BiggerPockets Podcast 013 with Leon Yang Transcript
Link to show: BP Podcast 013: Buying Real Estate with Seller Financing and Speculating with Leon Yang
Josh: This is the BiggerPockets podcast, show 13.
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Josh: Hey everybody I’m Josh Dorkin, your host of the BiggerPockets podcast. Here with my co-host Brandon Turner. What’s up Brandon?
Brandon: Hey Josh, not much. Things are pretty good. I closed on a new property this week so that makes me happy.
Josh: Fantastic. Always exciting to close on yet another property.
Brandon: It is. I wrote about it over on blog so people can check that if they want to know the dirty details. It’s good.
Josh: No, that’s awesome man. You know what else is awesome, Brandon?
Brandon: What else is awesome?
Josh: Awesome is a hundred thousand. Do you know why a hundred thousand is awesome?
Brandon: Is that amount of money that you’re going to give me today?
Josh: That is certainly not the amount of money is going to give you today. However-
Josh: No, not tomorrow either, Brandon. A hundred thousand is the number of times our podcast has been listened to up until now. Up until at the time of this publication of this podcasts two days ago.
Brandon: That’s awesome.
Josh: We have eclipsed 100,000 listens milestone which is, I think it’s pretty cool – I mean 12 shows 100,000 listens – not bad.
Brandon: That’s not bad at all. That’s great. I’m blown away just by sheer number of people who listen to this show every week. It’s awesome. It’s really, really, refreshing to know that people like what we’re doing. I like being liked. That’s a good thing.
Josh: Well they certainly don’t like me.
Brandon: I’ll take all the credit – not our guests, not you, it’s all me.
Josh:This is “Welcome to the Brandon podcasts” “Starring Brandon Turner with guest host Brandon Turner and guests Brandon Turner” Brandon: Speaking of guests, we have an awesome guest today. Somebody that’s fairly new at real estate investing – Leon Yang. He’s from the Las Vegas area. And Josh why don’t you tell us little bit about Leon, you knew him before I did.
Josh: Leon is an interesting guy from Brooklyn, New York. New York in the house. Who was born in China, raised in Brooklyn, originally set out to go ahead get an MBA. Leon, I guess, decided that the best education he was going to get is by just hitting the street and getting into real estate investing. Back in twenty eleven he started investing in Las Vegas pretty much the marked was pretty close to bottom. He’s been buying houses, flipping and borrowing money from strangers ever since. He’s a definitely an interesting guy. He’s got a perspective that we haven’t yet seen on the site – we’ll get into that a little bit. What’s cool, I think, is he’s a newer investor who’s really, really savvy, who understands the economics of real estate and we’ll get into his strategies further on.
Before we start, though, let’s go and knock this thing out. We got todays Quick Tip.
Today’s Quick Tip is the using BiggerPockets for your business – how do you use BiggerPockets to grow your business?
We put out a eBook – a free eBook on how to do this. It’s got some awesome information whether you’re a big company who operates in real estate space or somebody who’s got a small business in real estate. This eBook has pretty much everything you need to know on how to grow your business using the BiggerPockets platform. So you definitely want to download this thing, check it out, we will have the link in the show notes at biggerpockets.com/show13, there is a short link to it which is BiggerPockets.com/biz and that will be the quick link to the pdf. BiggerPockets.com/biz. So enough of Brandon and the Brandon show and Josh as his co-host. Why don’t we get to our guest Mr. Leon. Welcome to the show, Leon.
Leon: Alright, Thanks Josh and Brandon. Quite excited. Thanks for having me.
Brandon: Yeah, thank you, this is going to be great.
Josh: Let’s just jump right into this thing. How did you become a real estate investor?
Leon: Wow, it’s quite a long story. I mean, I’m very entrepreneurial, I grew up around entrepreneurial family so I always wanted to run my own business. I did do that one time coming out of college, trying to help my family run their business. But it was quite challenging so at that point I kind of considered about going to get an MBA and wanted to maybe give up and go to a nine to five job.
At one point I’ve come across, read the book Rich Dad Poor Dad and, you know, it got me real excited about real estate. And my family had a lot of experience in real estate, too. At this point, it was two 2011, I thought it’s a quite interesting time to be in real estate. Once I started following the market and I thought, wow. I’ve grown up in New York so I was looking at houses in New York where it cost $600,000 for a two family small house built in 1940's. I just look at the biggest foreclosure markets in the US, which at that time was Vegas, Orlando, Miami and Phoenix. I would see houses that were selling for less than a $100,000. And condos that were selling for less than thirty forty grand. And I just couldn’t believe my eyes. I thought either the computer was playing a trick. I had to find out what’s going on. And I was looking at the rental rates – the rents were pretty normal. For a house it would be about $1000 and for condos it was maybe about $600, $650. So I started kind of working the math and it just seemed to make a lot of sense. In 2011 July, I just kind of flew down there to all three cities and just wanted to get started that way.
Josh: So you hop on a plane out of Brooking, you haven’t quite gotten your MBA or had you started or no?
