BiggerPockets Podcast 011 with Josh Dorkin and Brandon Turner Transcript
Link to show: BP Podcast 011: The Ultimate Beginner's Podcast for Investing in Real Estate with Josh Dorkin and Brandon Turner
Josh: This is the BiggerPockets Podcast, show 11.
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.
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Josh: Hey everybody, my name is Josh Dorkin. I'm the host of the BiggerPockets podcast, here with my co-host, Brandon Turner. What's going on, Brandon?
Brandon: Hey, not much Josh. I'm just on a little road trip across the Great State of California.
Josh: I know, I know. It sounds like it's been a lot of fun, you've been doing some exciting stuff. Seen lots of cool pictures. Congrats on the great trip.
Brandon: Hey, thanks yeah. It's been fun. We actually had a meet-up with a bunch of BiggerPockets people from Southern California, so a little shout-out to them. Thanks everyone for showing up to that, and those who couldn't make it, you missed out.
Josh: Maybe next time.
Brandon: Maybe next time.
Josh: Yeah. Wow that's cool. That's cool. Yeah, those meet-ups are great. I think one of the coolest things about BP, and this'll be my quick tip for the day is, if you're a local person, there's no great real estate groups or anything, set your own up. Make your own group. Set up keyword alerts on BiggerPockets for your location and get together with those local people, and do meet up and get together, because there's nothing like one-on-one networking. What do you think?
Brandon: I would agree 100%. I did meet actually a few people lately from my area. It's just fun to kind of bounce ideas off each other and learn more.
Josh: Absolutely, absolutely. My other quick tip actually has to do with today's topic which is: The BiggerPockets Ultimate Beginner's Guide. It's this fantastic beginner's guide that we put together. Brandon and I worked for months on this thing, and you can find it at BiggerPockets.com/ubg. You'll also find the link to it on the show notes, at biggerpockets.com/show11. Anyway, that's my beautiful segue to the topic of today's show which is: The Ultimate Beginner's Podcaaaaast...
Josh: Podcaaaaast. Today we're going to do something a little bit different. We're going to talk about this beginner's guide and getting started. Let's do it, and I just want to make a quick note. This is the beginner's podcast, however, if you are not a beginner, there's definitely going to be a lots of good actionable information in here that you can learn from. So definitely be sure to check it out. And without further ado, I want to get started on this. The Ultimate Beginner's Podcast.
Brandon, everybody gets started somewhere right? We all have a start and ultimately before we get started the one thing that we really need to make a decision on is why invest in real estate? Let's talk about a couple quick reasons why people tend to invest in real estate.
Brandon: Sure. I know for me, I wanted financial freedom, that was the big thing. That was great. I know some people do it for, they want tax benefits. I know some people do it for leverage, they want appreciation, whatever. There's a lot of different reasons people invest. Definitely, yeah, 'What's your reason?' I guess that's the first thing you need to figure out. What are you trying to accomplish, because if you don't know what your end game looks like, you're not going to know how to even start.
Josh: Of course that decision is personal.
Brandon: It is.
Josh: I mean that's the bottom-line. There's no one reason that fits everybody, and there's no one investing style that fits everyone. Of course, you need to go through and figure out why you're doing it, right?
Brandon: Correct. 100%, yeah. And you know a lot of people wonder, they see BiggerPockets people who work full-time in this and they wonder, 'Do I have to work full-time? What do you think, Josh? Do you have to work full-time in real estate?
Josh: As an investor? Well, no. I mean you can either be a full-time real estate investor, or you can definitely do it on the side. It's one of the big topics and we actually did a podcast a couple of weeks ago with Arthur Garcia about investing while working a full-time job; and it was thus far, it's been our most popular show. You know, this is really a popular topic. You know, you definitely don't. That was Show 6, as Brandon's popping it up on the screen here, letting me know that was biggerpockets.com/show6.
Listen, I mean, you don't need to make real estate your career, in order to build wealth in real estate. There's lots of things you can do. You can invest on the side. There certainly are advantages and disadvantages to both. The advantages of investing while working, you know, if you're keeping your day job - you've got cash coming in from your job, so you can use that to re-invest into your investments, and you can of course grow your portfolio more quickly. You've also got that stability of the job, you're not worrying where your next dollar’s coming from. There's definitely that peace of mind from having a job, and the income that comes with having a job as well helps you expand your portfolio more quickly.
Brandon: Yeah definitely, one thing that's been helpful for me over time is, whenever I have a job, you know I've gone on and off a few times - getting bank financing is so much easier when you have a job. I mean, imagine walking into a bank and say, "Hey I don't have any job or any income whatsoever, I need a loan," They're just going to laugh at you. When you go and say, "Hey, I got this income coming in every month." People underestimate that power.
Brandon: Bank financing at 3 1/2, 4 1/2% is so much better than paying a hard money lender 12%. We'll get to hard money later, but yeah. Definitely don't feel bad if you have to work a full-time job. I always tell people, "Do something you love to do." In fact, if your passion is flipping houses then maybe flip houses, but you don't have to go full-time, so…
Josh: Yeah, yeah and they're all going to laugh at you anyway, Brandon.
Brandon: They are going to laugh at me anyway, right.
Josh: It’s all good. There's definitely a lot of different ways that you can invest in real estate while you keep your day job, including partnering a piece of property. You can actually service as a private or hard money lender. You can invest in notes. You can do buy a whole property and actually hire a property management. There's definitely lots of options. We'll get into those a little bit more, but the bottom-line is ultimately, working a job is great and it does give you the opportunity to invest and you do not have to be a full-time investor. I think a lot of novices think you do. There's certainly opportunity and I'm assuming we're totally for agreement here. Yeah?
Josh: 100%. Yes. Go ahead Brandon. Let's move on to a great topic here.
Brandon: Yeah, let's talk about gurus a little bit. They're a popular topic on BiggerPockets.
Josh: They are indeed.
Brandon: I actually got started, I mean, very, very early. The thing that got me intrigued by real estate was actually watching late night TV. You know trying to sleep. You'd see the commercials, you'd see the flipping shows. The gurus, they do motivate. They get you fired up when they’re sitting in their convertible with two women beside them, and driving down the fast lane, the freedom or whatever they want to call it.
Josh: Absolutely, absolutely.
Brandon: It's motivating, and I know, I would say 90% of people out there are probably, we started by seeing that image and thinking, "That looks cool. I want that car."
Josh: Yep. Definitely, definitely. Look, BiggerPockets got started partially, I will tell you that when I first started investing, I learned from, I didn't learn, but I was given a course from one of these guys. I looked it through really quickly and was like, "Okay, got it. Cool. That's great. Moving on." Here's the thing, a lot of people think I'm this deathly anti-guru guy and BiggerPockets is totally anti-guru.
Here's the deal. What we stand for is that people can get through this and can help one another succeed without paying somebody thousands and thousands of dollars, and giving away their life, half their life and their first-born to some guru who is literally in the business of up-selling them and up-selling them to the next thing. Most of these guys, I'm not going to say all them, but these guys, their business is to sell you and to sell you more and more products, and to get you into these funnels where you're just buying and buying and buying.
You know, ultimately, I believe that instead of spending 10, 20, 30, 50 thousand dollars on some guru, whose job is to sell you products, you can take that money and actually invest it in real estate. That's kind of where the line is. We like people to know and understand that gurus, they're goal is to sell you. We just want to make that clear, and really quickly, just going to talk about them, and clubs and things like that. A lot of real estate clubs and websites and things like that who are promoting gurus, they make money by selling these products as well. You'll get approached by somebody and they'll say, "Hey, listen I've got this great product I’m going to sell to you and we'll give you 50% of everything," or "I've got a great boot camp and we'll give you 50%."
