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How To Start Investing In Real Estate

How To Start Investing In Real Estate

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Jonathan Cook: On today's podcast, we're going to talk about how to start investing. We're going to go through step one, two and three of building your team, building your strategy and getting your money ready.

Announcer: This is the Investing Revolution, a podcast designed to help your real estate investment strategy. On this podcast, we'll teach you the actionable steps to take in pitfalls to avoid so that your real estate investing can thrive.

Jonathan Cook: Welcome to the investing revolution. I am your host, Jonathan Cook. And with me is our co-host Christine Bennett. Hi, how are you today? Well, you know, fantastic. Excellent. You know, it's one of those. It's actually it was very comfortable today. Like, it's a little bit crisp outside. It's it's starting spring. It's exciting times. Things are things are getting fun. You know, it's it's a good time of the year.

Christine Malpica Bennett: Yeah.

Jonathan Cook: You know, what else is a good time for?

Christine Malpica Bennett: What's that?

Jonathan Cook: Investing in real estate, but it's always a good time for investing in real estate.

Christine Malpica Bennett: Going to say, I

Jonathan Cook: Mean, yeah, it's

Christine Malpica Bennett: Always kind of an always thing, but

Jonathan Cook: It is an always thing. But let's let's for the sake of the podcast and the listeners. Let's talk about today how to actually start your real estate investment. Like right from the start. This is this is, you know, event horizon. You've just crossed the edge. I've gotten the idea that I want to invest in real estate. How do I do that? It's a good thing that I've ran across this podcast because we're going to walk you through it all the way from start to finish. How about that I to you?

Christine Malpica Bennett: And we don't want to have analysis paralysis. We want to just kind of lay it out there.

Jonathan Cook: Yeah. And and I want everyone that's that's listening to understand that the reason that we're going to try and get so granular in this is because I see it constantly as as our BDM. You see it, too. We will start talking with real estate investors that come to both of us and are gung ho ready to invest in real estate. Look, I'm ready to go. I know everything that I'm going to do and I'm like, Cool. What's your strategy? Who's your team? What have you got going on? What areas are you looking for? What is your end goal? And they will just look at me with their eyes glazed over and they're like, Oh, watch HGTV. And I thought, This is a good idea. It seems I read, I read one of your LinkedIn posts. Real estate investing is the greatest hedge against inflation, and I thought it was a good idea. What do I do? And I'm like, OK, whoa, whoa. Whoa, whoa.

Christine Malpica Bennett: Let's rewind that. Let's take a step back. Let's pick it up. No, I agree.

Jonathan Cook: I agree. So and so when I am giving someone advice on what do you do? How do you actually get started? The first thing that I will always say before we start working on your strategy, before you go and find your funding before you do anything. The first thing that I think everyone has to do is consider and build a team. A team can be one person. Of course, it can be like it can be, but you have to have a massive amount of knowledge, expertise, certifications, for Pete sakes. You have you have to have a lot of information if you are your only team member and also your life is going to be twenty four hours a day, you're working in this business. So building a team, in my opinion. Is that step one?

Christine Malpica Bennett: So I think the thing to remember is to be the source of the source. So even when you're looking at it from, I'm the investor, I want to do this, be be aware of the fact that there are experts in each different. You know, type of investing or parts of the investment, so like you said, you need a team, what is the team?

Jonathan Cook: Yeah, absolutely. And you as the investor, you are part of the team you are. I mean, it's it's like having a good owner of a NFL team. That's that's actually a pretty good analogy. You have to have a good general manager to put together the the actual team itself, right? I mean, in that baseball or any sport or really any business. I mean, I've worked for people that that were excellent at building a team, but the individual operating stuff, they might not be the best at this, that or the other thing, but that's how you build a company. That's how you build a business. And guess what? Real estate investing is, Christine?

Christine Malpica Bennett: The business? Well, I think that's another thing that some people forget. Yeah, of course. If you want to invest, it's no longer a hobby.

