BiggerPockets Podcast 030: Conservative Real Estate Investing and Starting Out with Kenny Estes

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Today on the BiggerPockets Podcast we want to share an interview with someone who runs his investment business in a unique but powerful way – and it’s sure to both inform and entertain you. On today’s episode, we sit down with real estate investor Kenny Estes and chat about investing in rural America, funding deals through private money, building a team, and “going big” with a bold exit strategy. Join us today for a really awesome interview and one of the highest caliber conversations we’ve ever had (and one of the largest debates as well!)

Read the transcript to episode 30 with Kenny Estes here.

Listen to The Show on iTunes (Preferred Method!)

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover

BiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AM

  • How Kenny started investing at 18 years old – while still in college.
  • The early mistakes that Kenny is still digging out from
  • The “Cab Driver Metric” in Real Estate Investing
  • Why “no money down” is dangerous
  • How to “stress test” a real estate deal
  • How Kenny found his initial private investors
  • The debate between “Invest Yourself” or “Invest with Others”
  • Kenny’s real estate team – and how he built it
  • Finding and dealing with contractors
  • Kenny’s “boldexit strategy plan

Links from the Show

The House Flipping Calculator
Are Stocks Better than Real Estate? Post by Kenny Estes
Boring can be Sexy when Investing in Real Estate” post by Ben Leybovich
Ultimate Beginner’s Guide to Real Estate Investing – Free eBook
CashFlow Board Game

Books Mentioned in the Show

Rich Dad Poor Dad by Robert Kiyosaki
Investing in Real Estate – Gary Eldred
On China – Kissinger

Tweetable Topics

Be very cognizant of your risk threshold and do it very conservatively. (Tweet This!)

Private investors are people you know. (Tweet This!)

Invest simply, do it conservatively, do it for the long haul. (Tweet This!)

Connect with Kenny

Kenny’s BiggerPockets Profile
Kenny’s Blog –

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 180,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!


  1. I’m still listening podcast, but cannot wait to post.
    Regarding saving money and find someone who “knows what he is doing”. So you can learn from him. Just NONSENSE. And it is very easy to prove. In order to judge that person knows what he is doing YOU need to know HOW it should be done. I’m going from my personal experience with double digits of cases. Other way you just blindly BELIEVE that he knows what he is doing.

    • Kenneth Estes

      Appreciate the comment Mike. As I mentioned in the interview, in order to determine if someone is able to perform requires a lot less information and training than to do all the legwork you should to become a real estate investor.

      If done properly you have the added advantage of a track record to examine.

      The alternative is to read as much as you can and then attempt to go it alone. Then you have to have blindly believe that you are going to be successful. For a new investor, that belief is largely based on hope.

      This especially doesn’t make sense if you’re going into real estate to realize a strong return and don’t have a passion for real estate itself.

      • Kenny, you very good person and your answer about lease options showed it to me. I’m also VERY GOOD guy, but NYC hit me hard because of it. I will not believe any paper with track record and cash flow analysis. People with take all your money, will smile and tell you everything is legit and fine even if you tell them that you will be killed if you lose money.

        • Kenneth Estes

          Very good point Mike. There is no shortage of people out there whose ultimate goal is to “make a buck.” One thing that I stress to our investors is transparency. At any point they can access our accounting system and see where every penny is being spent. In addition to looking at a track record and cash flow analysis you have to make sure anybody you’re putting money with will let you see every aspect of their operation. If they throw up a road block, walk away immediately.

      • Aaron Vergason

        Great interview. I kind of did what you said with a mentor…The only difference was I heard about someone who had money they wanted to invest, I found a person doing very well investing in Buy/ Hold Deals, so I partnered with him, and “Brought the Money”. Our investor would never have given me the money alone because I was green, but since I had a partner with experience and with a lot of clout with local banks, I was able to get in and learn a ton! We have been partners in an LLC for almost 5 years now and I’m still learning of course, but now I have taken the driver seat and my partner is more a guide for tough decisions. I did it this was because my Risk was extremely low. He had many thousands of more assets than I did that he needs to protect.

        On another note, I don’t understand you buying properties with cash and Investor Partners. It seems to me that a Bank is a better partner, because once they are paid off it’s all yours. I have been buying/ holding properties with local bank portfolio loans and like that better than adding partners. I know you have a ton more data behind your decision than I do. I have been approached by people who want in my LLC, but banks are quieter partners.

        Thanks again for the great podcast!