You're going to incentivize by promoting that stuff and selling that stuff. There's a lot of real estate clubs and groups who make their money by just promoting and selling that; so even if the quality of the stuff isn't good, you're incentive is, "Well I can make a ton of money by pitching it and promoting it." That's why there's so many people pushing this stuff. The quality... there's some other stuff might be good, and a lot of people do need that personal attention.
We're not saying it's not for everyone. It works for some people. It certainly does and we just want people to be aware and be careful, before they go and spend their money. Do your research and due diligence because certainly folks can learn and be successful after spending a little bit of money on these gurus, but I truly believe that most people don't need it. There's other ways to go, and we'll talk a little more about that in education.
Brandon: Well speaking of money, let's move real quick over to, "Do you have to have money to invest in real-estate?" The gurus, the late-night guys I used to see; I mean it was, "No money down investing." That's a question, a lot of it will come, because they don't have money that's why they want to invest in real estate, because they want to make money -- so the question is, "Do you need money to invest in real estate?"
My answer would just be, there has to be money involved to invest in real-estate -- that doesn't have to be your own money, though. No money down just means none of your own money down. There are different ways to do it, I mean a wholesaling uses little money by using marketing dollars, but you can use partners, there's lease option strategies. You can use low-down things like FHA Loan, Home Equity Loans, lines of credit, private hard money -- there's a lot of different ways you can go.
Josh: USDA, VA Loans.
Josh: Lots of government insured loans and buy multi-family properties where you can live in the properties. There's lots of cool things that you can do with little money.
Brandon: Yeah and ever more than that, even if you don't have money, you can go work in the real-estate investing field. You could be a real-estate agent. You could be a construction worker. You could just be a temp working at a real-estate company. There's a lot of different jobs that are in the field that can give your experience. They can give you the contacts you need. They help you teach the business and you're making money while doing it.
You don't have to necessarily quit your job today and go and be a house flipper, go and be a wholesaler. There are ways if you don't have any money, that you can start saving that money by having a job in the field.
Josh: The beauty of that is, of course, you're learning the trade while you're at it, right?
Josh: If you're an agent, or a project manager, or a mortgage broker, you name it. You're getting first-hand experience in the industry so you're learning what's it all about, you're building your contacts, as Brandon said, and you're really expanding your knowledge base, so ultimately you can start investing at some point thereafter.
Brandon: That's a hard pill to swallow for people, I think, because they want the get-rich quick thing. They want to be making money right now and I don't want to have a job for two more years, I want to be making six figures this month. Yeah definitely, real estate is not a get rich quick scheme. I mean there are people who have done it, I'm not going to lie, there are people who have made millions of dollars a year, but that is not the rule. That is definitely the exception.
Josh: Yes especially for the new people, again, I'll be done harping on this in a second here, but the get rich quickie stuff, I mean, real estate takes time. It takes patience. It takes planning in particular. You really, really want to plan, and map stuff out. Don't get into real estate if you think you're going to get tomorrow. Stop listing. Close your account on our site -- Go find something else to do because you're not going to get rich being a real estate investor in three months, six months. It's not going to happen. I don't care what any guru tells you. It's just not going to happen.
On the other hand, if you do want to build up a portfolio. If you want to build up long-term wealth. If you want to do it slowly, methodically and you want to do it right, then it's absolutely a great way to make money. Just like investing in the market if you do it appropriately. You're going to do well. Again, take your time. Do not rush it because doing that is just a quick way to get yourself in trouble; and real estate is not a get-rich quick scheme. Let’s say it together Brandon. Not a get-rich quick scheme.
Brandon: However, it doesn't necessarily, either way, it's not like it's going to take you 50, 60, 70 years to make money in real estate.
Brandon: If you're smart about it, I don't believe it takes - it's not going to take you two or three decades to get into it. If you're smart, which is what we're talking about today, then you can get into it - I'd like to think, I don't want to throw numbers out necessarily but, in a shorter period of time you should be able to find at least a career, if not, financial freedom. Speaking of being smart, why don't we move --
Josh: Talk about education?
Brandon: Yep, why don't we talk about education?
Josh: How about that?
Brandon: That's actually Chapter 2 of the Ultimate Beginner's Guide. Let's talk about your real estate investing education.
Josh: Yeah, yeah, yeah. I guess the first and foremost thing is, how do you learn? How do you get educated? How do you find out about real investing? Well for one, you keep listening to our podcast.
Brandon: Yeah, yeah.
Josh: Yeah, yeah. Number 2, Ultimate Beginner's Guide. Check it out.
Brandon: Yep. UBG.
Josh: UBG in the house. Of course, check out BiggerPockets, that's another source. Beyond that, there's the basics. You got your books, bookstores. Have tons of books. There's free e-books. There's things on the Kindle. Audible.com. You could listen to audio books. Blogs are an incredible source for real estate investing knowledge, the BiggerPockets blog and we'll have links to it, has I think it's over 4000 articles now.
Brandon: Yeah it's crazy.
Josh: To help you learn. There's tons of other great blogs and you could learn a ton from them. Mentors is another great way to get an education. As I said before, podcasts. Ours is one that we definitely want you listen to, but there are certainly others out there. If you go to iTunes, you could find other real estate podcasts to listen to.
There's definitely a lot of sources of information. Is there anything I'm forgetting here?
Brandon: Hmmm, I'm sure we are but that's alright. We got only an hour's show. How do we go to something that everyone loves and that's Math, because Math is fun right? I actually used to be the president or co-captain of my high school Math league, where we actually did for fun.
Josh: He's got a pocket protector, guys. He's wearing one right now. I'm watching him on the video. Brandon's got the geek protector. And he's got the...
Brandon: That's a cellphone, that's a cellphone.
Josh: Okay, call it what you will.
Brandon: Alright so there's a few really simple Math things we're going to go over through. First of all, this is really basic. Income is the money that you get. So you rent a unit for $1000 a month, and they paid $25 for the garage, that's $1025. Real simple.
Josh: $1025 is the income that you're making.
Brandon: Correct, that's the income. Next is expenses, those are the things that cost you money. If you've got a garbage bill for $50 a month, or if you've got a loan from the bank for $500, those are expenses.
Josh: Electric bill, water bill, you name it. Yeah, tree maintenance, tree trimming, lawn.
Josh: Vacancy. Property management.
Brandon: Evictions. Lawyers, yeah.
Josh: Yes. That all adds up and they're all expenses. Even evictions and the vacancies, I mean the vacancies, a lot of newbies don't calculate. You got to put that into your formulas when you're figuring out your expenses.
Brandon: Definitely. Then here comes the complicated Math. We have cash flow. Cash flow is just how much money left-over in your pocket when the month is over. Basically you take your total income minus your total expenses, and that's your cash flow. Remember, expenses aren't just the actually expenses that happened to occur. They could be the ones you're planning for like vacancies. We won’t harp on that too much but make sure you're keeping into account.
Josh: If you're not keeping those into account that's probably one of the biggest ways that newer investors find themselves in trouble. They don't plan for capital expenses, a new roof or a new boiler, water heaters. Things like that. You definitely want to plan for that stuff ahead of time.
