LLCs are a hot topic with new investors. If you’ve been investing for a while, you probably invest with an LLC. But the question is: Is an LLC worth it for a new investor? Maybe you haven’t done a deal yet, and you’re about to do one. Should you start an LLC? Or maybe you have a few deals already, then the question might be: When should you start your LLC? Here I’ll address both things—when to start one and if it’s even worth it at all. Related: The Traditional LLC vs. the Series LLC: Which is Better for Real Estate Investors? I’ll nip one thing in the bud right now. Is an LLC worth it? Yes, absolutely. I know no one who owns a large portfolio and doesn’t own it in some sort of corporate structure. So if you’re planning on building a reasonable investment portfolio, you need an LLC. You just do. Here’s why. Why You Should Invest in Real Estate Using an LLC 1. Protection from liabilities. LLCs protect you from liability claims. Anything that’s a claim against a property—like, “Hey, I slipped and fell”—an LLC is an entity that can stand between you and that. The party will come after the LLC, not you personally. Full transparency: there are ways around this. The most important one to mention is liability insurance. Now, I’m not saying insurance takes the place of an LLC—but you are not fully exposed if you don’t have an LLC but you do have insurance. 2. Provides tax write-offs. Because it’s an entity with its own tax return, LLCs allow you to write things off (i.e., business-related expenses like your cell phone bill). You can try to write them off on your personal tax return, but it looks a little squirrelly to the IRS that it’s not a company claiming those business expenses. It makes things cleaner from a financing and tax perspective to write them off under an LLC. 3. Allows you to sell shares of the company. An LLC operates as a business entity. As long as it’s registered properly with the SEC, you can sell shares of the company to other investors who want to invest with you. You can sell shares as a security as you grow. Or you can sell the LLC altogether as a business that owns things. There are times when an LLC is not appropriate though. So, when exactly shouldn’t you form one? Related: Top 3 Real Estate LLC Myths: Busted! When NOT to Use an LLC 1. Don’t use an LLC if you’re house hacking. Don’t use an LLC when house hacking, because it may prevent you from getting the financing you want. If you’re looking for low money down, Fannie Mae- or FHA-backed mortgages, this property can’t be in an LLC. For these purposes, banks can only lend you that money under your personal name. Just get a really good insurance policy. 2. Don’t use an LLC if you don’t have 20 to 25% for a down payment. If you’re buying a property for $100K, if you’ve got $20 to $25K to lay down plus some for closing costs, there’s no reason why you would not go out and start up an LLC. You can get commercial financing on these properties or financing from some other lender. If you encounter lenders who won’t do it, find another one, look on BiggerPockets, or walk into a small community bank. More LLC Pro Tips Here are a few final thoughts on the topic. Avoid setting up your LLC online (unless you’ve been doing it for a while). Instead have a lawyer help you. And absolutely have a lawyer help you create an operating agreement with the LLC. You can do this online, too, but I highly recommend NOT going that route—especially if you have partners. A good lawyer can set up an operating agreement for you for less than $1,000. It’s worth it. Bottom line, if you’re going to build a business around real estate investing, run it as a business. An LLC is a company. If you’re looking to make this a side hustle or just something you do a little bit, then do it in your personal name and own one or two properties. That’s OK. But, if in the future, you intend to build a big portfolio, set up an LLC. Operate as a business. Do it now—five years before you get to that point. I promise you, moving properties out of your personal name and into an LLC is not easy—it’s doable but difficult. One last thing, set up the LLC where the property is. Don’t favor Nevada or some other state over others. The LLCs that own certain properties should be set up in the state the property physically exists in. You’re going to have to pay a tax return in that state. So just set it up there. The reason people talk about state-based LLCs is because they believe specific types of LLCs will prevent certain claims from jumping over the LLC and getting to you personally. However, I’ve never seen any state-based LLC prevent anyone from getting ahold of a person specifically if that’s what they’re trying to do. Plus, that’s what insurance is for. Avoid the tax headache of setting up an LLC outside of the state the property is actually in. I’m not a lawyer or CPA—neither is BiggerPockets. You should absolutely consult a lawyer or CPA about this subject. A lot of the information that I’ve gone through here today is my opinion, so it’s important to consult a professional. Watch the video above, where I go into even more detail about this subject, and let’s talk about everything in the comment section below. I’d love to hear your opinion! What do you think about LLCs? Do you favor a certain state over others?  Leave a comment below!   Free eBook from BiggerPockets! 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As investors, we know there are two main ways to put more cash flow in our pockets. We either need to increase income or reduce expenses. This is simple, but not always the easiest to do. Whether you are just starting out with one property or you are managing over 100 properties, reducing expenses becomes critical to your success and growth. In today’s video, my goal is to stimulate your thinking about your property expenses. Related: 3 Rental Property Expenses Investors Should Always Anticipate I share three ideas to reduce (and potentially eliminate) your expenses, which include: Question each expense. Use efficiencies. Ask yourself, “Are the ‘fixed’ expenses really fixed?” As always, let’s get some discussion going. What clever ways have you reduced your expenses? Thanks for watching! Be sure to leave a comment! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

