The world is flat.
At least Thomas Friedman made a great case for it in his book by the same name. You can live and work from anywhere in todays digitized, interconnected world. My business is 100 percent remotewe have people in Pennsylvania, Pakistan, Texas, and Abu Dhabi (the latter is me!). And as a landlord, the old geographic ties binding you to your rental properties have broken. Its easier than ever to manage your rental properties remotely without sacrificing on returns. Heres how I live overseas, while managing rental properties in Baltimore. First Things First: You Dont Need a Property Manager Dont get me wrong, property managers have their uses. In fact, I use one for my lower-end rental properties, that come with greater aggravations. But theyre expensive. Dont kid yourself into thinking they only cost the 8% that they advertise; most property managers also charge leasing fees (often a full months rent), and some less-scrupulous managers find all sorts of nickel-and-dime-you-to-death fees to slip into the contract. I had a terrible property manager a few years back, who charged for every visit to the property, every service call to a contractor, every lease renewal. They even charged for vacancies, removing the incentive to keep the property occupied. All on top of 8% rent collection fee and a one-month leasing fee. If you use a property manager currently, double check exactly what fees they charge. I wouldnt use anyone who charges fees beyond ongoing rent collection and new tenant leasing fees. In fact, you should consider saving yourself the 10-15% that property managers end up costing once you include leasing fees, and manage the properties yourself. The Local Help that You DO Need While you may not need a full-service property manager, you still need some local help. Some boots on the ground. We live in a physical world, and youre leasing a physical location. Related: Why Its About to Become a LOT Easier to Invest From Afar in the Next 5-10 Years Here are the three types of local support personnel you need: 1.A Leasing Representative Someone needs to show vacant properties for you. Sure, you could use a smart lockand allow prospects in to view vacant properties for themselves. But its poor marketing and sales. A bad user experience, if you will. So, you need someone to show vacant properties, someone personable who can bring a level of charm when showing the unit. This person could be a professional property manager, that you hire solely as a leasing agent to fill vacant properties. Youll still end up paying them a months rent as a fee, but turnovers and vacancies are the most labor-intensive part of managing a rental. The headaches are worth outsourcing. It doesnt have to be a pro, though. It could be your niece, your friends little brother, a college student looking for some extra cash, a neighbor, even another tenant of yours. Theres one other task your leasing rep needs to do for you: they need to do move-out and move-in walk-through inspections with outgoing and incoming tenants. When you negotiate the fee with your leasing rep, include these tasks in it. 2. An Eviction Representative If you screen your tenants thoroughly and manage them well, you wont need an eviction rep often, if at all. But you still need one on standby, just in case. An eviction rep will serve eviction notices on badly-behaved tenants and appear on your behalf at eviction hearings. In most metropolitan markets and many non-metro areas, you should be able to find eviction services ready and able to take these headaches on for you. 3. Contractors of All Skill Levels & Specialties The other people you need available locally are contractors. You need specialist contractors who work with HVAC, plumbing, electrical, roofs, basements, and so on. Even more importantly, you need a couple cheap, versatile handymen, who can quickly and affordably tackle all the little problems that pop up. Leaking S-bends, worn-out toilet flanges, repaintingyou know the drill. Ideally, you want to build relationships with these contractors over time. My primary contractor is extremely versatile, and he has keys to my properties. With a single phone call, you can mobilize your contractors and resolve the problem. Communication Speaking of phone calls, youll also need ways of communicating with tenants, leasing reps, contractors, and so on. This can be especially tricky if you live overseas. Anonymous Phone Number I dont like to give tenants my personal cell phone number. Instead, I use an anonymous number from Google Voice. That phone number is then routed to my Skype account. Its worth mentioning that you dont have to make this as complicated as I didyou can just buy an anonymous Skype phone number directly rather than going through Google Voice. (I wanted to preserve an old phone number, hence the extra step of Google Voice.) Tenants call me, and it rings on my Skype, both on my laptop and on my phone. Their caller ID still appears, and I know whos calling, but I dont have to give them my personal cell phone number. Skype Living overseas, I need a cheap way to call the U.S. After all, my business is in the U.S., and all of my family lives there. Fortunately, Skype offers an unlimited calling plan, for people living overseas to call the U.S. I pay around $6/month for it. But Skype also offers anonymous U.S. phone numbers, for you to give out to tenants. Related: The Core 4 Members Vital to a Profitable Long-Distance Real Estate Investing Team Our online landlord app is actually preparing to launch an anonymous phone line service for landlords that automatically tracks and records all phone calls and voicemails for later reference. Anonymous Email I also dont like to give tenants my personal email or my work email. Instead, spend two minutes creating a free email and setting up forwarding to your primary email. As a side benefit, all tenant email exchanges will be centrally located on that one email account, for easy reference. Private Mailbox Ive had tenants show up at my door at 9:00 at night beforewhen I had a date over, three-quarters of the way through a bottle of wine. You dont want that. Spend a few bucks on a P.O. box or a private mail service. They can sign for packages and either forward mail to you or open and scan it for you to access online. I use St. Brendans Isle out of Florida and have been mostly happy with them. Online Property Management Automation So, you have your boots on the ground and you have your communication channels in place. What about automated property management? Online Rental Listings This one is easy. You list your properties for rent online through a service that syndicates it to several popular platforms. The only tricky thing is photos since you cant just pop by the property to take photos yourself. Make sure you have a good set of photos of each rental unit, either vacant or staged, that you can post in future rental listings. In a worst-case scenario, your leasing rep can take fresh photos for you, or you can hire a professional real estate photographer. Rental Application & Tenant Screening Reports Another easy one. All you have to do is enter the applicants name and email address, select which reports you want, and select who should be charged for them. Obviously, our online landlord app offers this, but there are other services that offer it too. The applicant gets an email alert, they fill out their information, and you get everything delivered to your email inbox. Easy peasy. Lease with Digital Signature In good online landlord automation platforms, once you select an applicant you like, it automatically imports their information into a lease for you. Ideally, you then click a button to digitally sign it, and the tenant can do the same. But even if you use an old-school Word lease, you can still use third-party digital signature services. No ink or snail mail required. Automated Rent Collection I never want to hear the line checks in the mail again. What I want is for my rent to just show up in my bank account every month, which, fortunately, is also extremely easy. Take five minutes to set up online rent collection, whether through our landlord app or another service of your choice. Then you never have to worry about paper checks, cash, deposits, or any other 20th Century rent headaches again. As a bonus, good online rent collection systems also have integrating accounting, for instant income and expense reports, and instant Schedule E tax reports. Financial Accounts If you want to live overseas like I do, youll also need to a way to access money easily. Youll need: A U.S. bank account to receive rents electronically (as outlined above)A (hopefully free) bill pay service with that account, for the rare instance when you need to send a paper checkA linked credit card, with no foreign transaction feesA way to transfer money cheaply overseas For the latter, try TransferWise or OFX. You may also want a linked brokerage account, that you can easily move money back and forth from your checking accounts. After all, you may want to invest in more than just real estate! Flat and Shrinking The world is flat, but its also shrinking. Increasingly, real estate investors are spreading beyond their own market, to invest in out-of-state or overseas markets. According to one study from Redfin, the percentage of sight-unseen real estate purchases leapt from 19% in mid-2016 to nearly double that rate, 35%, only 16 months later. Real estate investors and landlords are no longer tethered to their home cities. Start working towards financial independence, and you can truly live and manage your rental properties from anywhere in the world. And send me a message at any time. Im happy to share what its like being an overseas landlord! Do you own any long-distance rental properties? What have you done to successfully manage them from afar? Comment below! https://www.biggerpockets.com/renewsblog/the-remote-landlord-how-i-live-overseas-still-manage-my-us-rentals/
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I often reflect back on my experiences over the last 30 years as a real estate investor. Even so, it can be tough to pinpoint the biggest mistakes Ive made, probably because Ive made so many errors in judgment. The good news, of course, is that experience makes us better, especially when we learn from our mistakes and commit to not repeating them. So, in the hopes that I can help you avoid doing some of the ill-advised things I did over the years, here are my most expensive real estate investing mistakes, along with what I learned from them.
My 3 Biggest Mistakes Over the Last 30 Years as an InvestorMistake #1: Giving up Control When considering any investment, the first two things I look at are return OF capital and, of course, return ON capital. I learned the biggest and most expensive lessons when I went all in, usually with the promise of high returns, giving up control of the investment itself as part of the process. Chasing high returns without controlling the investment usually went hand in hand with neglecting to properly vet the investment, the market, and the people I was investing in. Obviously, no one manages your money quite like you do. Related: The Biggest Mistake I Made as a New Investor (& How You Can Avoid It) To be quite frank, whenever I lost the most money was when I gave up control of running the investment vehicle itself. Now, Im not saying that you shouldnt ever do this, but when you are giving up control, its a good idea to pay extra attention to the investment, the risk, and the overall exposure. Never doubt that if the unexpected can happen, it will happen. For example, maybe market conditions take a dramatic shift and financing dries up. This happened when I was investing in commercial real estate. We owned the land, raised the money to develop the land, and the financing just happened to dry up as the real estate market tanked, and there were no potential unit sales or prospective tenants. Another time, I invested in a fund and the managing partners just began suing each other. I probably still couldnt have predicted that their personal animosities would have such a big impact on the project, but then again, I could/should have gotten to know the partners a little better before committing my capital. Mistake #2: Not Evaluating Joint Venture Opportunities Enough Many times, especially when starting out with limited knowledge or bandwidth, we decide to take on partners or set up joint ventures, all with the hopes of limiting our risk exposure and workload, but we may be doing the exact opposite and actually taking on more risk. When I was new to note investing, this was the exact scenario that happened, and some of our note sellers took advantage of us. Today, whenever were looking at new opportunities, its a much deeper dive, and were looking at it from many angles. We now ask questions like: Does the opportunity fit our companys core values?Is it in our wheelhouse? (Ours tends to be real estate or debt-related.)How can this joint venture benefit both parties? What will the roles and responsibilities look like? How tight is the business model? That a lot of homework and vetting should go into screening potential partners is a lesson I learned after having several unsavory partners in the past. And, of course, you need to look at compensation and legal structures. After all, a JV is like a business marriage, and you have to plan for the exit, just like with any good investment. Think of this being like a prenuptial agreement before getting married. Mistake #3: Not Preparing for the Unexpected Whenever a partnership or JV arrangement starts, its like dating. Everything is great at first. Later on, as things change and challenges arise, the real character of the partners comes out. Its when the chips are down and things arent going so well that someones true colors appear. The unexpected can take many forms. Sometimes its a market downturn or change of a business model. It could be that the environment is different now or that youre blindsided by a lawsuit. Other times, maybe the partnership is no longer financially viableor its no longer a fair exchange of efforts or labor. Related: These Two Lethal Mistakes Cost Me $500k+ in the Past 4 Years One thing Ive figured out is that its best to prepare for the worst and do your homework upfront. Often, people jump into things very quickly and easily without thinking that maybe they have different goals or without any regard of what could happen in the future. For example, a friend of mine once told me that he and his wife were buying a vacation home together with three other couples who were all friends from childhood. It sounded kind of neat in the beginning, but then I began to see the realities of figuring out who gets what week or weekend, whos paying for repairs when one party cant swing it, or better yet, what happens when someone passes away or gets divorced. You get the idea. What about you? Got any war stories to share? Were republishing this article to help out our newer readers. Has anyone elses deals or partnerships been derailed from unexpected events? Better yet, what are some of the biggest mistakes youve made in real estate? Please share below! After all, the best (and cheapest) lessons are the ones we learn from others. https://www.biggerpockets.com/renewsblog/biggest-investing-mistakes Yes, before we get deeply into it, people are moving to Florida. In fact, seven of 10 of the population migration winners are located in the Sunshine State, and well get to those stats shortly. But while the grass always looks greenerespecially if your lawn is brownthere are things to consider before you just load up the truck.
