00:00:00
Speaker 1: Welcome to Hod of Money. I'm Joel and I am Matt, and today we're talking about the harsh realities of real estate investing.

00:00:26
Speaker 2: Yeah, boy, this is gonna be an episode all about investing in real estate. And you know, we're not gonna paint too Rosie of the picture when it comes to real estate, although I think we're gonna give it a fair shake. Yeah, it's coming from we are two guys who've done it ourselves, who own investment properties ourselves. But we're gonna talk all about real estate. We're gonna discuss how you can know whether or not investing in real estate is the right thing for you, as well as just some simple ways that you can consider getting started with investing in real estate, and the way you have to.

00:00:56
Speaker 1: Think about it has changed since we started investing in real estate ten years ago.

00:01:00
Speaker 2: So no, it hasn't been a long night.

00:01:02
Speaker 1: I think it's to be close to that long or get an old bud, holy crab, I know.

00:01:07
Speaker 2: Okay, before we get to realistic, wife.

00:01:09
Speaker 1: Keeps telling me, oh, look at all the grays in your hair.

00:01:11
Speaker 2: I'm like it, stop, Okay, you're not out, but I wanted to ask you basically, I think I've got a frugal or cheap here for you. So you know that I like a variety of different craft beers in my life. Yeah, I think anybody listened to the show No that that's something that you and I both enjoy. In particular, I am a fan of singles. Anytime I go to the package shop or wherever and they've got the shelf where the multiple shells full of the of the singles there, I like to spend some time looking at those because it's just a great way to try to kind of dip your toes into some of that variety without committing to a six pen.

00:01:44
Speaker 1: I just say, the worst thing in the world is when I go into a package store and my wife's like, you got five minutes, and I'm like, no, I need like twenty. Then let's just go ahead and turn It's amazing. It's not like there's that much turnover in the beer section, but I have to look at every single item like every time. Absolutely, it's an obsession. Yeah.

00:01:59
Speaker 2: Anyway, so I was a local package shop here in our new part of town. This is a package store that folks have definitely recommended. In fact, I'm not going to name them. But you yourself have also been to this package shop. Okay, So I went in there and I saw a couple that looked pretty solid, and I thought, I'm going to try those out, took them home, cracked it open, and one of them, dude, was awful, like terrible.

00:02:23
Speaker 1: And it wasn't just the beer was old.

00:02:24
Speaker 2: And it wasn't because I did not like the style of that particular beer. And it wasn't because it wasn't from a brewery that wasn't solid in and of themselves, like this was a fantastic brewery. And I thought, man, that's so weird. And I checked the label and this beer was from twenty seventeen. Oh my gosh. Yeah, so base. I mean, some beers can be bottle conditioned, like the spontaneously fermented beers are, like, you know, you can let it age for one to three years.

00:02:51
Speaker 1: I've still got a cante own. It's like a decade old that I brought back from.

00:02:54
Speaker 2: My from You might have a bottle of vinegar.

00:02:57
Speaker 1: No, no, it says on the bottle way you can you can hang on some twenty super higher quality of ones evolve. So all that to say, would you go back to that package store and ask for your money back. Okay, I would go back if I was in the vicinity and it wasn't a big deal, but I wouldn't drive back there just to return my four dollars.

00:03:16
Speaker 2: People, I will definitely go back. Well, and it's it was a drain pour. I mean, I like, we literally did. But I had the same experience. I wound it out because I couldn't I mean, I couldn't drink the dang thing. So I've only literally ever been there once. But the next time I go back there, I've decided I'm not going to return it, but I am going to let them know and say, hey, you know, I just want to let you know the last last time I was here, I bought a beer and it was what is that six years old? It was not it was not drinkable.

00:03:40
Speaker 1: It was very bad.

00:03:42
Speaker 2: Yeah.

00:03:42
Speaker 1: Yeah, No, I would definitely mention it to them, and I'm curious if it's the whole place.

00:03:47
Speaker 2: I want them to be able to do better.

00:03:48
Speaker 1: Because I had the same experience. I brought a bought a Bissell Brother's beer, which I know I love, and it was old and it was trash and I was just super disappointed. I just haven't been back to that place, so but yeah, again, if it's not just going back, like wasting a half hour of your time to return afore dollars.

00:04:03
Speaker 2: Like trekking across to the other side of the city. Yeah, this is close by, but that's pretty crappy. Yeah, I want I want them to do better because tosher old beers. I'm thinking about the other guys out there, the other ladies who are also interested in craft beer, and what if this is a style or maybe they're just getting into it and they're thinking the same thing that I'm thinking. Oh, I'm just going to go with one of these singles to try out this new style, and they're thinking, oh, this is terrible. I can't believe exactly. I want them to be able to deliver a quality products. I think I'm going to say something next time I go in there. Cool, not sure if it's going to change anything.

00:04:32
Speaker 1: Yeah, I think it's worth pointing out, and I think you can do it nicely and hopefully they'll give your money back, because that's ridiculous to be selling a little bonus a six year old IPA, sorry to hear about your crummy experience.

00:04:43
Speaker 2: A right.

00:04:43
Speaker 1: Yeah, one other thing to do is you could literally just like tpe their their establishment one night in the middle of the.

00:04:49
Speaker 2: Night, just fire bombs.

