BiggerPockets is a website born of the great recession in real estate. If you think about how the site has become so popular and grown to the degree it has, it’s largely for one reason. People lost their shirts in the great real estate recession of 2009-2012, and they wanted to know how to avoid doing that again.
That recession gave real estate investing a really bad name. To this day, regardless of the numerous success stories floating around, there are still people who adamantly believe real estate investing is a scam, investors are shady slumlords looking to take advantage of others, and you’re better off putting your money in the stock market or under your pillow.
This is sad, because real estate is actually an incredible wealth-building vehicle, if done correctly. What’s even more sad is it’s one of the easiest asset classes to learn to do correctly! So many more people could be creating large amounts of wealth for themselves if they’d just take the time to learn a few fundamentals, save consistently, and invest prudently.
A little delayed gratification pays off really big in the end.
I write this because I want to prove a point. There was a time when a lot of investors lost money. Rather than analyze how that happened, it’s easier to just paint the whole scenario with a broad brush and pronounce the whole thing a “scam.” It’s this level of intellectual laziness that eventually costs those exercising it to lose out big time.
Many in the world of real estate investing are making this same mistake today. Operating under incorrect assumptions and missing out on powerful wealth-building opportunities.
Intellectual laziness comes with a very high price tag.
I want you to pay very close attention. What I’m about to tell you could change your financial life and open up doors for you that you didn’t even know previously existed. This isn’t hype. I’m going to explain just what I mean about how powerful opening up your mind to new ideas can be.
The History of Long-Distance Investing
For a long period of time, long-distance real estate was considered risky. It was thought of more like gambling than investing. The wise advice was to avoid it. Too much could go wrong, and there wasn’t enough information to make prudent decisions.
This attitude is reminiscent of the people who left the last recession, claiming real estate investing as a whole is too risky and a guaranteed way to lose money.
I’d like to challenge you to ask yourself why it’s considered risky, rather than just mindlessly listening to those who say it is.
When we look back at the market from ’09-’12, we can see that prices made zero sense, terrible loans were being given out, and nothing cash flowed positively. The vast majority of “investors” weren’t investors at all. They were gamblers, playing the speculation game.
Rising prices made everyone look like a genius, if you bought when the time was right. This artificial market created artificial confidence, and artificial investors started buying properties. The prevailing wisdom was buy, wait a year, and sell to make $100,000.
Not a great plan for a long-term business.
Those who are still preaching real estate is a scam are the people who never learned the fundamentals. They never saw the error in their ways. Never learned how to analyze a property. They were, frankly, people who had no business investing in the first place.
Long-distance real estate investing is often painted with a similar brush. Because it was accurately perceived as risky for so long, many people have written it off as something they won’t even look into.
I accidentally stumbled into it, and it’s become my investment vehicle of choice! Even with properties that I could buy in my own backyard, I often find it way preferable to do so in someone else’s.
I want to clarify, I don’t think people are foolish for considering long-distance real estate investing a risky business. I just think they are ignorant. The game has changed, and it’s absolutely worth looking into.
How Things Have Changed
In my BiggerPockets book Long-Distance Real Estate Investing, I detail how I build out-of-state teams, how I choose markets, and how I use technology to assist me in acquiring the information I need to make smart decisions.
In this blog post, I want to summarize some of the highlights of the book, including why long-distance real estate investing isn’t the risk that it once was.
For a period of time before the past five to 10 years, long-distance real estate investing was risky. The reason being, you didn’t have much information on what you were buying.
Like taking the word of someone on Craigslist that their car had been regularly serviced, you were really at the mercy of a stranger who wanted to sell you something (and would likely never see you again). Not exactly a coveted position.
I’ve found that now that the internet is so much more involved in the world of real estate, a lot of the online places where shady business people used to hide have been weeded out. The evolution of the internet has also provided a way to gather all the information you previously had to get from a specific person—things like crime stats, neighborhood reports, property tax info, rental rates, etc.