Leon: I actually got accepted to a couple of MBA schools but at that point I decided this was better opportunity for me. It’s an opportunity that, I think, wouldn’t have lasted that long. I had to make a decision so I decided to go into real estate.
Josh: And how did you parents feel about that?
Leon: I think they’ve been very supportive in what I want to do – in terms of entrepreneurship. They looked at the prices and they couldn’t believe their eyes, they just said “Wow, this can’t be true!” At that point my parents had invested in China, too, the way they compare prices is just night and day. So my dad just say “Ok, let’s hop along with you and let’s go to all this cities and let’s find out what’s going on.” At that point we didn’t know what the cities will be like, you know? It could be completely barren, people would have left, it could be looking like a zombie town. So we had do kind of hit the streets and find out.
Josh: Now Vegas looks like a zombie town, you know, depends on the time of day – all the people are walking around drunk and broke after looking all their money gambling.
Leon: I sense a story coming on there, Josh.
Josh: No, there is no story. I have a story with the MBA question. After school, I got into the entertainment business and my parents were definitely not happy about me making that decision. I just know that families, you know, certain decisions they approve of, or they don’t. It just kind of popped into my brain.
Leon: I was going to go to Law School. Similar story – My parents weren’t thrilled when I said “I’m going to invest in real estate instead of go to law school and make six figures.” And look where I am now on the BiggerPockets podcast show 13 – which you can get the show notes at a biggerpockets.com/show013. Like that?
Josh: That was a good plug, good plug. So you get on a plane, you hop down to Vegas, down to Miami and Phoenix. How did you guys decide which of those markets that you liked the best and ultimately settling on Las Vegas?
Leon: It was the zombies that was kind of why we decided. No, in all seriousness I just saw that Vegas was, to me, surprisingly diverse in terms of their economics. They have military bases, they have lot of tray shows, conventions, a lot of distributions, very business friendly, landlord friendly. It was surprising once you get out of zombie town out of the strip to the different areas. Being as close to California and I just thought that it’s a better market there.
Also I feel like no one really wants to go visit Phoenix or Miami or Orlando as much as Vegas. It was little bit of “Vegas is pretty exciting, as close to California, I think it has a good diverse business all over town.” And it was growing rapidly so, I thought it was a pretty good town to be in.
Josh: Alright man, that’s great. You decide, you go to Vegas, Vegas has all this opportunity it’s a great town. The market was in the absolute floor, you decide to get into this – tell us about your first deal. How did that go? What was it and how did it go down?
Leon: It took me about probably a month before I found that my first property. I wanted to buy and hold property and I had to get familiar with the town so for a month I was just driving to every street trying to figure out what’s a good neighborhood. I wanted a good rental so I spoke to quite a few agents and finally found one that seems to, they do a lot of rehabs as well, they buy foreclosed homes rehab and sell it to investors. So I thought it was good way for me to get exposure to that because I wanted to fix up broken homes and get better deals that way instead of just buying straight off fixed up properties where I may be paying maybe fifteen-twenty percent more.
It was a good learning experience for me to get started so we bought a house. It was in a great neighborhood. It took quite a long time but the first house I got was cost about $107,000. We spent $7000 to rehab it to good rental condition which we ended up renting it for $1150 a month.
That was a pretty good return but later on I kind of realized that I paid way more than what I should have in order to rehab the place but I was very inexperienced. That was sort of my launching point to start learning more and get involved in every aspect of real estate, you know? Rehabbing, buying, renting – that was my launching point.
Josh: That was a single family?
Leon: Yeah. A single family three bedroom, two and a half bath.
Josh: And how did you end up financing that? Was that just thought your family or was that something else?
Leon: Yeah, through my family. That’s what I did through a first couple of deals before I started getting financing on my own. It was sort of a launching point for me to start and then by 2012 I was doing all of them private seller finance.
Josh: So private seller finance, why don’t we talk about that a little bit. What does that mean, for newer folks leasing, how does that work, what does it mean? What is private seller finance?
Leon: Sure. Let’s just start from the beginning. All I wanted to start was I wanted to build a bigger portfolio so I know in order to do that I had to find some sort of financing to really make that work. But at that point I don’t have a job, I don’t have a W-2s to go to the bank and say “Hey I want to get a bank loan.” My idea came out of actually attending the BiggerPockets conference in Denver and it got me to start.
I started learning all this about private seller financing which is really going to the seller of the house, actually finance my purchase of their home. So if, say, for example if Josh has a house and its worth a $100,000. He may be willing to say “You know what? Leon if you put $10,000 down I will sell it to you for a $120,000 but I will give you the loan.” For a hundred I’ll finance you that $110,000 part at whatever interest rate I want it to be – maybe five percent, maybe six percent. Then I’ll give you a loan like a bank. Maybe for fifteen years, maybe for thirty years. This is where we start negotiating so that Josh on one hand gets income for selling their house and for me I can get a financing and I could put a very little money down to buy a property.
Josh: That’s great. It’s a good tactic that certainly a lot of people use. Is that what are you using today as your primary source of financing? Are you pretty much focusing on scooping up those seller finance deals?
