For this week’s Follow Along Friday, Joe and Theo are answering another list of questions from a listener. This conversation can resonate with every level of investor because some of the tips and advice they offer are things we should always be working on, even if we consider ourselves real estate professionals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
We’ve got Follow Along Friday today, and we’re gonna be answering a Best Ever listener’s question about how to get a property acquired, and the structure that we recommend for doing so… And we’ve got a couple other miscellaneous things. We’ve got Theo Hicks with us, as always on Follow Along Friday. Theo, let’s kick it off.
Theo Hicks: Before I start, people that are listening to this won’t see this, but Joe, you look like an Olympic athlete right now, a U.S.A. Olympic athlete.
Joe Fairless: Colleen hates my tracksuit. She calls it a tracksuit. But I secretly think she loves it, because every time she says she hates it, I wear it more often. [laughs]
Theo Hicks: There you go. I think it was good. So as you mentioned, we’re gonna go over another listener question and offer our advice on what we would do if we were in that particular situation. This week’s question came from Denise, and she has a very long and thoughtful message, so we appreciate that. I’m just gonna summarize it for now.
She gave her background – she’s a single mother, she recently acquired her architectural degree, so congrats on that.
Joe Fairless: Congratulations!
Theo Hicks: She currently lives in Southern California, and she’s had a little bit of issues housing-wise over the past couple of years. She says she got evicted from the place she was renting, and was homeless for about a year… But it was kind of figure things out, and got back into a rental — she didn’t explain what happened, but right now I know that she currently rents a home.
She discovered our podcast and other real estate investors, and was interested in investing, because she never wanted to be in that tricky financial situation ever again, and be forced to not have a place to live. So she said that her goal is to buy some sort of income property – a duplex or a triplex – and implement the house-hacking strategy, so living in one unit, rent out the other unit. But the trouble areas that she had and she wanted our advice on was 1) how to afford the down payment; being in Southern California, the purchase price will probably be around half a million dollars, so how do you afford a down payment on that. And also, because of her background, she in her mind didn’t believe she’ll qualify for a loan, so she wants to know how she would also find a guarantor to help her with the loan.
She asked for any advice on what we think that she should do. I’ll let you take it, Joe, and then I’ll go after you.
Joe Fairless: Okay. Just so I’m clear, she is intending on purchasing a duplex to live in one side and rent out the other?
Theo Hicks: Yeah.
Joe Fairless: Okay. And she does not have money for a down payment, so she’s asking 1) “How do I get the money?” and then 2) since she doesn’t have the money for a down payment, then she won’t be able to qualify for the loan, so the second one is “How do I bring someone in to partner with me on that?” Is that accurate?
Theo Hicks: Yes.
Joe Fairless: Well, it’s kind of a broad question, because basically the first question is “How do I make money, so that I have enough for a down payment?” Well, you can do a Google search on that, and I’m not trivializing your question, but it’s almost too broad for me to wrap my mind around… So how about you go first?
Theo Hicks: It’s interesting, I was looking at this more through the lens of — a lot of newer investors, whether they reach out to me on Bigger Pockets, or that I read on Bigger Pockets forums, or just some people that I know personally who wanna get into real estate, that’s really what the main problem is, that they don’t have the money to buy a property at first… So they always ask “I wanna get started today. I just learned about real estate yesterday and I wanna buy my first property, but I don’t have money, so how do I do it?” As you mentioned, at the end of the day there are, of course, ways to get into real estate without actually having money. So if your goal is to turn this into a business eventually, at least personally I don’t think you should be thinking about it as “What’s the fastest way to do it?”, just because you need to have that foundation first, so you don’t make crazy mistakes and lose all the money [unintelligible [00:06:03].10] and then buying a property, you don’t know what you’re doing and you end up losing all that money… 1) You’re gonna obviously lose that money, but 2) you might not even continue to do it in the future.
So my advice would be to kind of take a big step back and first start working on your education, start going to meetup groups in your area, to meet with other investors, other agents, other real estate professionals to get an idea of the area, to figure out what it is you actually like about real estate, what part of real estate you wanna get into.