Jonathan Cook: Well, that's I think that's you just hit it. Like, I think most people start out with this because like I said earlier, they've seen it on TV or they've read it on social media or if they've heard a podcast and they they start this out as a hobby. And this is a dangerous hobby. It is a is a shockingly dangerous hobby. If you are doing this as a hobbyist. Yes. Yeah, there's there's a major monetary investment in all versions of this, and you can really go downhill

Christine Malpica Bennett: Quick in time too. And this is the other this is the reason that you do want to have an efficient team behind you. So, you know, we talked about we talked about the team, but what does that mean for an investment? What does that mean for this new business venture that you're going to do? And obviously, you know you need an agent. Ok, maybe in some people you can.

Jonathan Cook: What if you were building a team? Let's say you, you. Let's say we're not property managers. Let's say we're not real estate agents. Like, Let's just lay out the team members what are like, let's build it like it was a football team or whatever. So you need, what do we got here? We got an agent

Christine Malpica Bennett: And a CPA,

Jonathan Cook: Need a CPA.

Christine Malpica Bennett: You need a decent attorney,

Jonathan Cook: A property manager,

Christine Malpica Bennett: Property manager, obviously title company, a lender lender. Yeah.

Jonathan Cook: So and there might be some additional specialists that you could add to it, but I think for. Like the base core part of the team, those are probably the most important members, right? And some of those can do double duty for sure. I mean, a property manager, several property managers are also licensed agents. I mean, both of us are oddly, neither of us actually sell that many properties because we do significantly more things. And riding an offer is not a thing that I can justify spending time to do, which is why we make relationships and partnerships with really good investment agents. That's part of it and finding. So if we're talking about building a team, how do you find the right agent, the right property manager, the right CPA, attorney, title mortgage? I think the first one that you need to recognize while you're building this team. The one that's going to do the most heavy lifting for a real estate investment, especially if it's going to be something that you're renting out, is probably going to be your property manager. And the good thing about property management is we tend to have our own versions of teams because this is such a day to day operation. None of us are solo. It's very, very rare to find a property manager that is a solo property manager.

Christine Malpica Bennett: Yes. And as far as efficient, you really need like you need a team as a property management company, I think we all can agree on that. So. When we're talking about teams and specialties and all of that. You kind of you really have to know what your strategy is going to be for your investment, I mean, what what do you want to do with it? Is that long term short term?

Jonathan Cook: Well, I mean, because. Exactly, so it's back to that whole. They've seen it, they've heard it. They've got such a surface level version of what real estate investing is. It is hard to pick a your team member if you don't have a strategy in mind, you're absolutely right and we will dive deep into strategies much later on, but specifically. So if if you don't know what your strategy is yet, I think the best way to handle how do you develop your strategy is to look at where do you want your profit from this investment to come from, right? What is your timeframe? What is your goals? Are you looking to cash out some big capital? You know, I want to buy a property at one hundred thousand. I'm going to use round numbers because it's easier math in my head here. I'm going to spend one hundred thousand dollars buying a property. I'm going to put twenty thousand dollars into the renovations. I'm going to sell it for one hundred and fifty thousand and I'm going to cash out my thirty thousand dollar difference like that, I think, is what everybody thinks is the base level version of this. And that's that's a flip that's that's a quick strategy, and you have to understand if that's what you're looking for. You need to grasp what that strategy is. That's A.. In that purely hypothetical and like that would be an ideal no brainer like, oh, if I only need to put 20 grand into this $100000 investment and I can sell it for 150, yeah, everybody would buy that. That's those are going to be very rare and difficult

Christine Malpica Bennett: To find that. And you have to look at your risk tolerance. Yeah, where where are you right now? Yeah. Does that make sense for you? Are you? Are you looking to just build cash liquidity? Are you looking for the long term, the long play you have to know, which makes the most sense for you in a global financial position of your finances?

