part of the process of being a real estate investor.

Single-Family vs. Multi-Family Properties: Which is Better?

Fri, 07 May 2021 22:33:00 GMT

When many of us hear “residential real estate,” the default image in our minds is a single-family home, perhaps with a white picket fence and a grass lawn.

But of course, there are several different types of dwellings that people (families) can live in. The breakdown between these two is pretty simple: single-family and multi-family. A multi-family residence can be anything from a duplex to an apartment building.

The important question is: which should you invest in?

There’s no winner-takes-all answer for this one. Both have their pros and cons. I have multiple years’ experience investing in both types, and in this article I’ll go over each so that by the end, hopefully you’ll be able to choose the best option for yourself. (Hint: you can definitely invest in both, at different stages of your career. That’s what I have done).

Let’s start with single family properties, since that’s the one that most people are more familiar with.

Single Family Properties: At A Glance

Single properties are defined as a property outfitted for a single family. In everyday language, a house (or a condo or townhouse).

Of course, people are creative with space and more than one family or group of individuals may choose to occupy the same home. But the idea is that it is a structure on a property to comfortably accommodate the needs of just one family.

Typically the sellers you will deal with will be both investors and end-use sellers. Likewise, as a seller you will encounter both investors and end-use buyers.

Pros:

Single-family properties, because they are usually smaller and therefore less costly, typically have a lower financial barrier to entry. You will usually have more financing options available as well — including an FHA loan if it’s your first time buying a home.

Single-family properties are more familiar and therefore more comfortable for most people. Many of us have lived in a single-family home for most of our lives. The thought of owning and maintaining a single house is less intimidating than owning and maintaining a large apartment complex.

You will probably find yourself dealing with fewer maintenance calls if you are leasing a single-family property. Tenants who rent a house instead of a unit at a giant complex are more likely to see their landlord as a person of modest means — whether or not that is actually true. Because all they can see is the single property they live on, they’re less likely to associate you, the owner, with being a corporate figure. As a result they are more likely to not want to “inconvenience” you with superfluous maintenance requests. This is a quirky bit of psychology but it’s been true to my experience.

Cons:

Since a single-family property only accommodates one family (read: one paycheck for rent each month), your income from rent dries up completely as soon as that family or individual moves out. There are no other renters/units to buffer you. You will need to find new renters as soon as possible in order to offset your monthly mortgage payment.

There is also usually no “discount per unit” when buying a family property or even multiple family properties. This is something we’ll discuss more in the next section.

Multi-Family Properties: At A Glance

Multi-family properties can come in the form of everything from a duplex (a property that houses two families) to an expansive complex with multiple units.

The range and differences between them are beyond the scope of this article — one thing I will say, because it’s obvious, is that the simpler/smaller the property, the lower the barrier entry is to financing and managing it. A duplex, for example, is much less complicated to manage than a large apartment building. And apartments themselves come in all ranges of size and number of units.

Pros:

Although there is a higher barrier to entry cost with multi-family properties, there is a lot of value in multi-family properties once you are able to finance one. The actual money to purchase may be higher upfront, but the potential return of investment is often better in the long run than with a single-family property. Multi-family properties may also include a “discount per unit,” allowing you a better value the more units you purchase.

Multi-family properties offer value in multiple ways. One particular benefit is having a lot of the infrastructure centralized: one roof over multiple tenants’ heads is more cost-efficient to repair than multiple roofs over multiple tenants’ heads. When tenants all live close to each other in the same complex, it’s easier to “do the rounds” with maintenance and take care of tasks.

Turnover is a reality with any rental property, but with multi-family properties, especially those with more units, you will always have remaining tenants to help buffer your monthly mortgage payment while you look to fill that vacant unit. Word of mouth spreads, and when tenants enjoy living at your complex, others often come knocking.