Now that the power is in the hands of the investor (and knowledge is power) there is much less risk involved in buying properties in someone else’s backyard.
If we look into the why of how long-distance investing became known as risky, it doesn’t take very long before we realize the answer is the lack of information that was available. Less info equals more risk. If the amount of information gets low enough, it really becomes more like gambling than intelligent investing.
If more information is now available—enough to make intelligent, informed decisions—is it really accurate to continue to view it as risky?
Knowledge Is Power
If we can acknowledge that lack of information amplifies risk, it stands to reason that gathering information lowers it. The more information we can obtain, the more powerful of an investor we can become.
The game changer was the internet. Once real estate websites started publishing the information that was once held close to the chest by brokers, investors had all the same information they needed to make an informed decision. This is when the game changed.
In the past, if you wanted to know comparable property sales, you had to trust the broker was giving you legit information. If you wanted to know the neighborhood quality, you were at their mercy. The same went for crime reports, rental rates, school ratings, etc.
The whole thing was dependent on the mercy of a stranger in another state whom you would probably never see again.
And they didn’t have Yelp or Zillow where they could leave nasty reviews.
Of course people were taken advantage of. It was so easy!
It’s not like that anymore. You’re not dependent on a stranger to give you straight info. You can collect it yourself now.
Do you need to? Nope. You can ask a broker, agent, property manager, etc. What’s cool is, now you can independently verify what they’re saying.
I don’t do all the research myself for every property I buy. I rely on the information of the team members I’ve put together. The reason I’m comfortable relying on the info given to me by someone else is the fact they have already proven themselves trustworthy.
Most human beings don’t start off honest then become dishonest at a random point in their lives. If I’ve been verifying all the information someone has given me for the first few deals and it all checks out, then I feel pretty confident that moving forward I don’t need to check up on everything they say every time. I keep my checks to the things that stand out to me as odd or unusual.
What I’m trying to say is, it doesn’t matter where you invest. What matters is that you know what you’re buying and have people to manage it for you. I buy all over the place because different areas work better for people in different situations. I don’t buy near me simply because it’s near me. I would only buy near me if that was the best place to buy.
If I can gather the information I need to make an intelligent, informed decision, I can move forward knowing my investment will be sound.
Technological Tools for Investors
I’ve built up my own portfolio while working full-time jobs. I usually put in more than eight hours a week. I couldn’t do this if I wasn’t leveraging my time.
The easiest way to leverage your time is with technology.
I also leverage people. Especially in the form of out-of-state team members. Hiring someone to manage your rehab project, manage your property, manage your tenants, and find you a loan are all forms of leverage. Leveraging people is great, and vital, if you want to invest long distance.
But leveraging technology is cheaper!
There are so many programs, apps, and websites I use to assist me in my real estate investing business. I list them all in the book, but a few of them I’ll share here:
This is a website I absolutely love. Rentometer is a free site where you can get rent estimates on properties near the property you want to rent out. Before I write offers, I check the projected rent on this website. When a new property manager gives me a number they want to rent the place for, I check it against this website. If the numbers differ significantly, something is usually up.
Rentometer takes the average rents of the units listed near yours and shares what they pay for rent. It also provides many of the addresses for those units. By looking up the address on a website like Zillow (another one of my favorites) I can get a great look at the condition of the rental I’m looking at to see if it compares closely to the property I want to buy. If they are in similar shape with similar amenities, it stands to reason that I can expect a similar rent!
While Rentometer is not the most accurate method, it’s still pretty dang good. It’s also way quicker that other methods, and having it in your arsenal saves you a ton of time, helping you eliminate many properties from your search before you have to spend someone else’s valuable time, dig deeper into your research, or find other, more laborious methods to get a feel for a neighborhood.
Mortgage Calculator Plus
This is a free app that I use on my phone every day. Simply put, it’s a mortgage calculator that allows you to punch in a loan amount, an amortization term (years on the loan), and an interest rate, then it spits out what your mortgage payment will be.
