The 5 Best Pieces of Advice For Getting Started in Real Estate

[Music] seven hours driving on the highway far away everybody Welcome to the kid McElroy show I'm here with Daniel you're the host and I'm the co-host yeah oh thankfully she doesn't think so at home though so anyways we're on the road today so we are pre-recording this um we are in Nashville right now so it's gonna be awesome Yep so we're there for the collective my Mastermind that I do and boy we have quite a lineup so I'm excited excited excited about that but uh so we are recording this one but I love the topics it's the five best pieces of advice for getting started in real estate investing yeah you know that's our biggest question is how do I get started and you know the most important thing obviously is to just start like I think so many people don't just start but beyond that you know there are things that you need to do and mistakes that you can try to avoid when getting started yeah well I like we start with number one which is just literally pick a lane and commit but before we jump too far down that road you know I think a lot of people like my son right now is going through real estate school and so he was over over the weekend and he said yeah there's so much you know there's land there's commercial there's residential there's Property Management there's all these different things and and I basically said we'll pick a lane and commit yeah you know because it's confusing you did and you you something you told him too was don't try to learn everything about everything because it's too overwhelming you have to pick a lane and then learn everything in that late yeah and then what happens is over time like for me I picked property management and I think that's what he's leading toward at least right now but that could change in a week or two it doesn't really matter and he met with Pace morby last week and so he's thinking of the subject two stuff and so you know he's he's really considering everything but I think it's important um like for me when I picked the lane Property Management that I was super easy because I was like okay I'm gonna try to master this Lane I'm gonna try to get as good as I can I'm going to try to learn how to manage people's properties and you know maximize their their net operating income and and try to understand how Partnerships and all that kind of stuff work and um and that actually helped me now it's like my for me it's the base of everything I do yeah there's so many different Lanes you know like there's you know owning like small rentals there's storage there's commercial there's um wholesaling there's Property Management there's sub two there's so many there's Airbnb so many different lanes and I think it's important too to understand you know what makes sense for you so what I mean by that is you know we had python he was talking about a girl that makes really good money and it doesn't necessarily make sense for her to be to quit her job and try to do real estate right so your your role may even be the money behind somebody else that has the time yeah well we interviewed a young woman who does a um these midterm Airbnb rentals and she works she said four to five hours a week okay everyone can she only has 12. so super manageable and about 12 you know actually 12 homes that you own or condos and homes and you know there's a fair amount of work there but she said there's only three or four tenants a year per place so you can totally pull that off while you while you're pulling down money from something else you can you can but you also might just want to be the money behind it you know I mean I manage five and you know like she said it's probably you know three or four hours of work a week but it's very much you need to stop and figure it out right now kind of work so you know with your job depending on what that is you know you may or may not have the abilities to do that but you just have to realize that and and partner with somebody that has the time or if you're somebody that has the time and the motivation you need to partner with somebody that has the money yeah and by commit which is the second piece uh you know picking the lane for a lot of people is confusing and I know a lot by the way you have no idea the amount of stuff that comes at our company you know for Office Buildings and self storage and Land Development and single family and condos and I can go on and on and on and on and and it's you know it's hard to stay disciplined you know and what we do though we stay with multi-family but the commit part is another issue and I want to I just really want to emphasize this because this to me means discipline committing to that discipline and understanding like if you do pick Property Management you need to immerse yourself in it you're not going to read a book like this is not that you have to commit time you have to commit energy you have to commit resources yeah and you have to and you actually have to devise a plan around that so it's like always tell my son if he does Property Management you know he's got to spend at least two to three years in it and so that he really really gets it and understands it and that's going to create the base for him for other things right right yeah and just you know you know committing to your goals whatever that is and then making sure that you're surrounding yourself with people that can help you make that happen um you know is very important as well yeah and so let's jump to number two then which is learn to manage the property before you Syndicate now if this is actually coming up right now there's a lot of sort of so raising money and managing money is not the same right not even close and so there's lots of people there's a lot of people out there trying to teach people how to raise money and put deals together which is fine I don't have a problem with any of that but the problem is they don't know what it means uh when once they buy something they they're hiring property managers