Leon: Yeah, that’s really what I want to do now. Because it allows me to really quickly expand my portfolio because with bank loan sometimes you might hit a limit of ten properties and then you’re stuck and you have to figure out another way to finance it. For me, I’m able to do this with unlimited number of houses and I sometimes I put as little as $5000 for a house before. So it’s all about trying to put as little money down, get as much financing as I can and I think it’s just a good opportunity and given my circumstances it works well for me.
Brandon: So how do you find those sellers? Not everybody can just carry a loan, right?
Leon: Well actually I’ve been finding them on Craigslist, surprisingly. I look for ads out there. I’ll type in keywords like Seller Financing, Owner will carry – OWC, fifteen year, twenty year down payment. Keywords like that actually allows me to find different sellers who are looking to sell via financing. Most of these sellers I do find, they typically tend to be older people who have multiple properties.
Either they have it all paid for, free and clear, or they have some sort of financing on their own. These are the type of investors whish got tired of land lording. They just don’t want to manage anymore and they just want a consistent income. That’s how we get out conversations started and they, more or less, know what’s going on with their financing, how to finance it. They’re typically more expected. We are able to work a lot easier that way simply because they know a bit more.
Josh: Can you walk me trough, alright, I’m a brand new investor. I say “Hey this is a great idea, I want to buy this owner finance properties as well.” I go on craigslist and I type in some of those keywords and I find something that looks like a potentially good deal. You get on the phone and you call these guys up, how does that conversation go? What’s the whole process of setting this thing up?
Leon: I do have sort of a specific strategy. When I start I don’t go into it saying “Hey, I found your house on Craigslist, I want to buy it. What’s the price right now? Let’s negotiate.” The point is to first to get to know them – why are they selling? What are their wants, what are they looking for. You have to sort of get to know them first, you have to build up report. This is going to be, all seller finance deals – this is a long partnership where you’re lending me money for twenty-thirty years so there’s a trust and it has to be that kind of trust going to it. We have to get to know each other better.
If I were to call you and then try to buy your house my fist question are going to be like “Hey, Josh, why are you selling? What do you do? What’s going on in your life?” We just get to know each other first. I do that, usually, typically, about two or three conversations before we get to how to buy it. I would approach with strategy how much less I can put down because the less money I can put down the more leverage I can get.
My requirement is that if I have to make a monthly payment, including all the expenses and such I would like to make sure I could get a rental income similar to that. It sort of brakes even. Obviously, I could get more rental income compared to my expenses – that would be great. I try to maintain so I don’t go too negative because if I have to fill in money every month it gets thought because there’s so many properties you can do before you have to show lots of money.
My focus is payment and my down payment. Ultimate selling price – I’m a little bit more flexible. Because you have to remember this is a long term investment. What’s the really big difference between a $120,000 and $140,000? That’s something you worry about way far into the future but what’s important now is what you have to pay right now and what you can afford to pay monthly right now. That’s the type of approach I go with when negotiating with a seller finance property owner.
Josh: You had said that cash flow for you – you’re okay with that, I guess, with those break even numbers when you’re picking this things up. Is that because you’re focusing on the potential for appreciation or why?
For me, on any type of income property I’m always going to be looking for some minimum number on income after every expense, after my note, after taxes, insurance. I know some people say “Hey, breakeven is good because if I hold this property for a number of years then suddenly I’ve got my equity built up.” What’s your strategy on that?
Leon: I would say I’m a huge speculator. From when I first look at the market in Vegas, this is for me specifically, I knew the homes were selling for $300,000 in 2006. That’s dropped below $100,000 in 2011. I’m looking at it as a market is going to rebound, that’s definitely going to happen.
I don’t know how long it might take. It may take five years, it may take seven years but as far as I’m concerned I believe that the market will go back up to 300. How would I look at it as to say – I’d rather own a property that I have to break even. If I can get one more, every additional property works really well because I’ve been buying them between one 20 to 150. If it ever goes up to 300 again I stand to gain a lot more.
I’m really speculating but I’m watching out for my monthly payments to make sure that I can do it but I’ll definitely take a deal if it’s a break even just because I want to add an extra one to my portfolio.
Josh: Your strategy then is – build a size-able portfolio of discounted properties that, at the minimum, break even. In the event that we see the turn-around that a lot of markets are seeing right now, in fact, big news today is Washington DC are seeing a higher price as ever. I know here in Denver prices are skyrocketing again. Your hope is let’s see that appreciated and then what then? Do you sell out? Do you refile and pick up more properties? What the decision at that point?
Leon: It really depends on the market. If it gets up to, say, 300 again or when it gets a little crazy I would rather pull out equity out of it, refi if possible. That’s money taken out, it’s not taxable. If I were to sell everything than I had to pay a capital gains tax and that could end up being a huge amount. With that I can pull out and I can also still keep the property. Who knows, it may go up again. That’s my strategy.
Josh: What if in five years or ten years or fifteen years it hasn’t? What if it hasn’t gone up and you’re still sitting on these properties that are break even? What do you then?
