Investing in Real Estate for Beginners (BiggerPockets’ Brandon Turner)
Articles,  Blog

Investing in Real Estate for Beginners (BiggerPockets’ Brandon Turner)


All right guys, I am excited to introduce
my guest today. It’s Brandon Turner of Bigger Pockets and he is an active real estate investor. He is the VP of growth over at biggerpockets.com, which just happens to be the biggest online resource for real estate investing and they
have a ton of great, great stuff. So if you are at all interested in real estate
investing, I highly, highly encourage you to check it out. Um, so Brandon’s been a real estate investor for a few years now. He’ll get into that, but um, but he’s bought
a bunch of real estate properties and he’s done a whole bunch of different things and
so I wanted to bring them on and just chat a little bit and see if he can shine some
light and shed some light on this whole real estate investing thing. Uh, particularly for beginners. So if you’re a beginner and this is something that’s interesting to you than this podcast or video, whatever we’re calling, this thing
should be for you. So without further ado, Brandon welcome to the video. Thank you Bob. This is, this is amazing. I don’t, I don’t know if I’ve ever told you
this, this is actually a true thing I didn’t like. I discovered like online entrepreneurship
essentially because of you, like back a long time ago. Here’s a story. So I googled something about, uh, what was it? A Medicare right. I needed medical insurance. I know what to do. Came across your site, was reading just thing after blog post after blog post and somehow just found out that people make money online and you had an article or a blog post about how you make a living online. And I was like blown away that you were like the very first wow. In learning the on. Yeah. And then I read like four or work week after
that and all that stuff gets excited. But yeah, you were a, you were my first. Wow. I had no idea. And you save that for the video. Just been hanging onto that. We meet each other at conferences and you just keep it in the back just waiting to unleash it. Well cool, thanks. Glad to be a part of that whole thing. So yeah. Well thanks. So anyway. Um, well I guess let’s dive in and just kind
of get going on some of this. So as far as real estate investing, let me
just make sure I got that right. So when did you get going? Sure, I started when I was 21 years old. I’m 29 today. Eight years? Yeah, eight years now. Um, yeah. And I kind of started just by accident. Yeah. Well tell us a little bit about that. So I mean, how did you get into it? What made you decide? I mean because like every American is like
thought of real estate investing because it’s everywhere. Everybody’s talking about his books, about
everything else. So what made you kind of step beyond the. Oh, that’d be nice to actually get in and
do it. Sure. Um, so I had a friend who had a sister who
was a real estate agent and I went bowling with them and uh, I mentioned I was looking for a place to rent and she said, well why don’t you just buy a house? It’s cheaper. And I’m like, ah, all right, that sounds cool,
you know, is that true? So I looked at, yeah, so I looked into it
and yeah, I was raised by a mom who took us garage sale garage sale-ing every Saturday morning. That’s my entire life. So I knew one thing and that was the to negotiate for a good deal. I guess the only thing I knew about real estate and life was get a good deal. So I asked her for the cheapest house in my area and I went and looked at it and it was a wreck and I bought it and me and some buddies fixed it up slowly over about a year. And then one day it’s actually, I’m
sitting in like, this is terrible, but I’m sitting in church actually. And like my mind’s just kind of wandering
and I thought had this thought of I could sell my house and go backpack Europe for a year. And I was like, that’s an amazing idea. So I like finished the house really quickly,
put it on the market and then sold it and I made like $20,000 and it was fantastic and I was like, I’m going to Europe. Then I got married instead and so I spent
all the money on the, on the wedding, so I didn’t actually go, but yeah, so I mean that’s
what got me into real estate. I, it was at first success that I made a little
bit of money on a as I flip pro. I mean it was a flip essentially fix and flip
and I thought, well that was pretty fun. I should do that again. Okay. Okay. So, so you’ve done that, you flipped and now you’re typically doing a bit more, um, with bringing in renters and owning the property,
is that correct? And what have you done along these lines? Sure. Um, I mean I’ve done, obviously it started
with a flip and then I did next. Uh, I did what I, I like to call house hacking. I think it’s a term I’m trying to like make
popular in the US. So everybody start using that term. How second? Yeah. So I bought a duplex a and there were two
houses on one lot. I bought them, I moved into one of them and then the other unit we rented out and we went to the other house up for $650 a month
