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March 29, 2016By Paula Pant

#18: Ask Us Anything — Your Real Estate Investing Questions

real estate investing

Back by popular demand, we answer a handful of your questions — and this time, we focus the full episode on real estate investing.

(If you listen until the very end, you’ll find a special treat.)

Here are some of the questions we tackle (written by Paula):

Q: Did you fall into your real estate niche by accident? Or did you chose it for specific reasons?

You can’t become an expert everything. You won’t be great at investing in mobile homes and strip malls and single family homes. You can’t bec an expert at flipping and wholesaling and buy-and-hold and tax liens.

Pick one niche and one strategy. Do one thing well, rather than 8 things poorly.

I chose rental properties because they’re a passive, cash-flow-centered investment. If you’re not interested in passive income, though, you could decide to run an active business wholesaling or flipping houses.

Q: Are there niches that look promising in the next 5-10 years or stay away from?

You can’t make wild, crazy predictions about what the market is going to look like in the future — just as stock market timers fail at predicting stock market returns.

Sure, you could look for indicators of development — such as the number of new building permits and remodeling permits being issued on a local level, job development, or infrastructure development. But rather than trying to base your decisions on speculation, base your decisions on cash flow.

Q: Are there types of real estate investment options that may pair up with certain investors better than others?

Think about how real estate fits with your lifestyle goals. Here’s an example.

As a wholesaler, you make an offer on a property. The seller accepts the offer and you enter a binding agreement (a legal status of being under contract). Before the sale date you flip the contract to another investor. You may earn a few thousand dollars by making the deal happen, but you need to continue wholesaling to keep making money.

As a buy-and-hold investor, by contrast, you collect passive rental income. You don’t get the thrill of a huge one-time payout, as you might from wholesaling or flipping. But you get ongoing, residual cash flow that continues for years.

If you’re an investor who wants to get into the real estate field for large, one-time payouts, flipping or wholesaling might make more sense. But if you’re after passive cash flow, rental properties might make more sense.

Q: Can you give us an example of some costly rookie mistakes you’ve made or see often?

One of my biggest mistakes happened during the depths of the recession. There were inexpensive properties everywhere, but I didn’t focus on buying those cheap houses. Instead, I spent a lot of time doing the work myself instead of building my business and acquiring more properties.

I thought I was saving money. In reality, though, I was wasting time.

Q: Any other mistakes that you hear about?

Many beginners say they want to “to live in the home, later rent it out, and hope the price will rise.” This is code for: “I don’t have a business strategy.”

Q: You mention finding realtors and investors to talk with. Do you have any suggestions on how to find them? 

Google the name of your state and “Real Estate Investor’s Association” (or REIA) to find local groups. In larger cities you can find real estate groups on meetup.com.

Q: Would you recommend setting up a business before getting into real estate? Do you have a separate business set up for each property?

Most banks aren’t going to write a mortgage for a brand-new, single-member LLC. They want to issue the loan in your name.

You could purchase the property in your own name and then use a Quit Claim Deed to transfer ownership into a LLC. However, you risk the bank evoking the “Due on Sale” clause – meaning the entire balance of the mortgage is due at time the ownership changes.

Try this instead: Buy an umbrella insurance policy. These are incredibly cheap and can help pay for damages or legal representation. Also,  use licensed, insured contractors and hire a licensed property manager.

 

Want to learn more about buying your first rental property? Sign up to our VIP list here. You’ll receive a free 7-day crash-course on real estate investing and announcements for the course.

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Posted in: Episodes, Real EstateTagged in: ask paula, real estate investing, real estate team

22 Comments
Leave a Comment
  1. Lars

    # March 29, 2016 at 5:08 pm

    Great episode! First time I’ve heard “shload” instead of “sh*tload”.
    I”m very impressed.

    Reply ↓
    • J. Money

      # March 30, 2016 at 5:41 am

      Haha… trying out a cleaner show to see how people respond… and definitely not good at catching ourselves yet 😉

      Reply ↓
      • Mark R.

        # April 22, 2016 at 11:06 am

        I just want to tell you that I noticed it and I appreciate it. Like, REALLY appreciate it. I made a comment on Paula’s blog asking for a family friendly version. This gets us closer and I am very thankful to you for that. I actually started listening again after writing off your podcast. Thank you, and keep up the great work!

        Reply ↓
        • J. Money

          # April 22, 2016 at 12:19 pm

          Cool! Glad to hear!

          Reply ↓
      • NWOutlier

        # July 8, 2016 at 1:32 pm

        Hey,

        Real quick – everything out there is “PC” – I prefer J. Money and Paul “as is” – over the past 3 years I’ve made my investment decisions based off ‘real’ people, with ‘real’ experience.. not some filtered yahoo finance, wall street journal, etc… BS (oh, I filtered myself! ha ha!)… anyway, my point is…. this is what we need… straight talk, I don’t wany any percentage of their time spent on “what do we say, how do we say it, what if we make someone mad” cause once that happens the focus becomes no longer on the real content.. people are people – J. is J. and we need J.

        Reply ↓
  2. Wil

    # March 31, 2016 at 2:11 pm

    Thanks for posting the question basically asking, Should separate businesses be setup for different purposes? I recently established an LLC for business banking accounts for current and future properties. I want to treat it as a business; therefore, having all funds separated was the first step. The Due on Sale explanation was insightful.