and and they're they're turning through their or they're actually trying to do it themselves and they don't know how right right right well we see this a lot even online you know I see um people trying to raise money from other people I found a good deal I need you know fifty thousand dollars and these people have never done real estate before and it's like you know buying the property is correctly is half the battle but also managing it correctly is and I'm not going to give my money to somebody that doesn't have experience managing a property so I think it's very important that you you know you have to learn to walk before you run you have to learn to manage the a property before you can go raise money and manage it for somebody else yeah yeah and so if you have a partner that knows how to manage that's different you two can do one command if you want to can Syndicate that's certainly um not exactly how my partnership is but with Ross and I we have very different disciplines with us it was he he obviously had a strong strong construction background you know the general contractor's license and I was the management guy you know and so um you know you just got to make sure that that's covered and if you think that hiring a third party management is covered well it is until it isn't you know right because once you know I've had lots of friends have to let your property management people go and all of a sudden they're flying across the country to try to solve these things and so when I talk about a partner I'm talking about a real partner yeah and the thing with the um third party management is that's all well and great but if you don't know how to manage a property yourself you're not going to know how to pick the right property management company you're not going to know if they're doing a good job you're not going to know what to do if you have to fire them they're going to potentially be able to steal from you or run your business into the ground if you don't know what you're doing so I know we all want to just jump into owning real estate and everything else but to your point like what you told Cade is that you know you have to spend a couple years in Property Management learning to manage property whether that's working for somebody mentoring under somebody maybe you know manage you know buying a rental and managing it yourself your own rentals before you start taking other people's money and trying to invest it because you don't know what you don't know oh and I've learned a lot just we're managing like four rentals I mean the book I would have written a one sheet when I started and now probably a 20-page book on what to do and not to do and who to rent to and who not to rent to and all of these things so you just you learn as you go in every month I swear I still years later learned something about something for example and what are Denise Lisa's instead of writing a 30-day a thirty dollar per day late fee she just wrote thirty dollars yeah I just guess what I get my rent late every month and it doesn't really matter how late because it's thirty dollars whether it's a day late or a week late so 30 yeah and I did and it kills me because every time she'll text me don't worry I'll just pay the late fee and I'm like well I'm sure you'll just pay the late fee you probably make more money on entrance with your money sitting in the bank than I can you know we had to laugh about that one but anyway you didn't learn yeah those little things on a two or three hundred year building are big things they are very big yeah so before you learn how to raise money and buy something you really do know how to understand how to manage it um so number three make sure whatever you buy is proven a cash flow I think this is a big one because this is actually what's going to get everybody in trouble uh coming into these next few months yeah yeah people bought you know a lot of these syndicators and then maybe maybe you know some of you listening too they bought Things based on I don't care if it cash flows because it's going to appreciate it's going to increase in value and then I'm just is going to sell it well now you know we're seeing this a lot in Arizona and all over the country where homes are sitting more and they're not selling for what they were selling before so you may not be able to sell it for more so now you may be feeding it every single month yeah and that can prolong itself especially with these higher interest rates you know there's all kinds of factors that people don't consider and I think that at the end of the day what you like like let's just pick on Airbnb for a moment there's a lot of Airbnb stress right now people are paying them what they used to pay maybe there's too much competition maybe there's not enough people paying those kinds of dollars anymore because of the recession or who knows the reason but there are some cracks we're starting to see at Airbnb so now the the occupancies are lower which means that some of these people are having trouble and so they can't even strip that thing down and actually have a cash flow even as an unfurnished rental and so that's the point there's no exit so in other words all they really had was what option then that is to keep this thing full with today's rates and that's a horrible horrible position to put yourself in right right absolutely and so if you buy something today and hope that it goes up tomorrow that's only called one thing gambling yeah and and you've seen this on the syndication side on multi-family as well yeah well it's even worse there you know we're starting to see all kinds of things and I think the last half of this year is going to be really problematic for a lot of people um you know because you can't you you can't Bank on rents going up you can't Bank on Equity going up you can't Bank on property values going up you know you can't Bank on flat expenses you know that's what people are doing you know they're under they underwrite based on last year and that