and my total payment was $620 or something like that, a month or $625. So like I was living for free and I had to pay the, you know, the water and the garbage, whatever, but minimal, like 100 bucks maybe for utilities and, and I was living for free and I thought this is incredible. This is way better than flipping, right? Like, what’s, what’s 20 grand when you can
live for free. And so, uh, that, that would kind of sparked
me into the idea of, of rental property. And we found out later actually that that
house, uh, because people kept taking photos of the house, a drive by with their cameras
and take a photo and we didn’t know why and for years we didn’t know why. And then we found out later it was a house
that Kurt Cobain was born in. And so yeah, so we actually lived. Yeah, he lived in both houses. Uh, when he was a between zero and six months
old and then six months to two years, like he was born in a hospital but houses, you
know, his first two houses were both halves So I’m the only person on earth that
can say they own both of Kurt Cobain’s two houses I own two houses of his. So that’s, that’s how I got into rentals. That’s a fun little fact that funny. So, okay. So for new investors, I mean, what do you
recommend now? Um, I mean, what do you suggest somebody who just wants to get in and just kind of do there first thing in real estate investing? I mean, is it the rental thing or flipping
or what do you recommend? Yeah, I mean it really does depend obviously on a, the kind of person that they are and where they’re at in life obviously. Uh, I do like the concept of the house hacking in and both things. I did really warehouse house hacking, right? The first one was like a house, heck flip
the idea where I bought a property and then fixed it up while I was living there. Sold it. And made some equity and then I can roll it
over to another project or get married. Right? That’s the. Yeah, that’s the flip house hack or live in
flip or flip in. They call them. Uh, the other side of it was a rental. So I think those two strategies, like both
sides of the house hacking coin are an incredible way to start because not only do they give
you a free place to live if you buy a good, yeah, you gotta be smart, you can’t just buy
anything, but if you do it right, you can potentially live for free or for cheap. And it also gives you like on the job training,
right? That you would never get A. I mean if you
go buy a rental property, you know, you’re jumping in with both feet, but at least when
you kind of house hack, you kind of get to, to ease your way into it to learn and make
mistakes while you’re there. I like that. Yeah. It’s huge. Like, you know, what do you do when the tenant, you know, has a problem in the middle of the night. Their toilet breaks in the middle of night,
which everyone talks about that happening. I mean I’ve got, you know, quite a few rental
properties now and I’ve been to us for eight years and I’ve only one time in my life had
a middle of the night phone call and it wasn’t even necessary. I walked over there and I shut her water off. Like I like just turned off. She was washing dishes at two in the morning, turned her water off at the sink and said I’ll come back tomorrow because it was just like a pipe, you know, London and I’m like, just shut off the water and go to bed, whatever. So anyway, so that by house hacky you kind of get to easier way into it a little bit. And I mean the loans to get a homeowner
like a home, a primary residence are so much easier than trying to buy an investment property. So yeah. So very few people know that like you can
buy a single family or two units or 300 or four unit, all the same thing. The government sees them all, like the banks and the government see them all as the same thing. So yeah, so you can get a loan on a fourplex and they don’t see it any different than a single family house except for the fact that
you get all that bonus rent. So. Okay. Okay. Gotcha. That’s really good information. So as far as getting a loan as an investor,
you’re looking at what is a 20, 25 percent down? Yeah. From, from a bank. I mean like I don’t do a whole ton of
bank stuff just because you have to have 25 percent down and most people don’t have that. Yeah. Granted I wish I had 20 percent down for every property but I don’t. So I try to get more creative than that. But yeah, I mean when you’re a homeowner, like you can usually get three and a half percent down, which is called an Fha loan. Got 100,000 dollars property it costs you
3,500 bucks to buy a fourplex or you know, I don’t know if you can find a fourplex for
a hundred grand, but you know, just using those easy numbers and uh, yeah, it’s, it’s
really a low cost way to get your own house and get in cheap. Okay. So talk to me about the whole buying with
no money down. This is something everybody hears and I’m
sure you get asked about it all the time. So just tell us what’s the deal, what’s up