We Always Vacation There You really like going to that beach town, and after it became a once-a-year thing, you started going more frequently. The more weekends you spent there, the more you talked about living there. There were a lot of wouldnt it be great if conversations and finally you decided to make the move. What you didnt do was consider all of the areas of the city, looming construction projects, infrastructure concerns, and the lack of comprehensive medical care within a 30-minute driving radius. All of those issues were dwarfed by the chance to lay on the beach in your backyard. Soon, you wanted to take a vacation from your vacation spot. The moral here is to give it a true test run before you make the move. Related: With Markets Shifting, Should You Invest in Real Estate NowOr Wait to Buy? Our House Will Sell Super-Fast Just because other homes in your neighborhood have sold quickly doesnt mean that the local real estate upward trend wont come to a screeching halt. Yes, we agree that fear shouldnt stop you from putting your home on the market, but talk to at least a few professionals before you make the move. Our Credit is Good Enough A client of ours was purchasing a condo in a Texas city in 2009. The economy was about to crash, but this area had seemed immune. Since all they could muster was a 620 credit score, financing began to get tough, and after three loans were literally cancelled, our clients had to put the property in their sons name in order to purchase it. What seemed easy just a few days prior almost turned into an instant nightmare, so before you up-end your lives, make sure that you can actually get financing to buy your dream home. Now that we have that out of the way, lets talk about where people are moving. Hurricanes or not, the Myrtle Beach, Conway, North Myrtle Beach South Carolina/North Carolina area posted a 3.57 percent gain in population last year as 16,372 persons moved there.Lakeland-Winter Haven in central Florida was the next closest migration winner as its population increased by 2.22 percent. Since this Florida hotspot is more densely populated, the actual body increase was greater than the percentage as 19,465 persons moved there last year.The Sarasota area is next on our list with a net gain of 1.99 percent. This is followed by Daytona and Melbourne, Florida with a gain of 1.98 percent.Surprisingly, Boise, Idaho is next with a whopping 19,035 person net migration, or an increase of 1.96 percent.Numbers seven eight and nine are all back to Florida with Ocala, Fort Myers, and Port St. Lucie all gaining 1.80 to 1.94 percent.Oregon wins the number 10 spot as 6,465 people moved to Eugenea city with stable apartment rentstranslating into a 1.49 percent increase. Related: 4 Steps to Take When Scaling Your Real Estate Business Into a New Market LosersThe biggest loser was Honolulu, Hawaii as 13,473 left the area for a 1.36 percent loss.The one wont surprise a lot of you, but 5,176 people moved away from Anchorage, Alaska. The third decliner was the San Jose, California area with a 1.29 percent population decrease. Richard Pryors hometown of Peoria, Illinois saw 4,547 persons move, and Fayetteville, North Carolina lost 4,197 residents.The final five net population declines were tightly bunchedas least by percentage. While the New York City metro area lost a seemingly large 208,863 residents, the net population decrease translated to only 1.03 percent. Bridgeport, Connecticut, Chicago, Illinois, El Paso, Texas and Trenton New Jersey lost between .87 and .91 percent. Again, big city Chicago had the worst actual numbers with a loss of 85,177 inhabitants. The trend is clearwith a few outliersas warm-weather cities continued to gain population as rust-belt colder areas lost. It will be interesting to see if coastal hurricane-prone areas can still gain with the specter of seemingly more frequent destructive and intense storms. Are you seeing changes in your market? Would you consider investing in any of the on-the-rise locales above? Comment below! https://www.biggerpockets.com/renewsblog/cities-people-are-moving-to-fastest Everybody has their reasons for investing. Some folks invest because they just want a little bit of side income. Others are investing to attain financial freedom early in life. Still others invest simply because they love it.
And then there are those folks whoinvest because they have to. Theres a guy whowrites for this blog named Ben Leybovich. He got started in real estate because he had to. He was unable to pursue his former trade (violinist) due to a medical condition and was forced to find another way to provide for his family in a hurry. Theres a guy whowrites for this blog named Brandon Turner. He got started in real estate because he had no money, a job in a retail bank, and way too much ambition to allow himself to stagnate in that set of circumstances. Theres a guy that writes for this blog named Jered Sturm. He got started working on properties when he was a teenager and has never really known another way of earning income or building wealth. These guys are really impressive. They are very smart. They are guys whose writingyou should read. They are, unequivocally, entrepreneurs. Their stories are exciting. They are cool. Theyve made it. These guys I just mentioned started with nothingand in some cases, less than nothing. They have built incredible businesses for which they fought and scratched and clawed their way through to success. They found incredible deals, added value to their properties in creative new ways, and systematized their businesses to the point where they have all three become millionaires through real estate investing with tremendous monthly free cash flow. Im No Entrepreneur I, on the other hand, am not an entrepreneur. I have no desire to be an entrepreneur. In fact, I believe that I would be fairly foolish to want to become a real estate entrepreneur. I am a white-collared income earner sitting solidly in the upper-middle-class range. I work a job that I enjoy very much and am investing because I would like to steadily move towards financial freedom consistently and sustainably over a 5-7 year period. While I have the utmost respect for the successes that the folks I mentioned above have achieved, their path makes no sense for me and millions of others like me. And the reason is simple: Related: The Unsugar-Coated True Story of What it Takes to Succeed as an Entrepreneur We already have good jobs. Now, let me caveat this by stating a major assumption here. I assume that most people reading this have the goal of trying to accumulate enough real estate to cover their lifestyle expenses through their real estate cash flow alone so as to achieve financial freedom. Notice that I am not saying that folks need to necessarily buy real estateor acquire itfor free. There are many viable ways to accumulate real estate. I am merely going to state the path that I think is highly efficient for full-time workers earning good wages. If you can save a significant percentage of a high five-figure, low six-figure household income, then there is no reason that you shouldnt be a financially independent millionaire or very close to one in about (or under) a decade. Of course, thats assuming that you invest around half your income in real estate and other appreciable investments like stocks in index funds. Yes, I understand that W2 income is, dollar for dollar, a relatively inefficient way to accumulate wealth. But if you can make $100,000 per year and bring home $70,000 of that after tax, that is still more efficient than bringing home $35,000 after tax if you are putting in huge hours to get your business off the ground. Make no mistake about itif you are going to pursue real estate with the extreme leverage of no money down investing or are going to otherwise bring very little cash to the table, you are going to need to be willing put in immense effortslike the folks above were willing to do. And my question for you is, why on earth would you, as a high wage earner, want to throw out a well-paying job for entrepreneurship when financial freedom is going to be so nearly automatic for you to attain? Even if you kind of wanted to become an entrepreneur, you could do so with much lower risk AFTER achieving financial freedom. The only way that full-time real estate entrepreneurship would make sense for you is: If you hated your job so desperately that quitting was your only option,If you passionately wanted to pursue real estate, or If you had no other choice because your ability to earn was eliminated. If one has a good job, then no (and low) money down investing, wholesaling, and other creative financing approaches make little (and no) sense! Sure, there are exceptionsthere are always exceptionsbut as a rule, most middle and upper-middle class readers of this blog will NOT become overnight, wildly successful real estate entrepreneurs, and most wont want to. An Argument for Buying Rentals the Old Fashioned Way But, the flip side of that is that most of the readers of this blog WILL be able to purchase a decent cash flowing rental property within 100 miles of where they live the good, old fashioned wayby buying a first home that will make a ton of sense as a rental property when they upgrade or move on in a few years or by simply saving up 15-25% of the median American home price ($188,000)thats $28,000-$47,000in cash. Theyll be able to produce reasonable cash flow, which accelerates their savings and allows them to purchase another one a few years later. Theyll be able to repeat the process faster and faster over time, and within a decade, theyll be sitting on close to a million dollars in real estate. Will it happen for everyone? Probably not, but for most people whowould like to get into real estate without a crazy commitment, I believe that this isnt an unrealistic result. Heres the thingwhen I say this, people think that Im suggesting something radical. Again, Im suggesting that if you earn a middle to upper-middle class salary, that you should simply save enough of your salary such that you can purchase a median home every year or two. That, or move into an investment property with the intention of keeping it as a rental when you move in a few years if you want to put down less. In fact, Im telling you that this is the way that the vast majority of you will be purchasing your first or next rental property, assuming you have a solid job and no pressing need to quit it. If you are in the $50,000-$100,000+ income range, employed W2 style, and not too keen on giving up the entirety of that income to go full-time into business on your own, then you had better start saving your pennies, or prepare to move into an investment property (or both). You likely arent getting started another way. Creative finance and no (or low) money down is for people whoNEED or WANT to succeed in real estate so badly that they are willing to take some big risks, borrow other peoples money to an extreme degree, and MAKE real estate investing work. This type of financing does not apply to me, and if your position is at all similar, it does not apply to you either. Creative financing is also NOT an appropriate strategy for the Johnny Spenders of the world. Its not appropriate for guys like him whomake $75,000+ but have less than $10,000 in lifetime savings outside of retirement accounts and home equityand whokind of want to invest in real estate. Creative finance is for Ben Leybovich. Ben had to make it work. He will put his entire week, his entire year, if needed, into finding an incredible deal, and if necessary, making the deal work. Nowadays, hes experienced enough and well-networked enough to only select good deals that offer him a great shot at success, but in the beginning, he would make the deal work, if necessary. Creative finance is for Brandon Turner, who began investing while working at a bank, and soon quit his job to pursue it full-time. Brandon Turner, even at 25 years old, working full-time on his own rental properties, is a guy that I would lend to and partner with. Johnny Spender, at any age, is not someone I would lend to or partner with. Johnny Spenders first priority is his job. He lacks the ambition and/or confidence to quit his job and pursue his venture full-time and lacks the discipline to accumulate savings so as to fund the project himself. If things dont work out, Johnny Spender is not going to bust his hump, surviving on ramen noodles, and working from dawn til dusk to make sure that his investors dont lose money. Why should he? He can continue plodding along at his real priorityhis joband there is almost no chance that his real estate project will surpass his W2 income in the next 2-3 years. Johnny Spender is a bad investment and is likely to lose money in real estate. Contrast that to Ben, Brandon, and Jeredthose guys had to succeed. What else were they going to do? Related: The Part-Time Investors Guide to Truly Passive Rental Income For Whom Is Real Estate Investing Difficult? But, Johnny Spender, Brandon Turner, Ben Leybovich, and Jered Sturm DO have something in common: These fellows are all likely to tell you that real estate investing is very difficult. Real estate investing IS hard when you have to manage huge rehab projects for the first time yourself. It IS tough when you have to educate yourself on tenant management on the fly after buying a 30+ unit apartment complex with money borrowed from investors whowill foreclose on you the moment they feel that you cant repay them, and it IS tough when you have five units go vacant and no cash in the bank to cover your next mortgage payment. Ben, Brandon, and Jered, Im sure, did have a tough time building their portfolios. Johnny will run into trouble. I, on the other hand, keep pinching myself. Real estate investing seems very easy for me. Too easy. After putting in an initial (less than planned for) $8,000, I havent had major repairsor ANY repairs over about $250since. I havent had tenant problems. I havent had a major disaster. I havent been sued. I havent had to evict. Im sure that I will have these problems one dayevery landlord runs that risk, especially if they are committed (as I am) to long-term real estate investing as part of their portfolio. But I bet that these problems will come one by one, instead of all at once. I bet that I will be reasonably prepared to solve them, and even if Im not, I bet that I will have the cash, self-education, and flexibility to meet those problems without becoming overwhelmed. Maybe the reason that real estate investing has been easy for me is because I started with a simple house-hack duplex. Maybe its because I only have four units and occupy one of them myself. Maybe its because I spend several months learning about property management and investing per property, carefully and patiently analyze my deals, and buy only when my life and financial picture are in advantageous positions. Maybe its because I have tens of thousands of dollars in cash, set aside exclusively to deal with any problems as they come up. Maybe its because I have a great job and professional skill set and could cover my mortgage even if the tenants werent there to pay the rent. Maybe its because Im