Real Estate Investing: Episode 5
Jason Bramblett Real Estate Show Podcast
Jason: Good morning, Triad. Hope everyone is doing fine on this Saturday morning. Get your sunblock and your coolers full of ice because it is going to be hot, hot, hot today.
Mikell: That sounds amazing. Sunblock. Cooler full of ice.
Jason: Sunblock or just stay inside. Either one. If you are going to stay inside though, I have got some homework for you today. How about that? We have been talking about real estate investing, and now we are going to dig into the next stage of that, and that is the how to. The nuts and bolts. How to break it down. What is the formula? Where to start? How do I begin? Who has got my money, and where in the world can I go get some and all that stuff? So we are going to dig into that to get you started. If you have been following us along, and there have been several thousands of you, it seems, following us along, which is awesome.
Jason: Thank you for that. Keep sending in the emails. Go to Jason Bramblett dot com. Shoot your questions over. We have had some great engagement and questions and things I had not thought about that we are going to dig into and share with you on the air. So if you will go grab a pen and paper, if you are driving down the road, hey do not worry about this thing is recorded, and you can hit the blog site later today and take a listen. So we are going to dig into evaluating the properties, but also evaluating the money, which is important as well. I tell our new agents. You have got to explain to people so they understand. The most expensive thing about buying a home for most people is not the house. It is the money. The mortgage is the most expensive part of buying a house. Right?
Jason: You have got to make sure that you got that right and you get the right type of loan for what your family situation is. Recapping, just to kind of look ahead. Where have we been and where are we going. So we talked about why should you invest, why real estate is good, and there are lots of things to invest in. I love real estate because I can touch it, feel it, see it, drive by it, and I cannot do that with Wall Street very easily.
Jason: I can go to Wall Street, but I really cannot touch the paper I own because it is just kind of in the Cloud.
Mikell: And it is really not paper.
Jason: It is really not. It is just your name on a piece of paper, fakey paper.
Mikell: There you go. Like you said, it is in the Cloud.
Jason: You are on a ledger somewhere. How about that? It is like bitcoin but just not as cool.
Mikell: Absolutely. There you go.
Jason: There you go. We talked about you bought your first house. You are living in it. You have converted maybe your first home into a rental property, which is what we suggest because typically the first property you buy is perfect for a rental. You typically bought it in an area that you want to live and other people want to be there, too. It is not a mansion; therefore, it makes sense to rent it. Right?
Jason: All these things make for really good rentals. Now here is the rub for house number two. If you have the discipline to not move up, and this is a challenge, but if you can keep the discipline to stay in the same type of property, now you can take your owner-occupied self with a new owner-occupied loan, converting your property you are in now to a rental and buying your next home. Why is that a good thing to do? Well, owner-occupied homes you have to put less money down. They are also easier to qualify for because you are going to live there. So these make it very easy to enter into that. If you do that, let’s just say every couple of years, in ten years, you can acquire five, six homes pretty easily that way.
Mikell: Last week you were saying that for an investment home, you have to put 30% down?
Jason: Every bank is different, but typically –
Mikell: Around that.
Jason: Yeah, it is somewhere between 20-30%.
Mikell: So you save a lot of the down payment?
Jason: Oh yeah, absolutely. Absolutely.
Mikell: Oh, okay.
Jason: Interest rates are more favorable –
Jason: -- for owner-occupied properties. Investment money or investment properties typically have a higher rate, so you have converted, so when you bought the home it was owner-occupied, and that loan was fixed.
Jason: It was a guarantee by the bank that said hey, we are going to do this, and we will not change your interest rate. Well, when you move out in two years, three years, four years, whatever it is, and you go buy the next property, that loan is still fixed.
Mikell: That is true.
Jason: It is true.
Mikell: That is very true.
Jason: Okay? It is a way in which you can enter the real estate investment world very affordable. It is a step-by-step thing. Now some people say that is going to take way too long. Well, it is a marathon, not a sprint.
Mikell: The way you just described it, people do not get into the fixed mindset where you have to be rich to get into real estate --
Jason: Oh absolutely.
Mikell: -- and do that process.
Jason: Well, we are going to show you how to do it with no money.
Jason: Even better. Right?
Mikell: My situation.
Jason: So we are going to see. This is not the seminar dudes rolling around in the hotels. All this other people’s money garbage and all this stuff. Okay. There is a right way to do it, and the right way to do it is through relationship. We are going to talk about that today and dig into that. Some of these other people’s money, they are out here using AMEX at 19%. You do whatever you want. To me, that is beyond my risk factor.
Jason: I have this other, some people call it spider sense. I just call it common sense. It is beyond my common sense to do those things. But I know people who have bought homes on their AMEX. Okay? To each his own.