This post is for you guys who maybe have a few private lenders lined up or maybe have private lenders who are coming to you that want to do some work with you. Maybe you’ve even followed some of the advice that I have in my BiggerPockets book Raising Private Capital, because this book is about how to attract people who want to work with you and loan to you or invest with you or work with you in one way or another as either private lending partners or private investors in your business. (If not, check out the book in the BiggerPockets Bookstore.) But once you get these folks, how do you vet them and how do you decide which is the right private lender to work with for your business? How to Pick the Perfect Private Money Lender for Your Real Estate Deals Maybe you’ve got two or three different people. What can you do to pick or seek out the right private money lender for what you’re looking to set up in your business. Ask a lot of questions. The first thing you want to do is ask a lot of questions. Do NOT immediately start throwing deals at these people. Question #1: Oh, hey, Uncle Charlie wants to work with me and lend me money for my business. Let me immediately throw Uncle Charlie deals. Instead you need to ask: What is the source of the money? You need to ask this question because the source of the capital will in some ways dictate how you have to structure that deal. If they are taking their money from a self-directed IRA retirement account and they’re loaning it to you, then there are certain hoops that have to get jumped through with your self-directed IRA custodian. You might need to speak to that custodian. You might need to get some paperwork from that custodian. It will likely slow down their ability to close by several weeks to get that money released to you by their IRA custodian. There might be certain covenants and clauses in the loan docs that the IRA custodian is going to require. So if it’s an IRA, that’s one direction. Also, if it’s an IRA, there are some things that you can create there—win-win benefits for them and for you—that we’re going to talk about in the next section. Now another source could be, let’s say, you locate somebody in your network who owns their home free and clear. You’re able to show them that they could unlock that equity they have in their home and turn that equity loose in your business. They can do this to build their net worth, build their income, build their wealth by unlocking that equity in their house. So if the source is a home equity line of credit, you need to know that. The reason why you need to know that is that a home equity line of credit or even just a mortgage has a monthly payment. You, as the investor, need to make sure they’re making an income that’s enough to supplement and exceed the monthly payment they have to make to maintain that debt. If they’re investing with cash, here’s the cash conversation that comes up. If they say, listen, I’ve got $100,000 of cash that’s just sitting there in a CD that’s earning half a percent interest, you can pay them 8 percent interest. OK, that’s a great conversation. But you need to tell them, hey by the way, I’m going to be paying you 8 percent on your money, but you know that interest is taxable. You’re going to have to pay tax on the interest you make and declare to the IRS that’s interest you made on a loan. That’s not true for an IRA. It is, however, true for a home equity line of credit. But they still get to claim the interest that they had to pay for borrowing that money, so they only pay net tax on the spread that they make from what they borrowed the money for and what they’re loaning it to you for. But if they’re loaning you straight cash out of their own pocket, they will likely have to pay income tax to the IRS—however it calculates. They’re going to have to pay tax on that money. You need to disclose that to them. You don’t want any surprises about income tax. They would be very unhappy with you. The best real estate investors who work with private money folks are at the core educators, meaning you educate your private money investor who wants to work with you on why investing with you is amazing and also how investing with you works. Get that education yourself from BiggerPockets. Related: Hard Money vs. Private Money: What’s the Difference? Question #2: The next thing you want to talk to them about is: What are their goals? If you’ve got a private money person who’s looking to retire in two years versus a private money person who’s 30 years old but happens to have $100,000 in their IRA, those are two separate goals. I have also encountered people who want to invest full-time eventually. That’s a different goal. They might want to get an education from you. They might want to learn how to do what you do as part of them loaning to you. You might need to expose them to a bit of the nuts and bolts, walk them on the job site, and show them what you’re up to—all those things on a weekly or monthly basis—in exchange for them loaning to you. And maybe the interest rate doesn’t matter as much or what you’re going to pay them. The exposure that they get matters the most. This is why their goals matter. Try to know everything you can about where they want to go, their wealth goals, and their future life goals. Where do you want to be in five years? That’s the best way—you should ask that of everybody. If they don’t know, that’s a great conversation to have further, to help somebody discover that. Then through working with you, you can help them get where they want to go. Those goals can have things to do with money or with their life (like I want to be a full-time investor). Or maybe they love what they’re doing but want to save up for their kids, for college or something like that. I had an investor whose goal was to move back to Argentina. He was from there, moved to the U.S. for work, and because he did some investing with us, he was able to create a path to move back