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🏡 Real Estate Investing for Beginners: Empowerment and Early Retirement with Sarah King 💪
641 Plays4 months ago
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💬 David chats with Sarah King, an experienced real estate investor who has transformed her financial life by paying off substantial debt and building a rental property empire. 🏘️
🌟 Sarah shares her journey from debt repayment to establishing a successful portfolio of rental properties, offering invaluable advice for real estate investing beginners. 💼
🔑 Key Topics Discussed:
⇨ Real estate investing for beginners: Tips and strategies
⇨ Understanding real estate investing fundamentals and types
⇨ Calculating cash flow and using the 1% rule
🔗 Sarah’s Links:
🎥 Brandon Turner’s Four Square Method
📘 Set for Life book by Scott Trench
📹 HSA - Health Savings Account Benefits
🌐 Chad Carson aka Coach Carson
📚 Paula Pant’s “Your First Rental Property Course”
📖 Raising Private Capital book by Matt Faircloth
📕 The Hands Off Investor book for Syndication Deals by Brian Burke
📘 The Simple Path to Wealth book by JL Collins
📖 Retire Early with Real Estate book by Chad Carson
🎙️ Bigger Pockets Rookie Podcast
🔗 David's Links:
🍏 Forget About Money on Apple Podcast
🎧 Forget About Money on Spotify
📖 Rich Dad Poor Dad book by Robert Kiyosaki
🎧 Listen & Subscribe:
Don’t forget to subscribe to "Forget About Money" for more insightful episodes featuring experts who guide you on simplifying your finances and achieving financial independence. Hit the bell icon 🔔 to get notified of new episodes!
#RealEstateInvestingForBeginners #SarahKing #RealEstateInvesting #CashFlow #PropertyInvestment #HouseHacking #RentalProperties #TaxBenefits #RealEstateStrategies #FinancialIndependence #InvestingTips
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Transcript
Introduction to Real Estate Investing
00:00:00
Speaker
Do you want to make money in real estate? Today we discuss real estate investing for beginners. Sarah King shares her tips and strategies to help you build your rental real estate empire. Here we go. Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today, we have Sarah King. A remarkable real estate investor has transformed her financial life by paying off substantial debt and building an impressive portfolio of rental properties. Sarah's journey has packed with practical insights for beginners. We'll discuss the fundamentals of real estate investing, strategies to get started, and advice for building your own real estate empire. Welcome, Sarah.
00:00:44
Speaker
Hi, David. Thanks for having me today. let's So let's start with the fundamentals.
Sarah King's Journey to Financial Independence
00:00:48
Speaker
What inspired you to start investing in real estate and how did you begin? So it's actually kind of an interesting story. So I was always a financial independence person. So I grew up listening to podcasts and blogs and I first had to pay off all my debt. So I started in the very, very beginning as a Dave Ramsey person. And slowly converted off of that camp into more of the fire movement and started saving and investing. And I had this 50% savings rate. And honestly, I got a little bored and was like, okay, this path to fire is going to be very slow. And super saving into index funds wasn't that exciting. And I was already you know working my way towards maxing out certain accounts.
00:01:34
Speaker
and thought maybe real estate was the way to do it faster. And so interestingly, my ex-husband at the time was the first person to say, hey, why don't we buy a rental property? And so he was more interested in that. And then once we actually acquired the first property, I learned that all of my like nerdy skills were actually much more helpful than handyman skills in the base in the beginning of a business. because you need to be able to do the back end stuff. You need to be able to find a human to live there. You need to background check them. You need to make sure you know they're not you know they're not going to destroy your home. You need to meet their pets. And so there's all these processes and systems that really make real estate work. And once I figured out that was a skill set I had, it was kind of history from there.
00:02:17
Speaker
So how did you begin? Like, what was your first property? What were you thinking about whenever you decided, okay, from the point where you said, okay, I'm going to do real estate to actually buying ah your first real estate investment property. What did you think about during that time? So we were nearing the end of paying off debt. So we paid off $118,000 in two years with Dave Ramsey and essentially using his plan and build up this really high savings rate. And I'm like, I just do not want to go back to burning all of that cash or having lifestyle creep kind of take away from the really nice savings. And so I convinced my ex-husband then that we should sell our house on three acres and purchase two properties, a small primary residence that would be a live and flip.
00:03:04
Speaker
and then a rental property. And so we used our equity from actually sweat equity from our first house we own together, divide two small houses in town. um And so that was kind of the first foray where I'm like, if you want to do real estate, we need to really get committed in the best way to like just pay for it is to sell this bigger house and so it was closer to his job and everything and so we did that and so we bought the first property. was and I live in Indiana so everything's super cheap and so Midwest prices back in, it would have been 2018, the house was $86,000 and it rented for $860 because it was exactly the 1% rule and thought I was a genius and that was pretty much it, just picked it off the MLS.
00:03:50
Speaker
So the 1% rule ah for those who aren't familiar is? Yes.
Understanding the 1% Rule and Deal Analysis
00:03:55
Speaker
So the 1% rule is really saying that 1% of your purchase price should be your rent. So say you buy, the easiest is $100,000 house should rent for $1,000 a month. So. That's kind of the easiest way um to think about it. And that's really to make sure that property cash flows after all your expenses. Today in this market, it's a little probably skinnier than that. It's probably 1.2% with current interest rates, but you can still kind of use that as a guiding principle in the very beginning to just gut check any deal you hear about.
00:04:25
Speaker
So the 1% rule is one of the basic principles that you become familiar with when you start researching how to invest in real estate. Can you explain other basic principles of real estate investing that beginners should understand? um So I have a whole calculator. A lot of people have them nowadays. Bigger Pockets has a really good one. um Actually, my favorite one. So I guess if you're new, write this down. So there's an app called DealCheck. It's blue in the App Store. And so it will run all of your rental property analysis for you.
00:04:56
Speaker
And that is fantastic like i don't even so i'm a huge spreadsheet nerd i build out my very own calculator i had it set up how i wanted it to be with. No i'm really conservative so i like to set aside a lot of extra cash and this app i i exclusively use now because it does everything i needed to do. So it's pretty cool. So I don't think you need to buy a calculator and the app is free nowadays. So, um, but it'll do your 1% rule if you're, you know, there's other numbers, whether you're flipping or buy and hold, I'm a buy and hold investor. So I want to make sure the house cash flows. I want to make sure it hits the 1% rule. And then eventually I look at cap rates. Um, I'm not a huge big cash on cash metric person.
00:05:36
Speaker
But some people like that. So that's kind of three, I guess four main things to start with. um Back in the day, some people remember it. Brandon Turner has this really good video you can find on YouTube that's called it the four square method of analyzing deals. And he's like a quadrant system is one of Brandon Turner's like first ever, I think, YouTube videos. And it's really, really helpful because it teaches you the one percent roll cap rate, cash a flow and cash on cash return in a much easier way than I will explain to you on this video because it's visual. I highly, highly recommend trying those two things out and seeing where you go. Okay. Let's talk about cashflow real quick. that If I, you know, I either saw a YouTube video or a TikTok video or something, and then it made me want to invest in real estate to try to get some money, but not every
Choosing Investment Locations and Cash Flow Basics
00:06:25
Speaker
real estate deal will get you cashflow. So how do you define cashflow in rental real estate?
00:06:31
Speaker
Yeah, so I invest in the Midwest. I think if I lived out of state, I would still be investing in the Midwest um just because I tend to find either A, if I live in a market where I can invest, sweet. So I have an advantage where I can just invest in Indiana. However, a lot of friends who live in, say, California. and they too come to the midwest so i honestly think now i would probably look online on social media find someone that has some markets you're interested in in so i know like. No friends that invest in columbus i have friends that invest in cleveland that i've just followed on social media and so pick a few midwest markets research them maybe go visit one and see you know.