Mikell: That is not the first time I have heard that.
Jason: It just depends on what your threshold of risk is. Okay? Some people have a real high tolerance for risk. I just keep it real simple. I figure if I keep it simple, simple is just the right pace for me.
Mikell: I like that.
Jason: The other thing nice about simple is it is very duplicatable. If I was going to be hey, the best way to buy a house is to get your AMEX card and buy one. I just lost like 99.99% of you.
Jason: Because it is not, it is such a small amount of people that will do that. It is just a risk you do not need to do. So we have converted house one. Now we have house two. The discipline is not moving up. That is the thing. Most people want to change. They want more space, bigger house, next step. Right?
Mikell: That is hard.
Jason: It is hard. Anyway, if you can do it and keep that discipline, you are in there. But let’s just assume hey, it is life. You are not going to listen to me. You are not going to do that. Because Mama is like no, we are not going to do that.
Mikell: Absolutely. That is exactly what I was thinking about.
Jason: I want another bedroom. I want a bigger yard. I want this and that. That is real life, and that is the real deal, and husbands, you are just going to lose. And do not even go to her and say Jason said. No, no, no, no because that is not going to work either. Here is the big thing. That is not an option.
Jason: So how do we get the money? Right?
Jason: So now that is not an option. How are we going to get the money? How are we going to do this? You have got to start saving. Right? You have got to figure things out. Down payment money for these investments. There are lots of ways you can do it. I will share with you some of the ways that some of the people that I have coached over the years. I had a young gentleman that worked for UPS. He said I am going to be a real estate investor. I drive neighborhoods all day long. I see all these amazing opportunities on my routes. I have no money though. How can I do this? I said well, you look like you are physically fit. You sling boxes all day, man. You are in great shape. What I would do is I would go buy me a self-propelled lawnmower, a big old tank of gas, and the neighborhood you walk in, I would just go to your neighbors and say I have got a phenomenal deal for you. I am going to cut your grass so cheap you cannot say no. And guess what? They all said yes. And he ended up cutting about 30 lawns. There probably was not even 90 houses in his neighborhood. He had 30% of the market share. Most of them were side by side, so he could just cut them all at one time. Bought him a, not a landscape business. He did not go get a $16,000 zero-turn mower. I think he invested about $1000 in a really good quality Busch or self-propelled mower –
Jason: -- and he walked the lots and walked the yards and cut the grass very, very simple, and he charged $35 a week or whatever it was. $35 every time he cut it. Now, I know all my landscape friends are saying yeah, that is the problem is we have got people undercutting us. Look, he is looking for an opportunity. He is willing to do something that most people are not willing to do. His reward was in one summer he earned enough money to have a down payment to buy his first rental.
Jason: And then we taught him how to snowball that. So he was able to cut those 30 or 35 lawns for a whole entire summer. Guess what? He does not have to do it anymore. He just went in there and ripped the band-aid off and busted it out and did it.
Mikell: I may have to do that.
Jason: If you live in a neighborhood that has got a couple of hundred houses, you do not need all of them. Basically, his rule of thumb is if I can walk the mower to the yard, that is who my target client is. I am not driving all over town because that is time, money, and energy.
Jason: Just right in his yard. Right in there, and he just said hey, would you like to take the summer off. I will cut your grass. It is $35, and most people were like yeah. He was very clear with them. This is temporary. I am only doing this to save money to get a down payment. Next year, you are on your own. Cut your own grass. Hire somebody else. Whatever you want to do, but he had a goal, and he hit it, so he could be done. What do you do? I do not know. In that case, he was cutting 30 yards at $35. The guy is making almost $1000 a week, and he saved his money really quick. Now did it take him a lot of time? Absolutely. Did he work probably some 16 and 18-hour days? Absolutely. He probably worked every Saturday and every Sunday for 10 or 12 hours. Absolutely. But guess what? He only had to do it for a short time, about 90 days, and he does not have to do it anymore at all.
Jason: What else could you do though? Uber, Lyft. Right? You could do those things. I do not know what they pay or what the money is. I am just saying those are ideas. You could wait tables. You could work at a really nice restaurant, make a couple hundred dollars a night. You could find a side job in whatever field you are in.
Jason: Maybe you are a plumber or an electrician or whatever. Here is what I know for sure. If you want it bad enough –
Jason: -- the how always shows up. 100% of the time. If you want it bad enough, the how is always there. The opportunity will be there. If you do not want it bad enough, it will seem like work. And it will be no fun, and it will be a pain. But here is the thing. If you pay the price now while some of you who are listening that are young, you will not have to do this stuff when you are old. I will promise you. He is not going to be cutting his grass when he is 60 years old and retired. He will have somebody doing it for him. Why? Because he has paid the price now to leverage his time to buy assets that create what we talked about several weeks ago – passive income.