One final, although less obvious pro to buying multi-family properties is that when you either buy or sell, your transaction will be with another investor — not an “end user.” This means the transaction is likely to be more straightforward and less emotional — you won’t be dealing with sellers who are sentimental about their former home, or buyers who are desperate to move in even though their approved loan is less than ideal.

Cons:

You will face a higher barrier to entry with purchasing a multi-family property, and usually will need a down payment of 20% or even 30%. While multi-family properties can be very profitable, they are not always easy to start out with for this reason. “Bargains” exist, but even when they do, they will cost much more than a single-family property.

You will also be doing a lot more maintenance. One reason for this is public space: multi-family properties have common areas, whether in the form of landscaping, front desk office or recreational area (like a swimming pool).

Also, tenants of multi-family properties are usually more inclined to make maintenance calls. They see your property as a large and “professional” outfit and expect that someone will be on hand to respond to maintenance calls quickly.

Conclusion:

Both single-family and multi-family properties can be awesome investment choices. The best starting place is your own financial situation and what you feel comfortable with.

Starting out with a single-family property is usually a more conservative choice and may make the most sense. But if you have the means, a multi-family property is a very worthwhile investment endeavor. I recommend starting out more conservatively and then trying (buying) more properties/property types as you gain experience.

Am I Too Old to Start Investing in Real Estate?

Fri, 30 Apr 2021 13:00:00 GMT

You know that investing is one of the most stable ways there is to make money.

You’ve also probably heard that investing — including real estate investing — is a “long game”. It usually takes years before you can make a profit doing it. Certainly it takes years before you can become “rich” (with a few random, lucky exceptions).

Now we come to the Catch-22 of the investing world: the longer you hold your investment, the more money you will earn. But the longer you hold your investment, the less time you will have to enjoy that money (and your life), once you cash in on it.

You might wonder, “how long will it take?” And then the next, unavoidable question that many of us are too afraid to ask:

“Am I too old to invest in real estate?”

This is a very valid question. (Some people might feel embarrassed asking it, and call it a “dumb” question. But sometimes “dumb” questions are the best ones).

The short answer is probably not . Which is great news, as long as you are motivated and ready to put in the work!

The longer answer is, it depends on your goals and resources. Let’s take a closer look and see which situation is best suited for you.

The Growth-Oriented vs. Cash flow-Oriented Approach

When you invest in real estate, you can choose to take one of two basic approaches. These two approaches are:

Growth-oriented

And

Cash flow-oriented.

Of the two, the growth-oriented approach is more aggressive (read: risky). It means more debt and a lower down payment upfront, with the idea that in 10 years your debt will be gone, or at least your rent income will be high enough to increase cash flow.

The cash flow-oriented approach is the inverse of that: you will pay a lot more upfront, and as a result, owe less debt so that you can instead enjoy a higher cash flow.

Now let’s talk about goals:

If you are younger (more than 15 years away from retirement), it makes sense to go with more of a growth-oriented approach. If you are “older,” but are more interested in having wealth to pass on to the generation after you (rather than for yourself to enjoy), then a growth-oriented approach also makes more sense.

But if you are older and are hoping to create wealth for yourself to live off, a cash flow-oriented approach is probably best for you.

Now that you know which approach matches your goal, it’s time to talk about resources (money).

With a grow-oriented approach, you need less money, but more time. If you don’t have time (because you’re “older”), and therefore you need a cash flow-oriented approach, then you will need more money.

Hopefully you have several options at this stage in your life. It may be in the form of a retirement account you are finally able to access, or a life insurance settlement from the death of a spouse. Whatever the case, the more cash you have that you can pay towards a property, the less debt you will owe, the less risky your investment will be, and the more money you’ll then be able to generate.

I definitely recommend using any of these options if you have them. A cash flow-oriented approach to real estate is not only very secure, it’s very rewarding. If you have the resources, there’s no need to feel it’s too late for you to enjoy owning and renting properties.