Brandon: For sure. Hey I want to go real quick, something you mentioned earlier that we should touch on that. It's real estate mentors. We talked about gurus before, but mentors are a little bit different, the way that we refer to them on BiggerPockets. I like to think of them as the guy that you could take out to coffee, they're local guys, usually. You might not be able to find one, maybe you haven't looked hard enough.
I have a mentor, I would actually love to have him on the podcast sometime. He's an investor in my area. He taught me a ton of stuff. He's a really good guy. We sit down for coffee. We help each other out. We look after each other's properties when we're gone on vacation. It's really like a valuable relationship to have. Definitely look into finding mentors.
Josh: I think that's a good point and we kind of skipped through it really quickly, but I think the most important thing about a mentor is, it's somebody who's local, who's successful, who has the time and interest to help you out. They're going to help you out. They're going to hold your hand when you need help, and frankly, you can go and sit down with them, and you know, they may charge you an X amount of money, or they may not. A lot of of mentors will do it for free, because they know you're going to bring them value back at some point by potentially giving them deals, or partnering things like.
Brandon: Yeah a lot of people actually, they complain, "Oh I can't find any mentors," or anything like that, but honestly the BiggerPockets forum is a mentor in itself. If you think about what a mentor does, what do they do, you sit down with them, you tell them your problems --
Josh: They answer your questions.
Brandon: Answer your questions. You say, "What do you think about this deal?" They tell you what they think about it. The forums is a mentor, and it's the world's best mentor. If you don't have one in your local area, dive into BiggerPockets. There are investors there that just, they're hungry for somebody that they can just share their knowledge with. We've got some of the smartest people on the planet when it comes to real estate investing and they're willing for free to just answer questions day and night on the forums. Definitely, definitely take advantage of that.
Josh: BiggerPockets.com/forums and there'll be a link on the show notes. Anyway, it's a great place to go, but let's get back to the numbers, man. We were talking about income, expenses, and now I think we're at return investments. What's that, Brandon?
Brandon: Yeah, return investment. That's way of kind of comparing apples to apples, instead of trying to compare apples to oranges. If you talk to a stock person, they say, "Well, I made a 12% return investment." That's what a return investment is. Basically you just figure how much cash flow you ended up with over the course of the year and divide that into the amount of money you put into the deal.
If you ended up with - if you made $1000 this year in cash and you have $10,000 invested in the property, this is real preliminary. I mean this is real simple, but you basically made a 10% return on investment. It's really the basic, again, it can get a lot of more complicated than that. That's real basic, but just so you understand. That's how you calculate how much your return investment is.
Josh: It's what percentage you're going to make back on the amount of money that you put in.
Brandon: Yeah, simple as that.
Josh: For more details, definitely check out Chapter 2 of The Ultimate Beginner's Guide.
Brandon: Yeah and there's a lot of good stuff on all over at BiggerPockets for figuring the Math stuff out. So don't worry too much. In fact, don't be afraid of it.
Speaking of fear, let that transition. The next section actually, we're going to talk about fear. A lot of people are freaked out over jumping into real estate investing. People get afraid. They get overwhelmed. They go to BiggerPockets and they see 500,000 forum posts, and they get overwhelmed and they just don't do anything.
In the UBG, The Ultimate Beginner's Guide, we talk about six steps to help you overcome fear and we're just going to talk real quickly about them, so Josh, step number one.
Josh: Get off your duff.
Brandon: Very good. Just do something. Step number two is?
Brandon: Commit, yes. Stop buying crap you don't need. Just jump into it and do something.
Josh: You said crap.
Brandon: Step number three.
Josh: Start participating.
Brandon: Start participating, yeah. Don't complain you can't find a mentor, like I said earlier. If you're not jumping into the thing, stop complaining that you can't find it. Start participating. Start joining your local groups and clubs and hanging out. Call people.
Josh: Yup, and as Brandon talked about before, get on those forums and act questions. Interact. Introduce yourself to people. By doing that - a lot of people are afraid to, then they say, "Hey, I'm new and what do I know?" If you're not saying anything, nobody's seeing you.
Josh: By engaging and being active and participating, particularly on BiggerPockets, on our site, you'll find that you're making a lot more contacts, meeting new people, building your network. Start participating, and with that...
Brandon: Step number four is?
Josh: Learn the lingo.
Brandon: Correct. It's not complicated. You'll pick it up just hanging out in the forums, but definitely learn the lingo, because if you start talking to somebody, and you don't know what you're talking about, everyone's going to know it, and you're just going to look like an idiot. Learn the lingo.
Brandon: Alright, number five.
Josh: Learn the concepts.
Brandon: Ah, yes. That's what you're doing today. You're learning the beginner basic concepts of real estate. Number six?
Josh: Watch others.
Brandon: Very good. We're going to watch how other investors do it. The successful ones.
Josh: Yes. Assimilation. You are kind of like the Borg, Star Trek.
Brandon: I don't follow your Trekkie phrases.
Josh: For all my Trekkies listening, you guys know the Borg? Assimilation.
Brandon: You hear that silence?
Josh: Okay moving on.
Brandon: Alright, analysis paralysis is a term that people use a lot of times. It basically means you're too afraid to move. The way that I overcome this and I like to talk about is from a book called Getting Things Done by David Allan. We'll have the link to that in the show notes. Really, really good book on productivity. The thing he talks about is always know what your next actionable step is. Figure out - I mean, if you feel like you're frozen, don't know what to move - you don't need to know how to do everything. Just figure out your next step. Does that mean picking up the phone? Does that mean create a profile on BiggerPockets? Does that mean call in a real estate and ask him to look at a house? Just figure out one step and just do one step at a time.
Josh: Yeah and I think the big part of getting off the paralysis analysis is to have a plan and we'll get into that in a little bit.
Brandon: Yeah. Definitely. Alright let's go on to, how about Chapter Three?
Josh: Chapter Three.
Brandon: Which is one of my favorite chapters in the UBG because I really like the way that this kind of comes together. I never thought about it in terms of this until we were, you and I Josh, were putting together the UBG. Niches and strategies.
Josh: Life is like a box of chocolates.
Brandon: Life is like a box of chocolates. You never know what you're gonna get. The reason we talked about that is because when you open up a box of chocolates, there's like, 50 amazing looking chocolate things in there, and you grab one and you're, "This looks really good," and you bite into, and it's like that nasty raspberry one which I don't know why they put in there.
Josh: That's actually the best chocolate in the box. That and the coconut.
Brandon: That's the worst one in the box. Are you -
Josh: What? Are you kidding me?
Brandon: Are you serious?
Josh: Man, the coconut and the raspberry are amazing.
Brandon: Coconut's disgusting.
Josh: This guy has no taste clearly.
Brandon: No, the car-mel, or the ca-ra-mel, if you're in a state that says caramel. The caramel is the best. So anyway -
Josh: Carmel is the city that you drove through, I think on your way down through your SoCal --
Brandon: It is also the name of the best chocolate. Basically you don't know, I mean, there's a ton of different types and not everyone clearly likes the same kind. Real estate's the same. I really like small, multi-family properties. I like them. I enjoy that part of things, but not everyone does. That's my niche. I like small, multi-families.
Really what it comes down to is choosing a niche that you like and then using a strategy that'll go with that. Let's go over the niches real quick first and just list those off and then we'll go over the different strategies you can use.
Josh: Absolutely. Alright, first niche, Brandon is?
Brandon: Raw land.
Josh: Raw land is basically nothing more than basic earth.
Brandon: It's raw land.