Leon: I would have to say that in five, ten, fifteen years the rents aren’t going to be the same. It will probably go up. If you look back what you paid for rent ten–fifteen years ago it’s a lot different than what you’re paying now. However, all my debts are fixed so the payments are going to be fixed. In ten-fifteen years those payments are actually going to worth a lot less. Also, because of the benefits of paying out the debt in ten-fifteen years my debts are going to be a lot lower than what I have now. Even if it doesn’t appreciate I can still gain of benefits of higher rents, fixed payment and things like that.
Brandon: Kind of win-win-win no matter what happens. Even if the worst happens and you break even for the next twenty years you’re still not going to go bankrupt and it’s not that bad. It’s definitely an interesting strategy – it’s different than what a lot of people do and different from what I do. But that’s why I love talking to different investors here on the podcasts because everyone has their own method of investing. It’s not a bad idea. I know I couldn’t do that in my area because I don’t have any appreciation in my area – we don’t swing like the rest of the country does as much. Las Vegas, I know you guys go up and down quite a bit in places like that.
Josh: I used to be a stock trader. We would chart and look at different things. I remember I used to trade, you know, certain stocks and id watch for that thing to be between certain ranges. Basically, you knew the low, you knew the high and you just watch it and you try to jump in at the low and pop out when it was starting to get to the top of that range that it was consistently selling at. The market changed, it stopped doing that, and my strategy didn’t work anymore for me. There’s definitely, as Brandon said, there’s certainly various strategies. It wouldn’t be one that I would do but like you said I think it’s cool to hear that there are so many different paths that other people will take. We can all learn from each other with this things. It’s great. What are some of the dangers, what are some of the negatives to seller financing? Is there a downside to it?
Leon: There are definitely some downsides to that. With every additional property you borrow from even, say, if you’re cash flow positive or break even you take an additional risk. You could have that one extra property having vacancy or major repairs and the more you have the more likely the several of them would happen at once. With that happening, say you have twenty houses and five of them go vacant, that’s huge hit on your cash flow, as opposed if you have five houses and one of them goes vacant.
Then you make sure that you have to have a huge cash reserve in the back just in case any of these things happen. If you have that cash reserve and it gets used up and you can’t replenish it then you really know that you’re actually over-leveraged yourself and you’re putting yourself into a lot of danger. With that being said a lot of these seller finance properties are done on one-to-one basis. If things doesn’t work out you can let one go, you won’t lose all at one – as opposed to say maybe you have a bank loan and you go to fall. You could lose them all. Those are dangers that come with borrowing too much.
Josh: I know I’m harping on this. I have friends who will buy properties without cash flow and it frustrates me. Ten years ago, fifteen years ago I might have done the speculation thing. I can’t do it today, I can’t wrap my head around it because to me it’s way too risky.
If you can find these deals and these opportunities that break even, can you also then just hold on a little bit to hold out for maybe deals that do cash flow? Or to you it just didn’t matter because the other exits are in play and it works?
Leon: Well yeah. Really that sort of depends on the market – as in the market in Vegas. I’m sure in a lot of different places there are really no inventories right now and because of that you sometimes have to case a little harder. Definitely, when I first started I was able to find some of the better deals where I could be a bit more cash flow positive.
But with the run up in the market, with no inventories sellers who carries tend to have a bit more say. They can actually demand a bit more than what I can get. I have to make some of the tradeoffs. With that being said the reason I’m willing to speculate is because of Vegas you can’t build a house at the price as I have been buying for. So I knew there’s no way the prices will stay that way, otherwise no house will be ever built again in this city. I knew that eventually it will go up. Another interesting thing is I looked at my insurance policy and I see my property coverage exceeds the price I paid for the house several times, sometimes. When I asked them why they do that they say “Well this is what it will cost us to rebuild you the house.” So I knew there was a room there to grow and given what’s been happening in the Vegas market ever since I started it has already jumped thirty to fifty percent. And I think it will only go up higher but it may take a bit longer time.
Josh: Got it. In a market like Vegas I see that making sense – buying for less than the replacement cost of the property itself. But then you can say “Hey, I can do that. Let me go to Detroit where I can buy a house for four dollars.” And I would not be caught dead doing that. You can give me a four dollar Detroit house because I don’t want it. You know the replacement cost is certainly more than the $5000 or $10,000 you can pay to get a house. Your strategy may work in a place like Vegas where the city is growing, the city is still doing well. But you want to be careful to avoid a city that’s dying like Detroit.
Leon: Exactly, I agree. That’s why you have to go see the city, go see every block, see what the stores are doing, see the people, see what the economy is like. You have to do that kind of research into market you want to invest in before you come up with your investing strategy. You have to, definitely, visit the city first.
Josh: I just want to make that point because I worry that somebody listening will say “Oh I can get cheap properties in Detroit.” Sorry Detroit I am going to pick on you. “Hey I can get these cheap properties there maybe that strategy will work for me.” I would personally say do not do this, period.