00:04:50
Speaker 1: Yeah, just in case you're you don't want to test fate. Maybe maybe I'll end up in prison. Maybe I'll just get away with going to choose violence. Let's mentioned beer that we're having on today's episode. Hopefully this one isn't a piece of crap. I don't think it is. This one is a it's called US Alive or US Alive, I don't know, by Michel or brewing. We'll give our thoughts on this one at the end. Since this is a wild ail, even if it's old, I'm sure it's going to taste great. But Matt, let's move on. Let's get to the subject at hand. We're talking about the harsh realities of real estate investing, and for some reason, I don't know, maybe think of homeschooling because there's this like massive change, this massive shift. More people are homeschooling than ever before. And when you decide whether or not you want to homeschool your kids, it depends on so many factors, right, like the school that your kids are going to, now, your goals for your family and your career, the resources that are available to you, how much school choice you have available in your state. Can you send your kid to another public school that's around the corner that you're not necessarily zoned for, that's not the closest one to you. They're just and there are lots of helpful resources now, including an abundance of co ops for people who want to do homeschooling. So I feel like the trade offs are less severe than they used to be, like twenty years ago, when and couple my friends were getting homeschool right, gosh, I guess that was more like thirty years ago. But when you look at the numbers, actually the proportion of homeschooled children in the US, it basically doubled from two point eight percent before the pandemic to five point four percent in the twenty twenty twenty twenty one school year. There's just a massive influx, a massive movement towards homeschooling, which makes sense to me because lots of parents they got they got more insight into what was going on, what was happening in their child's classroom, and they weren't loving it. It makes me think of just like how awful, how tough. Virtual school was for our family and for so many families out there, but homeschool also, it's not this slam dunk decision, right, Like, we literally picked up and moved, at least in part for school reasons, and we still wanted our kids to have a public school experience, or at least an in school person experience. But again, lots of factors to consider, right And the same is true on the real estate investing front. We love that path for some people. It makes sense for some folks. For sure, We've done well as real estate investors ourselves, but we want I did, to have a nuanced conversation to help folks decipher whether or not it's right for them. If they've kind of thought about it, it's somewhere in the recesses of their mind. They're like, maybe real estate investing will be right for me at some point, or I'm kind of starting to think about it now, Well, what factors do you need to consider? That's kind of what we want to talk about today.

00:07:13
Speaker 2: That's right, And if you are listening to this podcast, there's a good chance that you want to grow your net worth. I'm going to assume that's true, right, and you might even be interested in some of the different ways and the different paths to achieve that goal. You're probably even thinking, yeah, and if I can get there even faster, all the better. And so who hasn't heard that investing in real estate is a great path to take? Like, oh, he made all his money in real estate? Like that is literally something I've heard many times before, and unfortunately it glosses over though the harsh realities of investing in real estate. The different real estate influencers out there, they can often make you feel like an idiot for not having taken the plunge yet, for not getting into the game. And given the number of folks who think of themselves as Zillow experts, it might be more tempting than ever to think that real estate investing is the natural next right step for you. But we'll offer a laundry list of things to consider before you start making offers. Were our goal here is to not talk you out of investing in real estate and if that's going to be again the right next step for you, But we just want to make sure that you've thought through all of the different factors before you take the plunge.

00:08:21
Speaker 1: Yeah, basically, we want to give you a realistic understanding of what it's going to take to actually make money as a real estate investor. And we want to think through all of the good potential outcomes from investing in real estate, but the potential downsides as well, because they are there significant, right and you know, just like I was talking about homeschooling, it's seen some significant changes the reality that real estate investors are encountering in the market right now. What's dramatically changed over the past decade, over the past ten to fifteen years. We used to talk about real estate investing a lot Matt early on in the podcast. You know, we started the podcast five and a half years ago, and it was a different ballgame five and a half years ago when we were kind of pushing listeners in that direction with a little more bigger than we do now, sure, because the facts on the ground were different than they are in twenty twenty three. But when the reality on the ground changes, so does our advice. And it's not that real estate investing doesn't make sense for anyone at any point in time, or for anyone right now, but the truth is that it just makes less sense. Yeah, it makes sense for far fewer folks, given the current market dynamics, what's going on, that's.

00:09:25
Speaker 2: Right, Yeah, and that's because home prices have gone up dramatically over the past few years, and interest rates have gone up in a major way over the past twelve months as well. We've talked about that last week. And inventory is essentially at all time loves as well, which is also keeping prices inflated. And so this means that housing affordability it's essentially the worst it's been in forty years. This is specifically coming from data from the NAR, the National Association of Realtors, And so that doesn't mean that becoming a real estate investor is impossible, but timing does matter a little bit. Speaking of timing, like you can't dollar cost average into a home just right like you can when you are investing in the stock market, it's going to pay, and it matters a lot to understand the context and what is going on in the market around you. And even though rents have gone up as well, they just haven't kept pace with the rising prices. And so we're just in a tough market right now for folks hoping to buy a house, rent it out and then turn that fat profit.

00:10:18
Speaker 1: Yeah, exactly. It's just not as easy as it used to be. It felt like shooting fish in a barrel kind of in twenty eleven twenty twelve when housing prices were basically at their bottom. But in addition to current trends, it's important to note that real estate doesn't perform as well as the market does from a return standpoint on a historical basis. So the wind is kind of in your face just given kind of what's happening in the market as a whole, but it's kind of always in your face actually as a real estate investor. But you're also hiking up a hill, yes, at the same time. Right when you run the numbers, you see that the overall market returns are close to ten percent from a historical returns standpoint, right, that's total stock market or s and P five hundred fun something like that over the years. That is, that tends to be the average different years, right, different results last year, not even close to that. But real estate has returned something closer to four percent on average over.

00:11:09
Speaker 2: Time, significantly less than the overall market. And that's four percent on average across the entire country on real estate, not necessarily for real estate investors, so different markets, we'll see different returns over times, and like we'll talk about later on in the episode, different investors, there are ways to increase that return as a real estate investor to do a lot better than the average. Basically, real estate investors, savvy ones can take advantage of what's kind of a quirky market. It's so much more localized, and so people are able to use sweat equity and market inefficiencies to their advantage to juice returns. To see you see the four percent number and you think, well, why would anybody ever invest in real estate? And it's like, well, yeah, like you said, Matt, it's because that's the average. Because there are significant ways to increase your returns in real estate, Whereas when we talk about investing in the stock market, the boring take your ten percent approach makes sense for the average investor, but real estate investors have outsized abilities to kind of control their own destiny and push those returns higher. That's right. Yeah, So let's clear the air and talk about what real estate is not for a second. And first of all, one of the points, Joe, that you know we wanted to cover is that real estate is not passive.

