Starting out

Real Estate vs. Stocks: Part 1- The “Hero Stock” Myth

by Brandon · 0 comments

(This article is part one in a two part series on the battle between stocks and real estate.)

“If only I had bought Apple stock when I had the chance! It was $X per share and now look at it! I would be so rich by now”.

No doubt this story sounds familiar to you. I’ve heard it dozens of times about dozens of stocks. “If only”. It is this story that drives millions of Americans to faithfully throw thousands of their hard earned dollars into the hands of stockbrokers with the hopes that they can pick the right stock and they too can be rich. It is completely absurd. The stock market is the worlds largest lottery, and as Dave Ramsey says, a lottery is just a “tax on the poor”.

For every one “hero story” of a stock soaring from bottom to the top there are hundred or thousands that disappear from the stock market entirely, giving investors a loss. In fact, in 1988 the Wall Street Journal did an experiment which pitted professional stock brokers against someone blindly throwing darts at a newspaper stock sheet. The results? The professionals only slightly beat out the darts, embarrassing the brokers and confirming that picking the right stock is a gamble even for those who’s whole life is dedicated to it.

When people look back and say “If only I had purchased X stock in X year, I’d be rich” it might be true. However, cheap stocks are cheap for a reason – they might not go anywhere. The vast majority do not.  Clearly, if we could hop in our Delorean and fly with Marty back to the past we could tell our old selves what we should invest in. This just isn’t plausible in our world, so we must find another way to invest and secure our future.

Next time I will look at a favorite among personal finance gurus called the mutual fund and why average returns are for average investors.

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

New to “Real Estate In Your Twenties.com”? Start Here!

by Brandon · 4 comments

Welcome to Real Estate In Your Twenties!

Thank you for taking time to check out Real Estate In Your Twenties!  My name is Brandon and I am an active real estate investor, musician, globetrotter, entrepreneur, and hopeless romantic. I don’t like jobs, bosses, careers, or depending entirely on a business I can’t control to tell me how I should run my life. Along with my gorgeous wife Heather, I have spent the past five years discovering ways to “hack” the real estate investing game to allow me to live life on my terms.  In the process, I have discovered hundreds of tips, tricks, techniques, and pitfalls that I now want to share with you.

This blog is designed to help you avoid those mistakes and help train and encourage young people like myself to jump into the world’s largest game and play to win.

Do you have to be in your twenties to learn from this site?  Of course not!  Whether you are twenty-one or sixty-one, this site is designed to teach anyone principles, tips, tricks, and techniques to get into real estate investing without years of financial backing and experience.

Make sure to add your email in the subscription box to the right to subscribe to my blog via email. And don’t worry – I hate spam as much as the next guy. I promise I won’t sell, trade, transfer, or give your email to anyone else. And if you really like something, please share it on your Twitter or Facebook Wall! Just click the little icon above the search bar immediately to the right of this post!

Thank you for taking time to read.  Happy Investing!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Screening For Ghost Tenants

by Brandon · 1 comment

I don’t believe in ghosts.

I especially don’t believe in ghosts who apply to live in one of my two-bedroom apartments (I hear they are more attracted to creepy mansions). This is why when poor Miss Abileen’s name came forth on the background check I ran this week, despite her death in 1987, I didn’t immediately call the Ghostbusters. While there are a number of “protected classes” that are illegal to discriminate against, I’m fairly sure being dead is not one of them. Clearly something was wrong with the social security number provided. It was fake, probably purchased by the applicant who was lacking a social security number.

This event has made me revisit just how important screening a prospective tenant truly is. As a young investor, it is easy to want to just let a tenant move in based solely on impressions. After all, throughout high school and college we are accustomed to gauging the integrity of a person based entirely on conversations. However, properly screening tenants is the most important step in decreasing the headaches you will get while investing in Real Estate. I would even be as bold as to say 90% of all management headaches could be avoided by adequately screening.  Nearly every problem I’ve ever had with difficult tenants has been from letting my standards slide when screening for them.  I have learned from my mistakes and hope to teach you to avoid them as well.  The following is a list of the top six things to research before allowing a tenant to move into your property.