Josh: It's just raw land. It's land, it's land, it's land - and you could do a lot of things with it. You could sub-divide it. You can improve it in various ways to add value. You could lease it out. Raw land is our first type. What's the next type, Brandon?
Brandon: Single family homes.
Josh: Single family homes are probably the most common investments out there for newer investors. Our friends there at the mutual funds are now starting to scoop those properties up, but single family homes, they're easy to rent, they're easy to sell, they're easy to finance, easy to rent out. Single family homes would be our next one.
Brandon: Number three is near and dear to my heart. It's duplex, triplex and quads. Those are small, multi-family properties. They're the duplexes, triplexes and fourplexes.
Josh: Brilliant. Brilliant.
Josh: What's the benefit of a duplex, triplex and a quad Brandon? Why are they different than the next size up?
Brandon: Well, I like them because you can finance them easily. Meaning you can go to a bank and you can get them - I mean the bank just looks at them just like they're a regular house. A bank doesn't look at a fourplex any different really than a single family. There's easy to finance. They're pretty common in most areas. You can find and they're not really popular so the competition usually isn't quite as fierce.
Josh: However, if you move to that fiveplex all of a sudden or small apartments, which is our next type, now suddenly things change, correct?
Brandon: Correct, and I love small apartments as well. I have a small apartment, I love it, but it is much more difficult to find financing for it; but that also cuts up the competition. There's really no definitive line but I'd like to think give it around 50 units maybe. You could get a five unit up to 50.
Josh: Five to 50. Yeah.
Brandon: That's how I kind of define it -
Josh: You know. Oh go ahead.
Brandon: Yeah so bigger than that you get the large apartments. Those are the ones that, someday, I would love to work in. Those are the big things.
Josh: But the big thing about these small apartments and the large apartments and everything they're after is, instead of being priced based on comps, these things are valued based on the income they bring in. We're not going to be talking apples to apples when you just compare sizes and locations and amenities. You're really going to judge the value and the price of these properties based on the income that they bring in.
Brandon: Yeah. Which is why, another reason I love them so much because you can add some income. Let's say there was a fourplex and you can turn it into a fiveplex. There's a 20-unit, you can turn into 22, or you can rent out the garages. You can definitely increase the property value just by increasing the income or by decreasing the expenses. If you find out that there's a water leak that's been going for years... so yeah. Yeah.
Josh: We actually talked about that a little in one of our previous podcasts with Al Williams. Reducing your expenses.
Josh: Okay and then the next category we're looking at beyond the larger apartments are REITs. REIT stands for Real Estate Investment Trusts. If you want to think about a REIT, think of it like a mutual fund through a stock. Essentially, investors can buy shares of a REIT; and what REITs do is they go out and they buy properties of pretty much any type. The goal of the REIT is to create income and generate cash flow and appreciation. The beauty of the REIT is, they're mandated by law to pay out at least 90% of their pre-tax income, I believe it is.
Brandon: Oh that's huge.
Josh: In the form of dividends, it's nice because REITs tend to pay out decent dividends, and ultimately the good ones, you'll start to see some appreciation as well. REITs are kind of an easy way to get into real estate, almost like investing in stocks and bonds, stocks and mutual funds. Those are REITs.
Brandon: Cool. Alright, the next one we want to touch on is commercial, which we dealt with a little bit with Frank Gallinelli in podcast number two, I believe it was?
Josh: It was one of those. It's on there.
Brandon: Yeah correct. Commercial properties is just the grocery store down the street, or the Starbucks building, not the business itself, but the building that it's in, or -
Josh: Office buildings. Typical industrial, you name it.
Brandon: Yeah, exactly. That's definitely a huge area. I generally don't recommend that beginners get started in commercial unless if you have a lot of money. It's not something that you want to play around with, like you might mobile homes, which we'll talk about here in a second.
Josh: Right, mobile homes. Mobile homes, you can get into with little money out of pocket. You can either buy the home itself or you can buy the home attached to the land as well; but mobile homes tend to be much less expensive. I'd say they're probably the least expensive class of real estate outside of potentially raw land. Yeah, it's kind of toss-up, I guess. It depends on what you're working out here, but mobile homes are found all over the place. Now I believe, Brandon, on your road trip, you'll pass actually, I believe it's the most valuable mobile home park in the country. I think it is, I might be wrong.
Josh: There's a mobile home park right off of the PCH, in Malibu, over like in the water. It's gorgeous and yeah, it’s a mobile home park.
Brandon: Well I know where I'm retiring now. Alright so the next one is, this is the one that you might see on late-night TV a lot, and that is tax liens.
Josh: What are tax liens, Brandon?
Brandon: Tax liens are, when people don't pay their taxes, the government is going to come down hard on them, and they're going to take their property. Then the government is going to sell a lien on their property for the amount of taxes that are owed. That's why you see on TV sometimes, you can buy houses for pennies on the dollar.
Josh: Pennies, pennies on the dollar.
Brandon: Yep, I bought this house for $132.17. That's usually what they're about, is tax lien sales. There definitely is money to be made and we're definitely going to do a podcast some time, I hope so. We'll get more into that someday in the future, but there are some smart guys on BiggerPockets that do just the tax liens, and they’re really smart, so check them out.
Josh: Yes, speaking of smarts. Notes is another way to make money in real estate, and what exactly is a note?
Brandon: Okay, well I will give an example. When I bought my apartment complex, I bought it using seller financing, which means the sellers, they actually carry the note. Instead of me paying the bank, I paid them every month. We created a note. We signed a piece of paper saying I owe them this much money over this many years. Now that piece of paper, that note, some people invest in those. They buy and sell them just like they sell and buy houses. Lately there's been a lot of really good articles on the BiggerPockets blog, all about buying and selling notes. Really, really fascinating stuff that I actually don't know much about but I really enjoy reading those things because I think that's an up way to passively invest in real estate - is by investing in notes.
Brandon: We'll put a link to a few of those in the show notes as well at BiggerPockets.com/show11.
Josh: Excellent, excellent. We've now looked at various ways, various property types and things that you can invest in. Now let's talk about a bit, now that we've covered these different vehicles, let's look at some of the niches or the investment niches. First, and I'd say the most popular one is buy and hold. Buy and hold is pretty much, you're buying property, you're holding on, and you're collecting revenue from it, whether it's commercial, residential. You can do small apartments, big apartments. Those are all buy and hold. It's probably the most common strategy that I think people are familiar with.
Brandon: And probably the most secure too. You can just hold it forever and eventually it'll probably be good. Most people don't lose big if you buy smart and buy and hold.
Josh: Well, the key is to buy smart and to know you entry point, and to understand and have a grasp on how to manage a property, how to handle it and how to take care of it, because if you do that wrong you actually could lose a lot.
Brandon: Yes, yes you could. People do it. They buy in the wrong time in the market, when the market's down, you can lose a lot. One of the more fun ways to invest in real estate that we see on TV a lot, is that's flipping real estate. I love flipping. Flipping doesn't always love me because my neighborhood's not the world's best for flipping; but I love flipping, it's super fun. It's when you take an ugly house and you make it look good and then you sell it.
Josh: Yep, and flipping, you see all those shows on television about flipping houses and things like that; the key to flipping a house is really understanding your acquisition costs, your rehab costs, your renovation costs, and having that exit strategy ready to get out of the house.