Consider, also, that age is not an issue if you are able to hire a property manager to take care of day-to-day tasks instead of doing them yourself. Another good option, if you are interested in commercial real estate, is a “triple-net” (NNN) lease. In these agreements, the business that occupies the building pays for all the building expenses except the rent. This makes things hassle-free on your end as the property owner.

Keep in mind that even if you have plenty of cash on hand at the time of investment, returns don’t happen overnight. A decent rule of thumb is, expect a minimum of 5-10 years to see the fruits of your investing labor.

“What if I don’t have ‘enough’ money?”

Let’s say you’re 60 and want to retire in 2 years with an annual income of $100,000 from your rental properties. If you have $1 million in cash and find an investment that provides a 10% cash flow return, this could be possible.

But if you have very little in cash, your goal is going to be a lot trickier. Without cash, you will have to take on debt, and most (if not all) of the income from your rental will go towards the mortgage. What are your options?

Besides playing the lottery (which I don’t recommend), your only real option is to invest aggressively (growth-oriented) instead. You may not like this idea at first, but consider the following:

60 years old today is not as “old” as it was a hundred years (or even 50 or 20 years) ago. Health and lifestyle are less tangible but very important factors in determining how long and how well you will live.

Maybe you are only 50 years old. Twenty years is plenty of time for a more aggressive investment to pay off, and at age 70 you may well still have a decade or two ahead of you to enjoy the fruits of your labors. You don’t have to figure everything on your own, either. A good financial advisor will save you time and help you figure out the best option for you.

The more limited your resources are, the more creative you will have to be with investing in real estate. But as long as you are willing to make some sort of sacrifice, there is probably a way for you to successfully invest in real estate.

In summary:

When investing in real estate, you need at least one of two things: time and/or money.

If you are “older”, you probably feel that you don’t have as much time. This means you will need more money, so that you owe less debt and therefore generate cash flow faster to support yourself. Savings, retirement accounts and other assets are all ways you can theoretically finance a real estate purchase at this stage in your life.

Remember that your main two resources are time and money, but don’t forget also that health and wellness are resources. Consider if you really are “old”, and whether you feel you need to retire or have a certain amount of money by a certain age.

6 Steps for Getting More Stuff Done

Fri, 23 Apr 2021 13:58:00 GMT

“Greg, how do you have time to do all the stuff you do?”

I’ve had friends from time-to-time remark that it seems like I get a lot done. They wonder if I have unlimited energy, or if I’m just a certain “type” of person who is able to accomplish more – while other “personality types” out there are doomed to be less successful in life.

The reality is, it’s neither of these things (although I would love nothing more than to have unlimited energy). The reason I’m able to be as productive as I am is thanks to several habits I’ve formed over the years. Or in more popular terminology, “hacks” that help me make the most of my time.

I’ve come up with 6 simple but powerful concepts that I’ve found work wonders for getting stuff done. You or anyone can implement these same tips into your routine and life and soon enough, you’ll see an increase in your own productivity.

Just remember that it’s important to stick with it – even the most effective habits don’t make much of a difference if you burn out after a week. Instead of trying all 6 of these tips at once, pick one or two and adapt more gradually to your lifestyle.

1. Define What You Want

Remember that old quote from the Cheshire Cat in “Alice in Wonderland”?

I don’t have the book in front of me so I’ll paraphrase in plain English: If you don’t know where you want to go, it doesn’t matter which path you take or what you do.

Without a vision, you are going to get lost in the weeds pretty quickly. In my experience, people burn out, feel overwhelmed or lose focus because they don’t have a guiding goal to begin with.

Make sure you have a vision (or goal) that is clear and concrete, that you can return to every time you need to make a decision about what to do or not to do. (Some people have things like photos or quotes hanging on their walls as a visual reminder).

For years, my vision was building a more financially secure life for my family. When I needed to schedule my day or my week, the things that I knew would help me achieve that vision took priority. It was easier to cut out watching ESPN on the weekend because I knew that the work I was doing was helping me achieve my vision.