Brandon: It’s all about knowing your market.
We talked about borrowing money for a little bit. Let’s go back to real basic. Some people are totally opposed to borrowing money and I want to hear your thoughts on that because I know you talked about that a little bit on a blog and stuff. Why do we borrow money, what’s the idea begin that?
Leon: Fundamentally I think the borrowing money is to really to get you to ability to do something you normally wouldn’t be able to do. If you had to buy the house with all your money, you’re spending a huge amount of capital which not everybody have. For a $500,000 house if you could pay $10,000 to get it, it’s a lot different than just paying $100,000 all cash. It’s about being able to do something that you can’t do normally.
That the first reason. The second one, I think, right now, given the low interest rates, interest rates have never been this low before and if you can get a thirty year fixed loan with this kind of interest rate, just think about what happens if even interest rates will go up. If you look at past history people have paid eighteen percent interest rates before. Here you are paying three to four percent – that’s huge.
And then you have to look at the economy as a whole, you have to sort of study the economy. Right now, I think, we’ll be heading a lot of inflation because Bernanke just likes to throw money out of the helicopters. When I studied the market I’ve seen what happens when he throws money out. Because US dollars is traded all over the world you start to see inflation going all over different countries with dollars flowing into them. You can see what happens is that inflation kind of destroys a lot of things, but one thing the inflation doesn’t destroy is the value of your debt.
If you owe $100,000 and inflation went up a 100% in reality you really owe $50,000 now. That’s a huge trend that I think we’ll be seeing in the next three to five years with inflation coming around to the US. And if you have debt that means your debts is going to go just lower and lower. Over thirty years, three to four percent interest rate kind of debt that gets devalued more. It’s almost like a no brainer. You have to borrow money if you can right now.
Brandon: That makes sense. I just got a loan for, I think, three and a half percent. And that not on a primary residence. Still, that’s ridiculously cheap. Definitely I like to play that math game – If I can borrow at three and a half and I can make fifteen or twenty or thirty, obviously that works out. There’s part of me that still tries to, I’m a big fan of Dave Ramsey and pay enough debt and getting out of debts no matter what. I’m very split - I have a dual personality. I kind of treat my business with the playing the math game, I try to run my personal life with get out of debt as fast as possible and lower expenses. I hear you there. Let’s talk about people who want to get into real estate investing. Because you’re fairly new at this so you have a little bit, I think, fresher insight on what you have to do to get started. What are some skills that you think are really important to succeed in real estate?
Leon: I think the first part, I would say, is education. You have to get a good financial education. You have to understand things like time-value of money, amortization, budgeting, interest rates, inflation, banking – all of those, really, plays a huge role all around real estate as much as you don’t usually think about it.
As you can see when we spoke before I didn’t come up with my investing strategy without having a long term understanding of what the market could be, what I can do with that and things like that which are very important to building a good, successful, real estate business. It’s not just about being a good landlord or finding a great deal – you have to look out for a lot of things long-term. That’s the first one.
The second one, I think, is really important – is the people skills. Real estate is really a bit people business. It’s not about just saying “Hey let me find an agent that will go through MLS and find all I need, I just have to look at the numbers.” You have to talk to people, you’ll be talking to sellers, and you’ll be talking to other investors. It’s like BiggerPockets – it’s a community you have to get involved with to help each other out. That’s where you learn tips and tricks, you learn the good strategies, a lot of insights. None of which you will be able to get if you’re not a people’s person. So it’s all about you have to build a report, you have to come across as an honest person – you have to be trust worthy.
Reputation, as Josh always used to say, is extremely important so you have to have a good reputation, you have to keep to your word and as you long as you do all those things deals will come, people will come to you. You’ll get help, you’ll be able to help others. That will really build your success and I’ve seen that happen thanks to me really starting to get involved, attending BiggerPockets, reaching out to other investors and really learning how to communicate better with people. That really build my business in 2012 and really allowed me to expand my business – I never thought I could do it but that was really tremendous.
Those are the two main things you have to have, I feel.
Josh: And I still think the reputation is important. And I still think credibility is important. It’s amazing that most people don’t realize how important it is and what kills me when I see new people come on to our website and they start off their careers by lying. That just frustrates me to no end because I can tell you almost every guest we had on a show has talked about credibility and reputation.
I know the people I know and respect the most all talk about it. And people who are successful – they focus on that. If you start by lying and manipulating and just pretending to be things that you’re not it’s such a dangerous path to take. “Hey I’ve got deals in 50 cities!” Yeah, and I’ve got somewhere between $500,000 and $10,000,000,000 to lend you Brandon.
Brandon: Well I work with a network of investors.
Josh: I do have a network of investors myself that I tend to work with from time to time. The credibility things is really important and I’m really glad that you mention that.
What’s interesting about you to me and one of the reasons we wanted to have you on the show is you haven’t been doing this for ten years – you’re pretty new investor, you’re very smart guy and you bring the interesting perspective. You haven’t been doing it for too long. That I said, we all have our little emotions when we do things. I love BiggerPockets every day except that one day that it drives me nuts and I fall out of love with it. Then the next day Brandon smacks me around and suddenly I’m back in on it. What about you and real estate, have you ever fallen out of love with real estate?