Jonathan Cook: Oh yeah, absolutely. So like, OK, so real estate investing. Let's talk about the different ways in which. The income can come from that you can actually have monthly income from a real estate investment with a rental property. You can have monthly income plus eventual capital gains on like a turnkey property, a BR type of strategy. Things like that works you can have. You can spend your money in a very risk averse way and buy some really nice, you know, affluent property that you're not actually cash flowing at all. But like, I get that buying in this area is a pretty safe investment. I'm going to rent it for a long period of time. And and if you're young and you're like, I'm planning to retire and cash the difference out on this in 20 or 30 years. That's a whole different strategy. All these are entirely different strategies and where the the profit comes from, that is going to be wholly different. The amount that you can make is wholly different. It's entirely separate strategies. It's all real estate investing, right? But without a direct targeted strategy, you end up all over the place. I'm going to buy this five hundred thousand dollar investment over here. Oh, I'm going to spend, I'm going to buy this one hundred and twenty thousand dollar investment over here.

Jonathan Cook: I'm going to buy this million dollar thing here. I'm going to buy land and you end up with that really weird, sporadic investing where none of it makes sense and you try and compare one to the other. Well, this one right here. I've never had an eviction on and like the tenant's, been in there for eight years and they're paying four thousand a month. Well, guess what? That's like a really nice house and a really nice area. So like, you're kind of expecting that. And so it's not going to operate the same as your sixty thousand dollars investment that you have over in this C class area that you're making massive amounts of cash flow on. They're not going to even operate the same. The day to day operation of them is going to be so vastly different. You're going to run into different risk things. You're going to see, you're going to have evictions in one, probably. You have delinquency in one, which you might not see in the other. I mean, it's it's a whole different world between even one of the each one of the strategies.

Christine Malpica Bennett: So I think we've both seen portfolios like that where it's, you know, they were going with one strategy to begin with in order to maybe build capital for the next type of investment. Sure, we see that all the time. I think the the key, though, is when when you bite the bullet and you do it, you have to consistently keep looking at the portfolio. Is it cash flowing? Where do I have additional tax shelter? You know, yeah, it's a it's a Class B or C property, but it's still it's still make. It's yielding a profit, so you just have to constantly look at it. And that's a difference. I think that revolution offers is we we will help do that three year plan for people.

Jonathan Cook: So and that's one of the neat things that we've been doing recently is we have been offering strategic investment sessions with our new clients, and that's a really fun thing to watch somebody that did not start their investment process with us. They've come to us and said, Hey, you know, Jonathan, I've got this property that I rented and then, you know, they start talking to me and they're like, OK, I really want to learn more about real estate investing. Great. So let's talk about what your property is when when we get you on boarded, you know, we have the consulting stage here. The consulting stage has a monetary value. This is how we pay for that and what you know, we make it pretty reasonable for people. And so they sign up for that consulting stage and we discuss their individual property. Ok? So I don't know if this was your goal, but this is how this property will operate. And I think that's so eye opening from the start when somebody just jumps in and they're like, Hey, this is my property, and then I give them a three year pro forma and they're like, Oh, that's not what I was expecting. And I'm like, What were you expecting? And they don't have an answer, Christine. It's mind blowing.

Christine Malpica Bennett: Well, see, that's the other thing is we so I like to align myself with agents who get it. You know, there's a difference between an agent who specializes in a transaction that is going to be an owner, occupant, first time homebuyers, completely different than an agent who really understands, you know, an investment and what that looks like on paper. And if that you know, they're looking in the right area, the right type of property to get what the investor wants. Exactly. That's why we're really like to align myself with it.