2. Break It Down into Manageable Steps

Tell me which of these two sounds easier:

Or:

Hopefully you see my point here: it’s a lot easier to break things down into steps.

When you have a plan that’s big and broad, it’s sometimes hard to know where to start or how to prepare. You might fall under the illusion that it’s hard, or even too hard (not true). A lot of this is in your head. That’s why breaking things down into steps is important.

When writing in your task list, consider breaking bigger tasks down into smaller steps. Don’t make the steps more numerous than necessary; simple and concrete is better. The effective way to get things done is to do one thing, one step at a time.

3. Hold Yourself Accountable

At some point, it really does come down to you having to just do it. (I don’t think it’s a coincidence the Nike slogan has become as famous as it has).

To make it easier, think of yourself as another person you respect. You wouldn’t be late to a meeting with your boss, would you? Can you imagine yourself putting off date night just because “you didn’t feel like it?”

It’s easier to show up for other people, because they expect us to. But we deserve our own respect as well. I know that Future Greg is very happy each time I stick to my task list and get stuff, and that he will likewise be disappointed when I slack off over the weekend.

As you show up for yourself each day it gets easier to keep doing so. If you want others to take you seriously, it’s important that you take yourself seriously. And part of that means staying on top things even when no one else is asking or reminding you to.

4. Block Off Time for Yourself

As much fun as it is to socialize and hang out by the water cooler (or whatever the post-pandemic equivalent is), it’s important to have time and space to yourself so that you can focus. Especially when it comes to crucial tasks.

This is easier to do when you have your own personal den or office, but even if your personal space is limited, you can still make sure that you have “alone” time to work. The key is consistency: make sure it’s the same time every day.

Many people, including myself, have found that either “before” hours or “after” hours work best. After 9 am and before 5 pm, people will typically require your time – whether in the form of meetings, phone calls, or other demands.

But in the quiet early hours of the morning, or in the later hours of the evening it’s often much easier to block off an hour or two to really focus on your vision, and the tasks you need to do to get you there. Figure out if you are a “morning” person or a “night” person, and schedule your alone time accordingly.

5. Keep a Task List

You may protest at this one. Task lists aren’t cool anymore, according to some of the latest gurus on the Internet. They are “overrated.”

I’ve got news for you: task lists work . If you feel like they’re boring or obvious, well, it’s because they’ve been around a long time and they will continue to be around for a long time for a good reason.

Your task list doesn’t have to be a generic Sticky Note sheet or piece of paper (though it could if that works for you). Some people like to get creative and use cute templates, stickers and other flourishes. Others prefer a digital format.

Choose whatever makes sense for you and is easiest to use. Some people like to be very detailed, listing things in order of importance and including the “time of day.” Others prefer to be as minimal as possible.

If task lists are new or less appealing to you, go with the simplest approach possible. Make sure your task list is in a prominent place to remind you.

6. Make Use of Your Spare Minutes

“Where does the time go?” Why, into all those spare moments here and there that we usually don’t think about!

During an “in-between” moment you might be tempted to play a phone game or do another activity that helps you unwind. Sometimes, you do need a break. But consider just how much more productive you can be by filling those extra blocks of time with things you need to get done. What you’ll find is that you’ll end up saving time by getting things done sooner.

In my case, I use the time I’m driving in the car for phone calls, especially with family and friends. “Windshield time” is a great opportunity to check in with others.

I listen to audio books and educational speakers while walking my dog, or doing the dishes. My martial arts instructor once gave me some excellent advice: “If you’re going to spend your time doing something mindless like watching TV, the least you can do is use that time to stretch and improve your flexibility.” His two-birds-with-one-stone approach has continued to influence the way I make the most of my spare minutes today.

Conclusion:

I did my best to make sure this list was short, and that the action items on it were specific and clear. Simplicity and clarity are important — without them, it’s easy to lose focus. And remember…

Should I Invest in Real Estate or the Stock Market?