One way to make money for this down payment is to try to work with someone that meet at this meetup group within their business, or partner up and maybe wholesale a few deals first, or maybe find someone to fix and flip a deal with. Again, I know this is very vague; it’s not just “You walk into a meetup one day and meet someone and fix and flip a property”, but I think this entire point is kind of slowing everything down, and realizing that there is no fast solution to raising money to buy a $500,000 duplex. If you can’t think of something right away, then it’s not gonna be something that’s gonna be a quick fix; it’s gonna take some time.
Joe Fairless: On that note, three paths come to mind, just riffing off of what you were saying. One is you earn the money. Two is you partner with someone who has the money. And three is owner-financing. Off the top of my head, those are the three paths for you to get the property.
One, earn the money – Theo mentioned some ways to earn money; wholesaling, or… You’ve just got your degree – congrats on that; you rent for a little while at a very low rent, in an area that you might not enjoy as much, but you do that and then you save up and you have the down payment. And there’s a whole lot of other ways to make money, obviously.
Two is you joint venture with someone. The challenge with the joint venture in this scenario is what value are you bringing to the transaction? If you don’t have money and you’re not signing on the loan or you can’t qualify for the loan, then the value will be you finding the property that’s gonna be off-market… Because if it’s an on market property represented by a broker, it’s unlikely that that’s gonna be enough value for you to make substantial profit. But perhaps you talk to someone and then you partner with them, and you find the property that they’re looking for, but then you’re really a real estate agent.
So in order to do number two, a joint venture, you’re gonna need to find off-market deals, and there’s plenty of resources on our blog… What is it – thebesteverblog.com, right?
Theo Hicks: Yeah.
Joe Fairless: Yeah, thebesteverblog.com – there are ways to find off-market deals there; there’s a little category, I’m sure, for that. And then the third way is owner financing. It is possible for you to acquire property with no money out of pocket. It is not likely, in my opinion, especially given you’re in California, where it’s a hot market. It’s always a hot market in California, so it’s gonna be challenging for you to get owner financing, but it is possible.
So that goes with the second point of finding off-market deals, and perhaps with an off-market deal that you find, so you can do that through direct mail, you can do that through phone calls, just calling the owner up. You could do it through attending the meetup that Theo mentioned; you could do it through having a local meetup that you create, and it’s just a meetup with property owners in the area, and then you start conversations there… I have interviewed plenty of people who have gotten off-market deals in that way. Then you increase your likelihood of getting owner financing, because you’re getting more deal flow.
So those are the three ways that I can think of that you can get into a deal. But touching on what Theo was mentioning, perhaps it’s just taking a step back and just looking at the lay of the land and seeing “Okay, where do I want to spend my time and my focus? Does it make more sense for me to put my head down? …I just got my degree, I got a new job, hopefully in that industry. Do I need to put my head down and focus on that, and earn money and save, or do I want to create a new venture, like a wholesaling business or something else on the side, while I’m entering into my career?” I assume you’re entering into the career, since you just got your degree.
Theo Hicks: Yeah, so while you were talking I went and calculated how much money you actually need for that $500,000 duplex, assuming a 3.5% down house-hack, and it’s around $20,000. So if you work in the architecture field for a year, two years, work on getting your credit up, get that historical W-2 income and just save up a third of your income, then in two years you could house-hack yourself and not have to worry about raising the money or having somebody else sign on the loan. But as Joe mentioned and as I’ve mentioned before, in situations where you wanna get into the industry, but you don’t know how, but you wanna do it quickly, you really have to just put yourself in as many situations as possible that could benefit you real estate-wise. So go to every meetup group in your market for a few months straight and see what happens.
In Joe’s podcast, at the end of every podcast he says “What’s the best way that the Best Ever listeners can get in touch with you?” Reach out to these people, and don’t ask them for something, but offer them something instead. If you wanna go that realtor route, get your real estate license. Maybe you meet someone there you can partner up with.
