All Forum Posts by: Zach Oehlman

Congrats on your first deal @Justin Thind!

And here is my opinion based on my personal experience.

I invested in my first rental properties in the south Chicago suburbs with very similar economics / pricing / rental rates / etc. 

I bougtht a $30,000 house that had had rents in the $1,100 - $1,200 range and taxes of $3K.

Over the next year I bought 8 more properties in places like Posen, South Holland, Riverdale, Sauk Village, etc.

And I will never do it again based on my personal experience.

The numbers looked great on paper but here is what you can't see on paper and only experience can show you.

1). Properties managers will make or break you and most property managers race to the bottom in price to get people's business and can't afford to operate at scale. This creates a challenge for you because the asset performance is only as good as your manager. 

2). Repairs cost the same no matter what the price of the home costs. Just because the house is cheap doesn't mean the repairs will be cheap. 

3). You need to look at the social economic development in the area. There is a reason the houses are priced the way they are priced in any market - that is why they call it "the market". The lure of a cheap property looks like a deal but if it was they would be flying off the shelf. I don't know the economic area you are pertaining to but I do know the "lense" you are looking through as I thought the same thing when I first got started.

4). Charging $1,200 a month in rent and collecting $1,200 a month in rent is two different things. I had tenants that were amazing and I had tenants that lived in my homes for a year without paying rent becuase they "knew the system" and we literally couldn't do anything about it. This comes back to poor property management but also local and state laws play into account. Local and state officials don't always understand economics / finance and make laws that are counterintuitive to creating economic development in an area and what ultimatly happens is the money leaves because the system doesn't work. You need to look at the economics in the area and see is it on the upswing, stable, or down swing.

And....

With all of this being said I know people who crush it in areas like this but they have boots on the ground and operate at large scale. They have their own property management team, own contractors, own leasing team, etc. so they control the entire supply chain.

Take a step back and understand the bigger picture and ask your self where do you see yourself in 5 - 10 years and then get started in that direction. If that means owning a large portfolio of properties in this area then do it....if not start with something that aligns with where you want to ultimately be.

Quote from @Kyler J Sloan:

Thanks for the feedback. 

I think I will keep it for a while, and I understand why most need to be cautioned to do the same. The decision of many to quit is so often impulsive -- they do it with a view to short term relief and pleasure (i.e. to "sit on a beach", which sounds horrific to me). At the same time, there are a minority of investors who ought to be encouraged in the opposite direction.

So many dig their heels, first in their job, and later in their real estate actives, forgetting that they got into real estate, not just to quit their job, but in order to engage in other more productive and fulfilling things. After decades spent in the workforce and in real estate, they simply create another job for themselves, unable to do anything else, and forget all the potential they left unrealized. They think they are "working for themselves", when in truth they are working for the state, operating within an incentive structure established by others to do what it cannot: build and maintain public housing. Once they have an impressive portfolio, it takes everything they have to maintain it, and they are reduced to maintenance men for their own systems -- tools for their own devices.

I wish more investors would speak to another problem: not only when to quit your job, but when to shift your gaze away from real estate. At a certain point, further assets cease to serve you, and you ultimately serve them. After you are making a million a year, if you naturally tend to live modestly, what will another thousand a month do for you? 

Real estate cannot be the "end-all", or else it is simply another "rat race". 

Forgive the rant. 

I love this rant!

And it is spot on :) 

Real estate is simply a means to an end...not the end.

For me the "end" is giving back to others and I do that with the time and money investing / business development has afforded me.

Quote from @Tyler Piciullo:

Quote from @Zach Oehlman:

Great question @Tyler Piciullo!

I think we all have to go through this realization as I know I personally had to.

Here is the realization I came to: 

Real Estate Investing is actually sales and marketing of a product called real estate.

What I mean by this is if you don't have leads to talk to you don't have a business. I don't care what industry it is you need to understand how to "make money" and the only way to make money is by investing what you have already or by selling something.

When I refer to selling something in real estate investing I am referring to deal acquisition and dispostion / cash flow. 

You need to become a master at marketing and deal structuring so you can learn how to put deals together where others can't. This will allow you to maximize every opportunity in front of you to create active income that will allow you to invest in cash flowing properties to create passive income.

BP has a great resource to help you become a pro at running numbers: https://store.biggerpockets.co...