Since we're talking about flipping, I'm going to have give a plug here. BiggerPockets just recently released our first book. In fact, we actually released two books. The Book on Flipping Houses is the title of one book, and the other is The Book on Estimating Rehab Costs. These books are really, really incredible. They are probably the best book that you can find on the topics. You can find them at BiggerPockets.com/flippingbook, but if you want to know anything from soup to nuts on flipping houses, these things are insanely valuable. Again, BiggerPockets.com/flippingbook. Check them out.
Brandon: Soup to nuts? Is that a phrase?
Josh: That is a phrase, if you live somewhere out of the Booneys Brandon.
Brandon: Alright, well let's go on soup to nuts.
Josh: It's a Seinfeld thing, man. Soup to nuts, man.
Brandon: Maybe, that's funny. I've never heard that before. Now, I'm sure everyone at home is laughing right now, thinking, "I say that all the time."
Josh: Uh... yes.
Brandon: Alright, let's go on.
Josh: Yeah... okay.
Brandon: I am new, I don't know these city phrases, or whatever. Alright, wholesaling.
Josh: I'm just a caveman.
Brandon: Exactly. Alright. Wholesaling real estate. That is a very popular, and especially for new beginners. That is the process of finding these amazing deals, putting them under contract and then selling that contract to usually a house flipper or a landlord, and they end up buying it. So really you just become the middle man and you can make anywhere between $500 to $5000, that's probably average. Really it's whatever you make it. You find a better deal and you're going to make more money.
There's a lot of different ways to do that. We're going to talk more about in upcoming podcasts but --
Josh: And really quickly, the flipping and the wholesaling, these are two strategies that are very difficult to do while you're working a full-time job, we mentioned that earlier.
Josh: They really are more of a job in themselves. If you're going to make money wholesaling, you really need to kind of commit to it and I'd say the same as flipping. Would you agree with that?
Brandon: I would. I mean, you can definitely flip one house, or two houses with a job, you know, if you have a really good system set up, and that's one thing J. Scott talked about last week on the podcast, or was it two weeks ago? Whenever it was.
Josh: Whenever it was.
Brandon: Whenever it was. Anyway.
Josh: Yeah it was like Show 10 I think.
Brandon: Yeah, I think so. That's one thing J. talked about, was how he's automating his business so that he can flip several houses every month, and he's got a system down, and I know Brian Burke talked about that as well, in episode three I think it was. So definitely it can be done if you have a job, you can maybe flip a house or two, but you're not going to create a real busy business if you've got a job. Definitely.
Josh: We do cover the systemization of flipping business in the flipping books. The Book on Flipping Houses. Definitely check that out. Well, let's move on man, because we are quickly running out of time, unbelievable. Let's jump to chapter four here.
Chapter four is creating your investing business plan. Let's start with creating your plan. Basically you business plans can be your road map for your business. It needs to include a couple important things, your mission statement, which is what do you do, what's your campaign all about and why your real estate really. Your goals, which is where do you want to go, what do you want real estate to do to help you to achieve, whether it's making X amount of dollars in passive income or to retire in four years, or whatever it is. Those will be your goals. After that, we've got your strategy.
Brandon: Correct. You've got to know how you're actually going to make the money in real estate. We talked about that a little bit earlier. Is it going to be wholesaling, flipping, whatever. Next you've got time frame. How long do you want until you reach your goal? Are you going to buy and sell houses for 10 years? Or are you going to buy and sell a house every month? You really got to know that.
Next you have to know your market. You have to know what kind of area, high-income, low-income, commercial area, whatever. Know your market.
Josh: Yes, of course. Then there's your criteria, which are going to be your cash flow requirements, your purchase amounts, how much cash flow you need to get out of it. Essentially, you need to set your purchase criteria and you've got to stick to it. Essentially, if you've watched these auction shows on television. You see them always whispering before the whole the storage wars and all that stuff. They're like, "Don't go above a thousand dollars because we'll probably knock them out of it ahead of the.." It's the same thing. When you buy property, you need to get in with your purchase criteria and you do not want to get emotionally attached and you don't want to start jumping above the price that you said beforehand because if you do that you can very quickly find yourself in trouble thereafter.
Josh: Which brings me to the next thing which is your marketing plan; which is how are you going to find your deals. How are you going to get these discounted opportunities, which you can then rent out, which you can then flip, wholesale, you name it. Having a marketing plan is extremely important.
Brandon: It is. Also equally important is how are you actually going to pay for it. If you don't have the money sitting in a checking account, you need to know what do you plan on doing?
Next how are you actually going to do your deals? Define the steps. Like, step one, I'm going to do this. Step two, I'm going to do this; and have several extra strategies in place, so that way if something goes wrong you're covered. That's one of the things that Hard Money Lenders are going to want to know, or any lender really. If you don't have multiple exit strategies, you're in trouble.
Josh: Yes, which bring us to teams and systems, which we pretty much covered earlier. If you can automate and build out systems to help you manage your deal flow and your business, it's going to be extremely important. Of course having a strong team, having CPAs and attorneys and agents, and whoever else you need on your team, it's going to extremely important. We'll get into that in a little bit.
Brandon already talked about exit strategies, so when you go in, you want to go in with an exit in mind - that's really, really important. You always want to have these back-up plans. If A fails, then B. If B fails, then C. If you don't do that, you can find yourself in a lot of trouble. We've kind of talked about that in other shows as well. After that, illustrate example deals. What's that all about Brandon?
Brandon: Well, basically, if you're making a business plan, you want to explain to whoever you're going to show this business plan to, even if it's just to your or your spouse, you want to explain exactly what you're doing. Give an example. I'm going to buy this house at 123 Main Street for this much. I'm going to do this to it. I'm going to sell for this much. you want to walk people through the entire process, because most people will not understand what you're talking about until you give them an example.
Then finally, financials. You have to record, in your business plan, where are you today and what do you bring to the table. Do you have any equity, are you starting with nothing? Did you just have education? What do you bring to the table? What's your financial outlook look like? That's really important not just for banks, but for private lenders, for partners, for whatever.
Josh: Cool. Alright. Let's move on to assembling your team. We talked about it briefly but there's a lot of the important people that you want to have on your team. Mentor is definitely a good person to have, we've talked about that already. Mortgage broker, loan broker, that could be traditional hard money. You want to actually have relationships with a lot of lenders and money folks, private money people, because as you start to grow your business, you're going to need more cash to expand.
Real estate attorney. You've got to have a lawyer. I'd say that's probably one of the most important people you're want to have on your team is a real estate attorney. A good escrow officer, title reps, you want to have a really good accountant who's going to help you through all those accounting questions, tax questions. That IRS book is getting thicker and thicker every year, so you want to have a good accountant who understands real estate investing. That's a big thing because not a lot of them do, so definitely want to have that. Insurance agents. Why is an insurance agent so important Brandon?
Brandon: Because people like to fall down and people like to sue.
Josh: There you go, there you go. Contractors. Contractors are a real pain point for a lot of investors and homeowners, so finding a good one is really, really key. When you find one then hold on to those contractors. Contractors are really key.
Supportive friends and family. You know, it's hard to go when everybody is telling you you're going to fail. It's hard to move on if your family's not supporting you. It's going to be a tough time being a real estate investor so definitely make sure you've got support from your family and friends.
Realtor - having a great realtor is going to help you find good deals. They're going to be out there hunting for opportunities for you because they're going to make money. So get a realtor. A property manager, a property manager is going to help you manage your property. Finding a good one is really difficult.
Brandon: Not only that, but I think Brian Burke said, a property manager actually brought him his deal that made him $800,000. So property managers not only manage property, but they can bring you deals as well.