  2. Once again, I will comment on things that I went through.
    Right before going in to my current business, I was listening E-Myth few times. And I tried to make organizational chart,because in book it says “This is first step you need to make”. I never did it and reasons are:
    1. You need to KNOW business structure and processes to make this chart.
    2. You need to BELIEVE that this is important to spend time on.
    Now (2 years later in business) I believe that this is important and I’m in process of learning business structure and processes in order to make this chart.
    What I’m trying to say that there is learning spiral, first you get theory about some problem and solution. But only after you HIT THAT problem you will not go back to theory to LEARN and APPLY solution. Just reading books is like putting tools in the box, but you will not make money with it if you will not go to job site to use it.
    Regarding wholesaling! YES it is JOB, but I will better learn this job than computer programming where new thing coming every day. Knowledge gained here will take me further to financial freedom and wealth.
    Wholesaling is investing! There are two things in the world to invest: TIME and MONEY. When you do not have money you invest TIME in wholesaling that as ROI will get you knowledge and experience from which point you can get access to capital.
    I’m out of here 🙂

    • Kenneth Estes

      Thanks again for the comment Mike!

      I think we’re just looking at the problem differently.

      Investing money is an investment.

      Investing time is a job. This is exactly what you do when you work for someone else. You work x hours and get y dollars.

      Most real estate investors (especially the ones working with me) are looking for an investment. They want to get to a point they only put minimal time and still have a large passive income.

      I find that many new investors are only going into real estate because they feel it’s the quickest way to get to that point. My argument is that it’s NOT. You’re not going to get rich overnight. It’s still a job.

      I’ve crunched some numbers on my personal blog and would argue the average “new” real estate investor makes less than minimum wage.

      If you want to be an investor, work towards that. Find the best return on your time while you’re still working at a job and buy passive income generating assets.

      • You absolutely right, we’re just looking at the problem differently.
        My definition of job is trading your TIME for money. You did not show up in office you don’t get paid for this time. JOB not scale-able. It is active (perform or lose) and the only return is money.
        My definition of investment are 1. trading time for knowledge that will make money. As Brandon told, most people go to university. I spend time here, right now, no one will pay me for that. But when I listen podcast and talk with people like you I learn things that will make me money in future. I invest my time and value it more than hour dollar rate.
        2. Use my capital to make money. I said MY, because if you use OTHERS people money you invest using point #1.
        I’m posting all this with assumption that I may be wrong and would love to learn WHY if so.

        • Kenneth Estes

          It’s not a matter of right or wrong, just a matter of perspective. Trading time for knowledge that will make money in a job is called training. It gets you a higher hourly wage but I would not classify that is a true investment.

          Semantics aside, what I’m advocating is:

          – If you’re going to work a job, make it the highest possible return. For most people this is not in wholesaling or flipping.
          – Use this income to build your capital and learn how to to invest in passive cashflowing assets. Real estate just happens to be one such asset.
          – Invest conservatively with a long term view.

  3. Kenny,

    I completely agree with you on savings, getting a mentor/coach, and only doing flips. I started my learning in 2012 with a local investor after I saved some money. I put skin in the game, which is understandable because the mentor wants to make sure you’re serious. I was able to leverage his knowledge, experience and contacts and have done 2 deals, starting a 3rd and potential 4th deal. Yes, it took a lot of time, yes it took money, but if you’re into it for the long run, that’s the investment. Also, I’m in a market that is tough to get into (Wash DC) and you can lose your shirt. My learning has been phenomenal. My returns on my flips have been phenomenal as well. no complaints. I’m completely for coaches and partnering with experience investors.

    *1st rule of investing- don’t lose money. You can gain experience without losing money. It’s better to make no money and learn than lose.

    There are of course other ways to learn and grow, but i’m completely fine with my decision.

  4. Awesome! Haven’t listened but I have a long drive ahead of me, so this will certainly help. Thanks for doing so much to help new investors guys! these podcasts help a lot.

  5. Keith Lathrop on

    Great show guys!

    Kenney, you’re awesome. I couldn’t agree with you more in regards to your conservative perspective on how to get into real estate investing as a beginner.

    Real estate has always been a huge interest of mine and after the purchase of my first home a year ago I have been obsessed with it all together. I developed a plan to save up between $30,000 and $50,000 over the next few years to get in the game with as much of my own money possible, and in the meantime learn as much about real estate as I can.

    I am finding, however, that this plan seems to run contrary to the advice of many RE professionals and investors who often say “why wait and save when you can use other people’s money to get in the game right now?” No thanks. I watched too many people lose everything overextending themselves using “other people’s money”. Leverage is a better tool for the experienced and disciplined investors than it is for rookies. Paying to play with your own money keeps the game honest.

    Thanks again for the great show guys! Good luck on your endeavors Kenney, stay on course and try not to chase to many “shiny balls”. LOL!

  6. john milliken on

    I’m with you josh on the “how would someone know what to look for when being totally green” side of the argument. if you have 50K to invest in real estate, do your homework, and take control of your investing actions. I’ve seen to many new “investors” lose by trusting/ going along with the “expert” investor.
    thanks again for the weekly podcast.

    • Keith Lathrop on


      I respect your opinion and wish more people shared your “can do” attitude. However, I am going to play a little devil’s advocate here.

      It could take weeks, months, and even years to build, implement, and market a successful real estate strategy. Checking a company’s balance sheet, P&L, and client references should take no more than a few hours.