with that? Yes or no? Yes. Yes. You definitely can do. I mean, I don’t think I’ve really ever put
any money into anything I’ve ever done. So everything I’ve done has been no money
down. That doesn’t mean none of my own. It doesn’t mean no money was involved every time it does. So the idea with no money is kinda like this. There’s, you have to, I mean you have to pay something. So whether or not you’re paying cash or your pain a sweat equity by going and working or whether your pain, you know, by sacrificing
equity later on or sacrificing a portion because you split with someone else. I mean, for example, I’ve done this a number
of times. I’ve found a partner who wants to get more
than the two percent. They’re getting enough, you know, bank CD. And so they’ll say, hey, uh, you want to invest in real estate together, brandon? I say, sure you put the down payment, we’ll
get alone and then I’ll manage the property so I don’t do anything money wise, but I do
manage the whole thing beginning to end the project and make sure everything’s done right. And then we split it 50 slash 50 later, so
I’m still paying something. So the idea of no money, no stress, no problems, that’s, you know, that’s not real. But they definitely there are, I mean there’s
dozens of creative methods you could do to do it with little or no money down. So how common is that? This type of arrangement that you got, were you finding an investor? Is that fairly common? I mean, is that something that in your forums you have people hooking up, stuff like that? Yeah, I mean, that’s quite a bit. I mean, a lot of people in the forums on our
site do that. Uh, I’ve generally found most of my, I mean,
most of mine have been from people I know. I mean the best lenders and the best partners I think are people that, you know, obviously because you need to know if you can work with them. Yeah. Uh, I mean, for example, I’ve partnered with
my parents had partnered with my wife’s parents, a partner with friends from church. I partnered with a guy I met on the site who
we became good friends and he just let me, uh, for example, I mean I found, uh, I found
a fiveplex that was listed at 120,000. It was real cheap compared to most fiveplex would be. And I offered him 19. The bank took it and I said, great. So now I need to come up with 90 grand. So I call it my, my buddy and I’m like, Hey,
I know you lend out private money from time to time, would you want to lend this? He’s like, yeah, no problem. How much you need, like 90,000. It’s like, sure. So yeah, I pay him 12 percent interest, which is crazy high interest, but I’m working on a refinance right now through a bank and you know, like, it’s a little more complicated, but essentially there are ways to be creative and to do it with little to no money down. No. Gotcha. Yeah. Is that a good idea? That’s a whole different conversation is,
you know, I mean, the less money you put in, technically the higher your payment would
probably be like I’m paying him a ton. Gotcha. Okay. Good information. Um, so talk to me about finding a good property and you know, we’re gearing this whole thing towards the, the new investor, the one you
know, buying their first property. How do you, and I know this is, you know,
you could talk for days on this, but how do you find a good property? Are there any rules of thumb that you follow? Is there any just kind of good foundational
advice you have? Yeah, yeah, there is. Um, so the first thing I do, I mean I, I kind
of look at properties shopping as like a funnel you might say at where it’s wide on the top
and it gets narrower or like a filter, like you’re filtering water. There’s different levels. So the first thing I look at his location,
I mean, right, you just screen out location, you drop, I mean worldwide you got a billion houses for sale and you drop down to your town and you got 3000. Okay. So you filter that and you want neighborhoods and now you’re down to a thousand and then you know, under 500. So you can do that pretty big pretty easily
if you have a real estate agent, they can do that. If you’re just using like realtor.com or zillow.com, you can do that. Um, and then after that, uh, there’s a couple
of rules of thumb that are really, really helpful for quickly screening properties and
I’ll try to explain these in like the, the easiest way possible. So the first one is called the 50 percent
rule and I really liked this because it’s, it’s worked out so true in my, in my experience, and this is what it says, it says that over time 50 percent of whatever comes in goes
out in expenses and then that’s not including the mortgage. So let’s say that a property rents for a thousand dollars a month, that’s what comes in, is a thousand dollars to take that and just divide it in half. Fifty percent gone. Now you’ve got 500 bucks left. If your mortgage payment gesture tax, I mean just you’re a principal and interest. If that’s $300, then you could expect $200
a month in cash. Gotcha. Yeah. So it’s a real. I mean, it does, it’s not necessarily exactly