They got a good handle on what's going on in the market, so that's huge. And then lastly, but definitely not least-ly, is a great handyman.
Josh: Is that a real thing? Is that like soup to nuts?
Brandon: I just made that up right here on the spot. Patented it right now.
Josh: Trademarking it?
Brandon: Yes, yes.
Brandon: You get the idea. Alright so great handyman. Contractors are important, we talked about that, but a handyman that can go over and just change a light bulb for you? I mean, I have a handyman that deals with 90% of my handyman work right now, and it was the greatest decision I ever made.
Josh: Is that because you can't change light bulbs?
Brandon: I don't want to change light bulbs. I like podcasting. This is more fun.
Josh: Oh there you go. Nice, nice.
Brandon: Definitely a good handyman. Yeah, definitely. Let's go on to using partners. We talked about that before. It's definitely part of your business plan which is what we're talking about in this section. Should you use a partner, should you not? There's a lot of pros and cons, and you can look in the UBG and read of all them.
Real quickly some of the pros are obviously you get the benefit of having somebody to bounce your ideas off of. You get their money pooled together. Somebody else can look at your deals and analyze them. You know, you don't have everything in the world. You're not a complete puzzle, there's things that you're missing. If you're a missing a puzzle piece, maybe that other person's got it. Those are just a few of the things you can do. There's also a lot of, I guess, downsides of it too. Like...
Josh: Downsides, personality conflicts. You may not get along with your partner. You guys might have differences in opinions. Yeah, trust issues potentially can come up. If you have to rely on somebody else to make decisions that can delay your decision-making. Smaller profits, of course, because you're splitting your deals with somebody else. Sometimes it can be dangerous to potentially split. Mix friendship and business, so you want to be careful that expectations, responsibilities, and of course complexity of taxes are all kind of downside. Here's really quick four tips for successfully partnering. Tip one is: Don't be a jerk, Brandon.
Brandon: Don't be a jerk.
Josh: Yes, don't be a jerk, and learn to compromise.
Josh: Yes. Talk daily.
Josh: Everyday and to plan ahead.
Brandon: Yep, and one more thing I want to add. A partnership doesn't have to be a partner, and shouldn't be I would say, a partnership for your whole company. I think partnerships should be deal by deal. If you do a good deal with one partner, do another deal. You don't have to give away half of your entire life to a partner. You can just do one at a time, so that's pretty big, so definitely -
Josh: Which reminds of something really quickly on. We talked about mentors and gurus and stuff, and there are some gurus out there who ask for half of your deals, speaking of half of deals.
Josh: I've actually heard some craziness where some of these guys are asking for half your deals until you get to hundreds of thousands of dollars in profits. Be careful when you do that guys. I think it's okay if you do split with a mentor, a couple deals; but don't sign with blood and give away your profits until your broke. Definitely be sure you're doing it on a limited basis. It's just something that kind of popped in my head but be careful.
Brandon: Yeah, definitely. Then last thing before we move on the next chapter. I just want to share a quote that was in The Ultimate Beginner's Guide that I love, about partnerships, and we talked about family and friends, maybe not making good partnerships. The quote is this, it's from John D. Rockefeller, "A friendship founded on business is a good deal better than a business founded on friendship." I love that quote.
Josh: Is that the John D. Rockefeller, the guy on BiggerPockets, or is that the John D. Rockefeller, the big billionaire magnate who's been dead for a while?
Brandon: I think that's the billionaire who's been dead for a while.
Brandon: So yeah.
Josh: Gotcha, gotcha, gotcha. Alright, well let's move on to chapter five. How to find investment properties and of course we're going to look at how to profit when you buy your investment properties. What is that all about? You make your money when you buy, right?
Brandon: Correct, you make your money when you buy. That basically means, if you don't have a good deal going in, no amount of important of improvement to the property is going to suddenly make it a good deal. If you overpaid, you might just be screwed and you can't do anything about it. Definitely, you make your money when you go in. Don't ever forget that.
Josh: Okay, so when you go in you want to actually have a set of selection criteria set up. You want to know what exactly, you know, your criteria right? Things that are going to be important could include things like, the town, the neighborhood, the size of the property, the lot size. Property conditions, bedrooms, bathrooms, number of units, cap rate, cash flow, potential for appreciation, things like that. There's no one set of criteria that works for everybody, You need to determine what's important for you.
Brandon: It's kind of like that box of chocolates, and the nasty raspberry.
Josh: Oh nooo. It was bringing it all around. Ah the yummy, yummy coconut. Yes, I know.
Brandon: Let's move on to one of the most important things. I think, in all of this entire guide, that is the rules of investment of investment property. Now these are not rules and then you need to follow them or you're going to be put in detention. These are rules of thumb. Meaning, these are quick, easy ways to analyze a property.
Josh: Is that a real saying? Rules of thumb?
Brandon: I don't know, I'm making that up too right now.
Brandon: They are a rule of thumb plural. So the first one that you might, you'll see this a lot all over BiggerPockets. We talk about them a lot, there's a lot of debate. You can look into them, but real quick. The 2% basically states that your monthly rent should be approximately 2% of the purchase price. In other words, if you buy a home for $100,000, it should rent for $2000 per month. If you buy a home for $50,000, it should rent for $1000 a month.
Josh: Awesome, awesome. 2% rule's a great rule, followed by the 50% rule. Probably the most debated thing on BiggerPockets. The 50% rule says that 50% of your income will be spent on expenses. This is one when we were talking about rental properties, of course, not including your mortgage payment.
Early in the podcast here we were talking about things like vacancies, property management, things like that. You want to account for everything. When you do, when you account for everything. You're ultimately, over the long haul over period of time, you're going to be end up approximating about 50% of your income being spent on your expenses.
When those cutbacks come up, you know, when the roof needs to be replaced, and the boiler, and when you're not accounting for property management, your numbers can get a little jazzed up. If you use the 50% rule, essentially, you're going to be assured that you're to find a property that'll cash flow.
Now not at all areas will meet their 50% rule, again, it's a rule of thumb, but it's something that will help you find deals that are pretty guaranteed to cash flow, but of course nothing guaranteed in real estate.
Brandon: That's true. Alright the next rule is one that's very popular with house flippers and it's the 70% rule. It basically says that you should only pay 70% of what the after repair value is minus the repair costs. Let's just say that you find a house that you know can sell for $100,000. You should only pay 70% of that which is $70,000 minus whatever it's going to fix up. It's going to take $20,000 to fix up. Just take 70% of $100,000, that's $70,000. Minus $20,000, you got $50,000. That's what you should probably pay for the property. Again, don't make your offer based entirely on this. It's just a quick rule of thumb.
Josh: Alright, where do we find investments? Brandon and I, we've got the MLS - the Multiple Listing Service, which you'll need an agent to help you with or where you can get kind of list details on websites like Realtor.com. You've got the newspaper, word of mouth, from networking, things like that. Sites like Craigslist, from outbound marketing. Commercially, you can find things on LoopNet. There's lot of places you could find deals. Let's kind of get into the entire, the buying process. So what would be first steps in this buying process?
Brandon: Alright, so the first thing you do is you decide on what kind of property you want. Number two, you decide on what criteria you want, we already covered all those. Third, you want to decide on how you're going to finance the deal. Four, then you begin actually looking for the property. A lot of you will try to do step four first. They try to start looking and then they just get confused and overwhelmed and irritated because it's not going their way.