      Wouldn’t it be easier for someone to do their homework on a specific company that specializes in real estate as opposed to doing their homework on investing in real estate as a whole?

    • Kenneth Estes

      Thanks for the comment John.

      Keith did a great job of articulating what I would say. The only thing I would add on is that I would place a large wager more people fail spectacularly going it alone then relying on someone with experience and a solid track record.



  7. Ha. You knew that some GC would crawl out from under a rock to comment. We’re out there! I do understand the issues you/ we face. I’m a GC and a RE broker (investor). I understand the investor process and challenges. A tip. Find a contractor who will put some skin in the game. You want him to feel some of the same urgency that you feel about the project. I’ve talked about this in the BP forums. They may defer payment/ partial payment (for a small percentage) until you flip or refi. This is a great strategy for investors who are able to fund a purchase, but who can’t afford the rehab costs. Great podcast!

    • Kenneth Estes

      That’s a really great point Craig. Maybe you could give me a bit of advice?

      I’ve tried to broach that topic (getting some skin in the game) with contractors in the past and it just doesn’t resonate with them. Given the option of payment in cash or a higher dollar value in equity, they’d much prefer the cash. I’ve heard the equity feels a lot like “paperwork” or “that finance stuff” and doesn’t interest them much.

      Also, where are you located? 🙂




  8. Kenny,
    Thanks for a great show. I may be lost in the semantics but isn’t what you are suggesting another name for “partnering”. Which is a pretty common, and well regarded strategy, right?

    The thing is about starting out with $50,000 is that it’s $50,000! For me it’s a years wages. It would take me 3-4+ years to save up that much and then I’d have to start the saving all over again. On the other hand I can visualize a strategy for getting that much money by flipping and wholesaling (I’m still in the visualize stage). But, as I type this I see your point about risk. Risk is the factor that I haven’t given much thought about. My focus has been on retiring, not getting rich quick. I can accept “slow and steady” but as I’m in my 40’s I feel that there is some mild urgency. You have given me much to consider.

    P.S. the hosts did good work on the show too. 🙂

    • Kenneth Estes

      Thanks for the comment Gary!

      I hope you reach your goals.

      One more germ to consider. I’ve done some analysis on my personal blog which implies that the hourly rate for a new investor in flipping is less than minimum wage! If you’re looking to build that nest egg quickly, you might get a better return on your time doing something else.



      • Abdul Rasheed on


        Just listened to your show and loved it. And I get your point of view in terms of risk for the new investor. My question to you is as a new investor yes I may take my sweet time to get that first deal closed and in the mean time I might have earned only less than the minimum wage. However I would think that I did not lose my pants (which itself is a success) and I learnt a lot doing my first flip. But my second flip or third flip are not likely going to be like that. I am potentially improving with each flips thereby earning more wage per hour, right? That is what I plan to do, and eventually generate enough such short term in come and put into conservative long term passive investments for my retirement. Your thoughts.

  9. I disagree, with some of Kenny’s points. Wait until you make 50K? hmm I have bought three houses no cash, lowest one profits 175 per month, the other 260 per month without any extreme amount of time researching properties. It took me about 2 months part time to locate the properties, financing was easy, and once I hand it over to a property manager life is easy.
    The research is not quite rocket science. its like this
    1. Drive an area (Saturday afternoon)… look for areas with strong family stuff (Home Depots, Starbucks, Lowes,
    2. Price a property (Average, prices.. Aim to get a lower priced but functional property,, no fixing or a weekend worth of doing repairs)
    3. Go to and see what the average rent is for that area
    4. Insure that after the mortgage, the property manager fees, your home warranty fees you make at least (______) how much ever you decide.
    5. Be honest if you wont make money, don’t BUY it.
    It may take up to 3 months to get your property and cost you up to 4-5k if you want to do a fixer upper, with the latest crash, there is so much good inventory there is really no real reason to buy non functional property that is for a buy and hold strategy.

    Now I am doing this part-time until I retire from military, but it is scale-able for my needs.

  10. Great show! I’m really, really glad you talked about risk management. (If anything it validates my need to run endless spreadsheet “what if” scenarios). As an engineer, we talk about risk mitigation all the time, and I’ve got to think it’s the same in real estate. As I gain experience in these first MF investment properties, there are many potential risks now that “seem to emerge”. Mostly due to my *lack* of experience. So I can see the argument for pair-programming with another investor. In any case, I will “stick with what I know” and “be boring” lol! Cheers,

    • Kenneth Estes

      I too am no stranger to pair programming, and I think it’s particularly apt here. One of the main advantages of pair programming is that the person not doing the coding is forced to ask “silly” questions. These silly questions are what force the programmer to really think about what they’re doing.

      The same applies with investing. I can’t tell you how many times a potential investor has asked a “silly” question which ultimately forces me to change how we operate. Everyone wins. I am more confident things are sound and they gain knowledge about how to do it themselves, if they so choose.