00:07:08
Speaker
You kind of just have to pick one honestly. and you know find Don't recreate the wheel, I would say. like Use somebody else's favorite city, find someone else that's investing there, and if their numbers look like what you're wanting to do, um that's kind of my i guess favorite cheat way of doing it. Just steal someone else's really good working neighborhood or city or town. I agree with you 100 percent. It's the easiest way. Like you, I grew up and ah grew up in a town that's really good for, it's a little less good now, but still compared to other cities, still very good for to pursue rental property investing. And that town is Warner Robins, Georgia. So middle Georgia, there's still places in Alabama, North Florida, Florida's kind of getting a little, it's kind of elevated lately too. But
00:07:52
Speaker
Georgia, Alabama, South Carolina, there's still some little pockets where you can find you can even find 1% rule still. Yeah. And if you can find that, jump on it, assuming other yeah factors align. and Right. ah But cashflow, if you just think, I think it also depends on like what you're wanting out of your portfolio. Right. Because if you're investing to retire early and you need the actual money to live on, then you're looking to have a net positive cashflow each month from your property, which your gross rent minus all of your expenses, cashflow equals cashflow. And I think we should talk about that because I struggled with that a lot in the beginning because people would say, you you know you know your rent number and then you subtract all these things and you get cashflow. And I'm like, wait a minute, where are people getting all these inputs?
00:08:42
Speaker
because you're like what the hell i don't know what to set aside for capex i don't know what to set aside and so i just kind of all the basic rule of some for myself so essentially i mean i mentally work my way down my basic spreadsheet everytime i look at a deal so i do five percent for vacancy so your property just sitting still or having a turnover gap between tenants. Say someone moves out in July, someone moves in in September, you need vacancy reserves to cover that gap. And so you're going to take that off the top. um That will give your net operating income through your net income. So after your... There we go. po
00:09:20
Speaker
math today. I have a two month old at home, so I'm rusty. And then you have to take outside any landlord paid utilities. So this is something that I snuck up on me a lot in the beginning because I would forget about certain things like, oh, yeah, I live in Indiana and half the year it snows. And I would buy a house in the summer not thinking about, oh, shoot, I might need to pay for snow removal. This is a multifamily property. That's going to be my expense. And so I would be having to flip the bill for snow removal. And I never worked that into the numbers. So a lot of times you can pass on things to tenants, um but there are some utilities like I bought multiple properties now where the water bill has to stay in the landlord's name. You can't have the tenants put it into their name, but electric or gas you could. And so doing your due diligence when you're looking at a property to make sure you're covering all of your actual true expenses is key because a lot of things can sneak up on you.
00:10:11
Speaker
um Then maintenance is about 10% ish. um Give your management fee, which you always build in in case you ever want property management, which is really important for people like David and I, because if the goal is financial independence and operating from anywhere, you may want a property manager someday, even if you self-manage in the beginning. so like I still self-manage all my long terms, but I still built property management when I ran my first numbers. um That's usually eight to ten percent depending on your market. But you can always call around to companies and check that number and figure out what it is. You have insurance, you have taxes, um and then CapEx, which is your big thing. So capital expenditures, which capital like money, like big money thing. So like your roof, your furnace. I have a joke that I'm like running out of furnaces I need to replace because I've replaced so many in the last three years. So that's a sad joke.
00:11:01
Speaker
um I'm like, i I have to be out of furnaces that I could possibly replace very soon. Yeah, and that will get you to your final kind of number. But setting aside roughly 30 to 40% of your rent just goes to basic expenses even before your mortgage. yeah That's kind of the basic rule of thumb I do now is I almost take just 30% off the top and then subtract the mortgage out to get your end cash flow. Yeah, I think that's where a lot of beginners do get it wrong or at least they're like blindsided because they think I've got a mortgage payment likely unless you paid cash for the property, right homeowners insurance, and then you've got rents and then you just subtract the rent. You just subtract that from the rent and then that's the money I get to spend every week going on vacation or every month going on
Cash Flow Challenges and Market Adaptation
00:11:47
Speaker
vacations. It doesn't work out that way.
00:11:48
Speaker
And still every day on like Facebook groups and things, you'll see people say like, I bought this house for a hundred thousand dollars. I'm cash flowing a thousand a month. And you're like, no, no, that's how much you're making in rents every month. So people will really forget how much of your cash flow is eaten up by your debt payments and just your operating overhead expenses. Yeah, and not to scare people away from real estate investing, but it's it never feels good to get hit with like a, now, I invest in a very affordable area, so I can only imagine what these expenses would be in a you ah higher demand, higher expensive area. and It would be, you know,
00:12:24
Speaker
$6,000 for a roof and i have a smart and I have small houses, it would be up to $20,000 or more for a bigger house in a higher affluent area. um ACs, they don't cost $4,000 anymore to replace an AC unit and a inducting or whatever it is. it's Now, it's upwards like to seven to 10 or more depending on the house levels and all those things. The last, well, I have a current air conditioner furnace. I think one of my remaining ones that I'm replacing and it's 6,300 and that you fought to get a quote that low. It it takes a little time and connections to find people that will put in a new furnace and AC that are total crap that, you know, in a reasonable amount of time and do a good job. Agree. Agree. So if you ever find one of those people, keep them on the number one in your Rolodex or on your phone list.
00:13:13
Speaker
Let's talk about the importance importance of location and property value. We talked about our particular, where we invest. I i invest in Georgia primarily and you invest in Indiana. yeah these i when people Another thing, people ah you might hear stories of like, well, I bought this house and in two years it appreciated and I cashed out. you Yeah. two the hundred thousand or whatever it is or they didn't cash out and it's just equity sitting there great good on them ah but what what are your thoughts on how to balance the appreciation versus buying for cash flow and in your own strategy.
00:13:46
Speaker
Right. so Since I am with the goal of having income off of my properties, I focus solely on cash flow. so To me, in most like true like cash flow investors, you if you invest in cash flow, appreciation is like you're icing on the cake, but you have to like still build your cake. so You're never depending on appreciation. You're just kind of you know It's nice when it happens and I feel like we've gotten very spoiled in the last eight years where your properties did appreciate really fast. But with that came really high demand. um So buying things at a good rate was also really hard. So it's just been a really tight squeeze all around. But if you bought something in 2018, 2020 like I did, those are kind of gems in your portfolio that actually have appreciated and what I would consider a not appreciating heavy market that I'm in.
00:14:32
Speaker
um And so I think a lot of times these smaller Midwest locations don't really have the really high appreciation values. You'll get a lot more risk, but a lot like a lot more volatility, but a lot more appreciation on coasts, near water, tourist destinations, people that do like luxury Airbnbs. like You just are buying with a higher volatility um in those markets. So there's kind of this collection of markets where they're all kind of struggling right now. It's like you'll hear about like San Francisco and like places in Texas or Arizona that are just having some challenges now. And so those are places that really went gangbusters on appreciation. So people made a lot of money, but it's also more risk. So it's like, you know, trying to invest in the stock market and saying, I only want things that go up in value. Like, oh, cool, we all do, but you can't have that like risk and reward. And so I like boring, cash flowing states. So,
00:15:25
Speaker
I always joke I buy houses like grandma and I invest like grandma because I want really boring consistent properties where I'm less likely to lose money, but it's also not going to be something that I like headline a real estate conference over like my really boring single family homes. So, but I love them. They're great. I think that's great advice for a beginning investor as well, because imagine, I don't know, being in your twenties or thirties, or maybe you're you've just discovered financial independence or identified the financial goals that you have for yourself. And then you put all this effort into a property and then 2007, 2008 to 2011 happens again. And then you you're not only not at
00:16:08
Speaker
not achieving your financial goals, you're now you're negative from where you started yeah with the mental anguish. and And your financial picture looks horrible at that point. so if ah So I agree. The advice I would give to a new ah real estate investor would be look for cash flowing properties. And do you have to look harder these days than you're used to? Absolutely. But they are out there. You might have to do a little bit more work up front to find them. you know Look in an area that you don't live in. I currently live in San Diego. I am not buying rental properties in San Diego. No.