Leon: Yeah. I’ve definitely have fallen out of love before and it all started at one point early in 2012 when I was doing a lot of deals and trying to buy several houses a month , finding tenants, doing the rehab. Running around town I was doing more than twelve hours a day on the field and when I get home I was on the computer looking for different deals for several hours – I just talk real estate all day. At one point my ex-girlfriend was “You’re boring the crap out of me.” I think it’s that kind of thing I had no time for anything else and that was…
Josh: Is she your ex-girlfriend because of the real estate, because of the twelve hours a day?
Leon: No. Maybe.
Josh: Real estate and relationships don’t go together.
Leon: it’s challenging, definitely. For people who can do it as a couple I have a lot of respect for that. I was driving all day, grabbing whatever I can eat. I really think there’s a positive correlation between real estate, hard work and the size of your belly. It was unhealthy lifestyle starting to hate it. There was a lot of stress, there was a lot of stuff to do and my mind was all over the place. It took me a while before I realized I do need to find balance as much as I love real estate I have to strike a good balance between real estate and personal life. I started with changing that concept because I realize, yeah, you can chase the extra dollar but at what cost? Now, you might have to sacrifice a lot more to take your ticket to new level but you have to strike that balance, otherwise it’s too difficult. So I kind of started getting a little bit of a step off, trying to get a good balance. I started eating better, exercising more, doing some traveling and pursuing my other hobbies or interests. And that kind of makes me feel better.
Its, at the end of the day, why you’re doing all this. If real estate fails at least I had a good time, you know, doing it. I feel it’s good to approach it that way. And real estate is a long term game. You’ll be doing this for ten, twenty, thirty years – you don’t want to burn out at the third year or the fifth year. You have to last until the end, you have to cross that finish line and if you run too fast you may just end up burning out and get out of game before you really, truly, get all the benefits.
Josh: So eighty hours a week of works isn’t healthy? Nooo.
Brandon: You look pretty healthy right now so I guess not all of us can do it.
Josh: It’s not healthy, trust me.
Brandon: I want to point out real quick that there was an article you wrote that you talked all about this on a BiggerPockets blog, it was called “What is your real estate lifestyle?” It was actually my favorite blog post that’s come out in months. I really liked it because it talked about all the stuff. There’s a place for hustle and there’s a place when you’re starting out and you’re working a full time job – you’ve got to work. And you have to work it. You’ve got to hustle. But there’s also a place for, like you said, living a balanced life.
I’m like you, I tend to obsess and I go in and i'll work eighty hours on my real estate and it’s not healthy. I really like that post, at that point I showed it to my wife and I said I need to follow this guy’s advice. And I need to be content, sometimes, I think with just following the system. Real estate can be kind of boring sometimes. It’s exciting and fun but at the same time buy & hold investing it's pretty standard thing. You buy a property that it’s going to go up in value and it has got cash flow.
Anyway, very good article and we will link to that in the BiggerPockets show notes at BiggerPockets.com/Show13
Leon: Thank you. That balance is important. I think you have to enjoy it, really. Like you said you have to keep loving real estate. If you just give up you hustled too hard. You burn out and that’s it, you give up the game way to early and that’s the hard part. Like you said you have to hustle when you start.
Josh: For me, as I always love to say to everybody, family for me is the most important thing. Brandan knows and he and I are the computer, on Skype, every day. If my kids need me I’m going to deal with my kids. I think there’s one thing to go out and build, this is a philosophy – you can agree or tell me I’m an idiot, I don’t care, but my philosophy is I’m doing what I do for my family, period.
If you work so hard that unfortunately you lose your girlfriend but your perspective – how to kind of create that balance so it doesn’t happen again in the future. You’ve now learned that lesson so you don’t make the mistake again and now you kind of find the balance. Or you find somebody that works within the mentality that you have.
I think it’s just important that we all kind of find our own balance and our own centers and we all figure out what works best for us. But, I think if you just work non-stop, yeah, you’re rich but are you rich in money or are you rich in life? And I always say be rich in life instead of rich in money. That’s just my take on it all.
Leon: Definitely agree with you in that aspect. I think it’s the experiences in life that really makes life interesting. It’s not about how much money you have.
Josh: How about you’re investing, have you considered investing elsewhere? Have you considered looking at different markets for example? Do you have other types of focus in real estate, let’s talk about that a little bit.
Leon: Well, yeah, I have definitely considered that. I’ve looked over many different cities over the US, just different markets but personally I think what’s most important is invest in your own home market because you get to know city inside out. It’s very easy for you to get to the place, very easy to manage. Where’s if you were to say “Oh I wanted to invest in Houston, I want to invest in Inland Empire, I want to invest in, let’s say not Detroit, but if you keep going over to place all over you just end up wasting air fare, time, you have a lot of risk because you have to build a team you can trust in those places and you’re really too spread out.