  11. Great show Kenny, I was all ears for the whole interview! It’s great to hear how you’re killing it in South Bend. I especially like how you raise money every 3 months and see what you can do with it. Very interesting, first time I’ve heard of that. I agree with being conservative and not spreading yourself too thin while starting out. Reserves & that ability to absorb “stress” like you said is super important!

    I thought I’d mention that I didn’t learn what P&L Statements/Balance Sheets were until after I bought my first few properties and started learning about accounting 🙂 Numbers can be spruced up and it’s very easy to smooth talk an investor that doesn’t know what they don’t know. “Personally”, I wouldn’t advise anyone get into an RE investing partnership without knowing their stuff. There are plenty of ways people can take advantage of you even if they have skin in the game. Especially if they are familiar with every inch of an operating agreement and you have no clue how to truly understand it.

    Partnerships are amazing and partners will always learn something from each other. I haven’t been investing for “too” long but I’m on BiggerPockets each and every day. In my time meeting & greeting new investors, I’m seeing many of the personal development, business, investing, and technical challenges people from all walks of life are facing when they make a decision to better their financial future. With the easy access to information through venues like BiggerPockets, podcasts, Books, local networking etc.. I feel it’s a no-brainer and a MUST to self educate before ever going into business with someone.

    “All men who have turned out worth anything has had the chief hand in their own education.” ~ Sir Walter Scott

    • Kenneth Estes

      Couldn’t agree more. You should indeed always be learning about how you’re investing. I worry a point that got lost in the podcast is it is still hard work to learn everything you need to know before investing with someone.

      I would still argue it’s easier than learning everything you need to know before you buy real estate. I don’t need to know the minimum R value for insulation to invest with someone, but I should know it before I buy real estate.

  12. Hey Kenny, My tip: Don’t give them the option. Take their bid and tweak it to include a very small equity position (i.e. you pay soft costs and materials, and hold back labor + add a %) and counter. If they say no, try another GC (I hear the groan). Save time by holding a single bid walk with multiple GC’s. Again, this is a great approach for those who have just enough to buy, but don’t have rehab funds. You asked where I’m located. Nor Cal. My sphere is Sacramento to the Bay Area down to Monterey. As a broker, the entire state.

  13. Hi, Kenny.

    Just listened to the Podcast in which you were featured (as guest speaker) and
    found your discussion with Josh and Brandon to be very informative.
    Thank you for sharing your time, advice, and anecdotes.

    Two topics that really captured my interest were …
    1) the Cap Rate discussion piece; and
    2) the REIT talking point near the end

    Re. #1, might you be able to suggest a good source [website, newsletter, company; pay-for or best – free 🙂 ] for obtaining the latest Cap Rates associated with SFRs or MFRs in a given area? BTW, for those who may not know, SFR = Single Family Residentials; MFRs = Multi-Family Residentials.

    Re. #2, I like the long-term goal/idea of establishing a REIT someday. Again, can you suggest any good website or literature for learning more on the process, components, etc.?

    Thanks, in advance, for any info you can provide.

    Kind regards,

  14. Great Show Kenny. I really appreciated the comments on how real estate is a very risky business and not a no-brainer guarantee of big and fast profits. I have a question regarding raising private money and here it is: if you’ve only got 5 or 6 flips under your belt and so don’t have a long track record, what have you found is the best kind of conversation to have with friends and neighbors to try and get them to lend you money on a one investor one house basis? I have been very uncomfortable with the thought of approaching them.

    This is for Josh and Brandon. All the podcasts are great but just about all that I’ve listened to (about half) have been with guests who seem to have had success almost immediately, say within a year. They seem to go from their first flip to 8 to 10 flips or more a year within 1 to 2 years. Sadly this has not been my experience. I haven’t lost money yet but a couple of my flips have produced very slim profits and I am only able to buy 2 per year since inventory is so slim and I don’t have enough money to buy more even if I could find them. So I would like to suggest that you have a few more guests who bring up the points Kenny did regarding how hard it is to learn everything you need to know and the risks involved and perhaps to talk more about their failures than their successes just to bring a little more perspective to the discussion.

    Thanks so much to all for bringing us such great content and fabulous Bigger Pockets website.

    • Kenneth Estes


      First off, I’m a terrible salesman. I’ve never had the heart to “always be closing.”

      My approach is to let them come to me. I will casually mention what I’m in a dinner conversation or over drinks. If they have any interest they’ll ask for follow up information. If they don’t, I move on. Once I send them the information I send a maximum of two emails asking if they have any follow up questions. If they don’t directly respond with questions, I move on. This way the decision is entirely on them and you don’t risk losing friendships by being too pushy.

      Probably not the silver bullet you were hoping for. 🙁

  15. Donald Hendricks on

    What a pompous elitist this guest was. Not everyone was born with a mommy & daddy who bought them their first house and paid for their college education. But of course us minions are far too stupid to be able to purchase real estate as an investment, that is if you follow this guys advice, who didn’t even follow his own advice.