to Argentina eventually. This took like five years. It happened because he and I both knew what he wanted to do and because I asked that goals question. We evaluated what is income was through the turnkey investments he had made with us and through some of the private loans we had done. Today he’s back home in Argentina, where he grew up, and he’s making passive income off of investments he’s made in the States. Look to create a win-win situation. So once you’ve got your questions answered, the next thing you want to do to pick the right private lender is to make sure that they are on board for a win-win with you. You’ve got to win, too. You don’t want to work with somebody who’s out to get you. There are predatory lenders out there that pose as private money. You don’t want to work with those folks. Conversation #1: You want to discover just what the win-wins look like and enroll them in a win-win conversation. Win-wins might look like, if somebody’s got an IRA let’s say, maybe you can have the conversation about monthly payments. More specifically, if it’s an IRA, you don’t need to make monthly payments. How great would that be if you’re doing a fix and flip, well you’re not making any monthly payments during the life of the loan? You pay all the interest at the time the project’s complete. If they have an IRA, that money is not needed by them. They can’t do anything with it anyway, because it’s in the IRA. It’s just as fine for you to pay them all the money at the very end of the project versus during the life of the project. If their money source is real estate equity, they have to have monthly payments, because it’s not fiscally responsible for you to put them in a position where they’ve got to maintain that debt the whole time and make those monthly payments just so you don’t have to.  I would never ask somebody to do that. Then obviously if they have cash, they might want monthly payments, too, because it just increases their personal cash flow. They can touch the money, they can put it in their pocket and use it versus an IRA where they can’t do that. Related: 4 Risks and Drawbacks to Using Private Money Conversation #2: The next thing that you want to bring up is terms and rate. If you’ve got somebody who wants to give you hard money loan rates, like they want to charge you 15 percent interest plus three or four points (you know one point equals one percent of your loan amount), it’s not really a win-win. You have to pay that up front typically, so if you’re borrowing $100,000 and they want four points, that’s $4,000 you have to write to them at the day of closing as a profit line to them. There’s your points; here you go, Mr. Lender. And those points are due to them at closing regardless of how long the loan is. So if it’s a shorter loan, they actually make a better return on their investment, because they got their money back and they can go and charge those points again. Points in general are more of a hard money conversation. It’s less private money. So if you’ve got people who want to charge you a lot of points and a high interest rate, that’s not a win-win—unless you’re in a bind, unless you really need to do the deal fast. If it’s really, really a screaming hot deal and it still works at those rates and terms, fine. But I don’t like those types of terms as the standard moving forward, because it’s really not a win-win. Look carefully at the written terms and make sure that it’s a win-win for you. And what’s a win for them? A win for them brings them to their goals. So once you know their goals, you define the rest. If I didn’t know my investor wanted to go back to Argentina, I couldn’t define a win for him—that being carving a path for him getting back home. A win for me was to elevate and grow my business with favorable loan terms that I could use over and over again, knowing that capital was there for me. It was almost like a line of credit. As soon as I needed the money for a deal, he was able to produce it lickety-split for us to go and close. He was willing to buy projects we had that were ready for turnkey. It wasn’t “no questions asked”; he did his due diligence on it. But he was a ready, willing, and able buyer, so I knew that was a win for me. I was able to produce product to sell it to him as a turnkey or to produce some deal that he was willing to loan to me on. This was a great arrangement. The Bottom Line The bottom line is the way you vet a private lender is to ask lots of questions and make sure you structure win-wins. High interest rates and lots of points are not wins for you. Lots of hurdles for you to jump through, weeks or months it takes to get the closings are not wins for you. Watch my video above for more information and for a 20% off coupon to buy my book Raising Private Capital in the BiggerPockets Bookstore. Have you used this type of financing before? What’s been your experience? If not, what’s your motivation for doing so? Do you have any additional questions for me about the process?  Let’s talk in the comment section below.  Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! 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Years and years ago, when I first started in real estate investing in my mid-20s I paid off all my bad debt in two years. I had college loans, a lot of credit card debt, bad debt that was a burden. The reason why bad debt stinks is you’ve got to pay money to maintain that debt. You’ve got to make credit card payments, student loan payments, whatever it is. This dings your cash flow to the point where maybe I’m making $400 to $500 a month in debt service payments—or maybe it’s more, maybe it’s less. But that’s money you could be enjoying or that could be going toward something that’s really beneficial to you. Instead maintaining this debt can just suck money out of your pocket. So it’s great to make that debt go away. Here I’ll explain how I did it and how you can, too. How to Get Rid of Debt So bad debt is… well, you know what it is. It’s bad. It’s a big chunk of money that you owe. This weighs you down. The way it stings you is you have the little amount of money that you owe each month. There’s two ways you can attack it. Pay It Off in One Big Chunk The first is you can go and do a large project, let’s say a fix and flip or maybe a couple of wholesale deals. And let’s say you make 10 grand. Awesome! There are a lot of tips on BiggerPockets on how to do that. Then you take that $10,000 and you could make a stupid choice, like taking your family on vacation, or you can take it and pay off your bad debt. You should obviously pay the debt because it will create cash flow for yourself since that monthly payment won’t be there anymore. So that’s one way to get rid of it—attacking it by throwing a big chunk of money at it all at once. Pay It Off Over Time I personally took another angle. This works particularly well if you’re younger, not married, and don’t have kids. The reason for that is I’m going to suggest adjusting your living situation. If you do have kids, it’s OK. Kids are actually pretty versatile, and they can live in the situation I’m going to describe to you here. And if your spouse is on board, which is 100 percent imperative if you’re married, and wants to eliminate all the bad debt, too, that’s even better. Related: How I Went From $100,000 in Debt With No Job to Debt-Free in 5 Years 3 Tips to Pay Down Bad Debt & Increase Cash Flow Here’s how I got rid of my debt when I was single. 1. Reduce Expenses The first thing I did was reduced my expenses by living below my means. That means if I could afford a mortgage or rent payment that was $1,500 a month based on my income, I chose to find something where paid less—let’s say $1,200. You could maybe do this by living in a different area, maybe not living with a Starbucks down the street or whatever. I wanted to do anything I could to reduce my expenses. 2. Eliminate Luxuries Other expenses I had included car payments. So instead of driving a brand new car every two years with a payment that never goes away, maybe pay off the car or get an older car that doesn’t have payments and can be purchased with cash. I also recommend eliminating stupid expenses like Blue Apron. OK, it’s not stupid. But it’s a luxury. You don’t need to have food delivered to your house. Get rid of luxury items. So what I did was found a way to reduce my expenses and live below my means. Yes, that is difficult for most people to do because most people in America live above their means. But the first step to paying off bad debt is just simply living below your means. Examine everything in your life, looking at all your expenses and saying, “Do I really need this stuff? Would I rather have Blue Apron or be financially free sooner?” 3. Hack Your Living Arrangement The other thing I did was a house hack. That’s real estate slang for living in a property that I own while also having other people live there who are paying me rent. I personally lived in a single family home I bought. It was three bedrooms, one bathroom, and I got it for $150,000. My mortgage was $940/month. Sure, this was a few years ago. But you could still make this strategy work. To get the most out of it, maybe you need to find a new neighborhood or charge more for rent. So I charged $500 a month plus a third of the expenses to two friends of mine who I had living in the two other bedrooms. I was making $1,000/month in income and my mortgage was $940. So in essence, I was living there for free. I was actually making $60/month in cash flow, too. Now apply this situation to a small multifamily. I wish I had bought a duplex or triplex or even a quad. Any of those you can buy on low money down. I bought my single family at 3 percent down. I think I paid $4,500. To come up with that if you don’t have it, then you first have to reduce your expenses, save up, and then buy. Related: How I Paid Off $85,000 in 16 Months These Strategies Will Pay Off I’ve seen house hacking work in most parts of America. It’s just got to be an area where people are willing to rent. And like I said, a small multi like a duplex, triplex, or quad is even better than a three bedroom, one bathroom. If you’re young and single, like I was at the time, do this. If you’re married, still consider it. See if your spouse is open to it so you guys can reach financial freedom sooner. By reducing my expenses and eliminating my housing costs, I created about $3,500/month to do whatever I wanted with. I could go and do a lot of fun things with that money, but I didn’t. What I did was I threw all of that at my bad debt, and I was able to pay it off very quickly. I paid off $20,000 in student loans and around the same in credit card debt—so $40,000—and I did it in two years. I didn’t always have the full $3,500 every month, but I did religiously throw any extra dollars I had toward those debt items. Now if your debt is more than that, that’s OK. You just need to be diligent, reduce your expenses, and house hack. Stay the course. It might take more than two years to pay it all off. But maybe you could do both angles I’ve talked about? You could do some large chunks of cash activity, where you do a wholesale or a fix and flip and you throw that money at the bad debt. And then you also look to reduce your expenses and house hack. These things might not exactly sound appealing to everyone. Nobody wants to do them. People want to live well, spend money when they want, and do lots of great things. But the folks I’ve seen who are successful are willing to live for slightly delayed gratification. So if you’re willing to cut out that Blue Apron and maybe not drive a car that’s got a $700 monthly payment and reduce your expenses in all possible ways, do that. What you realize if you’re going to play the long game in life is that within two to three years you can go get that luxury car, because you made the bad debt go away. Then the $300 to $500 a month you’re paying toward those credit cards and two phones or whatever it is, that goes into your pocket. It can become a fun car payment eventually. Watch my video above where I go into further detail about my story and about how you can replicate what I did to get out of debt. Have a great and profitable week! Were you able to pay off your bad debt in some other way? Tell your story below in the comment section.    Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! 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Should you get private money from your family and friends to invest in real estate? For some, it might make sense; for others, maybe not. Let’s talk about the pros and cons of working with your loved ones. And stick around until the end, when I’ll give you some quick tips and address some concerns about this topic. Pros of Getting Private Money From Friends & Family Members First, here are the pros of working with friends and family who may want to invest with you—whether that means immediate family members or just friends from high school or college. 1. They like you.  You have a rapport with them. They like you because you’re you. They know you and trust you. They don’t want to do this for you because you’re some juggernaut real estate investor (even if you are). You don’t have to go and prove yourself as an investor to them. 2. It’s a phenomenal way to build wealth.  What’s great about this is you get to share the gift of wealth building with people you actually care about. It’s a win-win arrangement! You’ll be motivated to create financial freedom for not only you but also them. 3. They are likely to refer you to someone else.  They’ll be eager to spread the word about you to their friends, neighbors, and so on after the deal goes well. Friends and family are great referral partners. Related: To Partner or Not to Partner…That is the Question! Cons of Getting Private Money From Friends & Family Members Now for the cons. Here are some reasons you might not want to get involved with friends and family when it comes to doing business. 1. The deal could potentially go wrong.  What if things go wrong? I can imagine the fear of this. It would be awful to lose lots of money that belonged to someone close to you. But I have an answer for this. We’ll talk about it in a bit. 2. You may be tempted to forgo paperwork.  It’s very important to still have all of the necessary paperwork drawn up and signed by all parties. Just because someone is your friend doesn’t mean it’s okay to skip this step. I’ve seen it go sour (as I mentioned in the video with the friend who leased to another friend—or more accurately, former friend—without a proper lease in place). My own mom lends me money for my business, and guess what? We still sign paperwork. 3. They might not even want to know about the deal.  This might seem like a good thing. You don’t even have to bother explaining to Aunt Sally about the deal. Or your brother doesn’t even want to know what the money’s for. He trusts you and wants to help. It’s not okay for the lending party to not understand what they’re getting into. How to Deal With the Cons of Borrowing Money From Friends & Family This is how you need to view working with friends and family in general. When it comes to the paperwork, do it! Don’t ever not do loan agreements or property equity agreements—no matter what the lender might say or who the lender is. Just do it anyway. In terms of them not understanding the deal, it is your duty to explain it to them. That is part of your role in this transaction. They have to understand what they’re getting themselves into, including timelines and when they’re going to get their money back. And finally, the “what if it goes wrong” thing. Do not do sketchy deals—ever. Underwrite super conservatively, and don’t go after lean deals that will only work if everything goes right. Do this with friends and family and all the other partners you have throughout your investing career. Build in room to fail. Then the failure can come out of your profit versus their pocket. Always ensure you’re doing deals that have padding in them. Most importantly, believe in your business! If you don’t think you can bring friends and family into your business comfortably, there’s something wrong there. You need to take another look at everything. Have you ever done business with friends or family? How did it go? Are you considering it? Why or why not? Let me know in a comment below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Over the years, many people have asked me this very question: should I pay off my student loans or take that money to invest in real estate? This is a great question that really has no “right” or “wrong” answer. Ultimately, it depends on your financial goals and financial situation. In the video below, I share my thoughts on this very important topic. I also discuss some important things to consider as you navigate this situation to determine what is best for you. Pay Off Student Loans? Or Invest in Real Estate? From those in college, to those fresh out, to those in their 40s, a lot of folks in America are dealing with student loans. They’re also wrestling with the decision about whether to focus on paying them off or start investing. If this sounds like you (or someone you know who should watch this video), here’s what to think about: 1. Your Credit The first thing you want to consider is your credit score. Your student loans can pull down your credit, especially if you’ve missed any payments. So check your credit. Is your score super low? Do you only have bad debt? If you can’t show a good payment history, it’s likely dragging down your score. Make regular payments and show you’re a good debt payer. Alternatively, maybe you just don’t have any credit at all. If that’s the case, go get some good debt, like a small credit card, to prove you can make on-time payments, and build up your credit score. You need to be focused on having decent credit before buying real estate. Otherwise, you won’t be able to get a bankable loan. Talk to a banker to check your status or get more advice. Related: How to Build Credit From Scratch 2. Return on Investment Look at the return on investment (ROI) on an investment property versus what it costs for debt. (I learned how to do this playing Robert Kiyosaki’s cash flow game.) Say I buy a piece of real estate that returns 15 percent. That 15 percent beats the ROI I get if I pay off my student loan at 6 percent. And I could even take the cash flow from my rental property and maintain my student loan with it. So if I’ve got $20,000 I could use to pay off my student loan, maybe I’d be better off taking that money and buying a rental property with it (as long as I can qualify for a loan). I’d be coming out ahead in the long run—by a lot. 3. House Hacking This is what I did. I bought a 3-bedroom/1.5-bath for my first rental property. I got it for $150,000. My mortgage payment was $940. I bought it on a 3 percent down FHA-backed mortgage and laid down $4,500, plus closing costs. So all in, it was maybe $8,000 or $9,000. Then I rented two bedrooms to friends for $500/month. They also each paid a third of the bills. So I was living for free (and actually making $60/month), plus I had a pretty good job. In two years, I was able to pay off all my student loans and my credit cards. Therefore, I highly recommend that you take the ROI equation and parlay it up with a house hack. Then you can take what income you’re earning and save yourself a housing expense while simultaneously drilling down on your debt. ______________________________________________________________________________________ Looking for a plan to achieve financial freedom in just five to 10 years? Even with a full-time job, median income, or negative net worth, you can accumulate a lifetime of wealth in a short period of time. Set yourself up for life with this bestselling book, written by the CEO of BiggerPockets, Scott Trench! Pick up your copy from the BiggerPockets bookstore today! ______________________________________________________________________________________ What do you think? What are the pros and cons to both options? Let me know in the comment section below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

There’s a lot of great theories and ideas out there in terms of keys to success for real estate investors. For instance, work really hard, have a set of goals, build a great team—I talk about some of that, too. But there are other less-discussed keys to success. I want to talk to you about three of those (although there are way more, to be sure). 3 Simple Keys to Success in Real Estate 1. Keep moving. Momentum creates success. If you find yourself stuck, put one foot in front of the other and find things you can do to carry yourself toward your goals on a daily basis. You don’t want to be sitting around waiting for things (like life!) to happen. Waiting does not create success—unless it’s strategically waiting for something very specific (like playing the waiting game during negotiation). 2. Don’t ever quit! I find that most people quit the first time something bad happens. My company and I have had a lot of bad stuff happen because of this business. We’ve had a lot of good stuff, too! But in general, we’ve created more and more success for ourselves. That’s mostly because we didn’t quit. If you quit, then you’re automatically out of the game. You already lose. If you don’t quit and you instead find a solution—and take quitting off the table as even a possibility—then the only other possibility is to eventually succeed. You’ll force yourself to stay in and get through turmoil and get through speed bumps until you trip upon success. Try and try and try until success hits you. Related: Ask BP—Was There Ever a Time You Thought About Quitting, and Why? 3. Limit emotions. Don’t ever let your emotions get involved. It’s very hard, because this can be an emotional business. On the good side, you might get extra excited and pay way too much for a property you shouldn’t really be buying. Or on the bad side, you could get overly angry about things you can’t necessarily control. Instead of getting upset, have a script for when things go wrong. Contractor doesn’t show up? This is what I do. Tenant didn’t pay their rent? This is what I do. Don’t let your emotions get involved, because it’ll skew your decisions. It’ll cause you to do things that are based on healing the emotion as opposed to advancing you toward your goals. As best you can, don’t let your emotions get involved. Those are the top three keys to success that most people don’t talk about, but you should be thinking about for yourself. All of these things will carry you forward to success if you put them into practice. What other tips do you have for investors? What has worked well for you? What have you heard works well for others?  Share in a comment below!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Buy and hold real estate is a long game—not that there is anything wrong with a short game strategy like wholesaling or mid-range strategies like fix and flips. These methods have their place in this business, but the strategy that requires long-term planning and builds long-term wealth is buy and hold real estate. To truly play the long game with buy and holds, you need to have a really strong team around you—a dream team. Related: 7 Small Things You Can Do to Boost Team Strength How to Build Your Buy and Hold Dream Team The dream team consists of your money team, acquisitions, and management. Each has their purpose, but I will say that your money team is the first step and the one that I believe people overlook too often. Many investors jump into acquisitions too soon, trying to build their network and pipeline of deals before they are truly qualified to purchase those deals. It’s hard to get your real estate agents and wholesalers to take you seriously if you can’t close the deal—and close quickly with little or no contingencies. Related: 20 Must-Have Team Members for Real Estate Investing Newbies In today’s video, I talk about the components of your dream team, how to build them, and how they relate to each other. Be sure to watch the video for the full conversation on the topic, and then leave a comment below so we can discuss. Who is on your dream team? What player do you have that is invaluable? Which member of your team brought things to a new level? I can’t wait to hear from you! Be sure to watch the video!