Just putting yourself in as many situations as possible; instead of just kind of staying at home and always being online, just getting yourself in front of people and just seeing what happens. Maybe nothing happens at all, and you just wait two years and buy a duplex with your money, or maybe in a few months you hit it off with someone who has a lot of money that is just willing to take a chance on someone. You never really know.
We just wrote that Best Ever Influencers article about Alex Holt and Ash Patel. That’s kind of like a perfect example – he just kept putting himself out there and ended up finding a money partner. And sure, in his mind he didn’t know exactly what was going to happen, that he’d find this money partner, do a fix and flip that wouldn’t go very well, but still have that partner afterwards, but he put himself out there and benefitted from it because of that.
I think that’d be my advice for anyone that’s in her situation, that wants to get into real estate but doesn’t exactly know how – just every day put yourself in front of at least one new person, whether it’s in-person or via e-mail. If you do that long enough, eventually something positive is gonna happen.
Joe Fairless: Good stuff.
Theo Hicks: That’s the advice I’ve got on that. Do you have anything else to add, or are we gonna move on?
Joe Fairless: No, I’ve got nothing else.
Theo Hicks: Alright. Do you have any updates that you wanna discuss?
Joe Fairless: Nope.
Theo Hicks: Cool. I just want to mention one thing… As I mentioned last week, we are expanding to multiple markets in Florida; originally it was just Tampa, and now we’re expanding to Tallahassee, Orlando and Jacksonville. The reason why [unintelligible [00:12:51].12] conversation we had on this podcast, so again, I really appreciate that… And I reached out to a lender who was nice enough to send me all this market information on those, so we’re kind of going through that right now.
Now it’s just looking at four times more deals… Actually more than that, because Tampa has been a little dry lately, and I’m just having my underwriters go through those deals, and… I think you’ll think this is funny – I did get lunch with a commercial broker and then the lender for that company…
Joe Fairless: Yeah.
Theo Hicks: And we were kind of just talking, and I mentioned you and Ashcroft, and the guy is like “Ashcroft… That sounds so familiar. I think I just talked to someone from Ashcroft recently.” He pulls out his e-mail, and sure enough, he had talked to your acquisition manager, Scott…
Joe Fairless: Scott, yeah…
Theo Hicks: [laughs] I was like, “Oh, yeah. I know Scott.” [laughs] I thought that was pretty funny. A super-small world.
Joe Fairless: We’re everywhere, Theo. [laughs]
Theo Hicks: I know. You are. I just wanted to mention that; I thought that was interesting. [unintelligible [00:13:43].22] grinding still, looking for that first deal, and definitely increasing our chances by looking at more markets, for sure.
Joe Fairless: What happened to the Jacksonville one?
Theo Hicks: Too big. It was 440 units.
Joe Fairless: Got it. Cool.
Theo Hicks: It was more of a class A property. It was a little bit too nice for us. The price per unit to purchase it, as well as the price per unit to upgrade it was just a little bit above what we’d want to do. I’m looking for more that B, C-ish type of property that we can put under 10k into. We don’t wanna do the nice, luxury, granite stuff just yet, but obviously eventually that’d be great.
Joe Fairless: Yup. Cool.
Theo Hicks: Alright, moving on to the trivia question. I don’t know why, I’m always so excited by the trivia section.
Joe Fairless: They’re fun!
Theo Hicks: I did a ton of research on the question this week; I think it’s kind of interesting. But first, last week’s question. The question that “In 2010 Apple purchased one acre of land from an elderly couple from North Carolina to build a data server. That elderly couple bought their land for 6k 34 years prior (in the 1970’s). How much did Apple pay for that land?” And I said within $100,000, and the answer was 1.7 million dollars. So that’s almost a hundred or a thousand times than what they paid for it originally, so good for them.
Joe Fairless: Yeah, good for them. I’m sure somehow it worked out financially for Apple, too.