Want a fast and easy way to calculate the biggest expense on your potential rental property? This app can estimate for you in less than 10 seconds.
I also encourage you to check out the BiggerPockets Rental Property Calculator at www.BiggerPockets.com/analysis—yet another way to help you save a lot of time doing these numbers.
I use these tools often in my real estate agent business, as well. Before we start looking at homes, I make all of my buyers sit down with me and go over their budget. You may assume lenders do this with clients—they don’t. These tools make it so easy you’ll wonder how you got by without them.
In addition to giving you the estimated mortgage payment, they will also provide other features like amortization schedules (so you can see how much of each payment goes to principal and interest) and graphs (so you can see how much interest you’re paying over time). I use these features to weigh different loan options (30, 20, 15, and 10-year loans) and compare them against each other to get a good idea for how to refinance properties once they’ve gained significant equity.
Analyzing a property is so much easier and quicker nowadays.
Numbers is the Microsoft Excel of Apple products—a spreadsheet app I use to track the performance of each property in my portfolio.
I originally created the spreadsheet to help me keep track of which properties I owned and how much they were each bringing in for rent, but I eventually created a spreadsheet that would track my cash flow, net worth, ROI, return on equity, loan balance, and more.
If you aren’t inspecting something, you can’t expect to stay on top of it. Knowing your numbers is very important, but it can take a long time to do. This causes many investors to just put it off. Stop that!
Leveraging an app like this allows you to just plug in numbers (rent amount, property tax, insurance, etc.) to a pre-formed spreadsheet that pops out information you need to make an informed decision.
Because I own rental properties all over the country, I use this app to quickly determine which properties are performing and which are under-performing. By spotting the weak performers in the group, I give myself the ability to quickly determine what I should sell when a new opportunity comes my way in a better market.
Each of your properties is like an employee working for you while you sleep. By quickly determining who your worst performer is, you can “fire” them and use that money to hire a new employee who will perform better.
Practices like this allow you to keep your portfolio operating at its potential with your cash flow at an optimum peak.
If you live on planet Earth, you’ve probably already heard of Zillow. This is nothing revolutionary, but it’s still worth mentioning as technology you can leverage.
I use Zillow for several things, including looking up pictures of properties on Rentometer that I want to compare my own rentals against. It’s also useful for analyzing properties because it provides property tax info and maps.
In my opinion, Zillow isn’t a good place to get accurate numbers, but it does provide some ballpark figures that can help paint an overall picture, plus some great photographs of what a property looks like.
I also use Zillow’s Price History feature to see how much a property’s value dropped during the recession. I do this to get a good idea of my exposure for the next housing crash.
You may be surprised how vastly different parts of the country were affected. Where I live in California, some houses lost more than half their value. In other areas like Arkansas or Indiana, houses dropped maybe 8-10%. The Price History features makes this a quick and easy way to gather this information.
You may be wondering how on earth YouTube helps an investor buy real estate. No worries! When buying long distance, you’ll often be asking for videos from agents, contractors, and property managers that show the layout or the scope of work that’s been done on a property. Sending video files through SMS or email can be a very difficult and frustrating because their size prevents most of them from being transmitted.
My team members in other states can upload videos to YouTube and just send me the links. Therefore, I’m able to see the videos they take as soon as they upload them.
I use this for my out-of-area clients who use me as their agent to find a house, as well. By videoing the exterior and interior of the home, then uploading it to YouTube, I can walk through the house and give them commentary on it, then send it to them with ease.
Like Dropbox but easier to use, Google Drive is one of my all-time favorite ways to use technology to leverage my success with my business!
For most of my investing career, I’ve created folders in my Gmail where I’ve saved important information related to properties in my portfolio. This is where I kept things like Deeds of Trust, contractor bids, leases, settlement statements, etc.
The only difficult aspect of this system was that when someone needed that information, I had to look it up and send it to them myself. Once you get moving at a fast pace, you realize just how many people start asking you for documentation: lenders, contractors, agents, project managers—everyone wants information.