right at, sometimes it’s 55, sometimes it’s 45. Uh, the larger properties might go up to 60,
uh, those, those single family houses might go down to 40, but generally 50 is just a
good number to use and say, here’s what a lot of people do, here’s the mistake that
I’ve made it. Everyone’s made it. That gets into real estate. They look at a property and say it rents for
a thousand dollars a month, my mortgage is going to be, you know, $300 a month, boom, I’m making $700 a month in cash flow when they do the little happy dance and then they
forget that there’s no taxes, insurance and, and water and utilities and maintenance and repairs and vacancy and what’s called cap x. those are like, you know, the roof needs
replaced every 10 years or 20 years. Uh, you know, let’s say you make $100 a month and 20 years later you got a $20,000 roof to put on. I don’t know what that math is, but essentially you just made nothing, right? So if you don’t plan for those big things,
you just make absolutely nothing. So yeah. Okay, good. Good advice. Yeah. That’s first roles on the second line that
is a little more, I’m not going to say it like shady because it’s not shady, but what’s the word like a. it’s not as accurate maybe as a word,
but it’s still helpful. It’s called the one percent or the two percent rule and people call it both ways because it depends on what your criteria is. It just says this. If your property rents for a thousand dollars a month and it costs 100,000 dollars to buy, that’s one percent, right? Because whatever the monthly rent is compared to how much the purchase prices. So 1000 based on $100,000 purchase. That’s one percent rule. If it rented for $2,000 a month and you bought it for $100,000, that’s the two percent rule. So typically personally like the, I use that
a lot because if I’m just seeing a whole bunch of properties, I can just run real quick in
my head. Like you know this one meets the one percent, this one meets one and a half, this one’s one and three quarter. You know, this one’s close to two, this one’s two point five, you know, whatever. I can do those pretty quick in my head. Anything under one percent, I, in my experience will never produce any extra income. You’ll, you’ll lose money every month. And I have one property right now that I,
my loans for 80,000, I rented for $800 a month. So it’s one percent and I lose money over
time because just the maintenance happens, vacancy happens, whatever. Over time I lose money. Gotcha. And that sucks. So, okay. So if you have $100,000 house and it’s only
going to run for seven or $800, it’s not even worth considering in your opinion, I would
probably just assume it’s going to lose money. Gotcha. Now there are reasons you may want to do it. I mean, I personally wouldn’t, but there are
people that they invest for appreciation. It means property going up in value. So is it worth losing $200 a month if five
years from now the things worth $200,000 more, well sure, but there’s appreciation in my opinion,
is the icing on the cake. I never asked for it. I invest hoping for it, but I never invest
for it. That makes sense. Yeah, that makes perfect sense. Yeah. And I’ve heard that too from whatever at about at all. So yeah. Um, so what do you, um, what do you recommend as far as techniques or strategies or just maybe even more general rule of thumb and I guess you kind of touched on this, but how does the new investor minimize their risk
getting involved in this? Well, I think step one is getting educated
and not like those, you know, like late night tv guys that are, you know, join my 9,000,
$997 course and you know, then you can join my coaching program and then my mentor, like I didn’t talk about like real education, like through. I mean honestly things like this, like
people are listening to the podcast, obviously they’re on a good, a good or video or whatever they’re doing here, you know, they’re on a good path, right? I mean, there’s a ton of good resources out
there. I mean when I got started I went and got every book for my local library on real estate investing. Every single one they had in the whole system. It was over 100 and I just read one after
another after another. I just like burned through one a day for a
whole summer and I learned so much stuff. And then just meeting with other real estate investors is. I mean that’s kind of our, our big push on
bigger pockets is hey, this is grassroots education. I mean why would I want to learn from a guy who’s going to teach me how to handle tenants who hasn’t dealt with tenants in 20 years? Man, I want to talk to a guy who’s has
tenants today. Just dealt with an eviction yesterday and
he’s gonna tell me what he did so I’ll know what I can do. I mean, that’s kind of my ideas. If you can find good people that are doing
what you want to do. You know, there’s that famous quote from I
think Jim Rohn that says you are the average of the five people you associate with the