00:12:21
Speaker 1: Oh yeah, and that's a common thing, like people, yeah, your passive income over here. Invest in real estate.

00:12:26
Speaker 2: Literally, none of the steps to real estate investing include passivity. There is a lot of upfront work needed in order to educate yourself, and then there's getting hyper familiar with a local area to know when a deal pops up so that you can pounce on it. And then once you do have that place locked down, you've got to find good tenants and landlords. Screw that part up all the time, all the time. That's like the biggest reason I think why people who do invest in real estate they get out of it so poor jobs. The greening tenants.

00:12:53
Speaker 1: Yeah, and they're like, okay, in real estate investing is terrible and they tell everybody they know that. But that's not necessarily the case. It's like, oh, you were bad at the most important thing. So, I mean, bottom line, investing in real estate it just takes a lot of energy and hustle. It is not passive income, like some online marketers like they might lead you to believe. We actually talked about real estate and whether or not it's passive. In the episode where we talked about passive income, it was passive income a myth. We wanted to know if it was this elusive unicorn that was impossible to find. That was episode three fifty three. If I interested in other types of passive income, I mean, passive incomes sounds so nice on the surface, but the reality is it takes a lot of hard work to get.

00:13:32
Speaker 2: There, exactly. And that doesn't necessarily mean that the juice isn't worth the squeeze when it comes to real estate, but newbi landlords, they often make massive mistakes when it comes to finding that first property, and the stakes are incredibly high when you're talking about sinking a ton of money that you've worked to save up into a down payment, not to mention like kind of all the other expenses oftentimes associated with the investment property.

00:13:52
Speaker 1: Yeah, I mean talk about the transaction costs of real estate. And if you get into it and you realize, wait, this wasn't a great buy. Oh wait now I need to get rid of it. You could be out tens of thousands of dollars. Right, You could lose a lot of money on that one investment. And landlarding isn't easy. That's important to note here is that's what makes it not passive. And you can say, well, I'm going to hire someone to do the landlording for me. I'm going to hire a property management company. Well, that might work out for you, but that's going to cost money too, that's going to reduce returns. And it doesn't necessarily mean that it's passive either. And so whether it's underestimating you know what repairs are going to cost, or screening tenants poorly, like you mentioned, Matt, we don't want people to be fooled by the passive income claims that people are making all over the internet when it comes to investing in real estate. But another important distinction to make is that real estate is not a diversified investment. You know, we're talking about putting a lot of money into a single investment. So you're betting a lot of marbles. You're taking a big swing, and if it's a big swing and a whiff, this could cost you in a big way. So it's just important to know that circumstances outside of your control can impact your investment. Like what if your town's major employer closes up shop, what if they move elsewhere? Depending on the size of that town, it can have a significant impact on local housing demand and rent levels. There are things outside of your control as a real estate investor. What a crappy neighbor with like three Doberman pinchers moves in next door and they're really loud and noisy and they bite, like snapping too.

00:15:16
Speaker 2: People as you want to buy, why you hate.

00:15:18
Speaker 1: I'm just saying, man like you never these are the kind of things that can happen that can actually inhibit your property from attracting the good tenants from rising in value. Like you're hoping, you just kind of you kind of don't know. There are things out of your control as a real estate investor. It doesn't mean that it's like you said, the juice isn't worth the squeeze and it's not worth looking into owning rental real estate. But there are a lot of other factors you need to consider, and there's more risk. The stakes are just higher.

00:15:43
Speaker 2: Yeah, And I mean what you're talking about are externalities essentially, but in addition to that, even there are intrinsic factors to a given specific property as well. Because you can do all the research in the world and you might have nothing externally impacting your investment. But the fact is we're just talking. We're talking about versity here, diversification and with a singular investment, and so it just might not pan out like you might expect it to, right, Like, maybe it doesn't quite have the curb appeal that maybe you thought, or maybe it's only got one bathroom and folks are like, yeah, everybody wants two bathrooms now, Like, there are just a host of factors that could influence that specific property, as opposed to spreading that risk out, which is what you do when you invest in the market as a whole in the stock market. But real estate is also not ubiquitous. Because I'm thinking about again the market. I can log into Fidelity or Vanguard like right now, and I can invest more money if I want to. I can easily log in and snag more shares of my favorite index fund, which is Vanguard's SMP five funded by the Way Voo Voo. And so if you're looking to find a solid or real estate investment, there's no guarantee that one even exists in your market, at least at the moment. Right there's just a limited supply of homes out there, but there's an even smaller supply of properties that will be effective for you as a told that's going to give you that return on your investment.

00:17:02
Speaker 1: Yeah, we were just looking at the graph, Matt, just this week of the supply of homes available in the United States. Gosh, and it's still pretty close to an all time low. And so when you think about that, the fact that there's very little supply, well, how many of those are actually going to make good rentals too? Because there's million dollar homes on the market that almost never make good rentals. It's usually the less expensive homes that make for a great rental property. And so when you're talking about a low supply, high demand, higher prices, higher interest rates, you just really are talking about like all of those factors kind of pushing against the likelihood that you're going to be able to find a great rental property exactly.

00:17:35
Speaker 2: But now that we've been negative, nellis that we can talk about some of the questions to ask yourself to know whether or not taking the plunge into real estate is going to be the right move for you. And we'll get to those questions right after this.