might be true last year but you know the future is much different I always tell people you know look out the windshield not out the rearview mirror the rearview mirror is you got to take considerate but it doesn't necessarily mean that it's going to happen again right right absolutely yep yep so and then the fourth thing I think is one of my favorites and that is the location is more important than the property so I obviously put this in my book The ABC is a real estate investing um it is that you know there's so many stories about this right yeah absolutely and I think this is a huge mistake new people make and I actually almost made it on my first place that I lived in it wasn't even a rental where I ended up buying a condo in Scottsdale but I could have got like a small house in Phoenix and I really was leaning towards that but the area would have been a much harder area to rent uh rent it out and I think it's very um appealing to people because they can get more for their money or they can have they can pay less right and so I think that they just think oh you know 160 000 or 250 thousands you know I'd rather just pay 160 but if you have vacancy and you will if it's not that desirable of an area that's going to eat away at your cash flow well we looked at three properties this week yeah so and boy were they different yeah and in three different locations yeah and not even that far from each other but in different locations yep yeah so they were within the same let's say square mile uh-huh uh Maybe not maybe two about square miles but the point is there were very different locations yeah yeah and some of them were really good and others were really not so great you know and just the location yeah and just depending on where the location the surrounding neighbors the you know whether they're by a busy road or cul-de-sac you know those kind of things I I remember I always tell the story I remember years ago I was meeting with the mayor of Phoenix and they had what was back then it was called the slumlord law and he's like hey man we've got these you know these landlords that are bad and um you know we're trying to get them out of Phoenix and they were bad by the way so I said hey let me go take a look so I went to a couple of the properties and um I was like oh like this is a rough neighborhood so I went back to him and I said yeah I would really really love to do this for you but the problem is is that you can't manage your way out of a bad neighborhood and that was the issue and that was the lesson is you can't you can't you can buy something really uh well priced but if you're constantly fighting the external forces you know those outside influences there's not a lot you can do if if there's you know something going on in a neighborhood or even a house next door you know or you know there's it can it can really be an issue absolutely and you know you see that too even in the Airbnb Market you know the rentals and things I mean one of the top things we look at when we go to run an Airbnb is that it's safe you know you read the reviews and that people don't want to live in places that aren't safe so it's going to really affect you know or or just undesirable doesn't have to be unsafe I mean if you are 30 minutes outside the city center you know you're going to have less people that need housing out there depending on what's going on in that part of town and so you know if there's not a lot of jobs over that way and there's not a lot of things to do over that way it's not a big touristy place you know it's going to be harder to rent than if you rent somewhere that has a lot of retail and a lot of jobs and a lot of things going on that's exactly right so yeah so let's jump to number five and that is you make money when you buy and not when you sell them this is hard to understand if you haven't done it yeah this is the experience part right this is because you know you're like what does that even mean you know I make all my money when I sell well from from for most of you you may or may not know we're really long-term holders here we're not we're not flipping we're not trying to time markets and sell and make that a little bit of cash because don't forget if you do that your re-entry point is exactly at the same point that you sold so you know so you have what you have is you have an issue where you're actually buying something and that's actually where you make your money and and um you know years from now when your tenants actually pay off your assets you'll start to look back and you'll realize how true that is right yeah absolutely I mean and you're not going to make money you know if you buy at the top of the market it's going to be if you're planning on selling it's going to be a long time before you recoup some of that money and that's where you see people really freak out when their asset values go down and things like that yeah I can't emphasize that enough you know you guys when you buy make sure cash flows make sure it's in a great location and you'll be very very happy that you were disciplined and stayed you know it's it's not just about jumping into real estate the first time and and actually buying something this is not a stock this is not something you know the real estate does go up and down but you can mitigate a lot of this stuff with very good Property Management great locations and of course how you buy because right now a lot of people that bought specifically in commercial and the last two years they're not in a situation where they could sell in fact the values of whatever they bought are lower than what they were a year ago so imagine that so if you buy a 10 or 20 or 30 million dollar property one year ago and you have to sell this year you're actually going to take a loss right absolutely a lot of people don't consider that they only think that multi-family goes up but of course we know better don't we well they just think everything just goes up yeah it does it does or it's never going to go back down is