    Reply ↓
    • J. Money

      # April 3, 2016 at 1:36 pm

      Glad it helped! VERY smart to keep funds separated out too – regardless of how many LLCs a person has or not… Helps with analyzing, taxes, confusion/co-mingling, and just a great practice to get into overall.

      Thx for stopping by and dropping a note!

      Reply ↓
  3. Roy Lagro @ Band of Savers

    # April 5, 2016 at 9:36 am

    You guys give me the warm fuzzies.

    Reply ↓
    • J. Money

      # April 5, 2016 at 1:48 pm

      Haha… you’re in a binge listening mood over there right now, aren’t you? )

      Reply ↓
  4. Julie

    # April 5, 2016 at 1:24 pm

    Really enjoying the podcast, especially the listener Q&As and the bloopers 🙂 How about a tax time episode?

    Can I make one small technical request of Steve? Can the volume of the bleeping of JMoney’s cussing be lowered a bit — The last couple episodes I was nearly startled off my chair

    Reply ↓
    • J. Money

      # April 5, 2016 at 1:50 pm

      Glad you’re liking!! 🙂

      I’ll work on my potty mouth while Steve does the rest, haha….

      Reply ↓
    • Steve Stewart

      # April 5, 2016 at 2:06 pm

      Oh my gosh Julie. I’m so sorry. Yes, I’ll drop it down even more since there’s no stopping J’s dropping of 4-letter words from time-to-time.

      Reply ↓
      • Julie

        # April 7, 2016 at 10:37 am

        Thanks! Otherwise the editing has been spot-on, kudos!

        Reply ↓
  5. JL

    # April 6, 2016 at 12:37 am

    I wish I had listened to this episode before I sent beaucoup $$$ on a wholesaling course from a nationally-wide guru

    Reply ↓
    • Paula

      # April 6, 2016 at 12:06 pm

      @JL — Ouch. Sorry to hear about that. But here’s the thing: everyone makes mistakes along the way. Lots of them. And some of these mistakes are expensive. The important thing is that you ultimately win more than you lose.

      Nobody has a 100% streak of making the right decisions all the time. If they did, that would probably mean they’re not trying.

      So don’t be dissuaded by a wrong move. Even if it was an expensive wrong move. Because you’re only just getting started. And in the long-run, as long as you keep learning and working, you’ll make many, many more correct decisions.

      Reply ↓
  6. Steve

    # March 12, 2017 at 11:12 am

    People talk about class A,B,C, and D home investing?

    Reply ↓
  7. Mark Lopez

    # January 8, 2018 at 8:33 pm

    This may clarify for the future readers.

    A, B, C, D class investing is just a method used to categorize the condition of the type of homes purchased.
    A class = Very good tip top condition (little to no work needed)
    B class = Good condition
    C class = Not so good condition. Needs some TLC
    D class = Very bad condition

    Reply ↓
  8. Amber

    # January 19, 2018 at 2:11 pm

    Question… My mother has a home and she has almost paid the mortgage off. She is down to the last payment which is a balloon payment that she can not afford. The bank is sending letters of foreclosure and will not accept any less payments than the full payment of last balloon payment. Wondering what I can do to help her and not raise her monthly bill she is used to paying. Im thinking a subject to” I do not want to pay the monthly payment So wondering how I can get a payoff of some sort as a buyer without paying all the extra cost in interest she has accumulated while not making a payment. Initially payoff was 5000 now it is up to 10,000. Any info would be great help. Thanks .This would be my first investment property and it is my childhood home so I am pressed to figure this out!

    Reply ↓
    • Erin @ Team Afford Anything

      # January 21, 2018 at 8:52 pm

      Hi Amber – thanks for the question! Paula typically fields questions from listeners on “Ask Paula” episodes of the podcast now. You can leave your question as a voicemail via this link: https://affordanything.com/voicemail

      This helps other listeners benefit from hearing the answer. =)

      Thanks!

      Reply ↓
  9. Ethan Hansen

    # April 26, 2019 at 12:49 pm

    I found it interesting how you mentioned how investing in real estate during the right time of a recession can pay off immensely. My wife and I are in the process of retiring and we want to make sure we have a steady source of income to improve our home and travel. Because we want to start investing in real estate, I will keep this in mind as we search for an agent who can help us identify recessions!

    Reply ↓
  10. Ethan Hansen

    # May 2, 2019 at 11:20 am

    I found it interesting how you mentioned how real estate can be for everyone when you find the niche that you fall in to and what buildings you want to invest in. My wife and I are in the process of retiring and we want to make sure we can invest in something with some money we have set aside so we can live more comfortably. Because we want to invest in buildings that help the needy and less fortunate, I will keep this in mind as we search for a real estate attorney who can help us find out the legal logistics of real estate investing!

    Reply ↓
  11. Jagriti Singh

    # June 17, 2019 at 3:29 am

    Great read! Before investing a cent in a neighborhood, get a strong sense of the vacancy rate there. Talk to local landlords, local Realtors, local property managers. Walk the streets. Look up the homes for rent on the property portals.

    Reply ↓

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Afford Anything

  • Start Here
    • About
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  • Blog
    • Binge
  • Podcast
    • Binge
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    • Ask a Question
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    • Your First Rental Property
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