dead wrong, and real estate investing IS really hard, and Im missing something huge. Maybe Im forgetting that Im investing in Denver, and Denver might be in a huge bubble, and rents are about to plunge 50%, putting me into negative cash flow territory. But I dont think so. I think that real estate investing just might be a little easier than some people make it out to be. I expect that to be controversial. I expect to see folks get angry at me and tell me that I am a young fool whohas no idea what a market crash is like. That may be true. Real estate investing is certainly no picnic, but I find it hard to believe that this is a business where only 5% of folks can succeed. There are millions of landlords out there. And believe me, Ive met some dummies in this business. Not everyone making money in real estate is some genius that knows something you dont. Frankly, I think that the reason people are succeeding in this business, even with full-time jobs, even without incredible analytical skill sets, and even without incredible hustle that some of the mythical investors on this platform possess is because they consistently follow a few basic principles that anyone can copy: They run frugal lives and thrifty businesses relative to their incomes, with plenty of cash on hand.They buy typical properties that will obviously produce cash flow after financing costs and expenses, with inspections that do not indicate a likelihood of expensive problems.They buy in locations that a reasonable person would expect to become more desirable over time.They are reasonable and predictable people who treat their tenants and those they do business with fairly and honestly.They are consistent investors, buying regularly, with a long-term outlook. I dont love real estate investing because its rocket science or because my proven formula is the only one that works. I buy real estate because its a good semi-passive business that I can take care of almost entirely over the course of a few hours per month in my spare time. I buy real estate precisely because I do NOT have to be some sort of creative entrepreneurial genius to make it work! Of course, I shop around for deals. Of course, I try to get a competitive advantage by studying the market and learning about areas that might produce outsized returns. But I buy properties with mortgages guaranteed by Scott Trenchs personal assets, and I buy properties that I would be willing to live in. As a result, I get incredible financing terms and am getting practice managing properties while staying very close to the tenants. Unlike the guys above, I dont necessarily get properties at $0.70 on the dollar, and I dont have to. I have cash for the down payment, am willing to put in a modest amount of weekend and evening work to get them tenant-ready, and am willing to self-manage. In return, I simply expect a little cash flow (about 10-15% cash on cash, inflated because I manage my own properties) and hope for a little appreciation. Of course, I dont get the same returns as someone that does this full-time! Again, I dont have to. I am perfectly happy with about a 10% return on my cash invested, which I am willing to work for, the ability to pay down the mortgage using tenant rent, and the opportunity for appreciation. Real estate entrepreneurs constantly talk about finding deals at significantly below market value. Thats because the strategies that they employ are highly risky if you are buying property at or around retail price. As a long-term buy and hold investor with a good job, good credit, and limited free time, however, I much prefer buying property when I am in good position to do so. I am extremely choosy about exactly how much work I want to do, where my property is located specifically, and many other characteristics of my investments. I buy properties that I am totally comfortable with, that are synergistic with my lifestyle and career, and that I can pursue on my time, not when deals happen to present themselves. If I can get a great deal, thats wonderful. But if I get a fair deal in a location that works for me and my lifestyle and financial position, thats great too. Related: 10 Challenges to Seriously Consider BEFORE Quitting Your Day Job Conclusion I am not a real estate entrepreneur. I am an Operations Professional at a small company, with some on-the-side real estate investing. And that is totally OK. I believe that I will build wealth just as fast, if not faster, as many full-time investors (after accounting for market cycles), that I will love my job, and that my real estate investments are likely to give me far less trouble than others that pursue this business with more aggressiveness. And I believe that I will be left with a stable, cash flowing real estate portfolio after about 7 years of investing capable of supporting indefinite financial freedoma similar timeframe for many full-time real estate entrepreneurs. If youre like me, I have good news for you. Real estate investing doesnt have to be so hard. Real estate investing can be a hobby, especially at first, with small maintenance requirements that can easily be taken care of in a few hours per month. Real estate investing does require you to be able to reasonably predict cash flow and manage your money, to reasonably manage your property and the tenant relationships that come with it, and to be a responsible, informed adult. But dont think what is necessary for a full-time investor to succeed is necessary for you. If you are working full-time, your first deal likely will not be a property that you get at 30% off retail, so dont be scared off by folks that tell you otherwise. Looking to set yourself up for life as early as possible and enjoy timeon your terms? Scott Trenchs book Set for Lifecan be purchased atAmazon, Barnes & Nobleand other fine booksellers! Whether youd like to retire from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, Set for Life will give you a plan to get there. This isnt about saving up a nest egg. Its not about setting aside money for a rainy day.Set for Life is an actionable guide that helpsreaders build the accessible wealththey need to achieve early financial freedom. Were republishing this article to help out our newer readers. Am I the only one that thinks real estate investing isnt so hard? Or am I missing something? Share your thoughts in the comments below! https://www.biggerpockets.com/renewsblog/investing-real-estate-easy-way/ The average cost of tuition at private colleges is higher than the median personal income in the United States.
No, reallythe median personal income in the U.S. last year was $31,099. But college tuition averaged $9,650 for in-state students at public universities, $24,930 for out-of-state students, and a jaw-dropping $33,480 for private colleges. Oh, and that doesnt include books (which average $1,250/year) or room and board (which average $10,440 for public and $11,890 for private collages). For a private college, that comes to an average cost of $46,620. Per student. Per year. How the heck are working and middle-class parents supposed to pay for that? One answer is, Theyre not; they should only bother considering public universities. Another answer is, With loads of debt. I dont like either of those answers, though, so I put together a list of ways that enterprising parents (and their kids) can pay for college without selling a kidney. To give this list even more punching power, I enlisted the help of some personal finance superstars, who youll recognize below. 1. Take a deeper look at 529 plans. Youre probably familiar with the fundamentals of a 529 plan; its roughly similar to an IRA, but for college tuition instead of retirement. You can contribute money tax-free, up to a contribution limit. You get a small state income tax deduction, and the appreciation is tax-free when used on education, explains Jim Wang of Wallet Hacks. In some states, plan holders receive a tax credit, rather than a tax deduction, which is an even bigger win. Basics aside, here are some benefits of a 529 plan you may not be aware of: Multiple Accounts in Multiple States: You can set up accounts in several states, and you dont have to combine them, either.Others Can Contribute: Your friends and family members can also contribute to your kids 529 plans. Depending on the state, they may or may not receive tax benefits, however.Swap Beneficiaries: If one of your children gets a full ride based on their world-class handstand hopscotch skills, you can switch the beneficiary to be another child, grandchild, niece, or second cousin twice removed. For that matter, you can cancel the account at any time, although you may have to pay back taxes on it.Contribute Without Kids: No kids yet? No problem! Because you can add or switch beneficiaries, you can set up an account before you even have childrenor the moment you see that plus sign on the pee stick. (Too graphic? Sorry.) 2. Take advantage of the $2,500 tax credit. While were talking tax benefits, this is a big one. The American Opportunity Tax Credit offers parents up to $2,500/year, per student, in tax credits. Remember, tax credits come directly off of your tax bill, as opposed to tax deductions which only come off of your taxable income. Not a bad deal, eh? Related: Why a College Degree is Overrated & Unnecessary for Many Americans 3. Route your rental property income towards tuition. Trimming your tax bill is all well and good, but what about ways to cover tuition costs entirely? You hear me talk about rentals all the timeits what I teach for a living! But heres another voice to add to the mix, from family finance expert Greg Johnson of Club Thrifty: One way were planning to pay for our childrens college education is through the money we earn from our two rental properties. Although we also contribute to their 529 college savings accounts, our plan has always been to use part of the rental income to help pay for their college. Imagine you put down $20,000 on a rental property that cash flows $400/month for you ($4,800/year). Buy a second, and your kids in-state tuition is covered completely. And when they walk the stage after four years? The rents keep coming, for an extra $9,600/year in retirement income. Who says you have to choose between saving for college and saving for retirement? 4. Go mortgage-free. Rental properties arent the only way real estate can help pay for college. Consider this more conservative approach: An overlooked and low-risk strategy is to put extra money towards your mortgage, so that it is completely paid off by the time your children start school, explains Certified Financial Planner Matt Becker of Mom and Dad Money. You get a guaranteed return at the interest rate of your mortgage, and paying it off frees up significant cash flow that can be used towards college expenses or any other savings needs you have at the time. Incidentally, this works just as well with your rental properties. Heres Greg Johnson again: Even though our kids are still a decade away from going to college, well have both our rental properties paid off within the next 24 months. Instead of writing the check to your mortgage lender every month, you can write it to Juniors college. That may not have you leaping into a spontaneous celebration dance, but its better than choking down the cost of both, right? 5. Put your kids to work! Cue the obligatory when I was your age, we actually had to work for what we wanted commentary. But its trueyour kids can contribute to their own college education. In fact, if they have some skin in the game, maybe theyll actually drag themselves out of bed for that 8:00 a.m. class! Consider a strategy that goes like this: You cover a baseline percentage of their tuition (say 50%). For every GPA point above 3.0, you pay a higher percentage of that semesters tuition. They can borrow student loans to cover their portion, and the better they perform, the faster the debt is paid down. 6. Look into ROTC scholarships. Along similar lines, your child can join the Reserve Officers Training Corps (ROTC) to pay part or all of their way through college. Its worth noting that ROTC does not guarantee paying for college. They offer generous scholarships, but not every ROTC member receives one. Related: Leasing a Rental to Your College Kid: Smart Financial Move or Potential Disaster? Thats the bad news, but theres good news, too. Students can sign up for ROTC without committing to military service. They can sign up, apply for ROTC scholarships, and if they dont receive one, they can withdraw before making the eight-year military commitment. Other advantages include a virtually guaranteed job as an officer after graduating, excellent leadership and on-the-job training, and they dont necessarily have to serve as active duty. ROTC obligations can often be met by National Guard or Army Reserve service as well. 7. Research grants and private scholarships. Everyone is familiar with academic and athletic scholarships doled out by colleges. But the bucks dont stop there. Grants are generally need-based aid, provided by either federal, state, or local governmentsor even by the college itself. Read more here about state standards for need-based grants. Private scholarships are a different animal. Most often, they are offered by private entities (foundations, nonprofits, for-profit companies, etc.) and are usually merit-based rather than need-based. But heres the thing: There are thousands of them, and they can be quite niched and obscure. So, even if the college doesnt offer a scholarship to your handstand hopscotch champion, the Hand-Walking Hopscotch Association of America might. The trick is finding them, of course. Get some help from NextGenVest, which offers free mentoring and help with finding scholarships, and try out Scholly as well. 8. Negotiate with the college. Everything in life is negotiable, right? If your child isnt offered the keys to the campus with a huge scholarship, challenge the college on it. Remember, the FAFSA application doesnt include all of your expenses, and its based on last years tax return, which may not reflect your current finances. Sit down with your child to write a formal appeal letter (from them), making a compelling case that the college should reconsider offering aid. It never hurts to talk about how good a fit your child is for the college (and vice versa), why they want to go there over any other college, despite generous offers of aid from other schools, etc. Also go over how your financial situation is not reflected in your official FAFSA application. 9. Use the good old Roth IRA. A Roth IRA can be a great way to prioritize retirement while also keeping the money available for college, continues Matt Becker. You can withdraw up to the amount youve contributed to your Roth IRA at any time, and for any reason, without tax or penalty. And as long as the account has been open for at least five years, you can also withdraw the earnings penalty-free if the money is used for higher education. Once again, retirement savings and college savings dont have to be mutually exclusive. You can put the money away today, with tax advantages, and decide later where its most needed. If Junior ends up shaming your family forever by declaring hes going into stand-up comedy, and you publicly disown him, well, you can always just leave the money in your Roth IRA and use it for retirement. The Earlier, the Better Like every other financial goal in life, the earlier you start saving and investing, the better. Let compounding do the heavy lifting for you. Start socking money into a 529 plan. Buy rental properties, and invest the rental income from them into your Roth IRA. Throw a little extra toward your mortgage. The more you investand the soonerthe more options youll have. When Junior gets to college, youll be in a position to help cover part or all of his college costs at your discretion. And with any luck, hell get that handstand hopscotch scholarship, and wont need your help anyway. You can pop the champagne and retire on the spot, since you have so much invested and ready to roll! Were republishing this article to help out our newer readers. What creative strategies are you thinking about for your kids college education? What have you had success with? Or for that matter, what clever idea ended up crashing and burning on you? Share below! https://www.biggerpockets.com/renewsblog/college-tuition-hacks One of the most important leadership lessons is realizing youre not the most important or the most intelligent person in the room at all times. Mario Batali