00:17:58
Speaker 1: All right, let's keep talking about real estate and whether investing in real estate makes sense for people. Man, I feel like we have been pretty down so far on investing in real estate, which is so funny because if you'd asked me ten years ago, I would have had a very very positive, upbeat way of thinking and talking about investing in real estate. But like I said at the beginning, like factors on the ground change, and if real estate was priced at twenty thirteen levels, I would be still probably seeing the same tune that I was. But it's just not as easy to become a real estate investor in twenty twenty three as it was a decade ago.

00:18:34
Speaker 2: In a sense, we're kind of like financial journalists. Right as the facts on the ground change, we should be willing to make sure that we're still reporting what's act, like what is truth, And as we come across new data or the wood word in Burnstein dot new facts, as new facts on the ground present themselves, we should be able in certainly willing to change our tunes slightly. And I feel like that's what we're doing here right, Like we're not doing a complete one to eighty, but we, like you said, we were much more hesitant to push people in that direction.

00:19:02
Speaker 1: And let's talk about leverage for a second act, because that's a really important part of thinking about investing in real estate, because, like we said, real estate is historically a worse investment than the stock market from an overall return standpoint. We're talking about it in the most bland way possible. But part of what helps real estate investors earn more than what their stock market investing counterparts are able to earn is smart use of leverage. So it's not just that they're able to force equity in the house, appreciate that property by doing work to it, by like working their butts off, but they are also able to make money because they only have to put a certain percent down on the home that they're buying. And so yeah, without the ability to take out that loan for the majority of the purchase price, most investors wouldn't even be able to consider buying a rental property. So like, sorry, move on, go do another investment because you don't have the skin to be able to get into this game.

00:19:50
Speaker 2: All right, poor guys, All right, no investing in real estate for you.

00:19:54
Speaker 1: The poors can invest in real estate apparently, right and so, but leverage can swing either way. And I think a lot of people think of leverage as only good thing, like oh, it helps me get into this like three hundred thousand dollars property that otherwise I'd be unable to purchase. But an intelligent use of debt it can help make returns look better than they otherwise would, especially in a booming market. You know, putting something like forty dollars down on a two hundred thousand dollars home that doubled in value over the past five years, which is not too far from the truth in some markets. It means that, in the simplest terms possible, you turned forty thousand dollars into two hundred thousand dollars thanks to leverage. So that is how leverage can be beneficial. But the truth is leverage can also bite you in the button. I mean, talk to anybody who about real estate back in two thousand and seven. They'll tell you. They'll sing the tune of how leverage can work the other way too.

00:20:39
Speaker 2: Yeah, and that's not counting the transaction costs of real estate, right, and those are pretty high. But yeah, from the most basic vantage point, that example helps you to see how leverage can accelerate your ability to build wealth because if you know, were you to take that same amount of money and stick it in the market, and even with healthy returns, like at ten percent rate of return, you might have only earned something like twenty five thousand dollars on forty thousand dollars worth of capital within a five year time span. But like you said, you do need to be careful because leverage can swing both ways. We are not against using it to your advantage, but it's it's something that you've got to be very careful with because were you to be over leveraged and where we'd see a massive downturn in the market like we did back during the Great Recession, you would see yourself completely upside down. You would see yourself underwater with your real estate.

00:21:26
Speaker 1: Yeah yeah, and then if you don't have the cash flow to cover your losses, you end up in a really difficult situation that leads to foreclosure for a lot of people. And so investing in real estate it's just not as straightforward as it is to invest in the market, and so bigger there's potential for bigger returns for savvy real estate investors, but there's also a bigger risk at the same time. So let's talk about Matt a few questions, a few things that people need to think through before they decide that real estate investing does make sense for them. So we've got kind of a few factors who want you to consider. First is, how are you doing with those tax advantage retirement accounts? If you don't know what a four oh one K is or you haven't considered a roth iray yet. First things first, we want you we want you to be at least getting the match from your employer if you're employed at a full time gig who offers you a retirement account. That's kind of the minimum threshold, right, I mean, hopefully you've been stocking away meaningful amounts for years before you even start thinking about investing in real estate, and largely because since real estate lacks diversification, we want you putting some money to work for you in the market before you start saving up for that first rental property down payment. I mean, we want you to have just a solid financial foundation, right. We want you to have no high interest rate debt. We want you to have a fully funded emergency fund. You're just not ready to even start looking at properties. You can start learning, right, you can start researching, you can start listening to podcasts and reading books, but you're just not ready to start like hopping on redfin and Zillow and making offers on properties that are in your neighborhood until you've got a solid financial foundation, until you started investing I think in some of the more boring index fund style routes first too.

00:23:03
Speaker 2: Yeah, Basically, we want you to do things in the right order, and it starts with, like you said, you'll having some margin in your life, an emergency fund, but getting rid of that high and straight debt, but then also making sure you are invested in the most simple of ways before you then start saving up. Yeah, for that first investment property. It's kind of like becoming a parent before becoming a grandparent. You just kind of got to do it right. Well, yeah, there's only one way you do that. Whereas you can't get out of there.

00:23:29
Speaker 1: You could do it, Yeah, you could get this one out of order, but we don't want you to.

00:23:32
Speaker 2: Yeah. And so after you have that financial foundation, you need to have a down payment saved up. You'll not only need the money to put probably twenty five percent down on the unit that you want to purchase, but you'll.

00:23:43
Speaker 1: Need what most lenders want from you. Yeah, you just iny invest for twenty five percent down.