I created a free 10 step training on my BiggerPockets blog to help you understand how to best create a plan: https://www.biggerpockets.com/...

I think this will be a great start and get you pointed in the right direction.

 Zach that was very very helpful and very well put and opened my eyes

 I love to here that my friend! It only took me 15 years to discover it for myself :) 

Congrats on starting this process at 17 @Tega Hamlin!

If I was giving my "17" year old self advice it would be this...

1). Become a master at sales and marketing. Once you do this you can learn the fundementals of making money in any business. Some of the best training for this is door to door sales. It is like the navy seals of sales training and will provide so much in the form of relationship building.

2). Become a master at finance. You can't really learn how to make money at a high level until you master finance because the finances are the perverbial dashboard that tells you how you are doing and what you need to focus on. Very few people understand this which is why so many people fail in business / investing.

3). Have discipline and create a routine. I suggest reading the book The Miracle Morning as it will explain this in depth. This will allow you to create a life by design.

Cheers to all of your future success!

Great question @Janea L.

And here are some of my thoughts...

1). Ego - they think they know more than they actually do and don't get the right education / support. 

2). Lack of education - There are so many different facets to real estate investing that no one can just "become successful at it" without learning over years. Any high income skillset requires mastery.

3). Confusion of what "real estate investing" is. Most people confuse investing with active income. Money isn't created out of thin air. It is a product of delivering value to someone in exchange for value back (we call this value back "money"). I see alot of people looking to make money and they have no idea on how to bring value to the market place. Learn how to solve problems and how to monetize it and you will learn how to make money.

4). Become a master at sales and marketing. Robert Kiyosaki explains this in his book Rich Dad Poor Dad when he is explaining real estate. Most people over look this part of the money making process and it is the foundation of "making money" to invest back into real estate.

There is a lot to consider here and my mind is going wild!

Here are some thoughts:

1). What is the cost of having the tenants leave verses having them stay? I don't possible see how having them stay would be of any financial benefit to you.

2). Understand the impact on your financials. This is an 8 unit which means it is valued on a cap rate model. The income you are leaving on the table is crushing your value and if you raise rents to market rates you will dramatically increase your value of the asset which you will be able to access via a loan. You can use this equity to buy another property or use it for tenant improvements.

3). You don't owe anyone anything. I had to get over this psychological aspect when I first started and at the same time I had to understand we are dealing with human beings and we can't just be ruthless. It is a fine line that can only be found through experience. You want to make sure you provide a safe home for them to live in and this requires capital that they pay in the form of rent. Remember to listen to their concerns and make sure you are following all of the laws / regulations so you don't get complaints filed against you. 

4). You need to create a plan that utilizes your current financial position. It is my experience that it might be best to start off with all new tenants that don't have an expectation of low rent. However, your financial position might not afford that option so you might have to scale into that option. There is a cost of moving old tenants out, fixing up units, and putting new tenants in so make sure you run your numbers and find a solution that aligns with your financial position.

From a pure numbers stand point the best option is to bring all units to a market based rent to maximize value of the asset. 

And...

You need to remember we are dealing with human beings and nothing is every that simple :)

Let me know if you need any help navigative this adventure :)

Great question @Tyler Piciullo!

I think we all have to go through this realization as I know I personally had to.

Here is the realization I came to: 

Real Estate Investing is actually sales and marketing of a product called real estate.

What I mean by this is if you don't have leads to talk to you don't have a business. I don't care what industry it is you need to understand how to "make money" and the only way to make money is by investing what you have already or by selling something.

When I refer to selling something in real estate investing I am referring to deal acquisition and dispostion / cash flow. 

You need to become a master at marketing and deal structuring so you can learn how to put deals together where others can't. This will allow you to maximize every opportunity in front of you to create active income that will allow you to invest in cash flowing properties to create passive income.

BP has a great resource to help you become a pro at running numbers: https://store.biggerpockets.co...

I created a free 10 step training on my BiggerPockets blog to help you understand how to best create a plan: https://www.biggerpockets.com/...

I think this will be a great start and get you pointed in the right direction.

This is a great question @Mark Weins and something alot of people struggle with understanding.

First off...

I am not a financial advisor and I am not giving financial advise :) 

But here are somethings to consider and run by your financial team.