If you dont agree with this statement or even see its value, then I think you will have a VERY hard time being successful in this business of real estate investing. As with every business, a successful real estate businessis a team sport. The best teams win the most. And the best leaders surround themselves with smarter people than themselves all the time. It is that simple. (Side note: When I say smart, I dont only mean book smart. I mean street smart as well.) I can tell you that we are always working on building the best team possible. It is an evolving process. We have come a long way in 10 years, but there is always room for improvement. It can seem a little daunting when someone is just starting out; however, forming a great team is incredibly important at any stage of the game, especially early on. Remember, your team will evolve as YOU evolve. Still, you want to start off on the right foot with the right people. Before you go out and form a team, I would highly encourage you to determine your niche, your market, and your strategy. I dont care if you get the smartest people in a room and begin working with them; if you are not focused and super clear on your plan and strategy, then NO team member will be able to help you. The more specific you are, the better people will be able to help you achieve your goals. So here is a list from A to Z of key people you need on your team for optimal success. 20 Must-Have Team Members for Real Estate Investing Newbies1. Mentor I know there is a TON of articles and blog posts written about this topic of mentorship. However, I cant stress this team member enough. I would encourage you to find someone (local if possible) who is where you want to be in 5 years. Once you find this person, find out how you can helpthem achieve their goals faster. Then and onlythen will they be happy and willing to help you achieve your goals and mentor you through the process. 2. CPA This is a very critical person to your team. Obviously, you want to ensure they have real estate investing experience. However, above all else, you want to make sure your CPA is a real estate investor themselves. Our current CPA is an active real estate investor and simply understands the business more than other CPAs we have had who did not own investment property. Related: How to Hire Amazing Team Members for Every Real Estate Process From Finding Deals to Renting Them Out 3. Attorney(s) This is also a BIG one for any new real estate investor. You want to find an attorney who can help with basic real estate knowledge, but who also has the ability to put together partnerships, etc. As a newbie, you want to have an attorney who can help you through real estate closings and will help review all documents, etc. Again, an added bonus is having an attorney who owns investment property as well. 4. Banker It is always recommended to begin to get your financing together BEFORE you actually need the money. You want to have the relationships and terms established up front before you make any offers. That way, when you begin to run your numbers and analyze deals, you will be able to know if a deal is a good one or one you should pass on based on the terms the bank gives you. 5. Insurance agent You would think all insurance agents/brokers are the same, but they are not. Some insure investment property, and some do not. Some insure properties you are going to flip, and some do not. You want to find a local, hands-on agent whocan help you with your insurance needs. You also want to shop around. There is one insurance company we work with that just insures our single family homes because they give us the best price. There is another insurance company that insures all of our large multifamily purchases. Different insurance company specialize in different areas. Know what you are getting yourself into. 6. Hard Money Lender Some new investors will rely heavily on a hard money lender when they get started. Other newbies will not go near them. Regardless, you want to have options when you are in the midst of financing your deals. With some deals, having a hard money lender makes sense; with other deals, it does not make sense. Again, it is helpful to find a hard money lender that you are comfortable with, who you trust, and whotrusts youagain, BEFORE you find your deal. 7. Private Money Lender or Equity Partner This might be a tough one for newbies, but it is possible to line up a private money lender or even equity partner early on. The reason it is tough for newbies to get private money is because most private money lenders/equity partners want to see the person they are partnered with have some investing experience under their belt. However, this team member might be possible for you if you position yourself as the feet on the street, with them asthe money partner. You both are new to the business but are willing to bring something different and unique to the table. Related: The 6 Things You NEED to Train Your Real Estate Team Successfully 8. Real Estate Agent Always a great team member to have aboard. My only suggestion here is make sure that the real estate agent works mostly with investors, not homeowners. As you will see, a homeowner and an investor are completely differentcustomers. I have rarely found a real estate agentwho is great at catering to both customers. It is OKif their business is 60/40 or 70/30, but I would steer clear of the agentswho can be all things to all people. They will waste your time and send you the wrong property. 9. Wholesaler As you can see, we are moving into the stage where you are looking for deals. In todays competitive market, you HAVE to employ various strategiesat least three or four. That way, you are always uncovering deals and getting deals presented to you. Remember, if you work with a wholesaler and decide to drag your feet and not move quickly, they will NOT take you seriously. Wholesalers, agents, etc. want to work with investors who can CLOSE and do not waste their time. I would recommend you work with a few wholesalers whospecialize in your market. 10. Birddog These are people who might have a full-time job but have the type of jobs wherethey are always out and about and might have the inside scoop for potential opportunities. These are also people who aspire to be real estate investors and arelooking to share leads with other investors, typically for a finders fee. 11. Title Company We typically work with the same title company in NJ and the same title company in PA. This builds a long-term relationship with the title companies, and they are more willing to go above and beyond when they know they are going to get repeat business. 12. Well-Connected Business Professional I know you might be reading this one and think, What is a well-connected business professional? These are well-connected business folks who work closely in your markets. These people know everyone in the area and know how to make things happen. These are great people to have on your team and to begin to form a long-term relationships with. These are folks you want to find ways to help as well. Remember, relationship building is a two-way street. Over the years, some of our best team members were unrelated to real estate investing. These are rain makers, and you want to have a couple of them in your corner. 13. General Contractor I know this one must be an obvious one, but unless you are a general contractor yourself or have your license, this one will become very important as you look to renovate and rehab properties. We have been through our fair share of GCs over the years; however, I can tell you, you should always, always be looking for GCs. Contractors come and contractors go. You always want to have GCs that you trust on your team. When you find a great GC, remember to take good care of them. Pay them promptly, be clear with the scope of work, and be super clear on expectations with both money and project timeline. You may want to give them an additional bonus or financial incentive if the project gets done under time and under budget. 14. Plumber If you own older rentals, you will ALWAYS need a reliable plumber on your team. We have been working with the same plumber for 10 years and trust him with any property! Find a good one, and again, take good care of them. 15. General Handyman When we started out, this was a challenge for us. It was hard to find a reasonably priced handyman. But they are out there. Find one that can grow with you as you grow your portfolio. 16. Electrician Another key subcontractor you should have on your team. 17. Pest Control Company Again, if you have older buildings as rentals, you will need a good pest control company. We have a lot of rentals in Trenton, NJ, which is an urban community with properties very close to one another. Since these types of properties are older, pests tend to be more prevalent. We have a bed bug company, bed bug dog sniffing company, and a regular pest control companyall of which we give repeat business to. Related: The Quick Guide to Hiring For Entrepreneurs: How to On Board Quality Team Members 18. Cleaning company You might not need this company for a while, but when you are almost ready to list your rental after the rehab, you will DEFINITELY need this company then! Again, it will be great for you to find a company that you can give repeat business to as you grow your portfolio. 19. Property Manager You might decide to manage your property/rental yourself, or you might want to outsource it. Either way, it is always helpful to begin interviewing property management companies in your focused trading area. First, you want to know what they charge, what they offer, even their perspective on the local market. Youll want to learn about your potential competition as well! 20. Accountability Group Last but not least, you want one of your team members to be a peer (someone who is also looking to invest in real estate) whocan be an accountability partner for you. You are going to set a lot of goals, and the last thing you want is to fall short on your goals because you get distracted or lose interest. Find someone who can support you (and someone whoyou can support) to help stay accountable to goals and strategy. Meet/talk at least monthly. If you want to be ambitious, schedule weekly calls! I hope this list of 20 essential team members will help get you and your real estate business moving in the right direction. Remember, to build long term relationships with others, you need to help them achieve their goals. The best relationships always have a win/win element. Were republishing this article to help out our newer readers. Good luck on your journey! Anyone essential that I am missing? Please leave your comments below! https://www.biggerpockets.com/renewsblog/20-team-members-newbies/ There are a lot of phenomenal articles on this blog, many of them are having to do with the nuts and bolts of real estate. So much of what youll accomplish, however, has to do with whats between your earsyour mental gameand having the right mentor, coach, or group (like BiggerPockets) to connect and communicate with.
Catapulting with the Right Coach I was reminded recently about one of my coaches who was incredibly effective for me. His name was Tim, and this was way back in 1995 to 2000. Tim always pushed me hard in the month of March. He pushed me to prospect, network, and generally work hard. Why in March? Because I was a real estate broker back then, and all of that work during the spring set up my entire summer season of earningif I did it properly. I suggest you do the same with your real estate business as an investorpush very hard from January through May. Then do it again from June through October because it truly sets up the entire next year. Dont worry about your results this month. Its irrelevant to what youre doing this month. Do worry about sticking with the game plan you put in place. Once you find a niche or system to run with, dont deviatejust find the predictability in it and keep doing it. For example, this past month, we took one property and sold three properties. Now, on the surface, you might think, Thats dismal! You guys have been in business for a while! It doesnt matter. In this current month, well probably sell four and take five or six new homes under contract. Why? We just keep doing the same activities. The end result will be the same, over timeon average. We know this because we track our numbers, which then enables us to predict and project with certainty. I want to paraphrase for you a great article that Denis Waitley wrote called The Power of the Right Coach. I hope youll also grab onto this idea of hiring your own coach or mentor and creating the lifestyle that you deserve. The Value of a Mentor I talk a lot about designing your lifestyle. Its really a simple concept. You find someone who is where you want to be, someone who has traveled the path you want to travel. You then connect with them. Ask them to mentor you. Bam. Thats it. A coach not only gives you the strength you need to succeedwe all need and want thatbut is also in your face in a positive way with the feedback that you need to adjust your path as you go. Im a big advocate of getting on a plane or getting in a car and going to see a mentor if possible. Let me tell you another story about Tim. I was out at Tims house once in Big Bear, California, where he lived on the lake. We were going for a jog. (At the time, we both did a lot of running; now my aging knees wont let me.) Tims probably a good 1518 years older than me. I was talking to him about how I was going to expand my brokerage and open other branches, and he just stopped. He put his arm out, stopped me dead in my tracks running and said, Why do you want to do that? He went on to tell meand Im standing in the middle road, stopped during a runwhy thats going to be a waste and an energy drain and would only create more