most and then Tim ferriss talks about it and for work with. Yeah, I love that. So if you can make one or two of those people who you want to associate with, make them a real estate investor like you want to do,
it’s a good way to do it. Yeah, absolutely. I love that. That’s really good. Okay. So talk about like we were just talking about what the uh, um, the uh, toilet going bad in the middle of the night. Um, and I mean I think I might know
your answer based on the little bit of conversation we had there, but talking about property managers
and is that something that you’d recommend for a new investor or what do you think? Yeah, I’m so, I manage my own properties,
you know, my. Well my wife does well actually. Hang on, we should probably, maybe we should clarify what a property manager is and does. Sure, sure, that’d be great. Um, I can do it. So a property manager, somebody who actually look, I mean there’s a lot of that they can do and what do you can decide on that, but
um, and my dog running around in the background, uh, so they basically will manage the property managers attendance. So you don’t have to talk to the tenants,
you have to deal with them. So they’ll collect rent. They will show the unit that will get it filled,
they’ll screen the, tend to make sure they’re good, they’ll answer phone calls, I’ll schedule maintenance, they’ll do pretty much everything that you don’t want to do and you just get
a check in the mail every month is. Or you get a bill in the mail every
month depending on how good the property is. A property manager typically charge anywhere between, I’d say average is eight to 12 percent in my area. They charge 10 percent of whatever the rent is, so rents for a thousand and they cost a hundred bucks a month, which isn’t terrible. And then furthermore, you can, they, they
will charge like 50 percent sometimes or a whole month worth of rent when they rent a unit out. So they get a big chunk up front and then
they get a 10 percent. So it’s, it’s an, it’s a large expense. Uh, so what I recommend people doing it if
they want to use a property manager, that’s great. I mean just make sure either way, budget for one and I, nobody told me this when I was getting started and I wish they had. And this is kind of like a mind thing
more than it is a budget thing, but when you budget for a property manager it makes it
a lot easier to hand it over to property management someday because nobody wants to be a landlord for the next 40 years. I mean if you’re successful with real estate,
which you probably will become if you’re good at this, you know, it’s easy to manage one
property, two properties, three, four, you know, but then you get 10 and get 15, 20,
50, like at one point you can’t manage it anymore on your own. Well, what do you do like if you, if all the
money you were making in cashflow was actually just getting paid for the job, but property
management, you hand it over now you’re making no money. And so a lot of my early properties now, like
if I would go hand my stuff over to property management, I wouldn’t make any cashflow anymore on them. That’s miserable. Like, like, oh, I’ll just, I’m just kinda
stuck managing a lot of them because I didn’t buy them with that good of enough deal because I was buying a job not buying an investment. Gotcha. So yeah, so you go either way, just make sure you get a good enough deal. It justifies the cost of one and budget for
it either way. Okay. Well, okay. So along those lines, I mean that’s one of
those things that you wish you would’ve known when you started. What else? Um, I mean if you’re looking back to your
younger self when you were 21 getting started in all this, what do you wish you would’ve
known? Uh, I wish I would have connected with
more like real estate investors. Like I do today, like hanging out with them,
like I said earlier, like online or in person. I think I would have avoided a lot of mistakes that I made. Um, I mean I kind of am a shoot first ask
questions later, kind of a guy. Right? So I just like, I’m going to buy this house
and then I did it and then I’m like, oh no, what did I do? And so I would probably do that. I would probably listen to people more often. I mean, a lot of people have said, like, I
had one guy tell me, you know, no, I’m not going to lend on this deal. It was, it was a lender. And he said, I can’t lend to this. I don’t think it’s that good a deal. And I pushed anyway. And I went and found another lender and I
pushed and I pushed and I got it. And in the end I worked for a year fixing
it up myself, me and some friends and some guys we hired 12 months straight of working on it, 12 months of sitting on the market trying to sell it. And in the end I broke even and like I look
at that and I’m like, why didn’t I just listen to that guy? Like, you know, he obviously does this more than me. Why didn’t I listen to them? So that’s a so, so okay. So how does, talk to me about how the Bigger Pockets community can help a new investor, um, as far as making these connections in
your forums and things like that? Sure. Uh, so I mean, when people join the