    • Kenneth Estes

      Thanks for the comment Donald.

      It sounds like what I was saying didn’t land for you. Let me try it a different way:

      – Real estate is a risky investment. Many of these risks are out of your control. When making an investment, you have to stress test it and make sure you’re not taking more leverage than you can comfortably handle. I don’t think anyone is “too stupid.”
      – When you’re just starting out, it’s unlikely you will be able to match the deals an experienced investor can make. This is just a function of experience and economies of scale.
      – It takes a lot of time and effort to find, buy, and oversee real estate. On my personal blog I’ve done some analysis which shows the “hourly rate” a new investor receives is less than minimum wage.

      High level goals should be
      – If you’re going to work a job, make it the highest possible return. For most people this is not in wholesaling or flipping.
      – Use this income to build your capital/savings and learn how to to invest in passive cashflowing assets. Real estate just happens to be one such asset.
      – Invest conservatively with a long term view.

      You are correct, when I first started out I was investing too aggressively and it didn’t end well. That’s the great thing about experience, it teaches you what not to do.

  16. Kenny’s brother here. Great interview! Heady stuff – even if camouflaged by the Wayne’s World moments.

    I loved the debate of trusting someone vs. wanting to strike out on your own. I just thought I’d provide a little perspective on the kid.

    Kenny’s been blessed with some amazing mentors. I can think of one established Kirksville real estate investor in particular who helped show him the ropes. Also, his need to maximize his return on time came from his highly successful coworkers. These folks weren’t able to devote themselves to their investments full-time because the opportunity costs were simply too high.

    Also, he’s not a general contractor. He helped build three homes by the age of 14 so we could stop sharing a bedroom and afford college – but he’s no expert. The people I’ve known who’ve done well in real estate by themselves with limited seed money have had the skills and made the time to build sweat equity. To Lear’s point, this helped limit the downside (risk) and maximize the upside (return).

    Where you fall on the debate may also have a lot to do with your learning style. Kenny and I grew up highly analytical. Our dad made us prove that a $60 pair of shoes that would last six months was as good a deal as wearing out a $10 pair every month. We seem to learn the way nurses do: see one, do one, teach one… and study like mad! Everyone learns a little differently and that doesn’t make one way right and the other wrong.

    Perhaps nothing’s impacted brother man’s mentorship-first perspective than his experience finding properties. We looked for five years to find a good commercial property before we purchased the apartment complex. However, once the portfolio reached a critical mass, investors and banks started coming to come to us with good properties at attractive prices. This seemed to happen at about 50 doors in both Kirksville and South Bend.

    Kenny: To Donald’s point, you’ve got to admit that you dropped more than a few AP Latin phrases and Britishisms in the podcast… shiny balls aside.

  17. Hi Kenny, I enjoyed listening to the podcast and learning more about risk avoidance. Can I just ask though I know that you said you are paying all cash for properties to minimize risk, but isn’t one of the benefits of real estate to use leverage to increase returns? Even if you financed only 50% of the purchase price, wouldn’t that increase your returns significantly without taking on too much risk? I’m new to investing and just trying to learn as much as I can.

    • Kenneth Estes

      Absolutely! If we could get 50% financing tomorrow at reasonable terms, we’d be all over it. The problem is the transaction cost. Our average property cost basis is about $50,000. We have about 7 million invested, or 140 homes (some are multifamily). In theory if we got 50% financing we would be able to purchase another 70 homes!

      Couple of issues:
      – To get that financing using a traditional bank, we’d have to get full appraisals on every property. Let’s say that’s $2,000 apiece. That means to get that 3.5 million we would have to pay $280,000 just in appraisals! Not to mention the loan origination fees banks love to tack on.
      – The lending market is not conducive to large investors. The rates we’ve been quoted are 7% for a 5 year ARM with a 15 year amortization.

      Those factors together means getting financing won’t have a large impact on our overall cash on cash return. Granted, if we have a large amount of “sweat equity” in these properties it might make sense to get leverage to tap that. However, considering the expense it might make more sense to sell properties on a regular basis. We’re creating a pipeline which will allow us to do just that.

      We are also looking for a portfolio lender who can work with us on the transaction costs and interest rates, but so far haven’t found anything that really excites us.



  18. Jason Nunemaker on

    Great show Kenny! I look forward to watching your business grow over the years. Excellent business model and you have a well run machine cranking up.

    Also thanks to Josh and Brandon for putting such great content out there every week!

  19. Mark Graffagnino on

    Enjoyed the podcast very much. While I agree with being conservative, the problem I have with Kenny’s plan for a newbie is putting your $10K in the stock market and letting it grow to $50K before you start investing in real estate. That sounds like a 10 year waiting period to me. My guess is that is not going to be realistic for someone who is interested in real estate investing. Sorta like Dave Ramsey telling his callers to save up until you can pay cash for an investment property. But I am 100% in agreement with getting educated before you jump in.