00:16:40
Speaker
No, you will not, if anybody's listening to this and you find a rental property in San Diego that has the 1% rule, if you don't buy it, let me know, but you should buy it and don't tell anyone, just buy the damn thing. So if you can find a property that cash flows, and I would say even in this market, and you might have a differing opinion, even at this market, even when that breaks even at this point, if you're looking to establish some kind of real estate in your portfolio, then I wouldn't i would consider that. um Other factors come into play. but So the 1% rule is a rule of thumb. It's not a
00:17:20
Speaker
die hard, always follow or always negate it. But it is a rule of thumb that can keep you out of trouble in the extremes. But it is a smart thing to at least know if your potential property meets the 1% rule or not because so many people have used it and have confirmed that it's a pretty good benchmark. If a potential investor finds a property that meets or exceeds, or it maybe is just below the 1% rule, let's say maybe it's 1.5%, what are some other factors that they can consider to help them make a decision whether to purchase or not?
00:17:54
Speaker
Yeah, I mean, to me, by um how I buy real estate is kind of evolved with the market a little bit. So I think back in 2020, when I could purchase houses very easily and find them off the MLS at a 1% rule rate, um i would I would buy those all day and I could make them long term rentals. And so long term rentals are kind of like the bread and butter. That's like my retirement plan. That's what I love. I have 10 of them and they're great. and so That's the one I want to buy. um Over the last few years with interest rates going up and the fact that I you know primarily use debt on the properties, I've been doing a lot more furnished houses and doing Airbnb in our market. and so There's kind of two things that come with that. is First of all, like your cash flow is more, but then also your risk is more because you have seasonality with Airbnbs.
00:18:42
Speaker
And so in our city, which is, you know, is 0% a destination city whatsoever, we get a lot of construction workers and contractors coming in. And so. The challenge is you can get a lot more rent out of them, but you also are purchasing properties that are a little more expensive. And so that was a little uncomfortable for me for a while because I'm used to running numbers for years where it could be a long term, but maybe I'll furnish it. And now I've kind of gotten into, in the last year, buying things specifically to be an Airbnb just because I realized that
00:19:14
Speaker
kind of the people we're getting are like Walmart workers, Amazon workers, they're almost still blue collar, but their employers are usually paying a stipend for them. But it's probably a little more stable than a luxury vacation home or something like that. And so it it's kind of evolved. And so for better or worse, I think I've gotten a little bit looser with the 1% rule where I might do I've definitely done like a 0.8 before. I get nervous around 0.75. I don't like that. But the market's really tight. And the problem is when you get down that low, your the interest rate environment right now being around 6% or 7%, it just eats all your cash flow. And so now I feel like I look less at the 1% rule. That's kind of like your original gut check. It's not the end all be all. But at the end of the day, properties have to cash flow from day one. like You can be
00:20:01
Speaker
pretty close to break even like I used to like I wouldn't get out of bed if I wasn't making $200 a door. um Now it's more like $100. But then if I furnish it, I can get more like $1,000 out of it. And at least in the peak months, there's a couple months in winter that we may not get that perfectly. But we're really close. And so that's kind of how I ended up switching a lot to furnished houses. But I've ended up also finding different ways to still try to buy some long term rentals in this weird environment we're on that still hit that 1% rule, but it's just a lot harder and it takes a lot more work to find those deals where I don't pick them off the MLS like I used to. Yeah. So somebody who just heard us say that might be thinking a hundred dollars a month. I don't want to do all that work for only a hundred dollars a month, yeah but that's not the full picture. So when you rent a property, when you purchase a property and then rent it out, don't forget that the tenant is helping you pay down your mortgage. So if you were wondering how this affects your overall net worth,
00:20:59
Speaker
assuming you're not negative. and that you're you know bought smartly and it's cash flowing or whatever your expectation was. yeah Your tenant is helping you pay down your mortgage and each of those monthly payments towards your mortgage is that much going to the positive side of your net worth. So over time, you can imagine how that grows. So yes, you might only be cash flowing per month, $100 a month, but let's say, and I don't really have real numbers in front of me, but let's say $700 of a rent payment is going to pay down
00:21:31
Speaker
the principal portion of a mortgage. and Every month your net worth increases just from that $700 a month. yeah So when you look at long-term wealth building, don't just assume you're only making $100 a month, because then it absolutely would not be worth your time and effort if that's all that you got. Not to mention the tax benefits. Can we talk about the tax benefits really quick? I'm a huge tax nerd, so I would love to talk about the taxes because it everyone's like, it's the very non-sexy side of real estate. And like that's part of the many reasons I got into it was I got really sick of getting drilled by taxes at my W2 and sending so much money to the government. So I'm like, what can I do? um And so the nice thing is, so you have your principal pay down and so your tenants are paying down your house for you.
00:22:15
Speaker
So, you're building up equity in this property. And in addition to that, you can run your taxes. you know And usually, I operate at a loss because I'm always buying properties and always furnishing properties. So, that actually kidten so there's kind of a fine line here. So, if you're just a real estate investor, that will can subtract from your earned income if you could be a real estate professional. So, an actual like real estate investor, um a realtor or something like that. I have a full-time W2 job so I don't get the really cool write-offs that everyone brags about on social media. um So I've incomeed out of just about everything you can do with real estate and so I have a lot of deferred losses that I'm kind of saving for later, um which you kind of need a CPA to understand that. So if you have a your salary W2 and your spouses also, then usually you don't qualify as an income or a real estate professional.
00:23:06
Speaker
And then you get into like feel a lot more nerdy tax strategy after that. But in the beginning, when I started in real estate, we were able to run, um, deduct our earned income. So say I made like a hundred thousand dollars this year, but I have $50,000 loss on my business. I'd only pay like just round numbers to kind of get an idea. No one go after me with the, you know, taxes. So say you'd only pay you know tax on fifty thousand dollars or whatever it was so just around number example probably terrible very inaccurate compared to like the tax code um but kind of gives you an idea how it truly deducts from the money you make if one of you guys can qualify as a real estate professional so but I can't use my losses I'm racking up yet.
00:23:49
Speaker
but I'm also paying down properties and building equity where, you know, I have money essentially stored in real estate now that I can leverage later. And so I think my perspective from six years ago when I started to now has really changed with the business. I don't know if you felt this, but you start out in the beginning, being like, I can truly be financially independent, cash flowing $200 a door. And I'm high maintenance. Like I'm kind of bougie in my choices. Like I like to have, like we have a house at the pool, like it's, you know, I'm just expensive. And so the really frugal side of fire was really hard for me to wrap my head around. And so then you start adding in into real estate because it helps diversify, you're getting more income streams going. But then after years of furnace and air conditioning replacements, like I've had, I think I've replaced five in the last three years. um When it sets you back like $6,000 to $7,000 to pop, you're like, well, this really sucks. I, you know,
00:24:42
Speaker
I have eight properties i have ten properties i know i have eighteen doors and it's two hundred dollars a piece you're like i'm cash flow negative every year and so something had to give and so that's kind of how i evolved into. Furnished rentals and doing a different strategy and then also. Kind of doing some tax strategy and then I started thinking more about you know, I was so worried about cash flow for so long and sorry This is a long explanation So I was so worried about cash flow for so long and I've kind of realized that essentially I'm building up a small business to sell in the future when I go to retire and so instead of looking at it as a I need this money to live off of I essentially need to build out a portfolio that is scalable enough where a single furnace replacement doesn't ruin my year and And so I need to have enough doors to offset those costs. So I need to get my income up. And then second, if I build this you know portfolio up and add doors, and I sell it off in, say, 10 or 20 years, when i I have enough equity built up in those properties to live off that income in addition to my retirement savings. And so I kind of look at real estate now as this sellable business versus being really depressed about my cash flow numbers as soon as the furnace breaks.