headaches. Wow. That was so ridiculously positive as I look back now. I would never have sold several years later to Caldwell Banker like I did. I would still have been in the trenches, probably creating a bunch of overhead with very little net return on investment proportionate to what we put in. Let me give you a different example. Ive come up with a strategy we call ACAA. What does it mean? A: We get into action.C: We critique our action.A: We adjust based on that critique.A: We take action. So its action, critique, adjust, action. Notice I didnt say action, critique, quit. Its action, phone call (for example). Critique the phone call live. Adjust the script based on the critique and go take action again. This is a constant, never-ending process, and if you practice ACAA, its much harder go get off track. Frankly, if you practice it with anything, you wont get off track. Just a simple but effective Chris-ism Ive utilized since around the year 2001. Now, its certainly no secret that most outstanding achievements and incredible comebacks have been the result of an individual whose motivation to persist under any and all circumstances was influenced at some level by a coach or mentor. These coaches and mentors provide a correctional device to keep you on task. I use ACAA as my acronym, but many preach this same concept using other terms. Picture yourself as this missile sailing along and needing some adjustments here and there in order to hit your bullseye as you navigate the waters of real estate. Since 1995, Ive never been without a coachand Ive sometimes had two or three at a time. Im talking business, personal, physical, nutritional, marketing, you name it. Then theres the mastermind groups and other higher-level organizations. It brings us to a whole other level. So who are you associating with? Who are you mentoring with? And what are you willing to pay in order to achieve all your goals? Well, I can start doing that after I earn more, youre thinking. Nope, wrong order. Get resourceful and find a way to get it done now. Related: 4 Things No One Tells You About Finding a Mentor (Hint: Its Easier Than You Think!) How Do You Choose a Mentor? Make sure they have a history of success. Now this sounds obvious, but let me say something thats probably not going to be as obvious and that some people may take issue with. Looking back on the coaches Ive had, I see that many of them have had some failures that have significantly strengthened their ability to succeed and thus their ability to coach me to succeed. In addition to picking a coach based on their ability to achieve goals similar to yours, choose mentors who in the process have overcome some of the same obstacles that youre facing or that you think you may face. To go back to Denis Waitley: Seeing your mentors today is like seeing what you intend to be. Make sure youre watching out for that in your potential mentor. So how have my mentors over the years helped me most? Many of the biggest ways Ive been influenced has been in terms of mindset. Here are a few of the most profound lessons Ive learned. What Ive Learned From My MentorsExpand your thinking: Read, read, read! How can you expand your thinking? How about getting books that get you thinking outside your box? I look around my office here. I see a book called The Magic of Thinking Big, which Ive read several times since. Im going to date myself hereI was on my honeymoon in 1986 when I first read it. You cannot read this without expanding your perspective. You just cant. Im about 20 pages away from finishing McDonalds: Behind the Golden Arches. Now, if you want to read a book that can and should expand your mind, thats a great one. I dont care if youre selling popcorn. I dont care if youre out buying one home every quarter. This book will get you thinking. Ray Kroc started with absolutely nothing and struggled through massive failures before building an empire. Read the book. You have to read the book. Be passionate. My thought is very simple on this. If you love what youre doing, it wont seem like work. I dont say Im going to work. I just love doing what we do. I recently refocused a lot of my energy, for example, on the coaching side of our business. My team, which is our kids, is now running the buying and selling side, except for the financial aspect. Theyre doing all the prospecting. Theyre going on appointments. Theyre handling the buyers. Theyre handling the paperworkeverything. Are you doing what you want to do right now? Stay focused. Ask yourself this: What should I be thinking about right now? Shut out the interference and simply focus. It could be because in this age of multitasking, this is a valuable technique to get good atrefocusing and time blocking. For example, I dont take incoming calls if Im sitting here doing outgoing. Why? I have no idea whos calling. Im not in control. It messes up my time. For you to jump every time the phone rings or every time an email comes in is absolutely insane, so make sure you focus. Put a sticky note or an index card on your computer that says, Is what I am doing right now moving me closer to my goals? Thatll get you thinking. Thatll keep you focused. Keep your momentum. Dont procrastinate. Did you ever notice a few good things happening in your life or your business and then all of a sudden, it kept snowballing? Did you ever happen to experience that going in the opposite direction? Lets build upon your successes. In other words, see yourself as victorious. If you see yourself as victorious, its going to focus you in the right direction. Read every single book you can get your hands on about the law of attractionthat is, using visualization and affirmation to change your life. I love Zero Limitsby Joe Vitale and the entire series of books that came after it. In it, youll also find your way to other authors and speakers that are within the same realm. Get lucky. Be lucky. I know that sounds wacky, but the old saying, The harder I work, the luckier I get is absolutely right. Ron Legrand, one of my past mentors from 2000 and friends to this day, says, The less I work, the more I make. Well, this is a similar saying. Look at the solution, not the problem. We had plenty of challenges in real estate in 2008, and we learned as we moved forward. If we had sat and whined and listened to others, wed be paralyzed for years to come. Instead, we refocused on solutions, new ideas, and moving forward. Since starting our terms and investment business in the real estate world back at the beginning of 2013, even though wed been working in real estate for 20+ years prior to that, we have made mistakes. What do we do with them? We say, How much did that cost us? How did that happen? What can we do to fix it so it doesnt happen again? Do we have to change any of our forms internally, our checklists, our agreements with the attorneys? What is it that we have to do to only focus on solutions?And as a result, our businesses is rock solid. Were able to share that with our associates who dont have to go through the same mistakes. Im not saying theyre never going to make one, but if and when they do, they have the answer at their fingertips. Be the first penguin. Experience is what you get when you didnt get what you wanted. I read that expression in Randy Pauschs The Last Lecture, and it stuck with me. Its a phrase worth considering, in particular when you hit a brick wall. It is absolutely true that with every disappointment and at every roadblock, experience is what creates breakthrough industries, ideas, movements, and in my case, re-engineering of our business. Its a reminder for us all that failure is not just acceptable, its absolutely essential. Related: The 7-Step Motivated Newbies Guide to Finding a High-Quality Mentor In The Last Lecture, there was a story about this professor who gave his students something called a First Penguin Award. The award went to the student or the team that took the biggest gamble in trying new ideas or new technology while failing to achieve their goals. It enabled them to celebrate out-of-the-box thinking. These students used their imagination in a daring, thought-provoking way. When penguins are about to jump into water that likely contains predators, one of them has to be the first penguin in, right? The first person who failed at their project for this class got that award. I think youd agree that the person who failed now knows how to avoid those future failures. The person who knows only success can do what? Theyre more oblivious to all the pitfalls. This brings us back to the point that you should be careful when you pick your mentors. Engage in daily disciplines. I always told our kids when they were growing up that with the right discipline, you can be outstanding at anything. Heres a question for you: What new disciplines could you start acting on tomorrow? Today? Which discipline do you know will improve your business and/or your life, but you just havent done it yet? What new disciplines could you start acting on right now?I often combine my thoughts on this discipline topic with the simple concept of making today a better tomorrow, meaning improve every day. What is discipline to you? Dictionary.com says, its an activity, exercise, or regimen that develops or improves a skill; training. Heres my definition: Doing the things daily that you know you should even when you dont feel like it and even when you dont see immediate results. Im going to add a third part to that: And even when no ones watching. Its abundantly clear that the common denominator of all successful people that Ive been talking about and that you should rub elbows with is that they form habits. They form disciplines. Theytrack everything, and they improve and grow. Lets assume were brand new today. Here are some disciplines to consider adding to your day: Make Three Calls a Day I dont care what business youre in. You can call three new people, three new businesses, three new prospects that can add potential new business for you. For us, thats 10 or 15 a week. That works perfectly. You might want to adjust the numbers. Substitute a Good Discipline for an Unproductive Habit Take a habit that you dont like or that is not productive and substitute it with something else. Let me give you a really simple example, watered down. If you currently get up and go to breakfast or grab coffee now, how about if you substitute a workout, like I do, and then have something healthy to eat? Read Daily How about if you started reading? This time, I dont mean in your area of expertise, but just to work on your mind. If you havent started that daily habit, dont say, Im going to read a book a month or something crazy. Just raise the bar a teeny bitI dont know, five minutes will do it. Start somewhere. I love the Audible app because I can get more reading in by listening at the gym while working out or listening in the car. Journal Daily Aim to write in your journal each night. If you dont have a journal, its easy to start one. Write down these three things in your journal every night: What was the best thing that happened today?What was the most challenging thing that happened today?How can I improve tomorrow? Isnt that simple? Write in your journal every single day. Set your goals. What else can you do starting today? Regardless of what position youre in, theres an activity. Theres a person you can call. Theres something who will make a make a major impact on your business if you act on it today. What is it for you? Or who is that for you? Decide. Finish this statement. Get a pen out right now and finish the one that applies to your business: If I could get _____________ to do business with us, our business would totally change. If I could get _____________ [a prospect]to join with me, it would catapult our business. If I could get _____________ [type of deal], our business would skyrocket. You get the point here. Those who are succeeding in any business and life in general have simply decided to do some things that others are not willing to do. Dont be left behind. Very few people realize that success is within their reach. Your success is within your reach. Take action. As Tony Robbins says, Dont get caught up should-ing all over yourself. Youll never change your business or your life until you change something that you do todayso what one thing will you start today? Write it down. In order to experience a quantum leap in your business and/or your finances or life, you simply have to take action. What lessons from your mentor(s) have been most valuable to you? Weigh in with a comment! https://www.biggerpockets.com/renewsblog/vital-importance-mentor Budgeting, like dieting, has very simple fundamentals. Dollars (or calories) in, minus dollars (or calories) out.
And yet. I believe that budgeting is not a math problem, but rather a behavior problem (also like dieting). No one is in debt because they dont know how to add or subtract. Theyre in debt because they havent yet found a system they can live with, to spend less than they earn. I cant inject you with discipline. But I can give you some fun, fresh, funky ideas to help you shave money (in one case literally) from your budget. I asked around the web for weird savings tips, from both personal finance experts and from laypeople alike. Heres what bubbled to the surface! 14 Unusual But Possibly Brilliant Savings Tactics1. Lower your housing costs. Housing is the most expensive, well, expense for most of us. So its a natural place to start, since it has the most potential for savings. Amber Masters, the blogger behind DeeplyinDebt.com, has $650,000 of debt to pay down. Her answer to housing? My husband and I live in the Midwest, where the cost of living is cheap even though wed prefer to live literally anywhere else. It saves us THOUSANDS each month. Not willing to move to the hinterland? Try bringing on a housemate or two. I did this when I bought my first home, and my roommate not only paid 75% of my mortgage, but she became a lifelong friend. My partner Deni Supplee did this as well, renting out the master bedroom in her rowhouse and moving her bed into a closet in the hallway. Her housemate helped her make her rent payments, which shed been struggling to afford as a single mother. She even helped out with watching Denis kids when Deni was pulled in one too many directions. Ilene Davis (no relation), author of Wealthy by Choice:Choosing Your Way to a Wealthier Future, takes it one step further. One idea I loved was a couple of single mothers who each had two children. The children shared a room, and each mother had her own.They worked different hours so they could share babysitting duties with each other. Want to take it even further? Janet Alvarez from Wise Bread cites intentional community living, where participants grow their own food, make their own clothes, and share housing. 