    I like the concept on the podcast of questioning a guest’s premise if you think you need to. There were some prior episodes where I think some of the guest’s ideas/strategies should have been questioned or challenged. I think it can be, and was, done respectfully and professionally and brings a needed alternative view to the show. Of course you don’t want to turn it into an O’Reilly segment where you’re screaming at your guest “That’s BS!!”

  20. So, Great podcast, Kenny is full of great information and is clearly above most as far as pure investors go. His background in analytics and the stock market are mostly likely how he formulated his opinions on that debate. I don’t feel either side is wrong or right. But Kenny’s opinion to go stocks first is because that’s where he started.

    In my opinion, if someone is starting from scratch with no experience in either, stay away from stocks period. The idea that real estate is riskier than stocks is far from true. You have full control of a house (IF you just do one then move on) vs a stock you can’t call the company up and tell them to make better decisions. Plus you most likely are buying stocks that are overvalued so from day one you lose money. Sure they can and probably will go up but they could drop significantly before you sell them. Most people have know clue about how the stock market works and for them to jump in that market without a ton of research would be a bad idea unless they have extra money they don’t care about. Now on the other hand if thats the person’s background (similar to kenny) then sure it would be the best place to start. So pure investors, not hands on should go kenny’s route they have the knowledge already.

    Most people do, on the other hand have at least some knowledge of housing. They grew up in a house or apt.. They will most likely have a small understanding of value and at least what they can afford and if it goes bad they can live in the house. (well most of the time). Pretty much my same argument with gold standard bugs. Gold is just as fiat as currency its only value is because people think its valuable same as the dollar. But you must accept dollars as payment you don’t have to accept gold. You can’t live in a brick of gold so you might as well leave it buried. Real estate is a touchable asset, that is part of one of the essentials in life, shelter.

    So all things being equal I feel jumping into the real estate market is safer as long as the person can move into the place or can rent it. Buying a house that needs new carpet and paint would be ideal. Not needing raised on a new foundation.

    • Kenneth Estes

      Thanks for the comment Rook.

      First off, in my time in finance, I learned something frightening: Wall Street makes money assuming you’re wrong. The fundamental assumption is that every trade an “amateur” investor makes is incorrectly valued in the short term. They make money on these short term misvaluations and fees.

      To say I’m biased because of my background is correct, just in the opposite way of what you’re thinking.

      The only way it makes sense to go into the market is to invest for the long haul and do minimal/no short term trading.

      That said. I apologize if I came across as saying real estate is more risky. That was not my intent. Both real estate and stocks have some massive risks. When you’re starting out with a small amount of capital I argue you should go with stocks over real estate because:
      – Lower up front capital necessary
      – Higher liquidity (if you need that cash back quickly because of life events you don’t have to wait 6 months)
      – Easier to manage leverage.
      – Strong returns. In my blog post entitled real estate vs stocks, I argue that a long term S&P 500 investment yield the same return as investing that money in real estate with a 6% cash on cash return.
      – Lower transaction costs. It will cost you $5 to buy some stock, but 2-5% to buy real estate (depending on what you negotiate)
      – Less chance of shooting yourself in the foot. The regulatory environment helps protect a typical stock market investor from getting swindled or over extending themselves. You have no such protection in real estate.

      Barring the last one, none of these have anything to do with risk.



  21. I had over 10k in the stock market and after fees, sliding values and market dips I was making more in my CDs. Now I prefer a tangible asset where *I* am in complete control of the success or demise – not the stockbrokers. Whether that is a wiser choice? Who knows. The numbers fit and it just feels right for me.

    Bigger Pockets podcasts, forums and guides have been priceless to me, in the fact that I can learn before jumping in. Weed out the bad advice and gear me up for the long haul as an investor. Thanks for the show!

  22. Kenny,

    I listed to your podcast and it sounds like you have setup a great business.

    My companies goals were quite similar. In the last 3 years the goal has been to achieve management and construction economies of scale. Different compared to you we are also trying to achieve financing economy of scale.

    I am interested to know a little bit more about:

    1. You mentioned you personally invested in your fund. What do you charge to manage the fund? It sounds like definitely a property management fee (at cost or a % of revenue?). Do you get an acquisition fee? Do you get an 80/20 piece or a waterfall setup?

    2. If you allow new investors every 3 months how do you handle that? Do you mark the properties to market or leave them at their cost basis?

    3. How do you allow investors to exit?

    4. Do you ever regret the fund approach versus a more closely held model?

    I would encourage to really re-analyze your thoughts and assumptions on leverage. Appraisals on houses are not $2,000, they are $250-400. Blanket trust deeds have substantially different closing costs (typically the fees are based on the total loan). If you want hit me up and I can share some of my specific experiences and the best places to look.