Fri, 16 Apr 2021 17:35:00 GMT

If you’re at the beginning stage of investing, and you clicked on this article, there’s a good chance you’re wondering, “Wait, how do I know if real estate is a better bet than the stock market? Or is one even better than the other?”

Well, spoiler alert, I have my own bias. I’ve built my life around real estate and it’s paid off many times over (with a bit of hard work, of course).

That said, there are pros and cons to investing in real estate and investing in the stock market (and other assets, for that matter). It’s definitely worth exploring the differences between them. Much of it comes down to lifestyle and how hands-on vs. hands-off you’re willing to be.

The Stock Market: Pros and Cons

Pros:

Any type of investing requires you do your homework, so it’s not quite accurate to say that investing in the stock market means you just “set it and forget it.”

But that said, you will most likely have far more free time on your hands if you invest in the stock market over real estate.

For one thing, a stock portfolio doesn’t require a team of subcontractors, a real estate agent, a potential buyer/tenant or a banker. Then there’s the consideration that a share of stock is not a physical item, and therefore you won’t have to drive anywhere, inspect anything or run errands.

Time is a precious commodity we are constantly evaluating against money. For some people, the time (and energy) factor means that real estate is a deal-breaker, and the stock market a more realistic choice.

I’m no expert in stock investing, so take this with a grain of salt, but at long as you do your homework upfront you are most likely to get a reasonable, if not really good return over time. Mutual funds are a particularly great way to do this: you can quickly diversify by owning a share of multiple different, strongly-performing companies.

There are so many more resources and gurus available today to help you start out on the right foot. As long as you apply common sense (don’t buy penny stocks, make sure you diversify) then you are looking forward to a nice return in the next 20 to 30 years.

There’s a certain enjoyment that comes from feeling like you’re witnessing history in the making, and the stock market is a great place for that.

Culture and technology drive the economy, and vice versa, and the results play out on Wall Street. It’s a fun and tangible way to stay educated on current events as well as historical trends, and to even use that knowledge and “data” to make predictions about where the future is headed.

It’s always better to invest more than less when you invest in anything , because a bigger investment means a bigger return. But the need to invest a large sum of money can be a big entry barrier for many people. The advantage of the stock market is that you can get started with as little as a few hundred bucks.

Real estate, as we have all seen in recent years, is hardly “cheap,” and will almost certainly require you to take out loans (unless you have a nice nest egg already saved up). There is also the cost of closing on a property, of renovating and maintaining it, to name just a few. There are certainly more moving parts in real estate, and that includes parts that will cost you.

I hesitate to put hard numbers on things, and a decent house in a good area will be a cheaper investment than one share of Berkshire Hathaway, but generally speaking, real estate will cost you more upfront. The downside of that is offset by cash flow, which I’ll get to later in this article.

Cons:

Investing in a share of stock means — for the most part — you make no money off it until you sell it. Yes, you can earn dividends to cash out from time to time, but usually it’s a small return (unless you learn advanced techniques such as trading in options, these approaches are not for the average investor).

The only serious money you earn from stocks is the money you earn when you actually sell it. It doesn’t matter how “high” your stock price rises — that rise in price means nothing until you sell it. And once you do, that share of stock is now gone and you can no longer profit off it.

Because stocks don’t generate cash flow and only bring you money when you sell them, you will need to wait a while for the stock value to become high enough that you feel incentivized to sell.

What we are talking about is closer to decades than years, let alone months. The main exception to this is if you decide to become a day trader, but that is something no one should try unless they really know what they’re doing (not to mention it will involve much more time and energy).

Even if you make the most educated choices possible with your portfolio, some of them are probably going to drop, rather than rise. The economy (read: Planet Earth) can be an unpredictable thing and much of the stock market is based on assumptions made from what has happened in the past. While there’s a good chance those assumptions will hold true, there will always be some surprises.

Of course, the same applies to real estate to some extent, but real estate is at least tangible (like gold) and people will always need a decent place to live.