Theo Hicks: Seriously. I do [unintelligible [00:15:00].24] and they were buying houses for four or five times as much as they were actually worth, but this is…
Joe Fairless: Who’s “they”?
Theo Hicks: Whoever the developer was, that developed the apartment building.
Joe Fairless: Oh, the apartment developer was doing that, okay.
Theo Hicks: Yeah.
Joe Fairless: I thought you were still talking about Apple.
Theo Hicks: And I think one guy didn’t wanna sell, and eventually the government stepped in and he didn’t make as much money as he would have if he had just sold. That should have been a trivia question, but that’s too specific. But this week’s question is gonna be – in 1929 it was announced that they were increasing the height of the Empire State Building from 1,050 to 1,250 feet, via that needle that’s at the top of the empire state building right now.
Joe Fairless: Sure.
Theo Hicks: So the question is “What was the original purpose of that needle on top of the Empire State Building?”
Joe Fairless: Oh, I don’t think there was a purpose. I just think they did it to be the tallest building, because I’m sure they were trying to beat another building… So they just wanted the needle there to have bragging rights. That’s my guess.
Theo Hicks: Okay. Submit your answer to either info@JoeFairless.com, or you can comment on the YouTube video with your answer, and the winner will receive a copy of the Best Real Estate Investing Advice Ever book that we wrote.
Joe Fairless: Volume 1, right?
Theo Hicks: Yeah. It’s the first person to get the answer correct. But moving on, the recording is on Thursday, this will be live on Friday; a week from when this goes live is the Best Ever Conference. That is in Denver, next week, and I wanted to ask you, Joe, since obviously you’re putting the conference on, you’re gonna be a speaker, do you wanna give us a little sneak peek on what you’re gonna be talking about in your keynote?
Joe Fairless: Yeah, sure. I am actually finalizing it now; it’s on my desktop. I’m gonna be talking about lessons learned after acquiring 500 million dollars worth of apartment communities… And they’re applicable to apartment investors, but then also entrepreneurs and real estate investors and business people. There will be lessons that I have not talked about before, because I recently did an assessment of just the business after we closed on this deal, which we closed a week ago today… Therefore it’s new stuff, it’s all new stuff; some new concepts… It’s gonna be a lot of fun to talk about some things that are recent observations that I’ve come across. So that’s gonna be my keynote. That will be Friday around 11 AM or so.
The agenda is on our website, BestEverConference.com. We’ve got about 40 or so tickets that are left, otherwise we’re all booked up. We’re gonna meet that allotment, for sure, so if you wanna go, come on over, come hang out with us. We’ll be having fun, too. On Thursday night there’s a Bigger Pockets event. We’re not officially affiliated with it, but Thursday night there’s a Bigger Pockets event, and then Friday night we’re renting out a bar, and all hanging out there, and then Saturday night I think it’s whatever you wanna do. But then Sunday there’s an Assisted Living Academy that everyone can attend for free as a result of being a paid attendee at the conference; that’s Sunday.
So we’ve got a lot of miscellaneous stuff going on before and after the conference. Then, obviously, the conference is a lot of good content. I’m looking forward to meeting everyone there, or seeing you there. BestEverConference.com.
Theo Hicks: Alright. And lastly, the review of the week. So make sure you guys and girls pick up a copy of the Best Ever Apartment Syndication Book on Amazon, leave a review and send us a screenshot in order to have the opportunity to be the review of the week, read aloud on the podcast.
This week’s review comes from Arthur, and I really like reviews like this one; it makes me feel good, if I’m being honest. Arthur said:
“Having been in the apartment development and syndication business for the last 15 years, I’ve never found a book like this one. Very useful information. I’m actually surprised that he shares such detailed trade secrets. Following his book will give you a ten-year headstart.”
Joe Fairless: Thank you for that. It means a lot, especially coming from you, with the background that you have.
Theo Hicks: Exactly.
Joe Fairless: Thanks again. Best Ever listeners, I enjoyed our conversation. I hope you got a lot of value from this, and we’ll talk to you tomorrow.