what I hear this is the price it's never going to go back down so we're going to hop into our Inner Circle questions remember to go to ken'sinnercircle.com to sign up for a membership it is only like thirty dollars a month and you get unlimited access to ask 10 questions we do happy hours it's totally worth it so the first question comes from Brandy and she asked do you and Danielle have the same goals my husband and I have very different goals and he feels my goals are too small so I'm curious if you deal with that and how you handle it oh this is a big old meeting right now right you get your perspective first well we have different goals I think we have very different goals um you know we have some goals that we do together but I think just in what we do you know I mean I own four rentals and Ken owns thousands of units so it's very different on what we would consider you know probably our real estate goals um but I don't think you ever make me feel like my goals are small you know even though they're very different than yours no I don't you know first of all I do think goals should be small I I by the way I I think what happens sometimes is when you have too big of a goal um it seems overwhelming so I you have to take big goals and break them down into small goals anyway and so I think that that's pretty normal and I think we all start the same way even you did I even Kim and Robert Kiyosaki I remember their first goal was to buy one two-bedroom house uh two bedroom or more they they're even Kim and Robert Kiyosaki their goal was just to buy one home that cash flowed in Portland Oregon that was their one goal and they were just by one a year for five years you know and by the second or third year you know they of course have already done that but so you know that's one good small achievable goal and and you know next thing you know I mean you're still young to deal you've got four already and you've just kind of been doing that one a year yeah yeah just about a little a little less but yep exactly I think that's just fine you know you've got millions in net worth already yeah as a result of it right yeah yeah exactly so I just think that you know and you have to make the goals a something that you want to do I mean if I had this huge if if you told me my goals were too small and I had to increase them I wouldn't want to because they're my goals and they're what I want and also let's talk about because the husband might have a point here too so what I mean is this the goal has to be a little bit uncomfortable yeah so I think you and I would both agree with that so if the goal is a layup like almost something on your to-do list that you check right it's not really a goal yeah right so you know the I call them smart s-m-a-r-t smart measurable attainable realistic and they have a timeline that you really have to have those five things for goals and but I also do think they need to be just a little bit uncomfortable yeah you have to wonder if you're going to be able to obtain it um and I think that you know but I think it's good and we have goals that we do together as well but I do think when it comes to real estate stuff and business stuff we just have different yeah we have different stuff yeah um but I love you guys they're setting goals that's good it is good question Trey is asking from the inner circle if I want a house hack do I have to check with the HOA to make sure it's okay hmm that's interesting it depends on their CC and ours and bylaws I right I instead of checking with HOA and like emailing them I would just check their seats because they're gonna just probably tell you no um I checked the ccnr so you have to see if rentals are allowed and even if they're not allowed if you are allowed to rent rooms in the house if you live there I personally don't like to buy anywhere where renting isn't allowed though because there may be a time when you no longer want to live in that house and you want to rent all the rooms out to different people or you want to just run it to one family like five ten years from now and you won't be able to if you aren't allowed to rent so I kind of try to stay away from neighborhoods that don't let you rent yeah they're it's different from you know HOA to HOA I I you know there are I remember when Daniel had her tenant move in somebody from the from her neighborhood what knocked on their door and actually demanded to see the lease for the tenant the tenant actually was kind of freaked out yeah she was unhappy and I was super unhappy when she had texted me but basically you know we weren't allowed to do Airbnb and I had lived in that home and I had moved and put a year-long tenant in there and you know in in our ccnrs you have to rent for three months so they wanted to check the lease to make sure they were there for three months and that's the issue yeah but you don't ever want so I remember when I first I don't think you know this because we weren't together but I went to go look at a condo to buy and I really like this condo but you weren't allowed to rent it but not knowing anything about HOAs I was like you know they probably won't know if I thought so I said to my realtor and I'm so glad I didn't do this I was like how you know I because I was thinking about getting a roommate so it wasn't even to use as a rental I just was thinking like I wanna you might want to get a roommate in this two-bedroom so I was like do you know do you think that like they would know if I just you know got a a roommate you know what I mean and to her credit at least tell me the truth but she was will you live next door to the treasurer so and she's on the board so she's probably gonna be looking at it pretty closely that's the only reason I didn't sign there because I was thinking you know they won't really know or care because I didn't know anything about HOAs at the time and that they actually are sticklers about everything the one thing I know about HOA boards is they take their job yeah they take their jobs