Jonathan Cook: And that's that's back with building that really good, solid team. Once you find that agent that isn't just throwing out buzzwords, although there are several that throw out buzzwords and don't really know what they mean. But when you find that agent that that actually understands the difference between a cap rate and a cash on cash return and like true cash flow and a better strategy like a real bird strategy and like what you found an agent that really grasps how real estate investing works. And what all the strategies are and how that and most of the time, the people that I meet that that understand that were property managers, it's really more like me and you and a handful of other people. And then you run into so very rarely you run into those occasional real estate agents, which I actually have a few of them. And I know you do too that that get this in a way that it's like, OK, it's not perfect because they don't operate in our business. I mean, they operate in the sales aspect of it, but they don't actually run those day to days. And I think a PM ends up having that extra because we just have more data points than an agent does, right? Like we have maintenance numbers and we have like turnover ratio and we have a lot of different KPIs that that your average agent is not going to have.

Christine Malpica Bennett: We just see it every day

Jonathan Cook: Exactly because we operate in it. Yeah. But once you found that, all right, there's your agent, the one, the one that knows what we're looking for and actually can direct you to the location because that's the important part of the agent, right? It's not just OK, you understand what my strategy is. Where will this strategy operate the best? Because that's step three, like you've built your team. Step one Step two, you've built your strategy. You've understood what your profit is going to be. Step three Right. Where is this area going to? Where am I going to put this money? And step step four is probably finding the money. Maybe step three is finding the money, actually. And then it's step four is actually targeting that area where to put the money right? And that's the importance of that agent is he's going to be able to a local talented investment agent is going to be able to say, All right, so this strategy that you're looking to do, it's going to work best in, you know, here's these here's this big city. Here's this big metro. If you go to these streets right here, there's exactly, you know, there's three hundred homes and this one small little block, all of them were built in. This time they have this type of structure. They're all going to be this kind of area. These are the rents that they should generally get and that will fit this strategy, right? That's that's the importance of that. Your property manager probably is a good person to help you with that as well, because they're going to understand the rent values a little bit cleaner than an agent will typically.

Christine Malpica Bennett: Yeah, and that's why we work alongside with them. Yeah, of course. They're our greatest referral.

Jonathan Cook: Yeah, absolutely. Then OK, so. I think I think now it's time to talk about getting the actual money to put this in here, right? Because that's that's what I think everybody's been waiting for. I know that's your favorite part. Yeah, but I also think everyone probably was expecting that to be step one. I've got to get money somehow to go buy this stuff. Step one is build this team. If you get money and you don't have a team cool, you have money. What are you going to do with it? Then you start struggling. Step two You've got to understand when you want your money to come out of it. How do you want your strategy to work? Where do you want your profit to come from? Step three Actually, so before you actually pick your area now, it's time to go. Get money, Christine.

Christine Malpica Bennett: I do like money, so and I do like finding money. And I think this is the this is the the part that is really important in again, building your team, you know, having a network of people who know how to do these things, know where to find the capital. There are so many creative ways to find to raise funds for an investment. I mean, hard money, equity lines. Home equity lines. Friends and family. We've seen a ton of people who will loan money from loan money to friends and family and, you know, take a percentage out of it. I've seen people decide strategically and this is, I think, the whole the whole concept of what we're trying to say here is strategically planned. Your investment that's that's the real golden nugget here is take the time to plan what you want to do, how you want to do it, who's going to help you do that? But I've seen people decide that they're going to actually take money out of a retirement account because of what it's yielding now versus what they can do with it in real estate. Now I'm not advocating for it necessarily, but it's it's one of those things that you when you want to find the money, you'll you'll find it. Sure.

Jonathan Cook: So. Let's that's a pretty good overview of what what this episode is about and what what we're trying to get across. Let's let's talk granularly. About and we have talked about the agent, right, so we understand what we're looking for in an agent. We know for mortgage lender, that's that's part of what we're talking about here for finding the money. A CPA will talk about that. Let's granularly granularly. Yeah, let's talk about finding the right people to put in your team. Like, how do you do that? How do you find? An agent, because we might have listeners that are not going to just call me and say, Jonathan, Christine, find me a house. So what? What would you do? I'm building a team, I need to find an agent. How do you find the right agent? We know the right agent, so that's great, but we've already done it. We put in a lot of work to find those agents. What did you do to find the right agent to start building this team?