00:23:46
Speaker 2: But beyond that, you're going to need a fair amount of additional cash to just get it into shape for renting, and you'll want to have rezeras on hand to pay for any potential major upgrades or major expenses, unforeseen expenses that might pop up. And so this is in addition to what you're sticking into your traditional investment accounts and in addition to the cash that's sitting in your own personal emergency fund for your personal emergencies. Essentially, it's like having in a like an emergency fund for each of your properties basically, And it's so true. I mean there's always something that's needed at rental properties and doing work at multiple rental properties as we speak, not me, but I have people that I'm hiring to do the work putting in a whole new bathroom in one unit. And so these are the kind of things that you have to be ready for, these upgrades expenses. It's not cheap and it's a long term play, but you got to have the cash flow and you've got to have the reserves to cover those upgrades that are necessary. Definitely, don't want to get caught off guard. That would be a bad place to be. If you're going to be investing in real estate, you're right you need a significant amount of extra cash on hand, or you should probably not consider it at all all Right, You also need to think about what market you're in, because real estate is a very local thing. We've been giving kind of some generalized numbers about how real estate performs, but so much depends right. Real estate is about location, location, location, and it's about specific location, but it's also about just like what part of the country do you live in. So if you live in like New York City, San Francisco, it would likely mean losing money each and every month in hopes that that property would appreciate and that that would pain out in the end that would make that a good investment. Incredible incredibly expensive markets make it ridiculously difficult to invest and make money, But there are lots of other markets where investor opportunity still exists. And even though the market has from a broad national standpoint, made it more difficult to find deals that makes sense for real estate investors, some markets still have homes for sale that are going to be profitable, and where you live is just going to have a massive influence on whether or not you ought to invest long distance is possible, but that's just another can of worms. So where you live, the kind of deals that are available in your neighborhood or in surrounding neighborhoods, that's probably going to have an impact on whether or not you decide to proceed. You might say, wait a second, I am living in downtown Los Angeles and there are no deals to be had that would make sense from an investing stand point. But you might say, I live in Cincinnati, and actually there's some good quads right around the corner quad Plexus, and maybe I'll buy one of those. I rand the numbers actually look really good. So again, so much of it comes down to where you live, and if the deals exist where you are, that's right. Yeah, this is a very broad brush that I'm pinning with here, but generally speaking, on the coast it's way more expensive versus buying and investing in the heartland or in the sun belt, where more and more folks happen to be moving to these days. But just because you are in the right market, though, and just because you've got your financial ducks all lined up, it's still not a slam dunk decision that you should invest in real estate because you also need to want to invest in real estate.

00:26:42
Speaker 1: You got to get hire.

00:26:43
Speaker 2: Yeah, you need to have that fire. If you aren't even interested in learning about the mechanics of real estate, like, that's okay because of the nice thing about investing in the stock market is that you don't need to know very much in order to land in the index funds rule you can't.

00:26:58
Speaker 1: You can get rich while being blissed fully ignorant, which I think is the best part about index fonds. It's like you can be.

00:27:03
Speaker 2: Like completely removed from your day to day It's completely removed from how it is that you think about. Yes, yeah, real estate investing is going to take more due diligence, and if the desire isn't there, like it's gonna just quickly begin to feel like a slog. And it's okay to work for those profits. But it's even more fulfilling when it's something that you enjoy, when it's something that you are excited about, as opposed to something where you're just like, ugh, I don't want to have to deal with that. Think about what you actually want your life to look like and what you want to spend your time doing I think.

00:27:32
Speaker 1: I think that's a great point because some people are like, I feel like I'm supposed to that's the next step in wealth building. But no, you don't have to if you don't want to, And it's if an interests you, if it picture like I always liked it, like I always found it to be like fun and fascinating and like a learning experience. But not everybody feels that way, and other people are like, I want my weekends to be my weekends. And it's not that being a real estate investment means all your weekends are going to be spent working on that property. Probably not, but it's important to have the desire because there are inevitably going to be times when you've got to devote attention into that rental property when you'd rather be doing something else. And so exactly, like, if it annoys the ever living crap out of you, then you're it's probably not meant for you.

00:28:08
Speaker 2: Yeah, this is a rare instance in investing where I think it makes sense to say.

00:28:14
Speaker 1: Follow your heart, which is rarely the best advice in investing, rarely exactly, but in this case, like, well, truly, like we're talking about how you're spending your time what you want your days and your your hours to look like. And I kind of like like architecture, and I like these and so I like street to street and I like that kind of So my interest in the old neighborhoods in times right, my interests aligned with this form of investing. So to me, that actually made it make more sense. And so that makes me think it's not just desire. But do you have the time to do this? Because sure, that's another important question, another important filter to run this decision through. Do you have the time that it takes to be a real estate investor? Because you know a significant amount of both are going to be necessary to make this a success. And and you know, we've talked about how it's not passive income. It has aspects of a part time job to it. But I just want to drive that point home because there are so many folks out there preaching the exact opposite message. They're talking about the passive income side of things. But time and effort really are required to be a successful real estate investor. And so I would say count the cost before you proceed. That's really important if you're working a full time job, So is your spouse, and you want to be at your kids soccer games on the weekend. All the above, Well, real estate investing might eat into that. And so it's important to figure out whether or not you've actually got the time to commit to this new endeavor, because yeah, it's going to take some time.

00:29:29
Speaker 2: That's right. Yeah, Okay, So even if you've got the desire, you're in a great market, and you've got the time, and you've got the money, Well, it's also worth considering that you might already have a decent amount of local real estate exposure already via your primary residence. Right, And so this isn't to say that quote unquote investing in the home where you live like that that is the most optimal way to invest in real estate, but it is the reality for American homeowners. At least sixty five percent of Americans net worth is tied up in their homes. Dude, Like, that is a lot of eggs in a singular basket. And we're not against buying a primary residence that you love, but it is a good idea to consider how buying some additional local real estate how that will impact the diversity of your overall portfolio.

00:30:16
Speaker 1: We see we're talking like, Hey, I've been maxing out my wrath for two years. That's all you've done in the market. But you own a primary home and now you're looking to buy a rental property.