00:25:54
Speaker
yeah I think you bring up a good point and I've never heard it put like that. I have experience in rent and rental real estate and I've too struggled with like how much you personally get involved emotionally, mentally. Yes. This real estate aspect of your life. But if you can compartment compartmentalize it in such a way where you're saying this is a business and then they start thinking it through the filter of Just like you would, you're like nine to five. So I thank you for bringing up that mindset shift ah when sometimes real estate can feel overwhelming, especially when you're trying to balance it with a W-2 job or you're not in that location you know or the money is just not working out well for a couple months.
00:26:33
Speaker
Whatever it is, so if you can re format basically how you look at your real estate holdings and the actions that support it, you know, it's it's not who you are. It's a business and treat it like a business and don't get emotionally overwhelmed by it. Again, just keep focusing on things that actually matter to you, people around you, you know, whatever your pure passions are, right? Now, I know you invest in single-family homes and you also invest in Airbnb's.
Investment Strategies and House Hacking for Beginners
00:27:02
Speaker
I also and invested in single-family homes and still do. I've sold a number of my homes. But what are the different types of real estate investments and which do you recommend for beginners?
00:27:15
Speaker
Yeah. So I've done a few different strategies over the years. And so I think one of the biggest things that new real estate investors have a hard time wrapping their head around is what I would consider active versus passive real estate investing, because a lot of people get in and see shiny objects and see like, Oh, I'm going to be a house flipper and I'm going to do the birth strategy and I'm going to do all of these different things. And they hear all these shiny new words. And everyone's doing boutique hotels or everyone's doing mobile home parks. um I've now lived through enough seasons of Bigger Pockets to know whoever's hosting like changes what's the hot thing right now um and what people are investing in, which is very entertaining. And so at least for a while you do mobile home parks and you rarely hear about mobile home parks anymore.
00:28:00
Speaker
And so I think, yeah, just kind of keeping that in mind. So I personally love buy and hold real estate because my goal is financial independence, is financial stability, and also building up a business that can be something sellable and, you know, properties. There's nothing easier to sell than a single family home. There's a big market for it when you get into these. There's lots of barriers to entry when you start branching into things like big commercial spaces and things. So if you really want a slick transaction, there's always going to be demand for a good old single family home. um I like those. I think they're really simple. I now buy small multi, which again, anything you can put a conventional mortgage on is usually what I look at. So that's one to four units.
00:28:44
Speaker
Anything above four units is gonna be commercial real estate and so From like a lender standpoint and who you have to shop with so I love buying hold just because that's kind of your you get rich slow scheme There's nothing sexy or pretty about it, but that's what builds long-term wealth If you and it's probably the most passive you can be I think passive is truly non-existent because you're always gonna have problems like I If you can be a professional problem solver every day, you'll do fine real estate. If you never want anyone to call you, this is not the business you want to be in because I feel like all I do all day is be on the phone. But then I've also dabbled in flipping, which was horrible because I essentially bought myself a job and I already have one. I have a W2. And so I've really steer clear of anything that buys me another job and takes my time up.
00:29:31
Speaker
So anything active, again, like flipping or wholesaling or, you know, direct mailers trying to pick up properties. Because a lot of people say to begin to find capital, you should be a wholesaler or a flipper, which it does give you money. But if you already have a day job, it's kind of a rough way to go because now you've sucked up all of your time to do anything else. But it can be hard to keep paying for long-term rentals. And so I think doing some furnished properties is kind of the diversification that I needed, um but it is expensive too. um And then once you get into furnished properties, you've now moved from landlord tenant, like, please don't burn my house down, but there's not a lot of rules to, hi, Joanne, I know it's
00:30:13
Speaker
one in the morning and you don't know how to work your TV and you've locked yourself out of the house and you have to figure out how to deal with these like guest communications in the app. And so you've now built a hospitality business and so it is a huge time suck. to switch into Airbnb. I think people get into it because they get to furnish pretty homes. Either A, they like to decorate stuff, or B, they get really excited about the money you can make from them, and they just see cash flow. And they're like, I mean, I'm doing it and burnout very fast. And so systems and operations and knowing that you'll be really hands-on is important if you want to go that route. Because the money is there, but it's there's a lot more overhead and worry there than you expect.
00:30:55
Speaker
So I'm of the belief that, and I know you probably disagree, and there are many people who justifiably disagree with my opinion on this, if you have a decent job in your 20s and you, and I say this as a real estate investor, and so if you're in your 20s and you have a decent enough income where you can max out your traditional retirement it accounts like a 401k, your Roth IRA, maybe even some brokerage account money. If you can do all those things, I would advocate you do all those things first, at least for a while. yeah And then when you hit your early thirties, then if you're still interested in real estate, then kind of get into it then. Many people disagree. What are your thoughts on how to balance all of the types of retirement vehicles, including real estate?
00:31:41
Speaker
That's my favorite question you've asked so far. I love this. so This is like such a philosophical question that people agree to disagree on. um I think one of the best things you can do in your 20s, so I house hacked for a couple of years. So for people that don't know that, um it's essentially living in a home and running out. It could be a duplex. It could be a single family house you run out by the room, but essentially you rent part of your space. Um, my dream was always like a mother-in-law suite or something like that where you don't share many walls. They kind of have their own area, their own entrance, exit. And so I bought a single family house that had a walkout basement and I made the walkout basement area into a second unit.
00:32:21
Speaker
So essentially an up-down duplex. Um, this was kind of like built into a hill and it was really pretty. And so that is how I originally got into real estate. Once I got my divorce, because I was like, I need to start somewhere. I don't have a lot of capital, but I want to get my first property and kind of feel it out. And it's a lot easier to do maintenance and tenant relations when you're on site. And it's really nice because we didn't share any common spaces. We could come and go as we pleased. And it was really separate. And so I would say for, you're starting very young. um I did it with a baby. So my daughter was one when I bought my house hack and we lived there for two years. And so one to three years old, we still house hacked. My tenants knew her. It was very cute. um They're both school teachers. And so we got along really well and we didn't talk a lot, but we at least knew of each other and we'd wave and stuff like that when they would come in and out.
00:33:09
Speaker
because we had a shared driveway. And so I think living uncomfortably for a little bit, if you're very young, is a really good idea. So thinking about your primary residence differently. So I'm a huge believer in Scott Trench. I think we were talking about him before we even started the recording, where he wrote his book, Set for Life. And they talk about different levers. And so your biggest income line items, if you budget and you're a budget nerd like me, you're always like, you're housing. your income and transportation. And so after I read Scott's book, I kind of went insane into figuring out those levers. And so I house hacked. um I focused completely on getting my income up, which meant changing jobs every two to three years. And I think I
00:33:50
Speaker
I've more than tripled my income, which is kind of ridiculous. And then ah transportation. So I started looking at jobs that would give me a company car. And so now I don't pay for any gas. I don't have a car payment. I you know got my salary up in the process and would only take jobs that had car benefits because of the type of work I did, which was travel. So the trade off is, you know, time away from family, but you figure it out and so kind of evolve my career path there. So I think not forgetting about that on your investing journey is adjusting those three levers because if you get your income up, maxing out all those retirement accounts we were talking about makes sense. And so I started HSA first because I love an HSA. Um, if you're new to that Google HSA triple net tax benefits, it has all these advantages. So I started there.