The Real Estate Market: Pros and Cons

Pros:

There’s a reason that wealth has historically been associated with land: it’s limited and almost always in demand. People need a space to live, whether they own it or rent it.

Certain neighborhoods or areas do depreciate in value but overall, real estate goes up. Look no further than the housing crash in 2008 to the housing shortage crisis nation-wide now: even when demand goes down, it comes back up again. If you do your homework you will know which neighborhoods have the best outlook, giving you an even further advantage.

Real estate is an old game, but a solid one.

This, right here, is the Number One reason I love real estate.

When you buy a share of stock, the only money you can earn with it is the money you get when you sell it (including any dividends). In other words: there is no actual money going into your pocket until you sell it. It’s a one-time pay-off.

Compare that to real estate: You can own a house (or apartment complex), anticipate one day earning money from selling that house, and then earn money in the meantime by renting it to others. Money that you get right now, right into your pocket.

Think of it this way:

When you own a property, it’s like owning a goose that lays eggs. You can earn money off the eggs now, and also when you sell the goose.

When you own a share of stock, there are no eggs. There’s only the money you earn when you sell the goose.

Of course it’s a simplistic analogy, but it gets the point across: real estate, with enough work upfront, has the potential to earn you money both now and later. Maintaining cash flow isn’t always easy, of course, but it’s more than possible.

This one is slightly more emotion-based, but I believe it’s still important.

A share of stock sits in a digital folder. You can’t touch it, smell it, walk inside it, admire it from across the street. There is something very satisfying, by contrast, about physically laboring and putting effort into a property, and then being able to see and enjoy the results of your labors.

Even a new layer of paint in a kitchen, or a new fence in the backyard is a visible and pleasing sign of your progress and your investment. What’s even better is that it can bring joy to and improve the lives of those who will reside there.

Cons:

Real estate has many moving parts. There will be many jobs that need to be done, and multiple people needed for those jobs, from the buying process, through the renovating and maintaining process, all the way until you decide to sell the property.

You will need to be very organized if you want to stay on top of things. Because you will depend on others (whether it’s a realtor-broker, a handyman or a home inspector) you will need to learn how to build stable working relationships with others. You may find yourself having to confront someone on a delicate issue every now and then. You will also find yourself in the humble position of needing to build trust and rapport with moneylenders who are also trustworthy.

By now it’s probably clear that real estate is not for the half-hearted. You will need money upfront (forget those sketchy “no money down” strategies), and for what you don’t have on hand you will need loans. This means taking a risk and investing some of your time in order to come out ahead.

If you outsource other people to renovate or maintain your property you will accrue additional costs. If you decide to take on some of the work yourself, you will accrue additional time. These time and money sacrifices are temporary as your investment becomes profitable, but in the meantime it will take a definite amount of discipline and strategizing.

Conclusion:

I’ve done my best to be fair about the pros and cons of each of these types of investing and hopefully it’s helped you get a clearer perspective.

If you have the money and the time, it’s my personal, experience-based opinion that real estate investing is the way to go. You may have to put in a bit more time and money upfront, but it will generally pay off faster and bigger if you keep a good head on your shoulders and know what you’re doing.

But real estate investing is a lot of work and it certainly doesn’t fit everyone’s lifestyle. The stock market is still a great opportunity to make your money go further, and for some people, it’s the more logical choice.

The Mindset Of A Real Estate Investor

Fri, 09 Apr 2021 12:31:00 GMT

When you’re first learning about real estate investing, it’s easy to Google certain specific questions like “do I need a realtor-broker?” to get a direct answer.

But what about the more psychological and yet (in my opinion) important question of, what kind of a person do I need to be to succeed at real estate investing?

Can I really do it – can anyone do it?

Of course, this question could easily spawn a whole book. But I don’t believe that aspiring real estate investors need to sweat this too much, nor should they have to wade through a ton of complicated philosophizing.