Christine Malpica Bennett: So me, I'm looking at a couple of things. I'm looking at how active they are. Ok? You know, are they plugged in to the local realtor association or if that's they're not, that's fine, too. I'm looking at production, I'm looking at knowledge, I'm calling them, and I'm just kind of picking their brain to see if. They understand it and they understand what I'm trying to accomplish. I fact checked. That's just me. I really am just I'm looking for someone also who is diligent and responsive. Ok. So. What do you look for?

Jonathan Cook: Ok. Specifically, when I start to look for an area. Ok, so when I moved to Georgia and I was like, All right, I'm changing markets, I'm going to dial in and I'm going to find my version of that agent, right? So the first step before I started calling people to make sure that they weren't numbskulls before I did that, the very first step that I actually did is I opened up the multiple listing service. I opened up MLW's and just started looking at properties, right? And because I know what kind of properties do what, because I have an extensive knowledge on how real estate investing works. I've been doing this for years. This is what I've been doing since I was an adult. Like I know the properties to target, I don't need help finding the properties to target. But you know, I did not need was that agent, so I started looking. At properties that would fit each individual mold, right, so so I sat down probably in my first handful of weeks here in Georgia. I was like, All right, so I'm going to break out all my strategies. Here's the cash flow strategy. All right. So in the cash flow strategy, let me find some properties that work for cash flow.

Jonathan Cook: Started looking at Griffin. I started looking at College Park. I started looking at all these more rural outside of the city centre, but high rents, lower price points and they were distressed homes. They were very clearly like investment properties. And so I started looking at those properties and taking note of who the listing agents were on all of them, right? All right. Oh, this guy right here, this oh, this guy has 12 of the 20 properties that I think are the best versions of this, and I was specifically targeting the ones that I thought were probably going to be the best investments in the end. It's like I started tagging. All right, so this one guy has this many listings in this area and they all seem to be really good. So then I call him, ask him about what he thought about it. And actually, the first guy I called was super, super, super knowledgeable. He really did grasp what we were looking at here. He had a very. And what's funny, I think, is most of the time when I run into those agents, they're very much like me in terms of like its numbers, man. Like, we're just going to talk about the numbers here.

Christine Malpica Bennett: That's why I think production is important. Absolutely.

Jonathan Cook: It's all it's all about the numbers. Like, he's like, I mean, you can go see them, I guess, if you want to go, look at them. But I mean, like, they're not in great shape. We're aware of that. It's going to roughly take probably this much money to change them over and get them ready to go. And but like we recognize that the RV is going to be pretty high and like this guy, clearly like he's saying the right buzzwords, but he's saying them properly. This guy very clearly understands what he's saying. He's not just throwing out, you know, terms that he's learned on some podcast,

Christine Malpica Bennett: Which I love too. What's that when you're vetting an agent in a new area or new market and they're like, You know what? I don't think this is right for you. Yeah. And God, that is usually what makes me gravitate towards someone like that because I'm sharing, Hey, this is what I want to do. And when they are telling me. No, this is not a good idea for this reason. That's where I really respect that. Yeah, it's usually the agent that I'm knocking down the door and I want to get referrals.

Jonathan Cook: Absolutely. And that's that's the ones that we find. And then so that's exactly right. That's exactly right. And I did that with every step of what this is. What's really neat is when I found the agents that had overlapping strategies. I was like, All right, this guy is a cash flow guy. And then I find him also in like long term buy and hold kinds of properties, too. And I'm like, Whoa, whoa, whoa. Whoa there, buddy. And he's like, Yeah, I do these two. I'm like, So this guy actually gets it right? And then that's the kind of guy that like you. And like he would also be, he's the same kind of guy that would be, you know, don't buy this for that because that's not going to work. But and that's it because it's it's verifying the knowledge that they have and they clearly understand it. So that's that's how I find an agent. I spend a lot of time looking at properties and then I ask them and like. Part of what you can do to verify that if you understand the process here, you can ask them specific questions like, Oh, would this be a good long term buy and hold on something that's clearly not?