00:34:37
Speaker
And then obviously got my 401k match. um Once I was doing those things, I went back and started working towards maxing out my 401k, but I think it took me three or four years before I actually got there. um And then I started doing my daughter's um college fund because I wanted to front load that just for the compound interest. And so I got that started. um Also, while we're in taxes, like some states offer a tax credit. So if I put in, I think $6,000 in Indiana, you got $1,000 tax credit back. And so I started doing that before I even maxed out my 401k, which people will love hate, just because I wanted the $1,000 tax credit back. And I thought that sounded kind of nice. So $1,000 free money for contributing to that. And then eventually I worked towards
00:35:20
Speaker
But I pretty much started in real estate after I was debt free through Dave Ramsey and then I've never stopped since. I've been in and out of debt a little bit through there with you know attorneys and things because I did get divorced in the process there, which ended up with debt that I had to work and pay off. But I'm like, hey, I know how to do this now. So bring it on. But yeah, I think slowly working to max that up. But I think starting your investments when you're out of consumer debt would be helpful and kind of going from there. But never forgetting to you should always be working every year towards maxing out all the taxable tax advantage accounts you can was a very long answer for that. No, I'm glad he glad you went through that because I think now I'm going to change the way I think about that. The reason my justification for someone in their 20s and I say someone, I mean like the most people who would probably be listening to this
00:36:06
Speaker
ah I'm not talking about the diehard people who just really want to do it. You know, love real estate and there are this fiery people like Scott Trench. I've met many times that we've actually, we've talked and he's a great guy and I love his book. There's a lot of great information. He's way more frugal than I'll ever be, but I'm very impressed. And the reason why I recommend to most people to wait to get into real estate is because in your 20s you want to live a little bit. And if you're really trying, if you have a decent job, I would argue that your effort probably should be in focusing on that job, becoming the best at that job, maximizing your income and maximizing your retirement accounts, your 401k, your thrift savings plan if you're in a government or military, your Roth IRA, your HSAs, and maybe there's some others out there. And then once those are maxed out, then consider it. But I think you've made me change my thought on at least one portion of that. Why not house hack? Yeah. If you're going to be,
00:37:04
Speaker
young and focusing on your job anyway you're probably not gonna be at your house all the time so your whoever's renting the second and third bedroom is probably not going to be as annoying to you as if you were there all the time or when you get older and you have kids and there's other factors that you might not want to house hack when you when life develops but so if you could do that that also helps with the income piece because let's say you rent your mortgages now i'm in california mor mortgage is gonna be six thousand dollars a month but in a regular town where it might be, let's assume your mortgage is 2000 on a pretty nice place. Yeah.
00:37:37
Speaker
and you're able to rent a portion of that out and maybe a thousand of that you're able to recoup from house hacking. That's a thousand dollars more a month now you can either you can use to make sure that you're maxing out your other accounts while developing some equity and some value in a home that you are living in. So I think I think you've caused me to adjust my thinking on that. I still wouldn't advocate go out and try to develop ah real estate empire in your 20s, but having real estate can be advantageous. And one way to get started is house hacking. And that may not affect your entire 20s. You can place to go out and have fun. I really wish I would have been like a serial house hacker because then you're adding properties with a conventional loan. You didn't have to put a big down payment down. You can do 3%, 5%, you know, maybe 10. I'm a big fan of not putting a lot down, which I know is sometimes controversial, depending on what camp you're in. But
00:38:29
Speaker
I always say, like, as soon as you put all your money into a house, like, your furnace breaks. And so I like to keep as much money on hand as I can to keep investing in other ways. I don't want to trap capital and down payments into houses. But again, once you get to just buying investment properties, you have to put 25% to 30% down. So, um you know, it kind of changes. But I'm like, if you could serial house hacking, because now I've had four conventional mortgages, I still own the first three. Yeah, properties from that. And so I have these really, really low owner occupied lower interest rate. These are not an investment. They're primary residents. And I also took key locks on all of them to keep like funding, furnishing properties. So we've talked about some of the less glamorous aspects of being a real estate investor.
00:39:17
Speaker
And there are a number of reasons why you would want to include real estate in your portfolio. One's cashflow, the other is diversification. It's a hedge against inflation. And now these are all assuming that you actually buy smart when you buy a property, not just, oh, that's shiny and big and nice, let me go buy it. And then hope it works out as a rental property or as an investment property. Or the cheapest thing you could find, which is also scary. Yeah. And there's no short shortage of nightmare stories on social media about tenants. And some of those are pretty crazy. yeah I've been fortunate. I've had a few, but I've been fortunate. None as nearly as extreme as some of those that you read on social media. Thank goodness.
Exploring REITs and the Importance of Education
00:39:53
Speaker
If somebody sees all of those and they still want real estate in their portfolio, but they don't want to be a landlord, another option they can do is REITs or REITS or R-E-I-T-S, Real Estate Investment Trusts.
00:40:05
Speaker
And that's more along the line of like buying a mutual fund, except that mutual fund invests in properties. So they have their own property portfolio and there's a variety of different kinds of REITs or REITs. And so if you're listening to this and you're like, oh, ah' I know real estate's good or I believe it's good, and I want to dabble or have it be a portion of my portfolio for a particular reason, then that is passive. That is 100% passive. So that is a way to get into real estate investing if you're a beginner or even if you're not. But if you want to add it to your portfolio, that's one way to do it without having to do all of the stuff that we're talking about on this podcast.
00:40:47
Speaker
and Honestly, if I had a giant stack of cash and knew what I knew now, I'd probably invest differently than as hands-on as I am now. um I don't even work on my own properties anymore. i'm like I joke that I'm a retired painter because every year I'm like, I'm never painting again. um And so, I would probably go more the syndication route, which is another option if you have a lot of cash on hand where essentially you can invest and you could become an accredited investor and invest money into other people's deals and be extremely hands-off just because that is truly passive where you just send someone money. You hopefully vet them really well and they give you a nice rate of return, which is a little scary because now you're investing in
00:41:28
Speaker
Interesting the humans that are managing that syndication and there's amazing stories out there and horrible stories out there about syndications um but I think that would be the way I would go if I had a lot of cash on the end but I'm perpetually every dollar I earn is either, you know, covering my lifestyle expenses or going into real estate. There's really not a lot else. Now, when you say a lot of cash on hand, ah you mean to be an accredited investor. And correct me if I'm wrong, it's been a while since I've looked this up, but I believe you have to have at least a net worth of a million dollars to be considered ah an accredited investor. yeah So for many who are listening to us who are just trying to get started into investing in real estate, they may not qualify as an accredited investor.
00:42:09
Speaker
So they might have to build up, take a couple of years to build up a net worth. I say a net a couple of years, like it's easy. It's not a decade, take a decade or 15 years to build up a net worth that where you can then qualify as an accredited investor. So you could take advantage of some of these potentially really good deals, ah investing and syndicate. And so what I guess me and some friends have also done, which I've thought about doing for actually friends of mine is, so if you don't have the network to become an accredited investor, we've gotten more into private money lending. And so I've dabbled, I have an IRA that I stare at every day and decide if I want to be someone else's private lender or not, because I want to do a self-directed IRA one day and put, I have like $100,000 in one of my old rollover IRAs now. And I'm like, I'm dying to make it real estate, but I like the diversification of having index funds.