00:30:23
Speaker 2: Yeah, if you've got twelve five hundred dollars sitting there, or hopefully a little bit more with gains in the market. But if that's all you got, then yeah, maybe you want a little more exposure broadly speaking, across all the companies look at it here in the US or that trade on the New York Stock Exchange before sinking a significantly larger amount than that into a local piece of property via a don't payment.

00:30:45
Speaker 1: Yeah, I mean this goes back to that diversification point that we made earlier a little bit, and a lot of people are not diversified in terms of their net worth because so much of it is tied up in their home. They think of that as their forced method of savings, as their way to retirement. But I'm mary, home isn't typically a great investment. We'll talk about that a little bit more, but we also want to talk about alternatives to buying actual physical real estate. Do any of those make sense for investors who want to grow their net worth. We'll get to all that right after this.

00:31:22
Speaker 2: All right, we are still talking about investing in real estate. And the good news is that even if you feel completely overwhelmed by what we've said so far, you can still participate in seeing your net worth grow by investing in real estate. Oh yeah, let's say you've heard talking it sounds like it's too much work. Let's talk about a few alternative ways to get exposure to real estates as an asset class and rates which stand for real estate investment trusts. They are the main way to gain some of that hassle free exposure to real estate, and there are a few a couple different types that we're going to talk about today. E REITs are becoming more and more popular, and ereats basically mean the routs available through specific investing platforms, of which fund Rise tends to be the best of the bunch. Yeah, probably the most popular too. But even still, this isn't our favorite way for folks to invest in real estate, largely because of the pretty high, pretty hefty fees. We're talking one percent. There's just add a complexity as well, and just how tied up your money is. Even though it is you know, it is easier than actually buying a duplex, and the website, the apps, they make it really easy to invest as well. But like, honestly, I almost see this as a downside because it could mean that investors they just run the risk of having not performed their due diligence. Right if you're kind of just sitting back and you're thinking, oh, I want to be a real estate investor, swoopsoopsoopsoop, and you know, double click your side to download the app, you log in, and before you know it, your money's tied up in Wichital Hansas and you haven't given much thought to whether or not you are going to need access to those funds in two months.

00:32:59
Speaker 1: Well, and the truth is that when we're in talking about investing in real estate, it's a non liquid form of investment. It's hard to sell that property anyway, and if you try to sell it in a short timeframe, you're going to lose money, like we talked about earlier, So the same thing is true with these e rates where your money is often locked up for a number of years. But you're right, a lot of people don't realize on the front end, or they haven't thought it through long enough before they make that purchase. So real estate's just liquid in general, unless we're talking about publicly traded rates, which are different publicly traded real estate investment trust. They're a better option for a lot of folks if you want to invest in real estate, let's say, from the comfort of your couch and buy a few clicks on your smartphone. And what we mean by that is like a specific rate fund. And this fund that you could invest in itself invests in a ton of different rates that are offered by some of our favorite brokerage companies. And so you're talking about investing in real estate all across the country, and different kinds of real estate. You might be talking about office real estate, might be talking about hospitals, you might be talking self cel phone towers, all sorts of different real estate classes. And so V and Q, for instance, is a solid fund that Vanguard offers if you want to invest in real estate, but you want to have that investment be somewhat liquid. Shh from Charles Schwab. That's a great one too, Yeah, shut up, And like this is this is a great way to invest in real estate passively, but in a diversified manner. But know this, it's not doing much actually for you on the diversification front. So if you're like, I want some real estate exposure, these publicly traded reads, they sound like, you know, the costs are low and I can get in and out when I want to. Well, they they're but and then maybe they'll diversify me from my total stock market holdings. That that might be the best solution for me. Well, it's important to note that because you're already plenty diversified by holding hundreds or even thousands of stocks in that total stock market fund or the S and P five hundred index fund.

00:34:56
Speaker 2: Because again you are doing that first before you are investing in real estate, right right.

00:35:00
Speaker 1: But yes, as you should be. But then you start adding a little bit bit of VMQ or something in there, which is that Vanguard re fund I was talking about. Well, most if not all, of the one hundred and sixty seven companies that v and Q is investing in are already a part of the total stock market fund that you got. So if you're investing in VTI, right, which is which is the ETF that that's.

00:35:21
Speaker 2: Your favorite, right, that's yeah, Vanguard's total total stock market that's a killer one, right If you're investing in that, well, you're already kind of by proxy investing in V ANDQ, and so you might not necessarily need additional exposure. So for a lot of people, it's probably, like I said, more trouble and it's worthiness right. Yeah. And you also don't have to be fully team VTI. You can also come over to my side and join Team VU. They're both very similar and both wonderful syndication deals. This is another way to invest in real estate in a more passive manner, and that basically means just investing in other people's real estate deals and other folks in other companies real estate deals. So oftentimes you're coming alongside other investors to say, purchase an apartment complex, Joe. This is something that you've done a couple of times. But if you pick the right operator or the right investment, it can definitely work out well. But the problem with these is that there's a massive barrier to entry. A lot of them won't accept an investment less than fifty thousand dollars.

00:36:16
Speaker 1: Some will start as low as like twenty or twenty five. But you're right, a lot of a lot of them, say no hind those though. Yeah, fifty is the minimum, and so it's hard for It's just the same as trying to save up that down payment if that's kind of what's prohibiting you from buying the property in your area, Like, oh, I got to save up that down payment. Well that syndication deals definitely don't make sense for you either, exactly because it's a big it's a it's a big slog to save up that kind of money. So yeah, but I think syndication deals are they're interesting, but you've got to be really careful in that space too, because there are a lot of crafty salespeople who want to make their syndication deals sound like the greatest things in slices spread you're going to get rich in just three to four years time. But how conservative are their projections and what kind of operator are they? Like, can you trust that they're going to be able to And so it makes you have to do a lot of due diligence on those deals too, which makes it not necessarily passive either.