So you have the first three down and you find your property, whether that's on the MLS or whatever. Step number five is you're to run the property through a list of criteria, filters, screen out all the duds. Meaning, you look at a hundred properties, and you're probably only going to find one or two that is actually a good deal.
Step number six, you make your offer on the property, and you make sure you're shopping smart and you negotiate that. Which is step number seven. Step number eight, you perform your due diligence which means you have an inspector look it over. You get your financing arranged, I mean like, finalized. Step number nine, you sign the papers, either at an attorney’s office or a title on escrow and you get the keys and you own the property. That's pretty much it for finding investment properties. Let's go on how to pay for it.
Josh: Okay so real estate financing is really important, because of course if you don't know how you're going to pay for it, you know, how are you going to pay for it, right? You're not going to have any means to acquire pick up deals. Ultimately, there's various ways by which you can finance your deals.
Okay so, first way to finance your property is through cash. That's pretty obvious, you're using cash to purchase the property. In most cases, you're not actually carrying wads of cash. You're bringing a check or certified funds. It's money that you've got.
The next means of financing is conventional mortgage, and that's kind of the typical mortgage that you hear about that. Beyond that, something called portfolio lenders, what are those?
Brandon: Yeah, I'm a big fan of portfolio lenders. They're like smaller, usually, community banks, and they don't necessarily sell their loans up to big mortgage companies like Fannie Mae and Freddie Mac. They lend their own money. They have the gold, they make the rules. Yeah, they can be a little more clever with their finances.
Number four, FHA is a way that a lot of people, especially newbies, get involved. Basically the FHA is a government-backed loan and you can get a property with 3 1/2% down right now, you don't need 20%. 203K Loans, they're part of FHA, basically that means you can actually borrow the money to fix up a property. Which is really helpful if you want to add some value -
Josh: Yeah, sorry I cut you off, but HomePath Mortgages. It's another government-backed loan, introduced by Fannie Mae. You guys can find out more about that on UBG. Owner financing, I believe Brandon talked about that early on the show, so we'll just skip past that. Hard Money is financing found through private businesses or individuals for the purpose of investing in real estate.
Brandon: We did a whole podcast on that with Ann Bellamy.
Josh: Ann Bellamy. Yeah Ann Bellamy. So definitely check that show out and you'll learn everything you need to know about hard money.
Brandon: Was that Show Nine, I believe?
Josh: That might have been Show Nine. You are pointing out every darn show we've done aren’t you?
Brandon: I think so.
Josh: Private money is another option, fairly similar to hard money. Essentially, you're getting money from lenders who are not banks or anything like that, but they're typically individuals, people you know, things like that, who've got cash to lend for deals and opportunities. Home equity loans and lines of credit are other ways of doing it. Partnerships, which we've already, I believe, covered. We'll kind of skip past that. Commercial loans are typically loans for commercial properties.
Brandon: They can also be a loan for your business as well, which you can then use invest in, you know, like if you have a flipping business, you might be able to get a commercial loan for your company. Then you can use that money to flip houses.
Josh: Yeah business lines of credit and things like that.
Brandon: Then there's a bunch of other ways like EIULs, Life Insurance, rough IRAs. There's a lot of different fancy ways to invest, which we don't really have time to get into, but they are pretty great. If that's something that you're interested in, definitely search BiggerPockets for that.
Josh: Alright, cool. Chapter seven.
Brandon: Yeah let’s go on to to chapter seven which is marketing, that’s a big thing, especially today, it's not always easy to find deals. Sometimes you actually have to go and actually hunt them down. There's chapter's on that. First of all, your greatest real estate marketing tool is your yourself. You need to be an honest investor. You need to have integrity. You need to be professional.
Josh: This is a big, big, big thing for me and I know we're running late, but you know I think I need to harp on this thing. I find so many people who go to real estate clubs, come on our site, BiggerPockets, all over the web, who will straight-out lie about their experience, lie about their background because they think it's going to boost them and make them look better. Do not lie. Period. It is not cool to lie. You will get caught. You will get found out and you will look dumb. You do not want to look dumb because you will kill your business before you even start.
So don't lie about who you are. Don't lie about what you're doing. Don't tell people that you got deals in all 50 states. I mean, don't BS people, seriously. Tell them the truth. Be honest, be straightforward. It's okay to be a novice. Be honest. There are some people, some of the gurus who are telling people to kind of brush up on the truth a little bit. Don't do that. Do not listen to that. Your reputation is everything and lying is a bad way to go. You integrity is so key and that's kind of the next thing, it's integrity. Have it.
Brandon: It is. It's important because you could do all the marketing in the world but if people don't like who you are, you're not going to succeed. You've got to market yourself first. That's definitely huge. Networking is huge, huge in this business. It's who you know. It really is who you know. Establish yourself as somebody that's good to know. A good way to do that --
Josh: Be professional. Be professional.
Brandon: Yeah, and a way to do that is through BiggerPockets. That's the first way to interact with people who are making deals happen every day. Begin building your network here. You can have a website. Make sure you have social media, obviously Facebook, Twitter.
Josh: Go to real estate clubs, right?
Brandon: Yeah, go to real estate clubs. Just start networking yourself. Maybe start a blog. That's how I started, I mean not how I started, but I blogged. I love blogging that's why I write all the time for BiggerPockets. I love this stuff. It helps you kind of establish yourself as an authority. Let's go on to marketing funnel, Josh. Why don’t you touch on that?
Josh: Sure. A funnel is, think of it like a funnel, right? It's really big at the top and gets more narrower at the bottom. You're going to send out the information to a broad swath of people and eventually only a small amount of people are going to be responsive to that information. That's kind of the broad stroke of what a funnel is.
Yeah, there's different ways to market, whether your sending out postcards to people who have passed through on their mortgage, you're setting up 800 numbers for people to call who need help, they're in foreclosure, things like that. You could send out all these information, and basically, only a few people are going to call you, and then your job is then to close on those leads, and to basically attract those people to work with you as an investor, to help them out. You're going to various forms of marketing. Let's talk about those. I guess, the first one is Direct Mail.
Direct Mail is mailing letters, sending postcards, putting things in the mail to people and you're giving them a message that's going to attract them to call to help them with their situation, whether they're in probate or some of the other examples I gave earlier. Essentially, the key is you're trying to build awareness of your product and your service. You're going to repeat. You're going to send stuff out over and over to these people and eventually you're going to become familiar to them and they're going to come to trust you, and they're going to want to contact you.
Brandon: Direct Mail it's a huge area. You can also take that into kind of the online world. the same concept. You could advertise on Facebook, Google, I mean those are kind of the modern day direct mails. Definitely don't neglect that. That's a huge part - advertising online. Some people think it works great. I love it so definitely look into that.
Josh: There's a couple of ways to do it. There's Pay-Per-Click advertising, there's all sorts of different ways. The Ultimate Beginner's Guide really in to it, we talk about creating online ads, we talk about you know setting up websites, landing pages. Definitely jump back on Chapter Seven of The Ultimate Beginner's Guide and we've got a whole lot more information about marketing through sites and through direct mail and things like that. Marketing is definitely key to getting deals and opportunities. Which brings us to the last and final chapter. The last and final, that's a little bit redundant, but Chapter Eight, which is Real Estate Exit Strategies.
Man, so many beginner investors just don't realize how important it is to have an exit strategy. It's so, so key, is that right?
It is, and again, when I started I didn't understand this, and it got me into a lot of stressful situations and I got lucky and I worked my way out of them; but don't put yourself in that situation. Let's talk about a few of those.
