What do you need to know to help you start creating greater wealth and passive income through real estate now? In his book, Brandon Turner, who at the time of writing his book owns 44 units, gives his reasons as to why he’s chosen to become a real estate investor and build his wealth through it. He states that to become successful at real estate investing, just like with anything in life, it takes a while to build up wealth and going in to real estate won’t make you rich over night. Throughout this comprehensive book, Turner takes your hand by the side and walks you step by step through all angles and challenges of real estate including the pros and cons of real estate, how to look for good deals, who to have on your team, the different sort of properties to invest in, how to obtain financing, and much more. Despite this book being geared more towards an American audience, I still learned quite a bit. Here are some of the points to the book:
1. Interested in investing in real estate but don’t have the funds? Don’t fret as a lot of the times you don’t need 100% of the purchase price to obtain the property; you only need 20%. In fact, Turner discourages others to buy property with cash as you’re not only putting yourself at a greater risk (which he goes in depth in the book), but you also won’t be able to get as good of a return on your investment. “In the history of the world, perhaps nothing has killed more real estate ambitions than the belief that one does not have enough money to get started. In fact, I speak with people all the time who don’t realize that investing in real estate without having the full, 100% purchase price of a property is totally possible. They look at a $100,000 property and try to do the math in their head, thinking, ‘Well, if I saved $100 per month from my job, I could start investing 83 years from now. But that’s never going to happen, so I guess investing in real estate is only for the privileged rich.’ Not so! Enter leverage . Leverage is a financial term that simply means applying a small amount of force to achieve far greater results. With real estate, leverage usually comes in the form of a loan. Although such a loan could come from a number of different sources, the practice is quite similar. A small down payment is supplied by the real estate investor, a lender provides the remaining balance of the property’s purchase price, and the investor pays that lender a small amount each month until the loan is paid off. For example, I might consider that same $100,000 property but get a bank to lend me 80% of the purchase price. They would supply $80,000 via a loan, and I would need to come up with just the $20,000 down payment (plus closing costs, which I’ll cover in a moment). Let me repeat, using this approach, I only need to save up $20,000 to buy the property, instead of the entire $100,000 purchase price. Yes, I will need to pay the bank a certain amount each month for many years, but if I’ve done my math correctly, I’ll ultimately make far more income each month than I’ll spend on that loan payment.“
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2. Have at least 6 months worth of expenses in cash as things are bound to come up and an emergency fund is needed. Just as it’s the case with running a business, cash is oxygen to real esate as well. One thing I’ve learned and realized from this book is that going in to real estate is quite similar to that of running a business; a lot more work than I had thought of is involved with buying properties and renting them out. “As the saying goes, ‘It’s better to dig a well before you are thirsty.’ The fact is, when investing in rental properties, things are going to go wrong. You’ll have good months, bad months, and average months—and you’ll never know which one you will get. This is why having cash reserves to cover any problems you might face is so imperative. Buying a rental property and being forced in the first month to evict a tenant and invest thousands of dollars in repairs would be terrible, but this kind of thing could in fact happen. The amount of cash you should have in reserves depends on a number of factors, most notably the number of properties you own, the condition/age of those properties, the anticipated cost of fixing the properties (would you do the work yourself?), saving for larger future big-ticket expenses, and your management abilities. However, I would encourage you to start with six months of expenses for each unit you have. For example, if you own a single-family home that costs you $800 per month in expenses, I would recommend having $4,800 in reserve savings for that property. As you obtain more and more properties, you may be able to decrease this amount some, but it serves as a good starting point.“
3. “Anything you don’t understand, you won’t have.” This is one of my favourite quotes and principles that I live by that was stated by entrepreneur Tai Lopez. I believe that’s why 90% of businesses fail within the first year, they fail to understand how a business really works. This is the same with real estate. People who fail at it probably automatically assume that just because they have a place that it would be easy to make money off of it. “Far too many people jump into buying real estate before understanding what they are doing. They simply decide that real estate is the right path for them and start purchasing properties. There is a big difference between being busy and being effective, and this is the case with a lot of real estate investors; they believe that because they are buying properties, they are going to succeed. Never mind that they bought the wrong property in the wrong area with the wrong financing. The solution to this problem is proper education. I’m not talking about the ‘get rich quick,’ late-night television kind of education. I’m talking about taking the time needed to build an educational foundation that can support your investing future. The mission of BiggerPockets is to help individuals build this foundation through a variety of methods, including our forums, podcast, blog, and this very book you are reading. Furthermore, I encourage you to continue learning through library books, meetups, and other low-cost resources. You don’t need to spend tens of thousands of dollars for an education. Information has been democratized, so you simply need to reach out and grab it. No one can do it for you!“
4. Warren Buffett, master of value investing has stated that “Price is what you pay. Value is what you get.” I personally think that this is a saying and principle that a lot of people who have grown their wealth live by. Smart value investors actively seek out for great deals on things they can buy and then later sell at a profit. Real estate is no different. Great investors find places to buy, rehab, rent out and possible sell. Grant Cardone, real estate investor whose net worth is $100 million, has once said to look for places based on the deal, not price. “When you buy something, are you buying based on price or cost ? Confused? I was, too, but several days ago, I read something from the late Zig Ziglar in which he discussed the difference between price and cost, and suddenly, I realized a huge error I’d been making in my investing business for the past decade. I’ve been hiring contractors based on price, not cost! Let me explain. Price is the monetary amount you pay when you purchase something, but cost is the long-term monetary amount you pay over the life of a product or service. For example, the price of dishwasher A might be $400, and the price of dishwasher B might be $500, but if dishwasher A costs an extra $20 per month in energy to run, buying dishwasher B would be the smarter move! You see, the difference between buying for cost and buying for price is subtle, but it can have a tremendous effect on your business. This principle also applies to hiring a contractor. Are you hiring on price or cost? If you are like me, price is probably the larger concern. But if you hire someone because their price is cheap, you might be setting yourself up for a lifetime of high cost on that repair.“
5. To understand value better, you have to consistently and constantly look at the products to get a good grasp of what a great deal is. Both Grant Cardone and Gary Keller, founder of Keller Williams Realty International which is the largest real estate company in the world by agent count, have stated the same thing about actively looking for deals. Grant Cardone says he looks at a minimum of 100 deals/week. A hundred deals/week? No wonder he’s worth $100 million. Think about it: if you analyze two properties every day, at the end of a month, you will have analyzed 60 different deals. Let’s just assume that 10% of those deals, after analysis, looked promising enough to pursue and make offers on. That leaves you with six properties you can make an offer on each month. Of those six, how many of those offers will get accepted? Perhaps one? I think one out of six offers is very reasonable. Therefore, if you analyzed just two deals per day, made offers on 10% of them, and had just 16.66% of those offers accepted, you could buy a new property every month. People often complain to me that they can’t buy a deal, and I usually ask them, ‘How many offers have you made this week?’ or ‘How many deals have you analyzed today?’ The answer is usually zero. So if you are looking to do more deals, start by analyzing more properties. It really is as simple as that.“
By Ryan Timothy Lee
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