I actually asked you last night as an HOA president get paid and you're like no I'm like really like because we were watching that one show there's a little bit of power yeah so just be careful make sure that uh that you're good there but obviously but if you're if you're in a home and you just rent a room you know like a roommate I don't think there's much they can do about it no but he might not want to do that long term and then you just own this home you can't that's true that's true you know oh it's a good question Lauren from the inner circle wants to know why do you not recommend buying a home with an equity line well I don't did I say that I think we've said that before I don't think the down payment's bad the problem with an equity line is it's adjustable yeah that was that was the issue but yeah it's adjustable you've done it I put a down payment with an equity line but with my uh paid it right off though yeah and then the one I did and I was able to lock it in so remember I could a lot yeah so if you want to check with your equity line see if there's an option to lock it in but rates are so high in equity lines right now they're like eight to ten percent so maybe maybe higher after this is yeah yeah they made us maybe a little higher than this when this releases but um so I don't know I don't know if I mean if it's a minimal amount you're gonna pay it off in a year or something I probably would still do it but if you're planning on paying it off over years and years and years it's probably not worth yeah I think that's probably the lesson there you know typically the helocs are are a little higher interest rate so you know it's a cash flow issue so you want to make sure that a cash flows and it should not be out very long so you should have a plan the plan should be maybe to buy it like Daniel did she bought one with her home equity line but then she had a plan to pay that off and pay that down and replace it later through a cash out refund ads yeah exactly so that's the way I would do it I would not do it for long term but it's a great way to scoop Equity to be able to buy something but again make sure but make sure you can cover both if you're taking it out of your primary residence that puts your primary residence at risk um if you know if you don't have the proper you know savings and all that kind of stuff absolutely so on the similar note Heath from the inner circle wants to know is it okay to borrow hard money for a down payment on a property well this was done a lot over the last three four five years well yeah I mean when people had all cash people just assumed it was funny um just talking to my family you know somebody came in and bought all all cash on a house that they were looking at and they're like I can't believe somebody has that much cash in a bank account I'm like well they probably don't because it's probably hard a hard money loan and the hard money puts up the cash and then you refinance out of the cash that's hard to do by the way because that means that you have to create some value because the hard money is it like 12 right now 12 and three to five points yes so so let's just do the math and so 500 000 home three points on 500 Grand is 15 grand right plus uh 12 percent and roughly that's what fifty thousand a year and in straight interest costs and so you know so you have those things um that does that's that's probably not even going to cover your rental plus your property taxes plus your insurance plus your utilities so so you really have to take a look at that on the thing that does nothing wrong with hard money there's a place for it in this world and in the real estate business it's used all the time but how are you going to get out of it so we we both know lots of people that are in hard money right now and they can't get out right yeah and the other thing is is he's saying uh hard money for a down payment and the other thing you have to look at too with the bank is that I don't know how the bank looks at that but if you are borrowing for the down payment that's going to go against your you know it's going to be harder to get a loan because a they want you to have some skin in the game but B you know now you have the loan you're getting and then you have this hard money loan and then you have your income and it's all debt to income yeah and the and the the whoever gives you the the debt you know called the mortgage they're going to be looking at your source of equity right so you got to be careful of that too if your source of equity is hard money they're gonna there's gonna be whoop one time I use my parents credit line to put down a little bit on a property and honestly I didn't even need to I could have just used my credit line I just was trying I thought I needed more than I needed and I didn't so I created this whole thing it was like why why are they giving you money and it was a loan you know on their credit line and it was like 10 extra days of questioning of paperwork and statements and you know so it really and that's just my parents giving me you know a little bit of money towards the house it's not even um you know going and getting a hard money loan and so it made it way more complicated than it should have been yep yep so so just be careful yeah absolutely well thank you guys for joining us we will see you live next week we uh yeah same time 11 A.M on the road again cheers [Music]

Channel: Ken McElroy

Views: 12,022

Keywords: real estate, getting started, advice, tips, beginners, beginners guide, real estate market, investment, property, starting out, successful, strategies, key principles, experts, learning, industry insights, financial planning, market research, networking, property management, legal considerations, risk management, long-term goals, profitable ventures, emerging trends, property selection, negotiation skills, financing options, professional guidance, investment opportunities.

Id: v0wN1VRfgDc

Length: 28min 42sec (1722 seconds)

Published: Mon May 15 2023