1). You can't buy stock at a discount. If Microsoft is selling at $100 you need to pay $100. You can however buy real estate at a discount. For example, you can buy a property that is valued at $100K for $80K which instantly creates $20K in return.

2). You need to understanding returns and how they are calculated. Historically we can say the stock market has performed at "x". This is usually on the portfolio value and is only realized when sold so you can't really gain access to that "return" unless you sell it. This would force you to buy dividend paying stocks that might not perform at the same "x" you mentioned in the question. If they did return "x" you will need to make sure that the companies can perform in the future as it is my opinion that investing in the stock market is an active strategy if you want to protect your wealth. What I mean by this is that you constantly need to be evaluating your portfolio manager and / or the index you are investing in to make sure it still has the underlying fundementals that had you invest in the first place. 

3). Real estate produces 4 types of returns. This includes cash flow, appreciation, depreciation, and ammortization (your tenant is paying down your mortgage). If you add all of these up it is really hard to find a stock that can outperform real estate on a risk adjusted basis. You can also gain access to the increase in equity in real estate and might not be able to do that in equities depending on the volatility of the underlying stock. Most people don't understand risk adjusted return and only look at the "return" aspect when investing in stocks. Understand what could happen on the downside of investing in stocks / indexes / etc and the ask yourself if you can handle that.

4). It is my experience that if real estate goes down in value so will equities. However, if equities go down in value that doesn't mean real estate will. This is an important factor to understand when analyzing risk.

I have bought and sold businesses and invested in a lot of different asset classes and I can tell you that I haven't seen anything that can outperform real estate on a risk adjusted basis.

And if I had $5M I would invest the vast majority of it in real estate and then use a small portion of it to buy a business or businesses to make active income as this is what we currently do.

We make our money in business and store our money in real estate which creates wealth while we are making money. Few people understand that you need a source of active income and passive income as they grow at different rates. It is much easier to scale a business to $1M a year than it is to make $1M a year in rentals

I hope I have you asking yourself some great questions and am here if you need anything. 

Have a wonderful day!

Congrats on all your success @Kyler J Sloan!

I quit my job way to early because I wanted the freedom...or what I thought was freedom :) 

What I realized was it was way easier to do real estate when you have a W2 job with income as the banks like that way more than the business / selp employed model...expecially when you first start off and don't have a track record.

One of the biggest mistakes I see people make is that they don't have any active income and rely solely on the rental income and the rental income is just enough for them to live on.

This creates a lot of risk becuase if a major expense comes up it will deplete any cash reserves or you will have to put it on a credit card which increases your expenses and can turn positive cash flow into negative cash flow. 

I think a couple things you need to look at are:

1). What is your earning potential in your job and does it exceed the earning potential in real estate in the short term. In the long term real estate will out perfrom any job but you have to gain the skill sets to get that earning potential and it is a process

2). What are your cash reserves and what are you going to do for active income going forward? If you have merely replaced your W2 you are now at break even and won't be able to build wealth as fast as if you were net positive cash flow. Having positive cash flow to reivest back into your wealth will accelerate the wealth building process.

3). What are your goals and is your job really that bad? I have had some really great jobs with bad people so I moved to a different company in the short term while I worked on my business. I personally don't think anyone has an idea of how hard it is to make it in the business world until you have done it. The vision of "freedom" and "work for yourself" is an illusion for most in the short term and is only realized after a lot of struggle. Learn as much as you can in a job and build a position of wealth up before you make the leap...ask me how I now :) 

Again, congrats on all of the success!

Welcome to BP @Amir B.!

Here are somethings you should focus on in order of importance...in my opinion.

1). Learning how to run the numbres. You can't know if a deal is a deal if you can't run the numbres. Here is a great resource from BP to help you with this: https://store.biggerpockets.co...

2). Marketing and sales. If you don't have anyone to talk to you have no numbers to run and no deals to do. This is one of the biggest challenges people need to get through their minds as they don't really understand that being an investor is really sales and marketing of a product called real estate.

3). Education. Never ever ever stop learning. I have been studying for almost 2 Decades and still learn something new.

4). Build a community of successful people around you and make sure they are winning. If you are the only person making money the people around you will eventually leave. I make sure I pay everyone from my realtor to my contractors well so they want to work with and for me and they love me for it. They will bring you more opportunity and more resources because they know you will be a good steward of those opportunites.

Keep plowing ahead my friend!