With that being said I think it’s important to know what your home market is. If you live in Detroit I suggest you invest elsewhere but it really depends on how your home market is and also in the other hand if you live in New York, LA, San Francisco, you’re paying $5-$600,000 dollars for a tiny home. You may only be able to rent it out for maybe $1500 to $2000. So you’re getting a really low return as opposed to say market in Vegas where you’re getting seven percent. And if you compare two percent return and a seven percent return and you compound it over fifteen-twenty years as Warren Buffet would say “That’s the power of compounding is extremely huge.” You’re earning much greater return at a market where you don’t have to spend as much to invest in.
Brandon: And I think the big part of that, too, is even the city like Detroit there are probably a lot of areas around there that you could invest that would make sense. Same with New York, there’s probably places. I know LA is insane and my good buddy, Arthur Garcia, who we had on podcast number six, he talks about where he lives every property you see is $6-$7-$8000 but he drives two hours to invest in his area. He’s a little inconvenienced, he has to go out there every couple of weeks or whatever and drive a few hours but it works out for him because there’s always somewhere you can go, usually, within two or three hour driving that you can invest in. If you’re located in area like that, look around. You don’t have to invest in the city.
Josh: We’re beating on the Detroit here and for a good reason. I will say, I’ve personally been the victim of the declining areas. You might be able to pick up a property in Detroit for a $5-$10,000 and you might be able to find a tenant but if the jobs all go away, which is kind of the path a lot of these rust belt cities are experiencing, unfortunately. Hopefully some of the politicians can figure out how to turn things around out there. It’s a really risky bet and I think there is a difference between speculating, informed speculating and just flat out speculating.
I can go and say “Hey I got a ton of money. I’m just going to buy up fifty houses in Detroit on the hope that I’m going to get cash flow and whatever happens.” But they might raise all those properties. They might knock them down because they can’t maintain them anymore. Because they don’t have now infrastructure and police and fire to take of - the cities are shrinking.
There is that risk and I know we’re beating up on Detroit here, but it’s time for any politicians that are listening to get their act together and figure found how to fix things. It frustrates me to no end, I’m just going to keep going on so you better interrupt me. I’m going on a rant here guys you better cut me off.
Leon: I agree with you. It’s definitely the fundamentals, alright. That’s why I go back about studying markets long term, having a long term planning. Because if you just go into Detroit and just looking at it right now, yeah, they’re completely cheap. But what’s the city going to look like in ten-fifteen years if they don’t get their act together then you’re essentially taking a huge risk. It’s really about you have to study everything when it comes to real estate.
Brandon: No, that great Leon, that’s awesome. I want to go to one more thing before we kind of start wrapping things up. In a lot of your blog posts you mention that now is the good time to invest in real estate. You’ve said it a few times that now is a great time, can you expand on that? Why do you think now is such a good time to invest?
Leon: First, home prices have been depressed for quite a while now. Sure, they’re starting to go back up and it may start going faster and faster, who knows. Right now, at this point with the low interest rates, with the low home prices a lot of homes are affordable and they haven’t been that many times when it’s cheaper to buy a house than to rent. Rent hasn’t fell as much as home prices so you’re still getting a good return for your money, especially with the economy right now.
Think about people like pension plans, retirees, I mean savers. They’re getting, what, point five percent money on their bank? They’re getting two percent on government bond. That doesn’t even go above inflation. If you just leave your money lying there you’re losing it all. What are the other options? You invest in a hedge fund, in a stock market? No.
Those are extremely volatile markets as Josh will probably tell you, you have to look for a safer investment. I think real estate, at this point, its extremely save given that even if you get a loan, you leverage a deal - you’re still getting a good rental income compared to the payments you have to make. Three or four percent is never going to happen again and, personally, I think inflation will hit the US within three or five years. We already see that in little things like gas prices.
Josh: We’re seeing it, man, the inflation is definitely been here over the past bunch of years. Groceries, you name it. It’s here.
Leon: Big Macs they’re what, tiny sliders now? You can’t eat on the airplane – its things like that. There’s not enough alcohol content in your drinks now. That’s cutting it that way, there’s one way the prices go up, one way quality gets worse. But it’s all about that’s going to hit us and if we don’t own anything that’s real, which can be houses, barrel of oil, gold. If you don’t own those things paper is going to be worth a lot less over time so you want to own something. I think real estate – having a home. Two important things – you need food and shelter. I think shelter is one of those things. I don’t think all can buy a farm and grow their own food but they can buy a house and that will protect their value of their asset, whatever money they had. Real estate always goes up with inflation.
Josh: Well it doesn’t always go up. Clearly you’re a bright guy and you get it. This is really interesting stuff and we can kind of sit here and banter about what’s the market doing and where it’s going. I think, ultimately it’s important, the message here is people need to understand markets and people have to have a knowledge of the fundamentals because it is important. Just knowing the price of a single house isn’t necessarily enough.