00:37:07
Speaker 2: Yeah, that's right. It takes some time to know what it is that you're you're getting into, especially with a buy in at that level. Yeah, and so if you're unphased by all of these different roadblocks roadblocks that we've mentioned during this episode, it just might make sense for you to start learning a little bit more. So, we wanted to mention a couple of resources that we think can be helpful as you're trying to increase your knowledge when it comes to investing in real estate. And Bigger Pockets is a great website. They've got a solid form where investors can help each other out, ask and answer questions. Coach Carson he is a good friend of ours and we love his philosophy when it comes to investing in real estate. He's all about reaching what he calls small but mighty real estate investors. I love that approach. He thinks the mighty mouse sort of take when he.

00:37:54
Speaker 1: Takes the approach if you buy maybe one property every two years and then you seek to pay that offuntil you reach retirement and age, like, you can get really really rich buying just a having just a handful of investment properties. And I like that because sometimes you'll hear people talking about, like, you know, thousands of units or hundreds of units, and it feels so inaccessible and the way Coach Carson talks about it feels and seems and is I think very accessible for people who are interested in investing in real estate.

00:38:22
Speaker 2: Yeah, for folks who are looking for it to be like a sustainable part of your lifestyle.

00:38:27
Speaker 1: Yeah, that's what.

00:38:28
Speaker 2: Coach Carson does. Will link to those resources in our show notes, but they can help you, you know, to get up to speed quickly. The Millionaire real Estate Investor. That's actually the first book I ever read on investing in real estate.

00:38:38
Speaker 1: That's Gary Keller. I thought you were gonna say, that's actually the first book you ever read. I ever read aggressive Matt, you were like four years old.

00:38:45
Speaker 2: Yeah, No, this is a fantastic book that covers all of the basics, and so if you're looking for like a comprehensive manual, I would highly recommend that book as well.

00:38:54
Speaker 1: I think there's a lot of great resources. And so if you're like, yeah, the market conditions, they don't seem favorable right now based on what I'm seeing, based on what Matt and Till we're talking about, well, at least start doing the research because you never know, maybe in six months or a year's time, the winds change, right, the market conditions change and we're starting to see more deals, more inventory on the market. So having that knowledge and getting prepared is never a bad thing, that's right.

00:39:20
Speaker 2: It pays the dig the well before you need it.

00:39:22
Speaker 1: Yes, like our friend Jordan Harbinger says, take the well before you're thirsty, the well of knowledge. Yes, yes, I'm still impressed with you reading those books of that magnitude of four. But as a quick reader, yeah, smart kid? Is it through it in one week?

00:39:35
Speaker 2: You know?

00:39:36
Speaker 1: I think in a way that people can gently ease into investing in real estate, kind of like the Chad Carson method. And it's actually the way that I first got into investment real estate is by transitioning your primary residence into an investment property. And basically, if you've got a locked in low mortgage rate in a neighborhood that has good long term prospects, and if the numbers on that home that you own actually makes if that's the case for you, then it might be a good idea for you to save up enough so that you don't have to sell the current place you're living in when you buy your next place. And this is just a great way that a lot of landlords are able to get started you're familiar with the home and it's quirks, and the barrier to entry is lowered because you're buying the next home is a primary residence, which means you get better financing, which means you have to come to the table with less money down. And so Matt, you and I we've both done this a couple of times, and it doesn't make sense for everyone. If you're living in a million dollar home or seven hundred and fifty thousand dollars for four thousand square foot home, it's unlikely to be a great rental from a number standpoint, So it depends on the specifics of your property. But I just love this as a way for people to get into real estate investing. If you're kind of living in a starter home and you're ready to upgrade, well, instead of selling that home and using your equity to kind of buy help you purchase a bigger home, keep that home and save up the down payment for that next home. That's just a really excellent strategy for a lot of people to get going.

00:41:00
Speaker 2: That's right. Yeah, Well, house hacking, that's another way for first time investors to that also get into the landlording game. And so whether that's buying a single family house where maybe you're just running out, you know, just a portion of it, like a room where you've got roommates, or even a duplex or a quad, but buying something that you can live in that also generates income. That makes a ton of sense for lots of folks. It can just be a way to minimize their housing costs in a pretty major way, allowing you to then save up even more money for that next real estate investment much more quickly than you otherwise would be able to. We talked with real estate investor Craig Cheerlop back in episode four forty five, and he's, I don't know. He might have the most inspiring story when it comes to house hacking. He's done in a bunch of different ways. He's done it multiple times, multiple different ways. One of which was the home that he owned. He was sleeping in the living room and he partitioned off his He basically made a re He's like, no, no, no, this is my house, so living room is now a bedroom.

00:41:57
Speaker 1: Well, he got to decide, and you don't have to do it as hardcore as Craig did, necessarily, Like yeah, in his book, he outlines have.

00:42:03
Speaker 2: An actual room with a bathroom if you'd like.

00:42:05
Speaker 1: Yeah, and he outlines multiple ways to do it, and it takes some sacrifice, right It's house hacking is not for the fate of heart necessarily, but it can completely change your financial trajectory. Have taking on roommates or buying a house that has like a basement apartment that you can rent out, whether it's on Airbnb or whether it's full time to a tenant like those are the kind of things that can really completely change your finance is moving forward because you're able to generate a whole lot more income or maybe even like live for free. Think of what you could do if you were living for free, think of how much you could save and invest and start banking towards like future projects Like it's it's pretty impressive. And again it's like amazing how much cartoons have changed on real estate investing. When the price is right, you know, we think it can make a lot of sense for folks who have the real estate investing bug to take the plunge. And even just two and a half or three years ago, I think it was possible to find deals that made sense. In Atlanta, where we live although even then it was getting harder, and today it's just gotten incredibly difficult to make the numbers work unless you're willing to take those more intense approaches like house hacking. But that's our location, right, that's where we live. And even still, it's not that it's impossible to find something that's worth investing in, but it's important to figure out what your town or city dynamics are like before swearing it off all together, or before jumping in with both feet. I think I still like the path of real estate investing for a whole lot of people. It's just that it's more difficult than it has been in a long time to actually start going down that path.