2. Or cut your housing costs entirely. Why lower your housing bills when you can cut them out entirely? One option is, of course,house hacking. It doesnt even require a multifamily; you can house hack a single-family home. Not weird or extreme enough for you? Consider the un-housing movement. Janet from Wise Bread summarizes it succinctly: Its where individuals will crash with friends, camp outdoors, or otherwise seek free shelter. It sounds curiously similar to being a transient to me. Related: 5 Advanced Excel Tips for a Better Home Budget 3. Live for free while traveling Want to live for free, anywhere in the world? Kelly Hayes-Raitt, author of How to Become a Housesitter: Insider Tips from the HouseSit Diva, explains how she does it: I rent out my home for income and travel full-time as a housesitter, where I live at no cost in someones home and care for their pets while they vacation. Ive housesat in London, Amsterdam, Berlin, Gibraltar, throughout Africa, Hanoi, Osaka, Kuala Lumpureven Yaan, a village in China where I was the only non-Asian face I saw for a week! A woman after my own heart, Kelly is also a landlord, renting out her home while she travels. My rental income has allowed me financial independence to start a new career as a writer and editor. Cori Carl of RemoteSwap.club does the same. My apartment in Toronto rents for C$1,750. Now my only housing costs are getting from one city to another and thank-you gifts for my hosts. Its saved me thousands of dollarswhich I can put toward a down payment for my next investment property. In fact, Cori uses the opportunity to scope out new markets for real estate investing. Im looking for a more affordable market to invest in, so Im also taking housesit positions in cities that might fit my personal criteria. You can also travel and stay for free by volunteeringthere are even services that pair you with volunteer travel opportunities. 4. Live in your investment. Most peoples homes are more liability than asset. Equity in your home looks nice on paper, but it does you no good unless you have a concrete plan for converting equity to cash. Carl, better known as Mr. 1500 from 1500 Days, likes doing live-in flips. If you must own a house, buy the worst one in the best neighborhood you can afford and fix it up! Look for homes that need cosmetic work like paint, cabinets, and tile (dont mess with cracked foundations). When you go to sell your home, youll make money from all of the forced equity youve created. And best of all, if youve lived there for two years, your gains are probably tax-free. 5. Ditch the car & bike to work. Amber Masters does this, even living in the Midwest where its somewhat socially not acceptable. But it saves us over $100 each month! Actually, $100/month is a conservative estimate. The average cost of car ownership is $706/month according to NerdWallet. Thats $8,469 every year! And that says nothing of the health benefits. Maybe you wouldnt even need that pricey gym membership if you biked to and from work every day! My stepfather bikes 14 miles to work. Hes 60 years old and in exceptional shape. Youd also prevent several tons of carbon emissions. And reduce local traffic congestion. Win, win, win, win. 6. Dont assume you should buy. Even in the era of the sharing economy, most of us unthinkingly just buy everything we need or want. Who says you need to buy that bike to bike to work? Lori Cheeks, an entrepreneur who spent several lean years when she was launching her dating service Cheekd, bikes around New York Citywithout owning a bike. I use the shared bike service, Citi Bike, which costs $149/year, rather than paying for the subway or cabs. In a city where every square foot of housing is precious, not having to store a bike is a serious perk. The same principle applies to cars. We all need wheels every once in a while, but if you dont need to drive every day, why not consider using Uber or ZipCar? The list goes on. Dresses. Formalwear. Jewelry. Toilet paper. (OK, so you cant rent everythingjust making sure you were paying attention!) 7. Automate savingsand remove discipline from the equation. Nate Masterson, Finance Manager for Maple Holistics, recommends the Acorns app. Acorns essentially helps you turn your pocket change into substantial sums by automatically investing in safe exchange-traded funds. It monitors your debit and credit charges, rounds them up to the nearest dollar, and invests the change into convenient, pre-arranged portfolios. This simple and straightforward investing tool is perfect for beginners and people who dont have a substantial income but want to start saving for the future. Another option that Ive advocated before is setting up automated transfers to your savings account, on the same day you get paid. Of course, you still need to avoid raiding the savings account. Eliza Cross, who blogs at Happy Simple Living, found that discipline was still a problem. I opened an inconvenient savings account at a credit union a good distance away from my main bank, where I have to drive and speak to a teller in person to withdraw themoney. By making it harder to access the money, my account has finally had a chance to really grow. But you dont need tech to help you automate your savings. Mark Cianciulli, a Realtor, attorney and CPA with the CREM Group in Long Beach, writes a physical check to his sister-in-law every month. She deposits it in a savings account for them, keeping it out of sight and mind. We have saved over $50,000 in just over three years. To be honest, I completely forget its there sometimes because all I look at is our checking accounts. 8. Charge yourself for behavior you want to curb. Len Penzo, the quirky personal finance writer at LenPenzo.com, shares a tip his parents have used for years: My Mom and Dad keep a jar by their washer and dryer and charge themselves $1 for every load of clothes that goes into the machines. Believe it or not, they typically save $250 to $400 per year doing this! Perhaps it even leads to less laundry, less water and electricity usage, and longer lifespans for their clothes. What if you take it one step further and charge yourself for behavior your want to curb? Maybe that means charging yourself each time you eat dessert, or for each cigarette or each drink. Or what if you charged yourself each time you eat out at a restaurant? Related: Life Hacking in Pursuit of Financial Freedom: How I Add $1,500+/Mo to My Income 9. Rethink eating out. Meals out add up. Quickly. Most of us eat 21 meals each week. The more of those meals you can prepare yourself, the less money youll spend on food. Period. That doesnt mean you have to give up all food experiences outside your own kitchen. Marilyn Anderson, author of How to Live Like a MILLIONAIRE When Youre a Million Short, suggests happy hour instead of full dinners. Many expensive restaurants have super deals on food at happy hour or late happy hour. For instance, instead of paying $150-200 for a meal for two at Ruths Chris or Flemingswhere an a la carte steak costs $40-50go to their happy hours, where you can get a steak sandwich, hamburger with fries, or lobster roll, or steak flatbread for $8-9,so a meal for two would be about $20-30 dollars instead. And who says you need to eat the entire meal out? Ilene Davis proposes Instead of going out to dinner, go out for dessert and coffee. You still have a night out, but for much less cost. For that matter, you could go out for an appetizer or light bite, perhaps at happy hour. My wife Katie and I find that sharing a couple appetizers at happy hour, often for $4-5 apiece, fill us up quite nicely. 10. Rethink eating in. Ive managed to replace nearly all of my lunch meals with leftovers. Katie and I simply prepare enough food at dinner each night to save plenty for our lunches the next day. Nor do leftovers have to stop with next-day lunches. Ilene Davis goes on to outline a fun meal prep idea: the weekly crockpot party. Get four other couples or individuals who want to build wealth.Weekly, each makes a five-quart meal in crockpot.Divide into five one-quart containers.Get together and exchange.Each cooks one meal but walks away with five different ones! Pretty clever, right? And if you really want to get weird, Janet from Wise Bread explained that in addition to a free housing movement, theres also a free food movement. Ive heard of people relying solely on food banks, church free breakfasts, soup kitchens, etc. for their dietary sustenance. Call me old-fashioned, but I can live with frugal spending on groceries and cooking my own food. 11. Rethink entertainment. I have a not-so-frugal confession to make: I love high-end wines and beers. It gets worse. Ive gotten so picky that I distrust most others beer and wine selections. (To be fair, Ive also taken courses and certifications on wine, and for years I brewed my own beer. Which probably just makes me sound like more of a jerk, now that I think about it.) In short, it costs me an arm and a leg to drink the kind of wine or beer that I like, if I pay the full 300% markup prices at restaurants and bars. So what do I do? I coordinate dinner parties with our friends, where I can bring my own beer and wine, that I buy in bulk at a discount. Dinner parties can be as casual or as shi-shi as you want them to be. Laid back pot luck? Five-course meal with wine pairings for each course? Your call. And all of it is far cheaper than entertainment out at bars, clubs, and restaurants. Or go in a different direction, and host a game night with friends. Or movie nights. We have a monthly cinema club night with another couple who loves movies. Why spend $50 for four people to go see a movie, when you can rent one at home for a dollar or two? Your couch is probably more comfortable, you can eat a healthier (and cheaper) snack than $7 popcorn drenched in fake butter. And, of course, you can even enjoy the movie with your favorite wine or beer. 12. Get creative with medical care. Like most of the above, well start reasonable, then get weirder. Marilyn Anderson has a no-brainer way to save money: Check the $4 generic list at your drugstore or go to MyFourDollarDrugList.com; if your medicine isnt on the $4 generic list, go to GoodRx.com. (Its free to get a card, and you may get your drugs for even less than with your insurance co-pay.) Health insurance and healthcare billing remain incredibly opaquemore so than any other industry Ive encountered. Brynne Conroy of Femme Frugality has had plenty of experience with family health bills, and says the trick is to challenge them at every turn. One thing Ive picked up on from having to deal with these bills so often is how frequently illegal billing practices happen, or an insurance company will deny a valid claim. Make sure you know what your plan covers, what the ACA dictates plans must cover, and the reason each and every claim is denied. Then, go through the process to appeal those denials, citing the law. Its a tedious process, to be sure. But its one that has saved my family thousands of dollars we didnt legally owe in 2018 alone. Ready to push the boundary a little further? Marilyn uses dental schools and training programs for her dentistry. They are well supervised, but you can get your dental work done without spending thousands of dollars. Heres an example: a periodontist was going to charge me $6,000 to do gum surgery. I looked online and found a renowned dental center that trains already-working dentists on a special laser procedure, and they offered to treat peoples gums for FREEbecause the dentists need patients to work on as they train in the new procedure (which is actually less invasive and less painful than the surgery the periodontist wanted to do). The same logic can be used for other medical care if you dare! 13. Get creative with grooming & personal care. People spend a shocking amount of money on massages, makeup, manicures, pedicures, hair care, razors you name it. When I say shocking, I mean in the thousands per year. A huge dent in your budget, when added together. How much of it can you do yourself? Lori Cheeks ran the numbers, and she now saves over $2,000/year, simply by doing her own manicures and pedicures. My wife Katie and I took a couples massage class. While we occasionally still indulge in a salon massage, we give each other massages to help loosen knotted muscles. Marilyn Anderson saves on hair care by being a hair model. Get your hair done for free by being a hair model (check SalonApprentice.com or Craigslist under beauty, write model in the search bar.) Hair salons can cost a woman hundreds of dollars every month, for cuts, blow drying, and color, so being a hair model can save them thousands of dollars.(And you dont need to be young, thin, or gorgeous to be a hair model. You just need one thing: HAIR!) Caden Rhoton of DimeDad.com found another place to save: his morning shave. One of the unusual ways Ive been able to save money is by switching from shaving with cartridge razors to a double-edge safety razor. Four years ago I made an initial investment of $71.44 to buy the razor, the blades, shaving soap and a brush. Since then have only spent $16.99 on new shaving soap. If you run the numbers, Ive only spent $1.85 per month on shaving for the past four years. When you compare that to a shaving subscription that delivers blades to your house every month, youre looking at around $7/month in shaving costs! 14. Bank smarter. Natasha Rachel Smith from TopCashBack.com points out just how much money most bank customers lose to fees. From overdraft fees, monthly maintenance fees, foreign transaction fees to even a minimum balance fee, you might be paying more in fees than youre saving. Instead open an account withChimeBank to live a healthier financial life and get ahead by automating your savings. Chime allows consumers to save when they spend by automatically rounding up transactions to the nearest dollar and transferring the round-up from your spending account into your savings account. The more you spend, the more youll build your savings. Chime also makes it easy to save by transferring 10% of every paycheck directly into your savings account. And what about your credit cards? Are they costing you money in fees, or paying you rewards? Carson Yarbrough of Credit Cards Explained recommends you choose a rewards credit card that matches your spending habits and then adjust accordingly over the coming months and years. Think of credit cardrewards in the same way investors think of getting better results from their investments. The Chopping Block Doesnt Discriminate Whew! Look at all those ways to save. If there is one theme that ties all of the above together, its simply that every expense can be cut. Nothing is sacred, from housing to transportation to clothing to food to personal care. Most of us think in terms of fixed and variable expenses. But the truth is that even fixed expenses can be changed at any timeall you need do is ask the question How can I reduce or eliminate that expense? Were republishing this article to help out our newer readers. What are your weird or unusual savings tips? What has worked for you? Whats too weird? Share your ideas and experiences below! https://www.biggerpockets.com/renewsblog/unusual-savings-tactics-save-thousands/ Student housing can be a particularly lucrative real estate investment niche. In fact, investing around the University of Oregon was how my father originally got his start in real estate. (You can hear him talk about his story on the BiggerPockets Podcast here or me and him discuss the ins and outs of student housing here.)