site, we have a few hundred people a day joining the site and they come on and a lot of them
will leave like a, a new member introduction. It’s called you speak to say, Hey, I’m new
here. I don’t know what I’m doing, you know, nice
to meet you all. You’ll get a couple of dozen people to jump
in and be like, Hey, welcome. Glad to have you here. So it was kind of a nice way just to meet
some people that are interested in you. Furthermore, when you say like, Hey, I’m from Seattle, or I’m from Orlando or whatever, other people have what’s called like keyword alerts that they get notified of certain key words that are mentioned. So like every time somebody says Seattle in
the forums, I jump in and say, Hey, welcome. You know, because I’m in the Seattle market, I want to know who you are. I want to build a relationship with
you. That’s, that’s a good way just to meet people. Furthermore, just every time you have a problem in like real estate is not black and white. I mean books are black and white, but real
estate in real life is not at a tenant. A couple months ago who threatened to say
she tried to burn shambles, burned down her property because she was smoking outside and she’d throw in a box and burned a big thing. Claims it wasn’t. Her said it wasn’t her that did it. Even though she smokes and there’s cigarette butts all around it. She said, I didn’t do it. So when we build there for, she said, I’m
not paying that. I. I’m like, what are we? What do I do? What do I like? Do I force her? Like, how do I deal with it? I had no idea. You can’t just go no, like you can’t
go to a book and look that answer up. There’s never been written before in a book. So that’s what I did. I went on the forums. I think I got 100 people to say here’s what
I would do and I mean most people are like bill anyway, and she doesn’t pay a kick her
out and we ended up evicting her later and she ended up threatening to sue and like it
was just a mess. But every step of that I just like I went
on and just ask people, Hey, what would you do in this case? I’m stuck. I don’t know what to do. And I still do that to this day. I ask questions all the time. That’s really good. Yeah, that’s probably the best way to do is
just, it’s just to get involved and ask questions because we like there’s. Yeah. I don’t know. We’ve all been there. Like there’s, there’s nothing new under the
sun and real estate. Yeah, like it’s, it’s all been done before
somebody dealt with that. Yeah, well, yeah, and it’s, I feel like
it’s the same in business in general. It’s like, I mean, you know, my business,
it’s the same thing. It’s, I can’t tell you how many times I’ve
had to go ask other people or Google this or whatever to find an answer because there’s so many, you know, you can only see so far down the path and then you get a few steps down and you see the new problems and you just keep moving, overcome and figure out
how to do it. But anyway. Okay. So of the hundred plus books you read at the beginning and everything you’ve read since, you know, what, what are some of the best
resources out there for someone to begin their education wants to get started in all this? Sure. Uh, so I probably have the books sent around. Uh, but anyway, uh, I mean there’s one book, Rich Dad Poor Dad, which is, everybody says that’s their, like their first book they read
that gets them excited about real estate. Not even, I don’t even think he mentioned
the word real estate in the book. You have thought about real estate, but for
some reason we all gravitate the real estate after Reading Rich Dad Poor Dad because it’s about just assets and, and It’s changing the way you think about money. So Rich Dad Poor Dad was really good. Uh, I think you need to be foundationally
solid in your personal finances obviously. So, you know, reading personal finance, blogs like your own and uh, things like Dave Ramsey’s total money makeover. That helped me a lot kind of get on budget
and figure out what I was doing. there’s a book called The Unofficial Guide to Real Estate Investing by guy named Spencer Strauss It’s just an old book, you know, like
20 years ago or 15 years ago, I thought it was one of my all time favorite books. You get an Amazon for like a dollar, you know, and it’s, it’s really, it’s just really good on building a longterm buy and hold thing. Uh, we have a free book. A Bigger Pockets is no opt in or anything. It’s just: biggerpockets.com/ubg, which
is a Ultimate Beginner’s Guide, so it’s just like a nine chapter online book. You can just read a how to kind of get started. Kind of like the big picture if you’re like,
I have no idea what to do, how do we start? This will kind of be a good way to get started. Yeah. So hopefully that’ll help some. Great. Well this has been awesome. I’m not going to take up anymore of your time, but I really appreciate you coming on and I think we got some helpful tips in here and
so, uh, thanks for being here. I’m happy to. Thank you very much. All right, take care.

13 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *