How would you like to be fabulously wealthy and spend your days on a yacht drinking Champagne from a diamond-encrusted goblet? One tip: marry a Kardashian. But if you just want a better life and more freedom to spend time doing things you want to do with people you love, I’ve got another tip: Invest in real estate.
I’ve been investing in real estate, both flipping and rentals, for almost 15 years now. And I want to teach you the basics of building wealth and passive income through real estate.
Here’s the idea. This video is really designed to teach you the fundamentals, the basics, and really everything you need to know to get started on your own real estate investing journey. Even if you’re starting with no experience or no cash or no credit or even if you aren’t a Kardashian.
Let’s get to it.
7 Key Lessons for Real Estate Investing
1. Pick a Strategy and Stick to It
This first lesson covers the basics because there are a lot of different ways to invest in real estate.
That’s one of the reasons I love real estate investing so much. It’s like that weird box of chocolates they sell around Valentine’s Day—there’s really something for everyone. (P.S. Whoever puts those weird cherry nut things in there, that’s disgusting. But I love the caramel ones.)
For example, there’s house flipping. You’ve seen the TV shows. You buy something cheap and nasty. You fix it up really nice and pretty, and then you sell it fast for a lot of money.
At least, that’s how it’s supposed to work anyway. And many times it does. I’m not a big house flipper, but I’ve done a few of them so far this year and made almost a quarter-million dollars in total profit on those. It’s not a bad way to make some money. And there are ways to do this for little to no money down, which I’ll cover in another lesson.
However, the downside of flipping—besides having to manage contractors, stay on budget, stay on time—is that when the flip is over and you get the money, it’s done. You pay the taxes—and it’s a lot of taxes—and that’s it. There’s no more money coming in.
That leads us to the most popular way to invest in real estate versus flipping: rental properties.
Rental properties are like the little oil wells you see on the side of the road in Texas. When you buy them correctly, they just pump money out of the ground every single month. It gets deposited into your bank account over time.
When you collect enough of those little oil wells, you have enough to quit your job and travel the world and pretty much do whatever you want and drink Champagne out of the diamond-encrusted goblet. It’s really awesome, but it does come with some management headaches, which thankfully you can hire professional property managers to deal with 99% of. Of course, you still have to deal with the property manager, but they take the bulk of the work.
And then there are other strategies like real estate wholesaling and BRRRR investing and syndications and house hacking. There’s really a lot of stuff out there you can do.
Like house hacking, for example, where you buy a duplex or triplex, live in one unit, and rent the other ones out. I love that.
The point being, though, there are a ton of ways to invest in real estate. To make it more simple, I want to recommend this: Don’t get overwhelmed. Just pick one. Just pick a property type and a strategy and go all-in on it.
If you’re going to go buy single-family houses and flip them, great—go do that! Or if you just want to buy a duplex and rent out one of the units and live in the other, great. Do it.
You don’t need to learn everything at the beginning. Just pick one property type, one strategy, stick with it for a while. You’ll be in the game in no time.
2. Educate Yourself on How Real Estate Makes Money
In a nutshell, you get rich through real estate in four primary ways. I call them the four wealth generators of real estate in my book The Book on Rental Property Investing. And here’s how they go.
1. Cash Flow
First, there is cash flow. Cash flow is like extra money every month and every year that just comes in. You can spend it on vacations, on paying your bills, on drinking Champagne from your goblet, whatever.
It’s profit that you get from your rental properties. It’s the profit you make. But that’s not the only benefit of owning rentals or other types of real estate.
There’s the appreciation. No, not that we appreciate it, though we do appreciate real estate. I’m talking about appreciation as in the natural rise of property values over time. Now, of course, the real estate market does go up and down, but on average, over time, property values increase.
In a simple graph showing the median price for American houses over the past 40 years, it generally goes up and to the right. A little up and down, but generally up and to the right. So, as I say, don’t wait to buy real estate, buy real estate and wait.
3. Loan Paydown
In other words, if you get a loan on a property, which we’ll talk about more later, that loan gets paid down each and every month.
And here’s why this is cool. Imagine you bought a property and you got a mortgage on it, like most people do. Now, let’s say maybe you paid $300,000 for the property.
Let’s just pretend you didn’t get a good deal at all and so you’ve got no cash flow. You broke even every single month for 30 years. You just kept breaking even after paying all of those bills, like the mortgage payment, the taxes, insurance, repairs, and all that.
Imagine also that you bought in a weird area that never went up in value, ever, like no appreciation. So, the first two wealth generators, they don’t even count. You bought it for $300,000 and 30 years from now, it’s still only worth $300,000. Now, that sounds like a bad deal, right?
Well, maybe not, because what did happen? Your loan over time got paid off completely. Now after 30 years, you owe nothing on a property worth $300,000. That doesn’t sound too bad to me.
In fact, I bought one property for my daughter Rosie the week she was born. I put it on an 18-year mortgage so that when she goes to college, it’s going to be paid off entirely, but it should be worth about a third of a million dollars at that point.
Now, Rosie can use that money to fund her college education or start her own real estate empire or whatever she wants to do with it. And the best part is the tenants are paying that property off over time.
That’s pretty awesome, right? It’s like automatic wealth creation.
4. Tax Benefits
Now, don’t fall asleep yet. Basically, the government likes taxes. But the government also likes real estate investors because we provide housing for everyone.
They offer some really amazing tax benefits to let you grow wealth faster and keep more of what you earn. Those are the four wealth generators of real estate and they work together to make you wealthy.
3. Market Cycles
Real estate prices move up and down all the time. You probably remember 2008 when the real estate market crashed, which means prices dropped significantly. But then, over the next decade, prices have steadily climbed.
And eventually, they’ll drop again—maybe tomorrow, maybe next year, maybe in another decade. We don’t really know. But understanding how market cycles work, it’s important. The cool thing about investing in real estate is that no matter what part of the cycle we find ourselves investing in, we can still invest and we can still be profitable.
Yes, in a perfect world, we would love to buy a bunch of deals when the market is at the very bottom and then sell them all when the market is at the very peak. That would be awesome, right? And we could just do that over and over and over.
The problem is we rarely recognize the part of the cycle we’re in and there’s really no way to predict how long certain parts of the cycle will last. You never know where the bottom is until you’ve gone way past it, and the same thing for the top.
I honestly just don’t worry too much about where we are in the cycle, because the bottom line is this: Learn to recognize good deals and you’ll find them no matter what market you’re in.
Related: 27 Ways to Find Real Estate Deals
In fact, I believe hot markets, like we find ourselves in today, are the perfect time to perfect our systems and processes and strengthen our skillsets so that we’ll be rock stars when the market does go down.
It’s like playing baseball, right? You practice swinging holding five bats at a time. It’s super heavy, four or five or six bats in your hand. You’re swinging up. It’s really heavy. But after a few practice swings, you drop all but one of them. And that one bat now feels super light so you can knock it out of the park.
That same principle applies to real estate. You get really good during competitive times and you’ll knock it out of the park when deals are everywhere.
Now, final note on cycles: although the market does go up and down, like I said earlier, it does tend to move up and to the right.
In other words, they still edge up higher and higher all the time, even though they do have temporary dips. Even if you buy a property at the very top of the cycle and the values then drop, it might not be that big of a deal if it’s a rental property and you can look at your real estate on a long-term horizon.
If your $200,000 house drops in value to $160,000 because of a market crash, how much do you really care if you plan to hold that property for 30 years? Because in 30 years, that house might be worth between $500,000 and $800,000.
Keeping a long-term perspective and knowing that prices rise and fall makes everything feel a lot better. But of course, you have to know which properties to hold onto for the long haul and you find that out through good math. Which brings us to lesson number four…
4. Most Properties Are Not Deals
At any given time, there are hundreds of thousands of properties for sale, but most of them are never going to produce the kind of money that you want.
The good news is, while we may not be able to predict exactly where something like Tesla stock is going to be five years from now, we can actually do a pretty decent job of estimating how much profit our real estate investments are going to produce.
And we do that through good math.
For example, on a rental property, you can literally sit down and figure out exactly how much the rent is going to be, how much you’ll spend every month on taxes, insurance, utilities, etc., and you’ll find out how much monthly profit or cashflow you’re going to be making. And then you can make some simple assumptions like the rate of rent growth over time or the rate of property values, how much they’ll increase over the next 10, 20 years.
It’s really actually a lot of fun to do.
And if you really want a great way to do your math accurately, efficiently, and easily, I highly recommend you check out the BiggerPockets investment calculators. Also, for a simple method for analyzing rental properties. Don’t miss my video about calculating numbers on a rental property using the four square method.
5. Master the Art and Science of Finding Good Deals
Finding properties that are going to produce the kind of return that you want is vital. And you have to analyze a lot of properties to find that perfect deal.
But this all begs the question, how do you find all those properties to go and analyze?
Well, first, let’s separate deal-finding into two categories. There’s on-market deal finding and off-market. On-market means that it’s listed by a real estate agent for sale on something that we call the MLS. That’s short for the Multiple Listing Service.
Basically, the MLS is like a big box where all the properties go that are for sale by professional real estate agents. We mere peasants can’t actually get into that box where all those properties are. But we do have a couple of good options.
First, we can have a real estate agent and we should have a real estate agent and they will look in the box for you. I like to say that agents should be on fire, not literally, but the organized, well-networked, focused on your goals, investment-savvy, responsive, and experienced.
Now, how do you find such an agent?
Well, if you’re looking for a drunk, start at the bar. If you’re looking for a baseball fan, start at the baseball field. And if you’re looking for an investment-savvy on-fire real estate agent, check out the agents who are actively participating on a real estate investing website like BiggerPockets.
It’s the largest real estate investment site on the internet. You can imagine if there’s an agent hanging out in there answering questions, being involved, helping people, they probably know a thing or two about real estate investing. And from BiggerPockets, you can search your zip code and find agents in your area. And, oh, by the way, it’s free to search and connect with agents.
Just go do it, you should just have an agent.
Also, in case you didn’t know, this is cool. Agents are actually paid by the seller of a property, so it’s free for you to use an agent. So you really have no reason not to connect with a great agent today.
But let’s go back to the MLS analogy real quick.
Remember I said the box? There’s this box and the agent can get into the box. They can dig around for properties that meet your criteria and they can send you those via email or whatever.
But let’s forget the agent for a second and let’s look inside the box ourselves, because the box actually has windows. We call those portals, they’re windows into the MLS. I bet you’ve heard of them before: Zillow.com, Trulia.com, Redfin.com, and there’s a whole lot more of them.
Dig around those websites to find properties for sale and then talk with your on-fire agent about getting into those properties to check them out in person.
But that’s all the on-market properties that we’re talking about. Listed properties, which is a great place to start. But the MLS is super competitive.
If you want to take your deal-finding to a whole new level and find some screaming good deals, you’re going to want to look off-market. In other words, you directly contact property owners and ask them if they want to sell.
There are a ton of techniques for doing this. In fact, I wrote a book called How to Invest in Real Estate, and my co-author, Joshua Dorkin and I—he’s the founder of BiggerPockets—we lay out 27 different ways to find great deals.
You can send direct mail marketing, you could do door knocking, you could use Craigslist, or you could go buy something at the courthouse foreclosure auctions, or you could use social media advertisements, or wrap your whole car in an “I buy nasty houses” banner, or whatever.
There’s a lot of ways to do it. But whatever you have to do to get the attention of property owners so they sell directly to you and minimize the competition, that’s the goal of off-market deal-finding.
Now, a final note on deal-finding: It’s a funnel.
At the top, you’ve got to get a lot of leads coming in. Then you’re going to work those leads to find the ones that are really worth analyzing, to find the perfect purchase price. Every property has the number that makes it a good deal. You go find that number
Then you’re going to go and pursue some of these properties. You’re going to go after it with an offer. And you know what? You’re going to get rejected a lot. It’s going to be like high school prom all over again. But in the end, you will land deals.
And the more you can remember that deal finding is nothing but a funnel, the more deals you’ll be able to generate.
Now, let’s move on and talk about money.
6. You Don’t Have to Be Rich
People think you have to be rich to invest in real estate, and, yes, if you’ve got a lot of money, you can put a nice 20-30% down payment and get a traditional bank loan to do the rest.
But when I got started, I wasn’t rich and I couldn’t do that.
Instead, I relied on a number of different creative financing methods to accomplish my goals and to build up a multimillion-dollar portfolio. Now they include techniques like using partners who would supply the down payment and then we would use a bank loan for the rest.
I also used seller financing, where the previous owner acted as the bank and I just paid them every month. One of my favorite strategies, another one I use a lot, is called the BRRRR method, which is probably beyond the scope of this video, but you can learn all about in one of my other videos.
But be warned, I made that video prior to having a super long beard, so I look a lot more like a 13-year-old girl than I normally do.
7. Investing Is Simple, Not Easy
At its core, real estate is fairly simple. Yeah, there might be a lot of options out there, but it’s nothing you have to have a Ph.D. for or even a high school diploma to understand.
But that doesn’t mean it’s always easy. It’s simple to run a marathon, but it’s not always easy. It’s simple to have an amazing marriage, but it’s not always easy.
The truth is you can build amazing wealth and passive income through real estate investing, but not unless you work at it consistently and persistently.
I liken it to driving through a heavy fog. You know the destination you want to get to, miles down the road, but you can’t see very far in front of your vehicle. But if you pull over just because you can’t see far, you’ll never get there.
Instead, just keep driving, right? If you pull over, you’ll never get there. So keep driving. The zone of clarity moves with you and you’ll always be able to figure out that next step.
Read great real estate investing books, listen to great real estate investing podcasts, follow certain social media and YouTube accounts about real estate investing, and most importantly, take daily consistent action. Because that is what’s going to get you to the promised land.
In the words of the late, great Jim Rohn, he says life doesn’t get better by chance, it gets better by change. Start today by taking one thing you learn in this video and then apply it to your life.
Don’t let this just be another video that you watch and then you go back to living the exact same life that you’ve always lived. Let this video, let this day be the pivot moment for your life.
I want you to look back on this moment, 10 years from now, five years from now, seven years from now, when you’re sipping mai tais on the beach, you’re cruising around the country in a big ol’ RV, or just while sleeping in until 10 a.m. because you don’t have to go to work.
Whatever your goal is, I don’t know what you want, but whatever you’re working towards, I want you to look back on this moment and remember, this is when you made a radical change that led you to that point.
And guess what? You’re not alone. You can do this with us, with BiggerPockets, with the community.
Final lesson of the day: You can do this. I believe in you. You can do it and we’ll be there for you when you do.
What do you need to make your first step into real estate investing?
Help us help you in the comments.