First of all, you can sell with a traditional, the old-fashioned way. You get a real estate agent, you put in on the MLS, your agent sells the property, that's it. It's really the number one way people sell properties. You can also sell For Sale by Owner. Just take a sign in the yard and you hope it sells.
Josh: You save your commission by doing that but you know, of course, you're limited to your access on the MLS, or agents and things like that. There's pros and cons.
Brandon: Yeah, they debate it all the time.
Josh: Yeah, seller financing, which I believe we've talked about already -
Brandon: Yeah which just means you own the property free and clear, and you sell it, they pay you every month instead of the bank. It's a good way to get some passive income. Lease options, we could spend a whole episode on lease options, but basically it's like a lease, it's rent to own. That's the best to look at it. It's renting to own a property. Just like you rent to own furniture, don't do that but same concept. Unless you're staging, rent to own furniture staging is great.
Brandon: If you're going to rent to own a couch, you're going to pay like three grand for that couch that costs $300 to buy.
Josh: There we go. Yeah, that's a loan shark kind of business. Yep, yep, yep. I think the final exit strategy is looking at a 1031 exchange. It's an IRS thing, the whole 1031 exchange is. Essentially, the bottom line is you're selling one property, you're acquiring another property, and the government has rules about how you do this, and essentially you can save on taxation, if you do it following the 1031 rules. There's tons of information on BiggerPockets about it.
Brandon: We're obviously not lawyers, or accountants, so this is our legal disclaimer that definitely talk with your person. Talk with your accountant and with your lawyer, and make that work. We're not telling you necessarily do it. And that is pretty much it. I mean that should give you everything you need to know to get started. Is there anything we're forgetting Josh?
Josh: You know we've kind of flown through it. We jammed a heck of a lot of stuff in there. This is eight chapters and I think 30,000+ words of The Ultimate Beginner's Guide that we just crammed into about an hour. We definitely have skipped a lot, we've left a lot out, but here's, I'd say the bottom line, let's kind of summarize.
Essentially, you want to focus on education. You want to get out there and become knowledgeable. you want to choose your niches and strategies. You want to get out there and then start creating your business plan. Then you want to go out and start seeking your properties. You want to understand how to find properties. Understand how to finance your investments. You need to get a grasp on marketing and of course, your exit strategies. Once you do, and you've got that plan, then you can go out and take action, right?
Josh: Action. Take action and get the ball moving and start to get your business going. I do want to make another disclaimer. Yeah, this is really an outline guys. This beginner's guide should be really helpful to people but again, the bottom-line is you've got to just... be smart. Don't go out and listen to somebody who's going to tell you that they're going to make you rich. Be smart about how you do it. Be methodical about it, but don't get caught in the whole trap of paralysis analysis and over analyze things.
BiggerPockets, we built this site, I built this site, it's over eight years now. The goal of the site was to help people to build their real estate business and to help them find help, you know, have a community of people to assist you. That's what we're here for. If you're new, or if you're experienced, come on the site. Interact. Get involved and there's no stupid questions. It's a beautiful, beautiful thing about it.
Brandon: Alright, cool. That's pretty much it. Josh, I'm going to ask you the four questions real quick that we always ask everyone else.
Josh: Oh don't even do that.
Brandon: Yeah, you did not expect this. Alright. Question number one. What is your favorite real estate book?
Josh: Holy smokes. My favorite real estate book is the BiggerPockets' The Ultimate Beginner's Guide.
Brandon: Okay, I'll give that one to you.
Josh: Is that a fair answer? Okay, great.
Brandon: I give that one to you even if I don't let most people, but I'm going to throw in Rich Dad, Poor Dad because everyone says that. Alright, question number two. What is your favorite non-real estate business book?
Josh: I don't read. I haven't read a book in so many years it's not even funny. I'd say, it's probably a magazine. I would say it's like the Forbes Billionaire issue that comes out every year. Since I was like 17, I've been reading that thing and it's always to hear success stories of entrepreneurs and things like that. It's not necessarily a book but it's kind of those little snippets that Forbes puts out all the time on the billionaires. It's pretty inspiring to see how people built and expanded their businesses.
Brandon: That's good. Josh, what's your hobby?
Josh: Uh, BiggerPockets? I love skiing. I love wind-surfing. I love spending time with my kids. I don't do enough of any of my hobbies, so unfortunately but I'm getting outside doing fun stuff. I like all sports. I like watching sports, doing sports. Hanging out with my wife. Hanging out with my family is probably my best hobby.
Brandon: Cool. Alright, last question. You know what it is. What sets apart the successful investors from the non-successful investors?
Josh: Well, Brandon. Let me think about that for a moment. You know, I've watched so many thousands of people. We get half a million people a month coming through BiggerPockets. In the eight plus years, we've had countless millions of people come through the site of people come through the site, and I've gotten e-mails and read on the forums, I mean, so many different stories. I think, the successful people have a couple traits.
I think one is, obviously they're going out and spend time and energy educating themselves. These are people who don't let setbacks kick them down. These are people who will fight, who hustle, who are methodical and smart in their planning, who try and build out and systematize their businesses. These are people who aren't afraid to work. Everybody talks about the four-hour work week, and, "Hey how do I cut back on the amount of times that I want to work?" It's funny you know. Look, there's great stuff in there but the bottom-line is successful people work hard.
Whether it's real estate or any other business, there's no overnight successes. The people who are overnight successes have busted their butts and worked their backsides off to get there. I'd think really hard work is there man. It's got to be, probably one of the most important traits of a successful person, is that hard work.
Josh: Don't take shortcuts.
Brandon: Yeah, that was good. Alright well, you want to close this up?
Josh: Sure. Well, that was the BiggerPockets Podcast Show 11. Thank you for listening. We know this kind of a different way of doing things, but we really wanted to go over this Ultimate Beginner's Guide and I think a lot people will find it helpful. This is Show 11, you can find the show notes at biggerpockets.com/show11. If you haven't already created an account at BiggerPockets, you can do that at BiggerPockets.com. Definitely jump in and get involved. We've got a great page at BiggerPockets.com/starthere, that'll get you started and tell you lots of cool stuff about the site and how to use it.
Finally, if you're not following us on Facebook, definitely make sure to do that. We share lots of cool information, have cool conversations, and actually one more thing. We're getting tons of great feedback on the podcast. People are really enjoying it and are getting a ton of value out of it. If you are one of those people, maybe you don't like this show, or maybe you don't like Episode Two or whatever, but overall you find the show to be really great and valuable, which it is, um, hint.
Please do us a favor. Jump on iTunes and leave us a rating. Be honest. Leave us an honest rating and leave us feedback. Tell people who go and check us out what you think about the podcast. Do you think we're providing a great service to people? Let them know that. And of course, finally make sure to subscribe to the podcast on iTunes. It's really important. It helps us get a lot more visibility, helps us grow and get out there and educate more people. Brandon and I really, we love doing this. We love the show and we'd love to hear back from people, what they thought. Leave your comments in the show notes too. That's great, it makes us feel good. It makes our guests really feel good, and they love to answer questions that you've got for them. I think that's it, have I covered it all?
Brandon: I think you're good.
Josh: So close this up, buddy.
Brandon: Alright well this is Josh Dorkin. Signing off.
Josh: And Brandon Turner. Signing off... Okay I'm Josh Dorkin. Signing off... No but seriously. I am Josh Dorkin, aren't I?
Brandon: No, I'm Josh Dorkin.
Josh: No, I am.
Josh: Alright, guys take it easy.
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