00:42:56
Speaker
with that account. And so I've never pulled the plug, but that's something interesting too, where you don't have to be accredited. It's a very relationship-based business. There's a lot of people on social media that do a good job of properly raising capital for, you know, basic solid investments. And so um I've both used it and I haven't lent it yet, but I've thought really hard about it. I even almost bought into like a boutique hotel with some friends um a few months ago. but ended up kind of staying the course because my husband is like, you have all your eggs in the real estate basket. Calm down. You you can keep your diversification where it is. um And so it's kind of funny we kind of go back and forth on you know what to do with those. But that's kind of a third option. If you have capital and you want to be totally hands-off, you can lend money to another investor that will do all the legwork for you. And essentially, you get direct deposited money every month for investing in a set rate of return.
00:43:48
Speaker
So if you're still listening to this and you still want to invest in real estate, let's focus on some steps you a beginner should take to start investing in real estate. What is the very first step? a lot of is education, but you don't want to stay in the education boat too long. So there's a lot of people out there that are just constantly consuming and they never take action. So and it's hard to know at what point you leave that phase and get like kicked out of the nest. Um, I also I'm a firm believer that you don't need to buy a mastermind or pay an expensive mentor or do any of these programs when there's
00:44:24
Speaker
so much information on the internet that's totally free. There's Instagram, there's Twitter, there's YouTube, there's everyone teaching you how to run analyze deals, and you can network with people online now. So I feel like with internet and AI and all these you know new advantages, i mean AI writes by Airbnb descriptions even now. So um you know I think there's a lot of different ways you can self-educate without having to spend a lot of money. I love to start with books too. So I'm a big, um, like coach Carson person. He's one of the guys has published books through and just wrote his name down as you were talking. Yes. So coach is the best. Um, he's fantastic him. So I would say like two of the five people that got me really interested in real estate and kind of like thinking I could do this were Chad Carson. Um, he still to this day will house half occasionally. And he has like three kids at home and they all just know that's part of their life. And he does not need to be doing that anymore, but they've just developed this lifestyle. That's really amazing.
00:45:20
Speaker
and um also Paula Pant. So she also did real estate in the beginning of her so kind of fire journey. And she really went out and she was the first woman investor I followed where she wasn't doing any of the maintenance or handy person work on her properties. She was just setting and hiring contractors. And I was like, well, shoot, I can talk to people all day. I can do this. And it was really cool to see someone not handy doing real estate, and that really gave me the push I needed to be like, okay, I can be a real estate investor without swinging hammers. if i And if I want to swing a hammer, I can, but if not, you can still build your little empire out without doing the sweat equity as much.
00:46:02
Speaker
A few things I'd like to add are know what your budget is. Yes. Don't overshoot ah because you still have to exist. And the and yeah today's economy, that's even just existing as a win for yes a lot of people. it's No matter where you live in the country, prices have gone up. and so And even, and if you want to talk about prices going up, ah even bank rate, and according to bank rate, as of today, June 26th, the average interest rate for a 30 year fixed mortgage is 6.96%. And the average interest for a rate for a 15 year fixed refinance
00:46:39
Speaker
is a 6.47%. And who knows if they're gonna keep going up? Who knows if they're gonna drop? and then People thought they were gonna drop a year ago and they didn't. That was what realtors were saying, like, hey, you can buy now and it's and then refinance in a year. Well, a year and then some has passed and it hasn't. And it was funny because all the realtors who obviously have a vested interest in you buying a house were like, rates are still historically low, but they're going to drop. And I'm like, these things don't go together in a sense. So you're saying historically rates are usually higher than 7%. So, you know, you're saying it's still low, so please buy a house now, but then they're going to drop a lot. And I'm like, okay, well, how do we know they're going to drop a lot if historically they're still low? I mean, it could very well stay at 6 or 7%. We just don't really know.
00:47:26
Speaker
I think ideally it'll probably drop a percent, but it'll be, you know. I don't think we'll ever see the point in my lifetime where rates are 2.6 again, like my primary residence I have yeah from back in the day. And so you know it's just trying to make deals work no matter what and not getting too lofty with what you think a property can do and being unrealistic saying, I can definitely refinance out because a lot of the claims people are making just didn't make a lot of sense. And everyone would say, when rates go down, I'm like, if rates go down. um And they're like, you're a pessimist. And I'm like, here we are.
00:48:03
Speaker
So as soon as somebody says you're a pessimist, you're like, wait, but there's data like yeah now. So what makes you think you know that it's going to go down anytime soon? That's a ridiculous statement. Like maybe I am, but it's also numbers. That's how it works. beingist And it's your financial picture. So you make the decisions that's best for you. Not what some realtor says. Right? Yeah, absolutely. But a TikTok video told me they were going to drop.
00:48:26
Speaker
And unfortunately, I think a lot of people are getting their primary education on TikTok. Yes, it is true. So know your budget and then secure your financing options. Yeah. I know you you do a hard lending or hard, I don't know, your hard lending. You're not doing the lending. I borrow private money. Yeah. Yeah. So I do private investors, but I've primarily done conventional mortgages. So I like, I hold nine conventional mortgages right now. I'm saving one more. It's called vacation house. So I've switched to commercial lending now. um so I'm keeping one reserved for something fun someday. and so because I don't really want to refinance all my pretty low interest rates I've collected over the years. so I'm just holding tight to the last one of my 10. I guess for those who don't know that, um you can take out ten up to 10 conventional mortgages in your name if you're debt to income ratio.
00:49:16
Speaker
supports that. um And then from there, you can get into commercial um loan packages, which a lot of people don't know that you can take out commercial loans on like a single family house. So commercial loan doesn't mean a commercial building. um And so that's kind of what I do now and then also private money. So I raise private capital from friends. family members, and then I also use Instagram to raise private capital and have built like a lender list on there, which people find it interesting. My CPA is like, how are strangers on the internet giving you money? um like And it's working and it's great. So I own property with some co-workers of mine and some lovely strangers I now call friends from the internet. so
00:49:56
Speaker
That's kind of another way I've ventured into. so But also learning through books. like There's a whole book by Matt Faircloth on raising private capital. There's an entire book called The Hands-Off Investor that goes over syndications and how to kind of learn about those. And so, I don't know, lots of reading, lots of self-education, and then taking massive action. you know So my takeaway from that is if someone needs friends, they can just pay you. And then they are now friends with the famous Sarah King. Oh, gosh. That's how the process works? No. I mean, you can join my free list. It's a Google form. No.
00:50:35
Speaker
and not But I don't know, you do really build out relationships with people that are also using private money, so I always tell people online if you're ever talking to someone who's asking you to loan them private money on social media, um reach out to me because there's a good chance that me or one of my friends knows them. These Instagrams are a tiny place with real estate investors and we can kind of steer away from some more sketchy situations we've heard of or you know say this person's really good at their due diligence, we trust them. individual so for what that's worth there's I don't think I'm that cool but then I've also networked my ass off for the last three years to really have this network where you can ask questions like I knew very little about houses but I got started by myself and there was people on the internet that we had a little group and we would call each other and there was an account where I froze my furnace solid like literally there's like ice on it and I didn't know what I was doing and I had to figure out why I'm like what do I do and I called
00:51:30
Speaker
people off the internet to troubleshoot, you know, where do you begin? And I'm a newbie and I'm learning all this and it's a very supportive place to find people too. So between the internet, social media and books, I don't think you, yeah, the education is endless out there. yeah And the same thing with like budgeting and getting started and investing too. But yeah, I still budget every day or mostly because every week now newborn I'm slacking. A few more steps I would consider are finding a mentor. I know you didn't recommend paying for particular guru courses or things like that, which I agree, do not pay for those. There's so much free online. So much. And just to throw it, I know you've mentioned a few names out there, people who you can trust and confide in what they're telling you. Coach Carson or Chad Carson is one. He probably would be my top. I know him personally. He's a good dude. He's a really good dude.