    Lastly, I think your opinion on “wasting time” as a new investor does not factor in some intangibles (probably more applicable to those who plan to be full-time versus passive). A. In any new field your first XX months/years is earning a low hourly wage. (eg: a Dr has to go to school, and spend money to do so, for 8 years). B. You are assuming a person has other opportunity that they are sacrificing with that time. If a person works 40-hours a week and spends the remaining time watching football to learn investing they spend 40-hours a week working and 20-hours on BP. They are achieving the same hourly wage as before. C. In Real Estate someone can take $5,000 + a lot of there “extra, non-profitable, time” and turn it in $30,000. In stocks, your time, would not substantially help you achieve the same type of return.

  23. Kenny,

    I read listened to the podcast and read through the comments above. I understand that you invest conservatively and you don’t want to leverage your properties due to cost. However, appraisals on single family houses run from $300 to $500 each, which is a lot less than $2000. You may not want to leverage your entire $7 million portfolio, but you may want to think about opening a working line of credit with a bank. It is a great way to have a contingent funding source if you are short of funds. For example, lets say you open a line of credit for $1 million, you find some great deals but don’t have the equity on hand to fund them and it won’t be another two months until you raise money again, you can tap into the line of credit to purchase the homes, raise money, and using that new equity, pay down the line. I review loans for a living and I have seen this done a number of times. As long as you have a good LTV and DSR, any local or regional bank will want to lend to you. Rates could be as low as Prime + 1% going the variable route in this market as banks are fighting for good borrowers.

    • In addition, you had talked about stress testing cash flows, how about stress testing your on balance sheet liquidity? Do you have enough funding for contingencies? Is it the best use of capital for so much capital to be sitting as cash on the balance sheet? Or can you sleep at night knowing that you have a little less cash but a large line of credit ready at your disposal? Setting up the line of credit will be a one time expense, but I believe it is well worth it.

      • Kenneth Estes

        Thanks for the comment Johnson!

        You bring up a number of good points:

        Appraisals vary massively from region to region and are far from the only cost of getting financing.

        We considered doing a line of credit (yoyo), but we would still have to incur the upfront loan costs, but with a less certain return on investment. It might worth freeing up a couple hundred thousand, just in case though.

        That’s a great point about stress testing the balance sheet! We keep very little cash on hand, it’s mostly in real estate.

        If you know a portfolio lender who would be interested in working with us, please let me know!



  24. Kenny, I have an admittedly basic question: Where’s your cut? I understand if you have skin in the game (your own dime), you have a percentage of the return… but when you’re taking such significant cash for investment, and (I’m assuming) you can’t put your own cash into every deal, how do you pay for your time and your employees time. Do you take a percentage of every deal? I really respect the way you’re doing this, just was wondering about this one piece. Thanks.

  25. >> I’m not the kind of person who will go without calling people out

    This podcast was tough to get through. I have thought this in the past but Joshua (and to a lesser degree Brandon) at times tends to get caught not listening during interviews. I don’t know what they are doing – maybe typing/texting with each other, but they clearly are not following at times and goof up. In a recent past podcast, Joshua asked about a Facebook strategy and then after listening to the guest, they ask “well what about Facebook strategies?” The guest in that case was kind enough to just answer again and not say “well I just answered that question” In this case with the guest on podcast #30, Joshua was not paying attention and started jumping on the guest when he didn’t understand the question that was asked by Brandon. When the guest kindly corrected Joshua, he realized he was in the wrong but instead of letting it go, he just kept harping on the subject, somehow spinning new questions trying to save face and appear right. On the podcast he was “not trying to pick a fight” but here in the comments he is “not the kind of person who will go without calling people out.” *rolling eyes*

    Joshua, your guest was simply giving the perspective that with $50k in hand, people might consider investing with someone and learning the process with said investor. That doesn’t mean opening the Yellow Pages and randomly fingering someone to throw $50k at to invest. It still means networking at REIA meetings, perhaps networking on BP, doing due dilligence to find partners willing to work with them. I took it as simply his opinion that it was better to do that instead of doing it on ones own. I agree with the guests point that it is easier to vet a partner invester by networking with the large REIA community than to go it alone. That is my opinion and it is simply one person. You have your own opinion as well but it was clear on the podcast that you were caught off guard by not knowing what your guest was talking about or what question he was answering and you were on a quest to be right about something, anything.

    As somone who has listened to podcast #1 through #30 in the past few weeks, let me also say this. The content and topics on your podcast are second to none. I’be listened to a lot and find it much better than the guru podcasts that sell the good life. I feel like a large portion of my education has come through the podcast and from your website. I felt like you were off of the mark on this one.

    • Joshua Dorkin

      Yike –
      When we do our podcast, we have our video cameras on and have a personal conversation with out guests, and as in real life, we’re unscripted. We’ve got some notes, but sometimes we’ll miss something. It happens.

      Sometimes a cigar is just a cigar. – Sigmund Freud

  26. Not sure if anyone mentioned this, but the debate on getting in the game yourself vs. lending money to another investor to invest for me…isn’t it the same as “private lending”? You’re essentially giving your money to the investor to invest and getting a good return for it…am I missing something?