Jason: Money in which you earned that you did not have to put any effort in to. Or your put effort into it a long, long time ago, and the benefit is there forever. The great thing about rental property, unless it burns down, it will pay you for the rest of your life.
Jason: And the cool thing about that is you have other people paying down your investment for you, and so it makes it really a sweet, sweet thing. All right. So you pay the price? Is it worth it? Absolutely. If you are a young person, and you have got a little bit of, I do not know, muscle behind you or just youth. You do not even have to be young. If I had today, for whatever reason, if real estate did not go the way I thought it was going to be going in the future, if I needed to, I would go buy $1000 push mower and make it happen.
Jason: You just do what you have got to do. But you do not want to be in that have-to situation.
Jason: It is better to be in the I choose-to situation. The have to’s are no fun. Earning money is much better than borrowing money. Now you could skip steps and you could borrow the money. Everything that you do different from that is going to be a higher risk. Hence the word OPM – other people’s money. That is what a lot of the seminar guys like to talk about because what do they realize? The audience that is in front of them does not want to work. They want to just take the easy route.
Mikell: Absolutely. No sweat equity.
Jason: No sweat equity. Exactly. Yeah, because sweat equity has this word that they call sweat. It takes effort. Right? They would rather just talk about it –
Mikell: There you go.
Jason: -- then go out there and do it. So you can leverage it with other people’s money. The best place to start, in my opinion, is with people that you have relationships with. Typically, this is friends and family and those people. Well, it is not your friends. Your friends do not have any money to give you. It is your family, which is okay, but you have to make sure that the relationship is clear. Because now it has changed. It is not a mom and dad relationship. It is either a partnership, but when you owe people money, as Dave Ramsey says, you become slave to the lender. Right? That is from Proverbs, if you guys want to look that up. But when you have that indebtedness to them, the relationship changed. It does not change with an institution. The big bank out there? Their relationship with you is not emotional. It is transactional.
Jason: We are going to give you this if you do that. When you stop doing that, we take your stuff back. Right?
Jason: That is not the same way it works with mom and dad because there is this crazy thing called, well most of the time, love in there.
Mikell: There you go.
Jason: And they care, but that is where relationships can get kind of screwed up, too. So you have got to be careful. You have got to set the right boundaries, especially the closer the people they are to you. A lot of the homes that we sell every year in the Triad are from broken relationships, and a lot of times it is broken businesses, where it was a family business and then finally, it just imploded.
Mikell: Oh wow.
Jason: And a lot of times it is because the right boundaries were not set within that relationship of hey, you are my brother or my sister, but in this situation in writing here is what each of us do. There are no clear lines, and it ends up just going not in a good way. What do we do? We sell the properties because there is a dispute about whatever it is. Let’s do this, Mikell. Let’s take a quick time out. We are going to go pay some bills, and when we come back, we are going to talk about who has got your money because it is out there. And we will dig into that. We will be right back. You are listening to the Jason Bramblett Real Estate Show.
And welcome back to the Jason Bramblett Real Estate Show. So we have been digging in all things real estate investing. And why real estate investing? Well, it is pretty much all I know. The other stuff I call the other professionals, and they have got shows on here, too. Some of them are actually very, very good at what they do. Is there a right way or a wrong way? A lot of it is just choice. Does it all work? I think a lot of it does work. It is about having the right team behind you and the right product. Why real estate for me? I just like a tangible product. To me, it is just something about driving around and seeing what you own. It is just what I have always enjoyed. We have talked about the benefits of owning real estate and so from a leverage of your time and money and creating passive income, now it is like okay, that is great. I am already working 14 hours a day. Unless I get paid for sleeping, there is no way I can make any money. Okay, so now we are looking at partners. Other people’s money. The best partnerships are the ones that you have the best relationships with. All right? You are not going to typically walk up to a stranger on the street and say, hey, I want to buy a house. Do you have $100,000? Right? No. They have institutions for that. Banks. But banks sometimes are not always the best place to start. Sometimes the best place to start because you have never done this before is with family or friends or relatives or whatever. The interesting thing about America is there is about $3 trillion sitting in savings accounts in America. It is ridiculous.
Mikell: Oh wow.
Jason: Idle money that is doing nothing.
Mikell: Oh wow.
Jason: So it is a lot, a lot of money. People have got $10,000, $30,000, $75,000, whatever it is just sitting in savings accounts, and most of it is earning .0025 in interest.
Mikell: If that.
Jason: If that. Right? So that means basically most people are getting like five bucks a year.