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Where’s the real estate market going in 2019? Everybody wants to know. It’s been a little squirrelly, going up and going down—it’s kind of all over the place. So a lot of people want to know. What’s it going to do?! I’m going to tell you. Related: 6 Ways to Prepare for the Next Market Crash When Is the Next Real Estate Market Crash? Here’s the thing. My crystal ball, it’s broken. I don’t know what the market is going to do! Your crystal ball is broken, too. In fact, nobody absolutely knows where the market is headed. I’m sure there are plenty of people with opinions, with thoughts on what the market is going to do. But one thing I can promise you is that nobody absolutely knows. I’ll tell you the only thing we can know: it’s going to change. That’s what markets do. They’re not stagnant. It may go up! I know there’s a lot of people who think that it won’t. They think that it’s definitely going to go down. But they don’t know that. Markets are dynamic. All we can know for sure about them is that they will change. Nothing ever stays the same in markets. There’s supply and demand, and so things go up and down. That’s guaranteed to happen. How to Prepare for Real Estate Market Swings So here’s what you can do to prepare yourself for the upcoming year: Listen to trustworthy investors. Consider what people you trust think is going to happen. But be careful with anyone who tells you that they absolutely know. And don’t listen to anyone who tells you that it’s absolutely going to go down “because it’s due.” That’s not how it works. Hedge your bets. Prepare yourself for change, but don’t make any rash decisions based on someone else’s opinion. They don’t have factual data about the future. Don’t do sketchy deals. Bake in a “just in case” factor, so that if the market were to go drastically down, it wouldn’t devastate your investing business. Watch my video above, where I go into further detail about why the market is, and will always be, unpredictable—no matter who tries to tell you otherwise. How concerned are you about where the market is headed? Why? What are you doing to prepare? How is it different from the way you’d normally be investing? Let’s talk in the comment section!   Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

I’m super excited to share with you guys a project we’re in the middle of in New Jersey. This is an ENORMOUS house—it’s going to be a luxury home. We’re about three-quarters of the way done with the fix and flip. I’m going to walk you through this property, while explaining three essential tips to bear in mind when flipping a higher-end property. I’ll also go over all the numbers involved in this deal. Related: Flipping Houses: The Ultimate Step by Step Guide You need to watch the video above if you have any desire to get involved in fixing and flipping luxury properties. We bought this one for $235,000—and it was a third of the size it is now. We’ve added a level—and lots of square footage—and I can’t wait for you to see this video tour. But first, here are the things you HAVE to consider when taking on a project like this. 3 Tips for Successfully Flipping Luxury Homes Go higher on your finishes. With this type of property, you can’t go builder’s-grade, standard grade, el cheapo, anything. It has to be perceived as something that’s really nice. They have to look like finishes that fit in a luxury home. For instance, the front door we installed on this home is not a standard door. You’re not going to see it on a shelf at a big box home remodeling store. This one probably cost $700 to $800. If you’re wondering why we’d spend that much on a door, think about it! It’s the first thing you see when approaching the property. Light fixtures, sinks, appliances, floors, buyers looking at luxury properties are going to be considering all of these things. So, your choices need to be a bump up from what you might pick for standard properties. Create a “sizzle” factor. For these types of properties, there needs to be something that when you walk in the door, you go, “Wow! I wasn’t expecting that!” In other words, make it sizzle. And have a few of those throughout the home. In this instance, an open, double-high ceiling throughout the entire foyer of the house is one of those wow factors. This house also has two master bedrooms (one on the first floor) and an enormous master bedroom (on the back). These should knock people’s socks off and make the property unique. Add bonus spaces. This house has areas that could be used as a playroom, reading nook, or sitting room. Plus, it has a finished basement. Any other little square footage nooks and crannies are important to people who are considering luxury properties. You want them to feel the prosperity, to think, “This house has so much extra room! What are we going to do with all this space?!” Property Specs 3,500 square feet 5 bedrooms/4.5 bathrooms 2 master bedrooms 1/2 bath on first floor, several upstairs Finished basement The Numbers Projected Sale Price: $795,000 Purchase Price: $235,000 Construction Costs: $250,000 Sales Commission: $39,000 Selling Expenses: $15,000 (aka 2%) Carrying Costs: $75,000 Projected Profit: $179,000 A profit of $179,000 for one year’s work?! It’s pretty amazing. Before taking on a property like this though, make sure there are other homes in the area that are selling for similar prices. You want your final product to have been remodeled to be on par with the other homes in the neighborhood. One other thing, I did this whole deal using other people’s money. You can do the same thing! Watch the video above for more details about this luxury fix and flip and to find out how to raise capital to fund such a project. A great place to start is by reading my book Raising Private Capital, which is available on the BiggerPockets Bookstore. Get a 20% discount code to purchase it at the tail end of the video. Do you have questions about this project? Or questions about how I funded it? Ask me in a comment below.    Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Should you pay down your mortgage more aggressively? This is something that’s asked a lot on BiggerPockets, and rightfully so—it’s a great question. There is no right or wrong answer here. It all depends on your short- and long-term financial goals. The fact is there are pros and cons to paying down your mortgage. In this post, I’ll discuss the amortization schedule, payment schedule, and impact of paying down your mortgage faster. I’ll also discuss the effect it can have on your taxes. With this knowledge, it’s my hope you can create a well-informed strategy about whether or not to aggressively pay down your mortgage. Related: 30 Year Mortgage vs. 15 Year Mortgage… Which is Better? Building Wealth: The Pros and Cons of Paying Down Your Mortgage Most, but not all, of this information will apply to both your home and to rental properties. Your mortgage payment is broken down into two parts: the portion that goes toward your principal and that which goes toward the interest on the loan. (Some mortgage statements also have another line item called “escrow,” but I’m not going to talk much about that today.) Whether or not you want to pay down your mortgage quickly is largely dependent on whether you’re focusing on immediate personal cash flow or long-term wealth building. If you’re paying your mortgage down aggressively, you’re paying more of the principal. Most mortgages are set to get paid down over an amortization schedule, which is somewhere between 15 to 30 years. In the beginning, you’re heavily paying off the interest. But as the years go by, you’re paying less and less interest because you owe less money on the loan overall. So, those who add in an extra payment amount on the top of what they owe monthly are essentially paying off more of their principal upfront, decreasing the amount of interest they’re paying in a shorter timeframe. Pros of Paying Off Your Mortgage Faster By paying off your mortgage quicker, you’ll own the property free and clear sooner. And without a mortgage payment, you’ll be cash flowing a much higher amount (that is, if it’s a rental property). If real estate investing is not your full-time gig (it’s more so passive income), it’s beneficial in the long term to pay off your mortgage faster. Then, when you retire, you’ll be generating a higher amount of income off those rental properties that you own outright. Another thing to consider is that five or so years into your mortgage, the bank is likely to change the interest rate on your loan. Maybe it will go up; maybe it will go down. The faster you pay off your principal by adding a little extra on top of what you owe each month, the more you’ve given yourself  a little hedge when the bank comes around and changes your rate. Cons of Paying Off Your Mortgage Faster There happens to be no tax advantage to paying down your mortgage faster. The only part of your payment that’s tax deductible is the interest portion. The more principal you pay and the more cash you’re flowing, you’re going to be paying more in taxes. And if you’re looking to live off the income of your rentals, you’re probably not going to be able to throw additional cash toward your principal. You need that income to live off instead. Finally, as opposed to ramping up your principal pay down, if you need to make a certain amount from your properties to use as personal income, you can do something called an interest-only mortgage. This reduces your monthly payment significantly. Granted, an interest-only mortgage also increases the amount of your loan in the meantime. But if you bought when the market was good and the property value goes up over time, you’ll be in good shape and cash flow more money in the meantime. (However, investors should obviously exercise caution, because the exact opposite situation could unfold and be financially devastating.) For more information, watch my video above, where I go into more details about these concepts. What questions do you have? Let’s discuss in the comment section below.  Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

Today I’m going to show you a property my company bought and renovated. There’s a lot of theoretical stuff on BiggerPockets, but I’m going to walk you through a practical, real-world example of a deal. This is a duplex on Center Street in Trenton, N.J.—a really great location near an up-and-coming community garden and park and and across from the local Boys & Girls Club. We purchased this property for somewhere around $40,000 from a guy who was fixing it up for himself to live in and just ran out of gas and ran out of money. He was grateful to sell it and get his money back, and we were happy to take it off his hands. Related: A Video Tour of My Rental From Hell: What Went Wrong & What I’m Doing to Fix It BRRRR Investment Property Walk-Through BRRRR stands for buy, rehab, rent, refinance, repeat. This is our intended strategy with this property, and we’re getting there. When we bought it, the property was in pretty deplorable condition. Here’s what we did in terms of rehab:  Installed vinyl siding Capped windows Demoed dilapidated garage Created two separate tenant entrances and eliminated common area Replaced flooring Resurfaced and painted walls Created a kitchen and eating area Brought piping and electrical up to code Put in baseboard heat And here are the numbers for the property:   Purchase price: $40,000 Renovations: $45,000 Carrying costs: $5,000 Rent (two units total): $800 per unit So, we’re just over the 2 percent rule that we talk about on BiggerPockets, which means it’s a good cash flow play. Once we refinance, we should be able to complete the whole BRRRR strategy and might even sell the property to make a few bucks. We have a few options here. You can find deals like this and local contractors to renovate, too, if you look hard enough in your local market. Leverage BiggerPockets as a resource—a source for inspiration, a source for ideas, a source to talk through problems and solutions on deals similar to this one. Watch my video above for further details and before and after images! Any questions?  Ask away in the comment section below.  Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you