But student housing is not some easy A, nor is it something you want to jump head first into after pulling an all-nighter cramming. While student housing can be very profitable, it comes with a variety of dangers that you need to be well aware of beforehand. As I note in this article, student housing has several distinct advantages and disadvantages, which broadly speaking are: AdvantagesHigher rentsMostly guaranteed rents (because you will require the parents to co-sign for the students)DisadvantagesAnnual turnover (most students leave each year)More damage to the units (and more parties the police might get called out to) If you do want to take the plunge into the student housing niche, these are the steps you should take. 1. Pick a school and confirm it is NOT a commuter college. The first thing you need to do is pick a university. Preferably, this will be a fairly large university, probably over 15,000 students. But it can work with smaller universities as well. The key is to make sure its not a commuter college. A commuter college, as CollegeVine puts it,is a college to which a student commutes for classes, rather than living on or off the actual college campus. Instead, the student typically continues to live at home while commuting to school just as one would commute to a job or other commitment. The problem with such schools is that since the students arent making any special commitment to live near the college, there is no premium on student housing near the campus. While investing near such a school can make sense, its just regular, good-ole real estate investment, not student housing investment. Almost all community colleges and trade schools will be commuter colleges. Smaller schools made up mostly of working professionals taking night classes would also be commuter colleges. Large universities with a lot of full-time students (such as the University of Oregon), on the other hand, are perfect for student housing. Some universities will be hybrids. For example, the University of Missouri in Kansas City (UMKC) has just shy of 17,000 students. Many are full-time students, but many are not. Its MBA program, for example, is a part-time program with night classes. There are student housing opportunities around UMKC, but substantially fewer than there would be around the University of Oregon or the larger University of Missouri campus in Columbia, MO. Some colleges have also been discovered. Basically, theyve been overbuilt by large developers that found out how lucrative student housing can be. The University of Oregon is, unfortunately, one of these universities. Related: How My Investor Friend Grew a Student Housing Empire Using Private Money The best way to determine both whether a campus has been overbuilt and whether its a commuter school is to talk to people. Ask local property management companies, other investors who do student housing as well as the students themselves. Do you see a lot of student housing be listed for rent near the end of the school year and during the summer? Thats a good sign that the college has been overbuilt. On the other hand, if you dont see rental ads for properties near campus that highlight that its near campus, the school is probably a commuter college. 2. Find the right zone. My dad breaks student housing into three zones, which are as follows: Zone A: Walking distance from campus (approximately half a mile from campus)Zone B: Biking distance from campus (approximately a half mile to a mile from campus)Zone C: Driving distance from campus (approximately a mile to two miles from campus) Of course, you can walk a mile or bike two, but this is just shorthand. Visually, it would look something like this: Unfortunately, life doesnt put things into simple circles for us. Regarding the University of Oregon, for example, most of the student housing is to the west and south of the campus. It would look more like this: This isnt a perfect drawing by any means, but as you can see, its not simple circles. Again, the best way to find out where the student housing is located is to talk to property managers and other investors, as well as students that go to the university. Finally, look at the rental ads and see where the bulk of rentals are that highlight its proximity to campus. And if the university still has a student paper with classified ads, you can also check to see where the properties being advertised to students are . My dads recommendation is to aim for the B and C zones. As he put in on the BiggerPockets Podcast: [What] Ive tended to do is not buy in A areas because theyre so expensive, but look for the C and B areas that are a little farther away from campus and to focus on those where you have home owners who arent thinking about campus rentals, but their house would make a perfect campus rental. Its a little farther away, but if you made it attractive to students by thinking with them in mind as you rehabbed it or if that would make a great student rental and so youve saved by not spending so much in the purchase price, but you still get the advantage of having higher rents than you would normally get. The more of a presence you have, the further you can go from the university as well. As students start looking at your properties more, its easier to advertise properties that are further away. But when youre getting started, its important to be careful not to go too far away or students may pass you over entirely. For new student housing investors, I would aim for the B zone. 3. Seek out bedrooms, bedrooms, bathrooms and more bedrooms. The great part about student rentals is that you get to rent the property out by the bedroom instead of as a whole. This is because students think of renting their room and not collectively renting the entire property. That means that a 1,500-square-foot, 3-bedroom student rental house may rent for $600 a bedroom ($1,800), while a 1,500-square-foot, 4-bedroom student rental may rent for $550 a bedroom ($2,200). Thats $400 more just by adding a bedroom! With family rentals, the premium for an extra bedroom may be only a few bucks if anything at all. My dad would add bedrooms wherever he could. Normally, Im against basement or attic conversions, but with student housing, I make an exception. If you can cut a large bedroom in two or take part of a large living room and make it a bedroom, I recommend doing it. This serves two purposes. First, as noted above, student housing (especially houses, but apartments as well) are rented by the bedroom. And second, students tend to treat their bedrooms decently and obliterate common areas. Houses with large common areas are also party-bait, and you would very much prefer to have your tenants go next door for that post-game rager on Saturday night! Finally, I should note that you shouldnt skimp on bathrooms either. Some of the newer student housing developments Ive seen are bare-bones 3-bed, 1-bath or 4-bed, 1-bath apartments. These have generally rented very poorly. Students like to have their own bathroom, so especially in oversaturated markets, try to buy properties with (or add) as many bathrooms as possible. Related: Student Housing: What Investors Should Know About Pros, Cons & Profitability 4. Learn how to manage student rentals. This could be a whole article unto itself, but I will give the basics here if you decide to manage yourself. First of all, most full-time students will not have sufficient income to rent a property. So make sure to get their parents to sign co-signer agreements in case their kids dont pay their rent. This has ensured that our Oregon operation consistently collects over 99 percent of the rent its owed. In some cases, you may need to rent out apartments and houses by the bedroom. I would only do this if youre having trouble renting it to a group though, as its more likely there will be drama if the tenants dont know each other going in. When you rent to a group, make sure to have them elect a house manager who will be in charge of collecting the rent from the other tenants, making the payment and communicating with management. This way youre not dealing with four or five different people for every property youve leased out. And it should go without saying, but you cannot demand that a property only be rented by students. The price you set will be higher than families will generally consider, but fair housing dictates that you cannot discriminate against anyone. Its also important to note that in some municipalities, they have restrictions on the number of unrelated adults who can live together. For example, in Eugene, Oregon, no more than five unrelated adults can live together. But we have houses with nine bedrooms (yes, you read that correctly). Fortunately, you can often get around this by making your property something called congregate living. Each municipality is different, but you will need to check the rules before you start investing. Finally, its important to remember that most students will leave each year and will do so at about the same time. We have enough properties in Oregon that we make sure to space them apart a few weeks so as not to overload our turnover crews. Furthermore, we have systematized this turnover process so that each property is pre-leased for the coming school year and all of our turnover and cleaning crews get in right after the tenants leave. This way, we have a very short vacancy period before the new tenants move in. You will want to keep this in mind as you accumulate more student rentals because screwing this part up can cost you dearly. Conclusion Student housing is very profitable, but only if done right. You cant just skip class and show up for the exam and expect to make a profit. However, if you follow these steps, do your homework ahead of time and pick the right university, you should be able to do very well. Would you consider investing in student housing? Why or why not? Comment below! https://www.biggerpockets.com/renewsblog/student-housing-rentals While most real estate investing advice is geared to those who wish to escape their current jobs, not much has been written for those of us who love our jobs and dont intend to quit them.
Personally, if I quit my job, I know I would be bored out of my mind. I enjoy my career and have no intentions to quit, but I wanted to build a real estate portfolio that would supplement my income to achieve my financial goals and my goals to give back to the community. The following is my real estate investing philosophy that I use to guide my decision-making. By no means will my philosophy be perfect for you, but Ive found the following advice to ring true to those of us who want to get started in real estate without wanting to end a promising career. Getting Started I was blessed to start my real estate investing career with my father (which I talked about in BiggerPockets Podcast episode 74). When I started investing in 2013,the market was a much different place. We were just coming out of the trough of the recession so it didnt take a rocket scientist to do well in real estate because most of the money made in real estate happens when theres a significant distress in the market. Without distress in the market, its hard to buy properties at prices that will provide you enough return for the time involved. Now that we are approaching the late stages of the cycle, this is where the risk/reward equation is skewed more towards risk and its very easy to lose a buck. Construction costs are increasing. New units of housing are coming online, rents are softening, and interest rates are rising. Now is a great time to study real estate and build your real estate investing network. This isnt a time to rush into the market to purchase something youll later regret. Financial Housekeeping Before we get started with real estate, you have to make sure youre covering the basics. Assuming your company matches your 401(k) contributions, you should max out those accounts and invest in a target retirement index fund. An employee match is pretty much a risk-free rate of return that you wont be able to beat anywhere else. Then you should set up a Roth IRA, assuming you qualify. Next comes savings. As cliche as the advice sounds, its imperative that you live beneath your means by maxing out your savings. Adequate savings provide you the financial security to walk away from any situation or real estate deal if you feel youre not being treated fairly. Without being able to walk away from bad situations, your life will be filled with constant stress. At the minimum, you need to save months worth of living expenses in the bank so that if you lose your job you can stay afloat during these tough times. You also need enough insurance to provide your loved ones with support in case something tragic happens to you. We all think were invincible, but theres always that risk something terrible can happen to you. Your company should provide you with the option to enroll in various accidental death, short and long-term disability, and long-term healthcare coverages. Make sure you pay for your disability coverage because if your employer pays for the coverage, you will face a large tax bill. If you havent applied for these insurances, please consider doing so. Then you need to get your estate in order. Ive seen many families suffer from a lack of proper estate planning. You need to set up a trust so that its made clear what your directives are when you unable to act on your own behalf. If youre incapacitated, who will make healthcare decisions on your behalf? Who should be responsible for maintaining your assets? In the tragic event of your passing, where should your assets go? All of these questions need to be answered now, and you should speak to a trusted attorney. Finally, you need to prevent yourself from getting caught in conspicuous consumption trap of buying things you dont need in order to impress others. Its very easy in Silicon Valley to fall into this trap because so many people are doing amazing things such as traveling the world or buying luxury cars and huge homes. You need to focus on your long-term goals and not get sucked into other peoples dreams. If you follow these guidelines, you will be on part of the way there to a healthy retirement. High Net Worth But No or Low Cash Flow The reason why I said part of the way there is because Ive come across many tech employees that have stock portfolios worth millions of dollars, but they dont have a single asset thats producing cash flow. They are net worth rich, yet cash flow poor. The only way for them to benefit from these assets is to sell them, but once they are cashed out and spent, its gone forever. I met hundreds of paper millionaires during the Valleys first tech crash, and unfortunately, they never diversified their holdings to other forms of assets to take advantage of their new-found wealth. Related: 4 Toxic Habits That Sabotage Even the Most Promising New Investors So How Do You Build Cash Flow? Of course, you can buy stocks that pay dividends, but based on what happened with the GE and Budweiser, dividends arent guaranteed. Dividend payouts depend upon more variables than real estate, which increases the odds of companies not paying them out. For stock dividends, you have to hope the companys business model allows them to earn large returns on capital to pay a dividend, hope the companys products stay relevant in the future, hope a competitor doesnt steal market share, and hope the management team is competent. For real estate, you need to buy a good property located in a desirable location for a decent price in order to attract the right tenants for the property to cash flow. This has fewer variables, which decreases your risk exposure, but of course doesnt guarantee cash flow. The Benefits of Working in Tech Being that you work in tech, you likely have a steady paycheck, a generous 401(k) program, and resources to easily qualify for a mortgage. This is an advantage that most investors lack, and you must use this to the best of your ability. While full-time real estate professionals need to buy and sell properties in a frothy market to pay their bills, you have a good job that allows you to wait until a frothy market cools off and then swoop in when the real estate cycle hits a trough. While real estate is currently in vogue, many people are feeling the pressure to deploy capital as if money is going out of style. Control that impulse! The real estate cycle has shifted from a buyers market (roughly 2009 to 201) to a sellers market (2016 or so onwards). In this market, the returns arent as high as they used to be, and Im seeing people do silly things in the market such as taking out home lines of equity or loans on their stock portfolio to buy low yielding real estate investments. Im seeing syndication pro formas with assumptions that the economy will grow forever, which isnt how the business cycle works. At this point in the market, money is cheap, and deals are being bought at a premium, which is a bad sign for investors because the risk/reward equation is now skewed towards more risk for each marginal unit of reward. When the cycle slows down, then you will see money becoming harder to obtain and home values retreating, which makes it easier to find sound investments. At that point, you are in the drivers seat and you will have an opportunity to buy real estate at discounted price. How Do You Know When the Market is Cooling Off? When you can find a property that meets your strict criteria. Each person has their own criteria that fits their return goals, and you need to create your own. But as a baseline, after all expenses (mortgage, taxes, insurance, operating costs, long-term capital improvement reserves, etc.), you should at the least hit a cap rate of 6% based on historical returns and assuming the propertys price is in line with comparable properties. Im not saying thats a cap rate I aim for, but if youre shooting for anything lower, you are exposing yourself to overpaying for an asset. Every Investor Hates Sitting on CashUntil They Need it I regularly take calls from investors who feel anxious for having large amounts of capital sitting on the sidelines. These investors are already fully invested in the stock market and might have a few real estate investments. When I hear these stories, I think of the lessons I learned from Warren Buffets annual shareholder letters. I want to highlight two excerpts from his annual shareholders letter. Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you dont need. Despite our recent drought of acquisitions, Charlie and I believe that from time to time Berkshire will have opportunities to make very large purchases. In the meantime, we will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own. Preach! When markets are booming, we hold on to cash while feeling great shame. So we must get rid of it as soon as possible because everyone else is making so much money. Yes, losing a small percentage of purchasing power due to inflation hurts, but being knocked out of the game by losing all of your money is even worse. The name of the game is to stay in the game long enough so you can purchase assets that fit your criteria. No one can forecast when the corrections will happen, but you need to be in a position to act when they appear. Look at your cash as an oxygen canister needed for climbing Everest. At the base of the mountain, everyone has oxygen canisters, and some people carry less because its a burden to lug those heavy things along. Some expect everything to go smoothly due to excellent forecasts and expertise of their guides, so they decide to carry just enough to get them up and down the mountain within 60 days. Others know things can get rough, so they will bear the burden of carrying an extra oxygen canister in case things dont go as planned (source: life). But when in youre in the mountains death zone at 26,000 feet, things change. The weather forecasts are off, and now youre suffering from a freak blizzard that extends your trip by another 10 days. You can barely breath due to the high altitude. Previously, that extra oxygen tank was looked at as a burden, but now its worth its weight in gold. Youll thank your lucky stars you have an extra one. Am I saying hold all cash? No, but when youre already heavily invested and new opportunities dont meet your investment criteria, think twice before dropping your extra oxygen tank. Preparing Your Emotions Currently, everyone I speak to wants to invest in real estate. Some people think if they dont buy something now, they will never ever be able to do so in the future. That sentiment concerns me and causes me to be even more conservative than others. Related: What Newbies Should Know About Financing Investment Properties (Versus Homes) During the financial crisis, when stocks were falling to all-time lows, my father had a very clear sense that it was a great time to invest in general. He deployed an immense amount of capital picking up stocks and pushed me towards investing in real estate. He kept telling me that in order to make a great return, you need to have confidence in the long-term future of the market so you can think clearly while other people are losing their heads. What you need to do now is reflect on the last market crash and how you handled yourself. Did you lose your cool? Did you sell off? Did hide your money under a mattress? Or did you start deploying the excess capital you had to pick up assets at a discount? If you did lose your cool, what will you do now to prevent yourself from missing out on a great opportunity? Staying in the Game Many of you are super eager to get started, and thats great! But you have to understand real estate is a multi-decade endeavornot a one-year sprint. The real gains from real estate appear when years of rent increases, appreciation, and currency inflation, which allows us to use weaker future dollars to pay down debt that was denominated in current more expensive dollars, combine. As time goes on your properties loan-to-value ratio will decrease allowing you to pay off your loans completely and free up more cash flow or roll them into larger properties. But in order to be successful, you have to develop staying power to ride out of the ebbs and flows of the market. Many investors have been shaken out of real estate investing due to not expecting the market to go down and paying too high of a price for real estate. Some have short time horizons of five years or less, which increases the volatility of returns and increases the odds of you selling your property in the midst of a downturn. The truth is that if most investors were able to hold on to their cash-flowing properties purchased before the 2006 peak until the present, they would be back to break even. But unfortunately, most investors didnt buy cash-flowing properties with enough margin of safety or had holding periods that were too short. Understanding Conflicting Incentives Real estate agents, syndicators, wholesalers, and other real estate professionals who make money off of transactions have short-term incentives that can go against your long-term goals. This isnt a ding against these real estate professionals. I know many of these professionals, and the ones I associate with do their best to balance their interests and their fiduciaries interest. I dont begrudge them for trying to make a living, but you have to understand they only get paid when money changes hands, so they have the incentive to pressure you into an investment that doesnt make sense. You will also find other investors trying to sell their poorly performing properties at the peak of the cycle to offload their duds to newbie investors. Just because an investor owned a property doesnt mean its the right property for you. Make sure to do your due diligence. A Note on Due Diligence Real estate is a cutthroat business, and you will come across many unscrupulous actors. If you get a referral, whether from BiggerPockets or outside of BiggerPockets, dont assume its a good referral. Do your homework.Always ask people who are trying to steer you into an investment or working with a particular person, Are you receiving a commission from this deal? And if so, are you a licensed real estate professional? If they answer yes to the former, they should be a licensed real estate agent. If they arent, back away because if the deal goes south, you dont have the benefit of the department of real estate backing you up. Winning the Battle and Losing the War Think of the times outside of sports where you have competed for something and were happy with the results. Maybe you fought hard for a promotion by isolating your peers. Perhaps you lowered your commissions in order to beat another real estate agent to a deal. Or maybe you overpaid for a piece of property in order to close the deal. All of these scenarios result in a win in the short-term at the expense of losing the long-term battle. This is known as a Pyrrhic victory. The most important thing in real estate is buying a property at a profitable price. If you screw this up, the rest doesnt really matter. Competing for bad deals lowers your return on real estate, causes undue stress, and leads to poor decisions. Its as if you are fighting for the lowest return on your time and money. If you dont remember anything else I said here, remember this: There will always be another deal. Having the ability to walk away from a deal (or anything else in life) is the most important power to have in real estate. Most investors cant do this, and they will suffer the consequences. Because you have a job, you have the power to walk away from deals when the real estate market gets out of hand. The Difference Between Linear Growth and Exponential GrowthImage via: Tor Bair When newbies get started, its easy for them to get discouraged because real estate is not as easy as purchasing stock. They look at real estate as a linear game, meaning for each unit of time input, they should receive an equal amount of cash output. WRONG! Real estate is more of an exponential game. When you first start off, you will see little or no return in your efforts. It took me about a year of research and hard work before I made my first investment, and that was when the market was buyer friendly. In this market, it could take much longer. That being said, since Ive made my investments in real estate, there are months when Im not doing much work in real estate, yet the returns from my initial input of time are exponentially increasing in the forms of output of cash flow, appreciation, and new opportunities to set up partnerships with other investors. While others are living off the cash flow from their properties, we have jobs that pay our bills so we can reinvest our cash flow into other properties to take advantage of the power of compounding interest. So dont get frustrated, take it slow, and consistently spend time studying real estate. Dont focus on the output. Focus on what youre learning and how youre growing personally. Comparing Yourself to Others Will Only Hurt You Never compare your real estate success to others because we all have unique life circumstances. Hearing the first BiggerPockets Podcast episodes about people buying houses in the depths of the recession for a pack of smokes or a jug of moonshine definitely can be disheartening when current prices are in the stratosphere. Dont freak out. Real estate goes through cycles. You need to focus on your own immediate goalsand dont compare yourself to others. Comparing your real estate endeavors to others is a great way to make poor financial decisions. Be wary of hindsight bias. You really would have to try hard not make money in real estate between 2010 and 2013. Some people take absolute credit for their success and are willing to sell bootcamp tickets to cash in on their luck. But due to survivorship bias, we arent hearing the stories from the people who used the same strategies before the financial crisis. The reason why we dont hear from them is bankrupt people dont like to share their stories of failure. They sort of disappear and are ignored. People would much rather chase the gurus who spin their stories of success and wisdom. So when you see someone who did well during this last period of time, realize that a certain aspect of it could be sheer luck, and if so, dont be so eager to attribute it to their sage wisdom. Related: The New Investors Simplified Guide to Landing a First Investment Property What Does This Mean for You? This is a great time for you to build your real estate investing network, learn about real estate investing, and save your money. This is also a time to be cautious when it pertains to deploying capital in real estate. Sure, you might be able to find an opportunity here and there, but you have to take it slow. What Types of Real Estate Investing Should You NOT Do?Fix & Flip or Any Major Rehab Project This strategy is out due to the major time requirement, the knowhow involved in managing such a project, and the increasing cost of construction labor due to a shortage in contractors. Not to mention, if you miss appraisal or your expenses balloon, youre going to have a bad time. Right now, BRRRR is in fashion, but once properties start missing their appraisals, you will see why that method can be so risky and was part of the reason people failed catastrophically in 2006. Tax Liens and Note Investing These investments are doable, but you miss out on rent growth and appreciation. Im assuming youre aiming for rent growth and appreciation. In some cases, the borrower is unable to pay back the loan and you might be able to scoop up the property, but the foreclosure process can take forever and there are no guarantees other parties wont try to bid up the house price via a shill. Most importantly, you have a full-time job and you dont have the time to head over to the courthouse and bid on failing properties. Also, we never count on appreciation when building our financial models, but if we dont have appreciation, it hurts our ability to raise rents down the road because appreciation is a quantitative measure of the desirability of an area and a persons willingness to pay premium prices to live there. Development Projects No. Development projects have a million ways to implode for first-time investors and you really need to know someone you trust can walk you through all the intricacies of development. My family did make money off of our own projects, but that was after years of experience in investing in real estate, building experience in construction, and developing relationships with the city. We had great success, but we also had our butts handed to us on a deal. For newbies, I suggest staying away until you truly understand development. 3 Types of Real Estate Investing You Should Consider Being that you have an awesome career to focus on and family responsibilities, you need to use an investment strategy that fits within those time constraints. I recommended tech employees start with the following are three strategies when they begin investing in real estate. Buy & Hold Within an Hour-to-Two-Hour Drive From Your Residence This is hard for most of us to do in the Bay Area, but in an ideal world, you would be able to easily drive to your property to check on it and make sure your property manager is doing their job. If you decide to pull the trigger on an investment, buy something conservative. It should be a single family house or a small 2-unit duplex. If you dont have experience managing tenants, you shouldnt set yourself up for failure by making your first investment a property that has 3+ units. Ease yourself into it by starting with a duplex. Most importantly, invest in a neighborhood thats no lower than a B-class area, which means low crime, with blue and white-collar workers, within the path of economic development. Out-of-State Buy & Hold With a Property Manager Many employeesare doing this right now. They are buying properties out-of-state and using a property manager to manage them. I suggest you find one primary market to invest in and then do your market research on the state to learn about demographic trends, job trends, government climate for business, earning potential of residents, etc. Then pick a city and neighborhood to research crime rates, schools, location relative to job centers, and the citys general plan for development in the area. For the love of all that is good and science, when youre starting, dont invest in a neighborhood lower than a B. The lower you go, the more crime and the more landlord hassles you will have to deal with (more on that for another post). And most importantly, get yourself on a plane to see the area in person. Nothing beats visiting an area before investing there. Syndication Basically, youre a silent partner in a deal for a large apartment complex or commercial building thats already constructed. For these deals, you need to be an accredited investor or a sophisticated investor. Syndication is similar to buying a stock without having the benefits of liquidity. When you buy a stock, hopefully you read the 10-K to understand the companys business model, opportunities, management, and risks involved in buying the property. Once youve read it, then you make a decision to invest or not. From there, youre basically a silent partner, and hopefully the company does well so you receive a gain on equity or a dividend. For a syndication, instead of reading a 10-K you receive an Offering Memorandum, which is essentially a 10-K but for investing in a large multifamily property, retail building, storage facility, or development deal (development is the riskiest). After reading the terms, if you like the deal, you can write a check to the syndicator for an equity or debt position in the deal. If the deal goes well, you receive regular rent distributions, and once the holding period is over, you receive your principal and appreciation. You can find syndication deals via RealtyShares, Fundrise, and Realty Mogul. Wait, Why Didnt You Mention REITs? Yes, REITs are freely traded on markets and you can get in and out whenever you want, but they have an added level of volatility so they arent for the faint of heart, and when you see those daily price fluctuations, it can compel you to cash out too soon. The problem I have with REITs is its hard to get specific exposure to a desired area, and its hard to see the specific assets and returns in the fund. For instance, Im exposed to Sacramento for my buy and hold, but lets say I want direct exposure to Texas, specifically South Austin near a recent development. Its hard to find an REIT that is micro-targeted. Also, you dont have that much control over the actions of management or exposure to them, so you better hope the team knows what they are doing. That being said, REITs can be great investments; its just up to you if you want to go that route. Spreading Yourself Too Thin Ive known quite a few investors who have scattered their buy and hold rental portfolios over numerous states in the hopes of higher return. While they have the energy and time to do this, they forget that even returns have a law of diminishing returns. Scattering your portfolio creates an added level of complexity for your investments, which can lead to poor decision making. As you grow older, keeping track of the economies, policies, and tax regimes of multiple states can be more trouble than its worth. Assuming this is your buy and hold real estate, I recommend investors go deep in one market before spreading themselves too thin between multiple markets. As you begin to develop a better understanding of your primary market, you can spot opportunities and deploy capital faster than rookie investors. Eventually youll develop rich networks you can tap into to provide your business with the strength it needs to succeed. A Blended Approach to Real Estate Investing You should own buy and hold real estate indefinitely because you have a much longer holding period than standard partnerships or syndications. But you should have exposure to syndications, REITS, and other real estate partnerships to broaden your exposure. Using the latter forms of real estate investing, you receive the benefit from exposure to other markets, while leaning on professional management to protect you from the potential pitfalls of entering markets youre unfamiliar with. Of course, you need to do your due diligence! The only problem with partnerships and syndications is that eventually they end, and youll have a chunk of cash youll need to reinvest. But by having a healthy buy and hold portfolio, youll still have exposure to the market while youre looking for a place to reinvest your capital. Well thats it for now. Let me know what you think. Next time I will go into a deep dive on how to analyze real estate markets. https://www.biggerpockets.com/renewsblog/ultimate-guide-tech-employees-starting-real-estate/ |
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