Jason: That is about it. Because of that you can create a huge opportunity for that money to be shifted and to be used as a partnership in real estate and pay a much, much higher rate of return for those people that have that money parked, that is just sitting there. My first rule, and I think it should be your first rule, that money needs to be parked. It is excess money of that person you are talking to. They are not going out and borrowing that money. So the first thing I have when somebody comes to me is we get a lot of people every week to say hey, we want to be a partner with you. We want to invest. I want to own real estate or I want to be in the real estate world, but I do not want to do anything. Okay. They want to be a passive partner. We have that opportunity to do that. If you have got 100, 200 or 50,000 or whatever it is sitting there doing nothing and you want to be in the real estate business, but you do not want to do the real estate business, well, we have an opportunity for you to work with us in one of our businesses. That is outside of our sales company. The reason we created that is because we had lots of people who would sell their home and one of the things they would always ask is okay, I have got this $300,000 cash, what do you think I should do with it? They had no plan. They just sold a property. They own another one free and clear, or they do not ever plan on owning again. It is like what am I going to do with this money? And so, we help create an idea, an opportunity for them to invest, invest in real estate and be a partner with us. That is a different conversation. We are going to walk you through that later. But right now, you need to look at the relationships you have with the people that you have, and typically, this is family. Again, you need to have a good agreement with them, a clear understanding. I would suggest it is in writing.
Jason: Even if it is with your mama. It does not matter. Put it in writing. Whoever it is, and that way everybody is clear, and we are all on the same page. But it needs to be idle money, and it needs to be not loaned. Okay. Or they are not borrowing money. I do not want to go to my mom or dad or friend or whoever it is and say yeah, hey I have got $100,000 equity in my house, I will do a HELOC and pull that money out.
Jason: You are not a good partner because if something changes in your life, and you need that money for an emergency, it is also difficult to get cash out of real estate quickly. It is not what we call liquid. It can be liquidized really fast, or sometimes fast, but there is a word in real estate that we use when we need to sell property at a discount, and it is called cheap. You do not really want to be involved in that. Right?
Jason: If I need to move something quick, the way that I do that is I have to exponentially discount it to create huge, massive opportunity to get people there that can cash me out quick. Because I cannot get the highest price in the shortest amount of time. Typically, if it is an emergency situation. So we do not want partners that have to borrow money to be involved in our transactions. We want people that have idle cash that is doing nothing. The other thing, too, is you do need to check with a CPA and there are rules about all this stuff. You do not need 100 people with $5000 and then you do not want to put all that money together because now you are dealing in government stuff. Okay? This is simple relationships of one person, maybe a friend, a family member, and you are in business and partnering together. This is not you creating a real estate investment trust with hundreds of strangers that you have never met, and you are going to dump all the money in one big pool and see what happens. I will tell you what happens. Bernie Sanders is what happens. Right? And he is sitting over in Buttner in North Carolina. Not a good plan. Okay? It worked for a little while for old Bernie over there, did I say Bernie Sanders? Bernie Madoff. All right?
Jason: Sorry. Wrong Bernie. Maybe. No, that is a different show, too. But anyway, you have got to be careful in how you do. So there are federal laws that you need to apply. You cannot just dump and pull people’s money together without being, have the proper credentials behind you. Okay?
Mikell: Okay. Okay.
Jason: It can be done. You just need to do it legally. You cannot do it legally on your first house. Okay? You are not an institution. There are regulations that you have to follow, and therefore, you are simply looking for a partner. One, probably somebody close to you, a family member or friend, and you are creating an opportunity with idle money in which they do not know what to do with. And it is cash sitting in a bank account somewhere. That is the perfect person that we are looking for. Because if they are only getting .0025 on their $60,000 they have sitting in the bank, and you come to them and let’s say you plan to flip a house, and you can pay them X amount of percent for X amount of months that it is going to take you to flip that property. It creates the opportunity, and it allows you to do that. Or maybe you are going to do a buy and hold situation where you are going to keep it as a rental. Now, you can pay them a certain percent. Whatever you guys agree on. There is actually no regulation. You can charge whatever.
Jason: Or they can charge you whatever for the money. Then maybe you are going to pay it over a period of time. Maybe you are going to borrow $60,000, and you will pay it over five years, three years, ten years. It is whatever you guys agree to. Then you want to amortize that out so they are getting interest and principal every single month. Just like you would with a bank. Right?
Jason: Same type of situation. So there are different ways in which you can do that whether you are going to hold the real estate or you are going to flip the real estate, and all that is up to you. We are going to dig into more of this next week and talk about the type of product, the type of loans, how to set these up. Not only how to set it up once, but how to set it up for 100 properties, over and over and over again. So you are listening to the Jason Bramblett Real Estate Show. You can hit our website Jason Bramblett dot com if you have got questions. We will be back here next week. We will see you then. Everybody have a safe and wonderfully cool weekend.