  1. Valid Social Security Number: I’ll start with this, as it relates to the story above. There a number of reasons a tenant might have a fake social security number, such as immigration issues or trying to hide their shady history. While you might be tempted to allow a fake or non-existent social security number to slide – this is a terrible idea. Instead, just take all the money from your bank account and just mail it to me. Why? You are almost guaranteeing future financial problems. If they refuse to pay, trash the place, and skip town – you can’t garnish wages. If they hurt someone on your property, you can’t find them. Finally, without a social security number, you have no way of knowing who they really are and what they have done in the past. Do they have several evictions? Do they have seventeen felonies in the past year? Simply put, the risk taken when renting to tenants without valid social security numbers far outweighs the reward.
  2. Job Verification: Tenants may tell you they have an excellent job, but without verifying it from their employer, you have no way of ensuring that they are telling the truth. Even if they bring current pay stubs to you, it is still a good idea to call their place of employment because the job could be just a temporary position ending soon. Renting to tenants without a proper job is just asking for future evictions.
  3. Income Verification: I recommend setting a minimum income level for your property at 30% of the tenant’s gross income – and make this number visible from the start to avoid wasting time. I cannot tell you the number of times I have driven to a property to show a unit, only to find out that the tenant only makes $500 per month in social security and is looking to rent a $495 apartment. It is ludicrous, but it happens all too often. Tenants do not know how much they can afford, which is why you must. I now tell prospective tenants over the phone exactly our qualifications to minimize unnecessary trips to show units.
  4. Previous Landlord References: You do not want another landlord’s trash. Calling a previous landlord is vital to knowing the kind of tenant you might be soon renting your property to. However, do not simply just call the most recent landlord, because more likely than not, this landlord will give a positive review even if the tenant was terrible – simply because they want them gone! Instead, go back to other previous landlords and find out the quality through them. Additionally, a proper background check will include previous addresses for the prospective tenant. Make sure these addresses line up with the addresses they give you. Often times tenants will conveniently “forget” to include landlord information for the property they were evicted from.
  5. Credit – While understanding a prospective tenant’s credit is important, this is the only item on this list that is only necessary depending on the type of tenant you are looking for. Credit checks often just tell you one thing – they have bad credit. However, if you are renting higher income properties – by all means check credit. They way a person has paid their debts in the past is a huge indication of how they will pay you.
  6. Living Style: This includes a number of specific items of note about your perspective tenants that are pertinent to know before renting to the tenant. This includes items such as number of pets, other people who will be living with them, smoking status, and “how much cash do you have”. These questions will help you better determine the type of renter this prospect will be and how they will affect the condition of your home.

Screening tenants does not have to be a scary task, and can easily be subcontracted out to either a screening company or simply a trustworthy college student looking to make a little bit of money. I also strongly believe in charging a tenant for the cost of the background check. It is generally common practice and it will help weed out the tire-kickers and only get serious renters.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Getting Started Investing in Real Estate – Part 2: Your Investment Plan

by Brandon · 8 comments

This article is part two in a four part series on Getting Started Investing In Real Estate (to read part one, click here).  Last time I discussed the important of building upon a solid foundation before jumping into the investing game.  I cannot stress enough the value of getting a firm grasp on real estate fundamentals before buying your first property.  However, you don’t want to live in a perpetual state of learning forever. Education is only as good as the results it produces. It’s time to make a detailed plan on how to put that education into action.

Many investors skip step two and instead just jump right into buying their first property. This is not only a decision that will cause years of aimless wandering and untold headaches, but also marital stress, wasted money, and financial bankruptcy. Do not skip step two. Instead, grab some paper and a pen and lets get started. Yes, literally go grab that pen and paper. I’ll be here when you get back.  Five years from now you will thank me.

Defining Your Goal:

Answer for yourself the following question:

How much money would you need to live comfortably if you didn’t have a job? _________

The answer to this question is your minimum monthly income.  This is the amount of money you need to quit your job and begin living life on your terms.  To define your investment plan, you need to divide this number by 100 (more on why later). This is your minimum number of units you will need to obtain.  For example, if I needed $5000 a month to live comfortably (the average US Household makes around $4250 per month), I would divide $5000 by 100 to discover I need 50 units to live comfortably. This number is now my minimum number of units.

Write out the following statement on your paper: 

My Investment Goal is to Produce __________ in monthly passive cashflow by purchasing _______ units over the next _______ years.

This is your goal. It is Specific, Measurable, Attainable, Relevant, and Timely (SMART).

Defining Your Criteria:

Why do we divide by 100?  This is the minimum amount of positive cashflow per unit you need each month in order to justify a potential property.  This is your most basic criteria when determining what separates a “good deal” from a “bad deal”.  Does the property produce $100 per month in income after all expenses are paid out?  This includes the percentage set aside for when the unit is vacant, in need of repairs, evictions are required, etc.

For example, one of my properties is a triplex (three units). The total monthly payment on the mortgage is just under $500 per month including taxes and insurance.  Other expenses (such as a 5% vacancy rate, repairs, lawn care, property management, etc) add an additional $300 per month in expenses for total expenses of $800 per month. Total income on this property is around $1300 per month, leaving $500 per month in positive cashflow. This equates to $166.66 per unit per month in cashflow. Does it meet my minimum requirement? In the words of my Minnesota heritage, “Ya, sure, ya betcha!”.

“But I could never find a deal this good!” Depending on where you live in the country, this minimum criteria may be easy or difficult to obtain. In my area of Western Washington State, this number is easily attainable and often times investors require $200 per month cashflow. If you live in an area where prices are significantly higher (such as Southern California, Seattle, Boston, Chicago, or other major metropolitan areas) you can still find properties that meet this criteria. You will just need to search harder, make more offers, and look outside the city a little further.