00:43:32
Speaker 2: Absolutely. And if there's one thing I think that prevents folks from investing in real estate when it actually makes sense for them, right like, if they have run the numbers, if they have thought through how this is going to impact their personal life, I think it's just being afraid to take the risks, right Like, there's a I think there can be a fear that can keep people from maybe achieving some of the financial goals even faster than they would have otherwise. Obviously, real estate investing is not for everyone, But we don't want the work part of this to freak you out, because like buying the right property, finding it at the right price, and managing that property effectively, that can just be a great way to grow your net worth over time, and again, depending on where you live and where you are with your financial goals, now might actually be a really solid time to buy a great property. But we recorded this episode made this a topic because we wanted to make sure that you were equipped with all of the different factors to think through before taking the plunge, right before entertaining the idea of all right, maybe it maybe it's time for me to get fansy with my investments, and I don't I shouldn't have even said that, because I think a part of what we wanted to do with this episode is to be realistic about where the market is currently. But we don't want to build up investing in real estate as this massive, unattainable thing. It's honestly, it truly isn't all that complicated. We think it's something that you can do as well.

00:44:50
Speaker 1: But it's also not the savior that's going to lead you to financial independence, like a lot of people would say too so we want like a rational, level headed approach to real estate, which is kind of what we're trying to do today. I hope that helps. But I think one of the other things too, Mat don't want to say, is that that we were talking about the harsh realities of investing in real estate, and the truth is that the current marketing conditions make it more difficult. But I think some of the harsh realities are also overblown, like three am toilet malfunctions and your tenant calling you. Some of the horror stories that you hear from real estate investors are a little over the top as well, And so I just want people to know that going into it, it's not like you're getting a call from your tenant twice a week in the middle of the night because your house is on fire or something like that. And I think that those kinds of things, it's kind of like how maybe we freaked out about crazy stuff in Halloween candy and like the eighties or something like that. It's like it became this full blown panic from I don't know, if you go back and look at.

00:45:40
Speaker 2: It on Halloween candy panic, It's not like it was a.

00:45:42
Speaker 1: Real problem, right, but we made it into this thing and countless articles written about it, countless discussions on stuff like the Today Show or whatever. But while the occasional inconvenience does happen as a landlord, don't let those stories and don't let those the hyperbolic nature of some of those discussions scare you. Put fear into your heart, like prevents you from even kind of thinking about doing this.

00:46:03
Speaker 2: Yeah. Absolutely, man, all right, let's shift gears. Let's get back to the beer that you and I drank during this episode. And this is an US alive. I think that's how they wanted wanted us to read it.

00:46:14
Speaker 1: This is that you're hired. I think this is the beer by mckller.

00:46:17
Speaker 2: What were your thoughts on this one?

00:46:19
Speaker 1: Yeah, I wasn't too impressed, hoping for more.

00:46:21
Speaker 2: It's a Belgian wild ale, by the way, and I.

00:46:24
Speaker 1: Like wild a lot typically, but this one was like kind of like a brown ale with a little bit of funk, kind of sweet it. I don't know, man, it hit it.

00:46:34
Speaker 2: I'm a little surprised, I guess because I'm I am in agreement with you.

00:46:37
Speaker 1: Okay.

00:46:37
Speaker 2: It kind of had like this like like it definitely had the funkiness going on from the Brett that Breda nomiases and it had the fruity sort of Belgian vibes going on that you typically can expect with Belgian.

00:46:50
Speaker 1: It was something. Yeah, it definitely had like Belgian yeast flavors es going on. So I had this weird kind of like stinky funkiness combined with like funky fruitiness. And I've never ever described a beer this way, but it reminded me of like a baby's dirty diaper. Well, now you're selling everybody on it, you know.

00:47:10
Speaker 2: So like oftentimes, like the fancier diapers, they come scented and so they kind of have like this floral not fruitiness, but it's almost like there is a like a fruity scent kind of masking the underlying stinky funkiness. You know, you know what I'm talking about here. Okay, So that's kind of what this beer did in beer form. I'm not saying that this beer tasted like a baby's diaper, but the dynamics that you typically find.

00:47:34
Speaker 1: With your glasses empty over there. So yeah, I mean, maybe you're a glutton for punishment. I don't know.

00:47:39
Speaker 2: I don't I eat all my leftovers, I drink all my well, except that one beer I talked about earlier. I did pour down the drink because that one, that joker was bad. Yeah, but yeah, it wasn't a terrible beer. It wasn't my absolute favorite, and.

00:47:50
Speaker 1: So I'll just say that it was I et Yeah, Okay, I'm typically a huge fan of mckeller beers, but this one was.

00:47:56
Speaker 2: The least ferit I ever had from that kind of missed the mark for us.

00:47:58
Speaker 1: Ye, and they've had some really good beers. Absolutely, Hopefully we'll get on track with the next mckeller beer that we have on the show.

00:48:04
Speaker 2: And who knows, maybe this one was a little past it's it's.

00:48:06
Speaker 1: Date, could be, could be?

00:48:08
Speaker 2: Yeah, yeah, Well, we will link to some of the different resources that we mentioned during this episode, some of the pratt some of the past conversations we've had with other guests, in particular I guess we just mentioned Craig kure Lop when it comes to house hacking. But you can find those resources up in our show notes at howtomoney dot com. Right, But Joel, that's going to be it for this episode until next time. Best Friends Out, Best Friends Out,