00:52:25
Speaker
an excellent person, like a good human being where you just want to... um And he does have courses and videos. His podcast is a wealth of information too. I honestly think you could probably learn most of what you need in your listening to Chad's podcast. um But yeah, he's great. Paula Pia also has a Buy Your First Rental Property course. If you're a very newbie beginner, I've heard it's excellent. um And I don't think she really does anything like half-assed. She always puts her heart and soul into it. I know she doesn't lead it herself. She's a whole TA group, but um it's a pretty solid course too, if you want to. I'm a friend um solely, so she's under lattes and leases. She's this little
00:53:04
Speaker
super young but super motivated and one of the smartest people I've met. um It's kind of interesting when you meet people who seem so shiny and flashy on social media and then they're actually very introverted in person. She's just a very thoughtful, smart individual. When you meet her, it's fascinating. She's like, can I please leave this big conference? I want to go watch like Ugly Betty upstairs in my hotel room and you just wouldn't expect that. And she's very good about um you know teaching people and training people on what she's learned over the years but she's put a lot of time and effort into education. So she has some really good programs out there where if she doesn't personally know something, she's found experts that do and have filled in those gaps. Another thing I would do is start small with a manageable property.
00:53:47
Speaker
Don't jump right into an eight plex or an apartment building ah because that's a recipe for a bigger disaster. Let's assume you do buy a small property and you have some stumbles along the way. Those are recoverable. and You can recover from that. You may not be able to recover as easily from a bigger screw up. the So start small, manageable ah to gain experience. I would also say you you go into real estate kind of open-minded because at least once a year, I'm like, I'm going to quit and sell everything I own. um It happens to me at least once a year, probably more often in the beginning, where real estate is challenging. Keeping growing your portfolio if you're a motivated person is very challenging, and then adjusting to the markets. and so I don't think
00:54:33
Speaker
Anyways can go into this thinking it's gonna be easy and passive but again you're trying to build long-term wealth and you're also trying to accelerate your path to financial independence and build wealth quicker than the average person and so, with that comes some pain um and a lot of learning experiences. But every problem is solvable. And there's people out there that have had the situation before. um And we're in this lovely era of social media where I don't know how I would have done it if I didn't have people to call off the internet from 100 different time zones to ask weird questions to. But it's definitely a learning experience. So if you go in thinking it's going to be all easy and you'll make a lot of money, it's it's definitely challenging getting started. But I think
00:55:13
Speaker
The people that keep going even though they plan to sell everything they own and burn everything to the ground the day before are the people that seem to be succeeding. It's just people that consistently just keep doing it over the years and don't quit. What are some of the common pitfalls beginners face and how can they avoid them?
Avoiding Beginner Mistakes and Building a Reliable Team
00:55:30
Speaker
Um, buying the cheapest house because it is cheap for a reason. By using the cheapest contractor or subcontractors, like the cheapest electrician, um, my house hack, I, my most expensive contractor quoted me $16,000 for the renovation. I'm like, that's outrageous. That's intense. And he had this whole team of guys that renovation cost me $26,000 by the end because I did not use him.
00:55:56
Speaker
And I learned a lot along the way, but I really doubled the budget essentially. And so, you know, trying to get things done as cheap as possible isn't always the right way to do it. And then really building out people you can trust. Like I remember the first person I really felt like I could trust was my HVAC guy. So his name is Edward I would call him with all my weird furnace questions and he can help mentor me along and then I would ask him like do you know a plumber and then you kind of build out your team and once you have individuals you can trust to do those things life becomes a lot easier.
00:56:28
Speaker
you know I've never been one huge into like networking and things as much. um I just like talking to people, but truly networking locally. I made a really big push when I moved to Fort Wayne in the area of Indiana I'm in to try to do like a lunch a week or a dinner a week or take someone out for coffee every week. just to get my name out there and get to know how the people are building their portfolios and asking, I just needed to phone a friend when if I had a plumbing problem, I had someone to call. And so that's vital. So you really can't do it alone. And I think that's, yeah, probably the last biggest thing I'll say is people being like, I can do everything. I can fix anything. I can work on anything. And then they don't scale either. They stay with one or two houses, may burn themselves out repairing a house. They,
00:57:15
Speaker
you know, had to way too much renovation in and another spending every single night and weekend and they burnout. Yeah. And some of that can be mitigated through make sure that you get a thorough property inspection prior to buying and actually get contractor quotes before you purchase a house. Don't wait till you purchase to get those quotes because what you're thinking and you know, it just needs a coat of paint. What you don't know is like termites, you have termites, you've got lead-based paint that now you've got a, and that's a whole thing. Like if you have that and you actually have to do lead abatement, it's a that's a process. Or you'll find it like some structural thing in the crawl space. you know So you just don't know. Get as much information up front you as you can before you ever buy the property.
00:57:58
Speaker
Yeah, and in the beginning, actually, I forgot I did this in the beginning. So when I bought my house hack, that was my first property I bought alone, you have your inspector and your appraiser. So you're like, okay, I'm protected on value. And I have this inspector that should catch most things. But I had two different contractors meet me on the day that the um inspector was doing his work. And so I had two people quote out the projects I knew by the time while we're in this due diligence period before I even own the property, we're going in and out and I'm getting quotes on things and Like, wow, I've never seen anyone do this super early on top of it. I'm like, who doesn't do this? If I don't know what I'm doing, I need to bring people that did. And so I think from the first like four houses I ever bought, I had a general contractor walk them with me at the same time, like once I knew they're a serious candidate. um And there's definitely been houses where I've regretted not taking someone with me that knew more. um Nowadays, I can pretty much get through a walkthrough and pick out most obvious terrible things. And there's not a lot I'm afraid of at this point, but
00:58:55
Speaker
um It's taken six years to feel that way so don't be afraid to like bring in recruits. In the beginning and build relationships is that cost me no money to have people come out and give me quote same day when we're already in the house anyway. Yeah yeah definitely some benefits there if you can get more eyes on you know so craft people who know the craft get them looking at because even an inspector won't catch everything. right But a contractor who has to know exactly, to give you an estimate of work, they have to know their ins and outs of everything that they're going to touch. So they'll probably look at it even a little bit closer than an inspector would. Yeah. And there's been certain houses where I'm like, I brought just my foundation guy or just my electrician with me. And I'm like, I need you to tell me what this is before I say yes to buying this house. I think another pitfall of beginner's face is they don't... So we talked about it's okay to buy a property not in your town.
00:59:45
Speaker
and it but I would say it's not okay to buy a property unseen. Get on a plane, go to the property, take a look at it. Yes, you might have trusted people there, but they might miss something and it's not their money, it's yours. yeah So ah for example, I bought a property in Georgia, And the numbers looked great. I got to the property and while I still purchased the property, I wasn't aware that there was about $4,000 of tree work that needed to be done in the yard. I never saw those pictures. I just showed up and it's like, but what about this tree and these limbs and it's too close to the house? Yeah.
01:00:20
Speaker
And so there was a big expense I had to pay right up front. And I didn't even know it before I purchased because I didn't travel. I had people look at it. and They said it's a good deal, but not and none of those people said, but what about the yard? So that is an expensive property. And on a $50,000 house, that's 10% of the purchase price, roughly. So let's see. When you start out in real estate, you don't realize that trees and water will be your biggest fears. or tree roots and water lines. Yes. dear Anything water, anything tree, any part of the tree, just no bueno. No bueno. All right. And another is like over-leveraging. I think people andla over-leveraged, but it's fine. We're all doing great. So you don't want to use me as an example for that. I'm really terrible at that.