Again, I fell victim to this when I had property, properties around it started to become dilapidated and started to become vacant and problem properties. Suddenly I found myself in a situation where I couldn’t keep tenants and I couldn’t sell the darn property. I was in trouble. And it was because I wasn’t paying close enough attention to what the market was doing. I think it’s so important for people to really pay attention and really understand that.
We’re starting to get to the end here of show 13 – BiggerPockets.com/show13 on the show notes. Let’s get to our famous final questions here.
Let’s start with our favorite real estate book – what’s your favorite?
Leon: Favorite real estate book? I will say it’s the BiggerPockets – the Beginner's Guide.
Josh: BiggerPockets.com/UBG, for those of you who want to check out the Ultimate Beginner's Guide.
Brandon: And it’s free.
Josh: It is a free book. But, Leon, c’mon man, give us another book besides ours. Although we’ll certainly let you plug our book all you want.
Leon: I read too many real estate books. I will just say I have to give it up to Rich Davenport, that’s what got me started. Not the greatest book in the world but it still got me started and that was what launched where I am today so I thought that was really helpful in kind of understanding the concept between being a worker and being a investor.
Josh: And how about your favorite non real estate business book?
Leon: Investment Biker by Jim Rogers. He does a lot of traveling. The way we talk about markets, he went to everywhere just to see what the different counties are like and I thought that was really interesting because he was able to predict a lot of things that’s happening ten year in the future. He was able to see how counties are doing. That kind of inspired me to, hopefully, do the same – travel everywhere. Maybe, hopefully, provide that kind of insights to other people if I can.
Josh: And what is the significance of a penguin?
Leon: This is what happens when you have to make up a name in the middle of the night. The story goes to back in the days when I was in high school in New York we had a phase with really baggy pants and you don’t have belts so you kind of had to waddle a little bit as you walk. They’re called penguins because of that.
Josh: Leon the baggy pants penguin. That is awesome.
Brandon: Yeah, that is awesome.
Josh: And of course that relates to your website which is…
Leon: HardWorkingPenguin.com. Just one penguin, not two just one. I’m hard working, not really but you know. If you make a visit read the finance stuff, the real estate stuff. Again, it’s about getting a well-rounded education and I think that really helps everyone to become a better investor, better with their money – things like that.
Brandon: What about hobbies, Leon, what do you do for fun? I know you travel.
Leon: I like to travel, I like to eat. I like to eat a lot of different things. I was born in China so we’re thought to eat everything that moves. That’s kind of cool, trying different cousins. I really enjoy investing, I enjoy riding. Besides real estate one day in the future maybe I will look to invest in different markets. Again I enjoy reading and getting a lot of knowledge and that helps me become a better investor. I do try to tell jokes but I don’t think that’s going well.
Brandon: What do you think sets apart the new investors who come and they succeed and they do well from those who come and disappear? What does set apart successful ones?
Leon: I think the successful ones are ones who jump into it and do it right away. They get right down to it. I think a lot of new investors they might get scared by “What if this doesn’t work out? Have I done enough research? Maybe it’s not a right time yet.” There’s a lot of paralysis where I think that new investors who don’t succeed.
And you can get it right the first time, everyone is going to make mistakes but you have to learn from those mistakes. I think a lot of the successful ones are probable the one that jump right into it and then figure it out as they go along. Put themselves at risk just to make it happen. At least that how I felt like when I first jumped in. Maybe I can’t still call myself a successful yet but I do notice that if I were to say “Oh I haven’t done enough research, I have to do this, I have to wait. Maybe I need to talk to somebody, maybe this market’s way too scary for me.” Then I would have never been here today talking to you guys.
Josh: Where else can people find you? They can find you on the draggy pant website – the hard working penguin. The site Is an informative, valuable website which is where we found Leon as he… Brandon’s falling out of his chair. They can find you on BiggerPockets obviously and we’ll link to that in the show notes. Are you on Facebook, Twitter, LinkedIn, anything else that people can connect with you there?
Leon: Yeah. I’m on Facebook. Leon Yang – my name. There’s a lot of them so just try to find my face.
Brandon: We’ll link to it in the show notes.
Leon: I have Twitter. I think it’s @wpenguin and LinkedIn, my name again. Look for Vegas you should be able to find me.
Josh: We will link to that stuff. It’s been a pleasure, thank you so much for coming on board and thanks for continuing to contribute really great content, great articles to BiggerPockets blog. We appreciate having you on the show.
Leon: I really appreciate you guys giving me opportunity and definitely BiggerPockets is so great. It just thought me so much and gave me access to a lot of really good investors. I learned so much from to so whatever I can do to give back I do my best, this is a really awesome site.
Josh: Thanks man.
Brandon: Thank you, Leon.
Josh: Alright everybody that was show thirteen of the BiggerPockets podcast. Hopefully you guys find it to be as valuable as we have. We want to thank our guest Leon Yang for being here and I just want to thank everybody for listening. For those of you who are new to the show, if you find it valuable we ask that you please go to iTunes to leave us a review. These reviews are really helpful in letting us get the word out to others about the BiggerPockets podcast. Also we ask that you please subscribe to the show, on iTunes as well. Each new subscription is really valuable.
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