This is it. Of course, your investment plan will grow as you determine more and more of what you are interested (or not interested) in. Do you like two-bedroom apartments or studios? Do you like new construction or remodeling? Do you want to manage your own properties or hire a property manager? These are important questions, but broken down to it’s most basic parts, your goal is to produce enough income to free yourself. Its your job to now make your plan a reality.  Its time to purchase your first property.

Leave me a comment below and then click here to read part three of “Getting Started Investing in Real Estate.”

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Getting Started Investing In Real Estate – Part 1: Gaining Free Education

by Brandon · 10 comments

Investing in Real Estate at a young age requires a different approach, style, and skillset than investing at an older age. However, the principles behind sound investing do not change whether you are twenty or eighty.  This article is part one of a four part series on how to begin investing in real estate at a young age. If you only read one article – let it be this one.

My brother recently received his tax rebate check of over $1000 and asked me, “I want to invest this money – how should I start?”.

He expected me to tell him the secret to buying a house with a minimal down payment or a hot new tip on investing in gold (which I am adamantly opposed to, but that is topic for another post). Instead, I told him to use that $1000 to gain education.  No, I don’t mean college or a cheesy seminar with a so-called “guru”.  In fact, I suggested he use his money to take a week off work and spend a week at the beach reading books.

Education is the first step to any investment dream and congratulations, by reading this blog you have already taken that first step.

There are numerous ways to learn how to invest, most which are free.  The technique you use to learn greatly depends on your learning style.  The following is a list of just a few. I encourage you to check out as many as you can to determine your favorite way to learn.

  • Books – This learning method goes without saying, but I would like to emphasize the power of public libraries in gaining free education.  This technique resonates most with my personal learning style. During the first year after I decided to get into real estate investing at twenty-one years old, I checked out every book in my library’s regional collection dealing with real estate investing – well over a hundred – and read each one cover to cover.
  • Blogs – These are an amazing source of information, written by people living in the trenches of real estate. Websites such as http://www.BiggerPockets.com offer hundreds and hundreds of articles, forums, and blog posts teaching every conceivable aspect of real estate investing.
  • Mentors – If I were to go back and start over, I would have started earlier with this technique. People love to share what they know, and seasoned real estate investors are no difference.  Get to know who the major players in your town (ask any real estate agent or join your local real estate investment club) and offer to take them to coffee. It is amazing the number of pitfalls and regrets you will avoid by simply learning from those who have been there. In addition – these contacts you make will help you in more ways than one in developing you into a world class investor.
  • Podcasts – A recent innovation in the real estate investor world, there have been a number of great Podcasts that have emerged in the last few years. My current favorite is the Real Estate Guys Radio show. If you have an iPod or Iphone, you can listen to over a HUNDRED hour long shows covering a wide variety of real estate topics whenever you want – for free.

What are your favorite inexpensive or free ways to learn?

Leave me a comment below and then click here to read part two of “Getting Started Investing In Real Estate.”

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

My Muse

by Brandon · 3 comments

 

Real Estate is my muse.

 

In Tim Ferris’ book “The 4-hour Workweek” he discusses the need for a “muse” in which to satisfy that little craving in our life called “money” without needing to fight rush hour, punch the time clock, or suck up to your sexist boss. (If you haven’t read my review yet or want to buy the book for yourself, click here). To quote The 4-hour Workweek:

 

Our goal is simple: to create an automated vehicle for generating
cash without consuming time. That’s it. I will call this vehicle a
“muse” whenever possible to separate it from the ambiguous term
“business,” which can refer to a lemonade stand or a Fortune 10 oil
conglomerate—our objective is more limited and thus requires a
more precise label.

 

For Ferris, it was an online business that sold nutritional supplements for weight lifters. For me, my muse is real estate.

 

A muse is simply a tool you use to generate income, that is not dependent on you working a 9-5 job to make it happen. In the investment world, we call that “passive income”, which comes to you passively (as opposed to “active income”, which – shocker – comes to you through active work). Stocks are passive income, but require large amounts of cash to begin with weak returns.

 

Real Estate, for most, is not a passive activity. Many investors are (literally) knee deep in crap half the time and saturated with headaches the other half. Buildings require work, tenants require training, and toilets will always need to be plunged.

 

But that won’t be you.

 

Hacking Real Estate is about using shortcuts, tips, techniques, and systems to turn a normally “active” investment into a “passive” muse. Its about making the choice to automate your investments. Its about making the choice to control your investments, not have them control you. Its about making the choice of how you want to live, rather than simply following the herd.

 

Your muse can be real estate, a supplement company, stocks, or an infinite number of other sources of income. The important thing is making your muse passive. This doesn’t mean you will never do any work to maintain it. It takes time, patience, and work to create a muse. But it does mean you make the continual and conscience choice to fine-tune your muse into a well oiled cashflow machine that will allow you to live the life you want.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

123