My solution was to start using Google Drive. By creating a folder there, I’m able to upload the information, then share it with those I want to have access to it. This prevents them from needing to ask me, or one of my assistants, for something. Now, they just go to the Drive and get it themselves.
In addition to saving me time, it also makes it really easy for someone to receive large files that are too big to email. Similar to YouTube in this way, Google Drive makes sharing large files a breeze.
One thing I’m working on now is creating checklists for each property I analyze, and then by giving access to all the people involved in the project, they can go in and update the checklist themselves when work is done—or request information from another involved party. This eliminates me as the middle man in the process and frees me up for more valuable tasks, like finding new deals or establishing new business relationships.
Running An Efficient Business
I’ve included here just a handful of the tools I outline in the book, but I think it’s enough for you to get the drift. Leveraging technology makes you a more powerful investor, much like increasing your knowledge about an investor does, too.
If we want to be successful at anything, we need to practice it—a lot. Those who have mastered anything have spent large amounts of time doing it. One school of thought says you need 10,000 hours of practice before you can master anything. Ten thousand hours!
In my opinion, if I need to spend close to 10,000 hours doing something, it needs to be something I don’t hate.
For me, I hate wasting time. If I’m going to spend my time doing something, I want to make it efficient. If I can make something efficient, there’s a very good chance I can spend more of those 10,000 hours actually learning the thing I’m trying to master, not wasting my time trying to gather the information I need.
Since humans first created the wheel, we’ve been looking for ways to make things more efficient, save us time, and save us effort. Professional athletes train every day to perform the very same movements as efficiently as possible. Training their muscles and bodies to respond through muscle memory and routine, they eliminate wasted movements and wasted energy so they can perform at a peak level.
It may be my background in athletics that trained me to think this way, but why would we as investors do things any differently? Knowing how much wealth is on the line when it comes to long-term real estate investing, doesn’t it make sense to make our movements as efficient as possible?
Success is all about practicing good fundamentals: Leveraging technology to help you be more efficient practicing the fundamentals of seeking, analyzing, managing, and reviewing the properties in your real estate portfolio.
Build an Efficient Model Now So You Can Scale Later
You may not be thinking big picture right now, but you probably should be!
No matter where we start, if we continue down a path for long enough, it can grow to become something much bigger than we ever anticipated.
When Josh Dorkin was huddled over in his home’s basement, grinding away at this new website he created, I doubt he believed it would grow into the juggernaut it did.
But Josh is a smart guy. And he probably made things to scale easily, so when it did start to gain momentum, he didn’t hold himself back.
We need to grow our real estate investing business the same way. Growth in this business doesn’t happen in a linear path. It happens more like the shape of a hockey stick on a graph: Long periods of time with very little growth (the shaft of the hockey stick) followed by a sudden explosion of success that shoots vertical very quickly (the part that controls the puck).
The reason this happens is because in the beginning, you think you’re acquiring wealth (and you are), but you’re really acquiring knowledge. The knowledge you acquire in your mind is what determines your wealth, much more than the cash flow you acquire in your portfolio.
Once you hit that point where you have the knowledge, success comes very quickly. Don’t hold yourself back by being unable to scale once that hockey stick starts to form. By incorporating technology into your investing model now, you will be primed for a very good run once you start to grow at fast levels.
Like Kevin Costner was told in Field of Dreams, “If you build it, they will come.”
Start using technology to leverage your business correctly know and watch how success will find you later!
Are you interested in real estate investing but there is nothing to buy that makes sense where you live? Are you tired of seeing the amazing success of others investing in markets better suited for buy and hold real estate and wish that could be you? Do you want to take advantage of wealth-building opportunities but are frustrated by the fact there just isn’t any way to do that until the next market crash?
Check out my book Long-Distance Real Estate Investing!
How do you use technology to leverage your business?
Let me know in the comments below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.