01:01:08
Speaker
and And when you think about leverage, I think it matters about your overall portfolio too. Like if you only have real estate and you don't have any other savings or, and then you're, you know, you're over leveraged and you try to side poverty, property, property, and you don't have any like backup safety plan or worst case scenarios situations that you can climb out of in some way, even if it means a terrible thing to your portfolio, then you're going to be in really big trouble. Because I always say I'm really bad at keeping cash on hand. I'm really bad at having reserves and I'm over leveraged real estate. But I also have this beautiful stock portfolio in iras and in a small brokerage account now. So it's there if I need it. um But I think I'd be really uncomfortable doing being as risky as I am with real estate if I didn't have this lovely foundation and to know that I will be safe in retirement with what I have if I stop investing today. Which goes back to my origin. So exactly your point.
01:02:01
Speaker
Which goes back to my, don't get into real estate investing until you've had it got a nice foundation of other stuff going on. But that's just me. no I don't disagree with it. And here's a big one, a big one, a big one, especially for new investors, landlords, people who who purchase a rental property. You have to screen tenants properly. Now we are in the time right now where technology makes that a lot easier now because even Zillow and there's ah another bunch of different services that if you list your property, they can take care of the screening process or a lot of that screening process ah process with background checks, credit checks, verifying that they're an actual person, those kinds of things, but that's still on you to make that final decision. And I've grown very hard nosed. I don't, I don't listen to any sob stories. No. I mean, I don't care that you got, I mean, I know son's terrible, but I don't care that you just got a divorce and you're saying, I know you're, that probably hits home to you a little bit.
01:02:57
Speaker
Yeah, but I am a divorce single mom and I'm still like i i know his home like as a landlord, you probably feels exactly the same way. Do you not? Like you don't put up with that stuff. no one is one times not even accurate And that's what I found to a lot of it. They're lying. Like they'll say stuff just to get into the property, like the, like but the comfort, the the biggest sob story they can come up with like, I don't know, or they want a dog and it's like, it's a service dog and it's like three pit bulls. You're like, come on, like, those kinds of things. And now you do have to understand your local laws. I'm not saying like break any laws and don't discriminate. I'm not saying any of that. But if you have a list of qualified potential tenants, be hard-nosed about it. And this is your money. This is your, as we talked about before, it's your business.
01:03:39
Speaker
Sarah, how has your strategy evolved over time and what adjustments have you made to succeed?
Adapting Strategies to Market Changes
01:03:45
Speaker
um Really just evolving to the increasing interest rates. I think that's changed everything. Because before, you'd pick up really low interest rate mortgages, the payments were low, and so you could acquire things with a little more flexibility, it was a lot easier to make them cash flow. um So now it takes a lot of due diligence when running numbers. And so I really just rely on my spreadsheets and that deal check app I kind of talked about at the beginning. I love that thing. And then also when raising private capital, it just
01:04:12
Speaker
There's a lot more overhead expenses with properties now and people expect a higher return rate when you're borrowing private money from them so when they lend you 60 or $100,000 to either buy real estate or fund down payment on real estate. It just costs a lot more and so making sure your numbers are really accurate so you don't end up with some people call them like an alligator property that eat all your profits. vs su you know You need to at least have them self-sustaining so you don't end up with a negative cash flow that you know negatively impacts you overall. So when you do have things break, you're not you know struggling to keep money in your accounts. So in general, taking a big step back, what are what are the pros and cons of real estate investing that beginners should be aware of of before they start taking action?
01:04:56
Speaker
It's a lot of work. Um, it's essentially a second job. So I would W two. So this, you know, it's a second business you're running. It's very hands on the beginning. It's like a child you're raising. There's a lot of things, but again, you're also building a business where you're not dependent on someone else. So I've seen a lot of friends get fired, laid off over the years that work in the industry and I've gotten divorced. I've watched my. ex-husband lose his job before and so you know I think having that security of these properties are completely mine and that income will be mine and eventually the equity will build that solid future. It's kind of a safeguard against things like that where
01:05:34
Speaker
worse came to worse, I have other income streams. So, you know, I have coworkers that they might be the sole breadwinner in their household, and maybe their spouse doesn't work, and they don't have kind of these other avenues. And so I'm always really grateful to build out something that I can sell or do something with as needed um to really give myself that security in the future. And I think that's helps me sleep well at night. So there's definitely pros to building something that isn't reliant on, you know, companies laying you off or firing you. But again, it's a lot of work to kind of build the second empire behind the scenes. To finish things off, let's share where people can go and get more information on how to start in real estate.
Recommended Resources and Final Thoughts
01:06:18
Speaker
What are your favorite books, courses and resources for learning about real estate investing?
01:06:22
Speaker
um I'm kind of like you. I like to have people start with traditional investment options. So like IRAs, all of that. So my all-time favorite book is The Simple Path to Wealth by J.L. Collins. That's what I consider like the Bible of investing. And it kind of teaches you to not be afraid of the stock market because I honestly think under understanding the stock market and the real estate market is very similar. over time, it's kind of a roller coaster up and down and up and down, but over time, it all goes up. And so you'll have many dip years and kind of both really parallel this and think understanding kind of the forces that impact that are important. So starting there, and then eventually branching into bigger pockets books, I like the more fire side of things. So like Coach Carson, I love his two books that he has now.
01:07:03
Speaker
I love Scott Trench, um and then they have a bunch of podcasts that you can listen to. When I was starting out, I was really debt adverse, so the original Bigger Pockets podcast made me feel really overwhelmed. I'm like, these people are leveraging to their eyeballs. No, I'm one of those people. um But in the beginning, um listening to like Bigger Pockets Bunny or rookie podcast was really helpful to kind of get started and not feel like it's so daunting when people say they have like 100 doors and 10 mobile home parks and you're you know at zero doors trying to figure out how the heck everyone else is doing this. finding Finding some people where kind of where you are a little bit ahead of where you are and then someone that's like who you aspire to be helps.
01:07:42
Speaker
so Yeah, I definitely vouch for Bigger Pockets, ah knowing that people who, or at least some of the people who run it, I know that they're decent people and they're trying to get really good information out to the masses regarding regarding real estate. And not only that, they have a Bigger Pockets money podcast too, which focuses on real estate and financial independence. A book that got me interested, and I know it's debated and but among many, whether it's real or not, but I do credit with credit it with getting me motivated to learn more. And that's Rich Dad, Poor Dad. ye And what that did for me was two things one it just gave me a clear way to put things into a framework assets liability real estate and just really in the second thing it did was it motivated me to learn more so then i went on to continue to read more about investing in general in real estate specifically.
01:08:32
Speaker
And we mentioned don't go buy these expensive guru courses, but I will say if you do want a course because some people just you know need that structure, that ah framework, ah go for the lower ah lower priced options with the similar information like ah Coursera or Udemy. You could probably find someone like that. I will vouch for Coach Carson. I have not taken any of his classes, but I know him. and and i've been in company with him as recently as just a few months ago. And he was talking about some groups that he has that he's loving being a part of. So Coach Carson is a good research, a good resource. Well, Sarah, thank you very much for taking the time. on I know you're a busy mom. You've got a little one. Yes. And I can hear from the other room that they're saying, Mommy, come feed me or whatever it is they're doing. They're revolting in the other room. so
01:09:20
Speaker
But thank you so much for taking the time to talk with me and all of us today. And thank you all for watching and listening.