Based on my own personal experience and observations, I’ve distilled the answer to this question down into 6 basic points that I’ll cover in this blog post. Here’s the shortlist upfront (note it’s nothing too surprising or controversial):

1. Patience

2. A Sense of Humor

3. Social skills

4. Self-Discipline

5. Introspection

6. An interest in lifelong learning

1. Patience

“I thought I was a patient person until…” is a phrase you’ve probably heard from one friend or another over the years. “I thought I was a patient person until I got married.” “I thought I was a patient person until I had kids.”

Well, let me add to those sentiments: I thought I was a patient person until I started investing in real estate.

Now, nobody has perfect patience, including you and me, and that’s 100% okay. We all improve over time since experience is the best teacher.

Here’s what I mean by “patience” when it comes to real estate investing:

Things don’t happen quickly in the real estate world. Properties take time to finance and purchase, they take time to renovate and maintain, and they take time to sell. Many people and factors are involved; not everything is under your control. You can’t predict what the home inspector or the plumber, or the new tenant, or the real estate agent are going to tell you or how they’re going to behave. More often than not, an unexpected mystery leak or other issue will rear its head, throwing your perfect plans off course.

So the real question is: can you take all of this in stride and have realistic expectations?

In fact, I would add to the virtue of patience the virtue of resilience . Are you good with handling multiple variables, uncertain time frames and people who are sometimes not dependable? Can you take things in stride? If so, you’re well on your way to being cut out for real estate investing.

2. A Sense of Humor

A sense of humor goes along with patience and resilience – I see it as another aspect of a broader mentality.

It’s so much easier to get through life – and real estate investing – when you’re able to look back and laugh at the dumb mistakes you’ve made. It’s an even bigger bonus when you’re able to laugh, or at least have a lighthearted perspective, in the moment that the difficulty is occurring.

Having a sense of humor doesn’t mean being flippant. You can be serious and responsible about your investment while at the same time not wasting your emotions on things that don’t matter (like the fact that the tenant you’re about to evict hates your guts, even though you gave her a second chance and she blew it).

A sense of humor helps you detach and at the same time, see people from a kinder perspective. “Maybe she was just having a bad day, and I had comically bad timing when I came to talk to her” – it’s this kind of perspective that can turn a bad day into an opportunity to reflect and de flect.

3. Social Skills

“But I’m not a people person!”

I’m not saying you have to love everyone you meet on this crazy planet we call Earth, but it sure helps when you are open to meeting and interacting with people on a regular basis, and have the basic skills to understand and communicate with those people effectively.

When I was sixteen years old I worked in an ice cream parlor. As anyone who’s ever worked in customer service knows, there are all kinds of people who come through that door and some of them aren’t easy to deal with.

For me, it was a priceless learning experience. I soon understood that there were all types of people out there, some very pleasant while others were grumpy no matter how perfectly I scooped their ice cream for them. I learned to observe and understand human nature and take things in stride, and I was able to apply that knowledge later on in real estate.

Think of all the people who are involved in the transaction of a property: the buyer, the seller, the real estate agents, the home inspector, bankers…

And that’s nothing compared to how many people you’ll meet when you are a full-fledged rental business: tenants obviously have a higher turnover rate than owners, so you’ll be meeting all kinds of new and interesting folks. And don’t forget you’ll need to establish relationships with subcontractors, accountants and attorneys as well.

Your goal is not to be best friends with everyone you meet, nor to be the most charming person imaginable. What you need are basic active listening skills, the ability to understand where the other person is coming from, and the ability to be pleasant and in control of your attitude.

Would you want to do business with a grump, or someone who is socially awkward? Now is the time to reevaluate your own persona and make sure you are someone who is approachable and generally nice to be around. It will take you far.

4. Self-Discipline

At first, this one might seem obvious: “of course real estate takes time and sacrifice, why would I get into it if I didn’t know that!”

I’ll tell you why: because people tend not to think in concrete terms about just what they will need to sacrifice to be successful, especially in the long run; and real estate is a long game.