    PS – writing this at work real quick, hopefully it makes sense.

  27. I have a question about acquiring investors money to purchase long term rentals and what you do when the investor wishes to pull out and be returned the principal they invested. I am just curious because if you use investor money to buy a rental that you do not plan to sell anytime soon, how do you repay that investor when the time comes that they want to cash out and you do not have any liquid cash to pay them with. Would you be forced to sell property to be able to free up funds?


    • Kenneth Estes

      Thanks for the question Adam. We structure our investment as simply as possible. Everyone owns a percentage in the same LLC.

      That means if/when someone would like to leave there are other people who would be able to easily buy them out, or we dog ear some of our new investment money to give them an exit.



  28. Kenny – curious how large is your typical investment fund, in terms of a) dollars b) # of investors, and c) number of properties acquired? Do you have a prospectus or summary of investment objectives that you share with would be investors? Are returns/dividends paid out annually?


  29. Kenny,

    Thank you so much for all of your information and where I want to agree with the portion of the podcast where you spoke about not getting into REI on your own if you do not have enough capital and a lack of experience. I just can not. We all need some experience and personally if I have to wait until I find someone that is willing to mentor me or so that I can pay into their business, I believe I would be up a tree.

    My experience, maybe luck or unluck? I purchased my first property. Held it for a little over 2 years and accepted an appreciation of 40% when I sold. Purchased my 2nd property and paid cash. The property has paid for itself in about 5 years just from rental income.

    Now working on my 3rd project and I am working with an investor to fund this project.

    If we can work together in the future, share information or meet up along the way, I look forward to it.

    Not sure how close or far you are from your REIT, by the time you are there should you not be there already…..Let me know, I may very well be in a position to work with you in this capacity.


  30. benjamin cowles

    Is this guy just not the courageous entrepreneurial type that would ever “fail forward fast” with step 1 disregarding steps 2, 3, 4 etc as most REI podcasters suggest or is he the first sensible REI podcast guest to come out and advise people get a real education before hugely failing to a point of no return like most(??)

  31. Vic Marichal


    Very new to BP and recently listened to your interview. I thought your advice and recommendation was exactly what I was having trouble articulating To my wife. I couldn’t agree with you more with your conservative recommendation and painting an accurate picture of the real risks associated with real estate investing. We used mutual funds to save enough money to purchase our first rental property. Now our property is cash flowing enough to support future investments. I am into the steady and boring method of wealth building.
    Although I haven’t lost money investing in real estate, I did learn the benefits of diversification when I lost $$ in mutual funds (2001). Now that the market is dropping and the value of my house is booming, the net effect is positive since I’m getting a monthly rental check.

    Thanks again for sharing and being a voice for those who think being more risk averse is smart method of building wealth. Real estate culture is too accepting of the risks in “leveraging”. My first house we purchased was as a short sale from an “investor” who leveraged too far prior to the housing bubble.

  32. Chris Luksha

    Does anyone know if Kenny is still playing in the Real Estate arena? It is always interesting to listen to an early podcast and then go searching only to find the subject of the podcast has not posted on BP in two and a half years and his personal blog hasn’t been updated in three.

    Just wondering if he is out there still.

    The main reason is I am interested in the LLC formation he created for his private lenders. It almost sounds like he was begging for trouble from the SEC. Does that model still work?


    • Kenneth Estes

      Ha, yep still around, but not blogging. Props to the folks that can spin out a blog a week, that’s a lot of effort. As you’re curious, our fund is still around and doing well. With interest rates at 0 for 8+ years, I didn’t feel RE prices are good enough to justify growing the fund. So, it’s “on hold” with no leverage (ie lots of dry powder) until a good buying opportunity coming along. I’m spending the bulk of my time spinning up a venture capital fund.

      The LLC model I use with our private investors (not lenders) is pretty standard and has no issues with the SEC, not sure why you think it would? It’s so standard that the entire purpose of a REIT is to replicate the tax treatment afforded by the LLC structure.


  33. Julie Marquez

    I really liked that podcast, thanks Kenny! Also Kenny gets the award for best radio voice and best mic quality!
    This podcast led me to a discussion with my husband how I like boring things. I like conservative real estate, and my investment goals are so “boring.” But I know it’s safe and smart, and kind of slow, so I like hearing it reiterated in this podcast, it was really motivating for me!

  34. Eric Anderson

    Kenny, Josh, and Brandon…

    What are the defining attributes of a true investor, regardless of the market choice or area of expertise?

    I ask this question to understand the investor’s mentality better. I do believe there are differences between real estate investors and real estate professionals, and would love to hear your thoughts on the subject

    Looking forward to hearing your ideas

  35. Don Spafford

    So fortunate to have started at such a young age. When I was young my boss was pushing Amway as the way to go. If only he had been involved in real estate and got me started on the right path at a young age. @kenny estes when you get your REIT going let me know. I would definitely look into it.

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