Christine Malpica Bennett: See what they

Jonathan Cook: Saying. And if they're like, yeah, OK, well, maybe they understand a little bit. Maybe they can help you with contracting, but clearly they're not the one. Or maybe they have some scruples about them that maybe we don't want to play with. Yeah, it happens. Yeah. So you've got an agent now? Our our hypothetical new investor. You have an agent. Do you find a mortgage broker next or do you find a property manager next? We're property managers, so I haven't looked.

Christine Malpica Bennett: Yeah, yeah.

Jonathan Cook: I haven't looked for a property manager in a long time, to be perfectly honest, but I think it's as important as literally finding the agent. I think finding a property manager is as important as discussing what kind of strategy you want. I think finding a property manager. And we are biased. I get it. We're going to have a whole episode specifically about why finding a property manager is so important. We don't have time to dive into an hour long conversation about all the things that we do. But it's superbly important. What what is it about searching for a property manager? Let's let's put them in a market that we have no interest in ever going to, let's say, Portland. Portland is a good area that it's a good area hypothetically for. It's probably not a great real estate investment area, but let's let's pretend we're investing in Portland. I don't want us to ever be in Portland just because it's so far away from us, and I don't think it fits how we operate. So if you're looking for a property manager in Portland, Christine, what are you looking for?

Christine Malpica Bennett: So. I am looking for a lot of things, and that's because of my hats. But if I can go back 10 years and think about what I would have looked for and did look for actually was I wanted, I wanted an organized company. I wanted to know that they had the tools and resources. I wanted to know that they were experts in their local market and how to manage a property effectively. I wanted to make sure that they were a good fit for my property. So you don't want a, you know, if they're not accustomed to handling a a b b class property or vice versa, a class property

Jonathan Cook: Or C, there's a lot of there's there's there are several property managers that I I know very well that hate C class property.

Christine Malpica Bennett: Yeah, if they're not accustomed to it, they're not a good fit. I totally get it. You know, you have to look at that. I also me. I wanted to make sure that they understood what I needed to accomplish. So again, going back 10 years ago, what I wanted to do was just hang on to the property. I wasn't really worried about making a monthly profit. Sure, I was looking more of, Hey, I want this to appreciate while I'm doing life and and that was fine, you know? And actually, I did make a monthly profit. Sure. Small monthly profit, but something. Management company. Because they kind of, you know, they made sure maintenance was in check and it was great. So ultimately, oh, we go back.

Jonathan Cook: Where does when does pricing come into play?

Christine Malpica Bennett: Well, I'm just going to say so also comes down to the relationship. So I mean, if I know

Jonathan Cook: This is a great sales pitch for us, by the way,

Christine Malpica Bennett: Listen.

Jonathan Cook: We like OK. So listeners, not for anybody to get the wrong idea, we are property managers, we do this, this is what we actually do. We have a major bias in this field. One hundred percent. I just want to be very clear that we have a bias. But the reason that we have that bias is because this is what we do all day, every day and we take in properties that were managed by really bad companies all the time. And to go from a company that doesn't understand how to operate in an investment if they exclusively work with accidental landlords. And that's not a term that we've used yet. So I want to dive into that just for a second and accidental landlord to somebody who's not intentionally looking to go and invest. They've they've inherited a property. They accidentally grabbed it, they moved and they couldn't sell like that is a whole different mindset from operating and intentionally an intentional investment property. You have to you have to collect money differently. You have to treat the tenants differently. Y