Time is a precious commodity and each minute that passes is gone for good. Think for a moment about what the minutes in your day add up to: do they add up to you honing and improving a skill, or do they add up to your Netflix “watched” list expanding?

Investing in real estate requires a lot, especially up front. You will need to go the extra mile with doing your research and gaining vital skills to pave a solid foundation for years to come.

In my early investing years, I watched very little TV and spent most of my “free time” doing maintenance on my properties. It wasn’t a cycle I or anyone could sustain forever. But I eventually reached the point where my business became profitable and today I have both time and money to do whatever I want, within reason.

In other words: those few years of hard work and no TV allowed me to be in the position I am today.

So think about that the next time you find yourself unwinding with your phone or favorite show: is this something you’re willing to give up or cut back on for a few years of hard work? Would you rather have more free time and less money now, or work like heck so you can have more money and free time later? It’s a choice you need to consciously think about.

You definitely can and should still have some downtime for yourself. But the important question is, are you ready to give up certain comforts in your lifestyle now to be successful at the long game of real estate investing?

There is always going to be a sacrifice involved. You can sacrifice time and energy now for money and more free time later, or sacrifice future benefits by being more comfortable now.

There’s nothing wrong with the latter approach. Some people prefer to have an easier lifestyle now, even if it means less flexibility and success in the future. The real question is, which type of person are you? You can’t choose whether you will sacrifice something, but you can choose what it is that you will sacrifice.

5. Intentional Living

Do you feel comfortable taking a moment alone with yourself to reflect on how you did this week, last week, or this past year?

Intentional living means you are comfortable reflecting and reevaluating your choices on a weekly basis. It also means you have goals for the future and are actively working towards those goals, and are flexible enough to change what you are doing in order to get there.

Some people keep their days so busy and full that they have almost no time to reflect or plan long-term. Some people definitely aren’t as comfortable thinking about their choices, successes and failures; they prefer to live “in the moment” all the time.

It’s great to stay grounded in the present. But if you aren’t comfortable reevaluating your choices and your priorities and taking responsibility for them, then real estate investing may not be the best route for you.

Real estate is not for the faint of heart; you are bound to make mistakes and have setbacks. A sense of humility and a willingness to learn about what you did — and about yourself — is crucial to finding success in the long term. Being successful at real estate also means thinking in terms of years or even decades, not weeks or months.

Time goes by whether you like it or not. But one thing you are able to control is making sure you plan and schedule your time now so that you will end up where you want to be. It’s not a “set it and forget it” process either; you are constantly learning, adapting and growing.

6. An Interest in Lifelong Learning

The best in any field enjoy what they do. This drives them to learn more and become even better. It’s a positive cycle.

The great news is that there are more amazing, high-quality resources available now than ever before, and many of them are free. The Internet is full of blogs, courses, webinars and other content pulled from the rich experience of people who have gone before you. A simple Google search will yield more information than you could ever hope to get through.

There are also excellent books written by established experts you can buy or download or borrow. If you don’t have time to read a few minutes before bed every night, you can listen to an audiobook while driving in the car.

Finally, perhaps the best and most meaningful way to learn and progress in the real estate world is to find a trusted mentor. This may be a friend you know who’s been doing real estate for a while, a speaker at a real estate seminar, someone you discover word-of-mouth or even someone you meet online. Whatever the case, look for someone who has proven experience but also wisdom and a sense of humility (and ideally, a sense of humor). It will truly enrich your real estate journey.

Conclusion:

These six qualities are not the only things that count when it comes to finding success in the world of real estate investing. But they are an important start to knowing if real estate is the right path for you to begin with.

You don’t need to be perfect or even great at all of these qualities (I wasn’t in the beginning and I’m still learning now). What matters is that you see the value in these mindsets and take the initiative in implementing them in your own life. If you do, I can tell you from personal experience that it will benefit you not only in your real estate career but in every aspect of your life.