Afford Anything - Ask Us Anything #3 - Real Estate Investing Edition

Episode Date: March 29, 2016

#18: Listener questions are back by popular demand! Paula answers your questions about real estate investing niches, strategies, and things to stay away from. For more information, visit the show notes at https://affordanything.com/episode18 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey, Jay, guess what we're going to do for this episode? We're going to answer some reader questions. They're listeners, not readers. Ah, listeners, podcasting. Welcome to the Paula N.J. Money Show, a podcast about growing wealth and financial freedom. Your host, Paula Pant, is a world traveler who built financial freedom through real estate investing. She runs the website, afford-anything.com. Host Jay Money is a husband and father of two, striving for financial freedom.

He hates real estate but loves to blog for a living over at Budgets Are Sexy.com. Which one resonates with you? Grab a beer and find out as you listen to the Paula and Jay Money show. What up, Jay Money? Hi, Paula, Pant. Guess what we're going to do for this episode? We're going to answer some questions.

Totally. In fact, this episode is a hybrid of a topical episode and Ask Us Anything. We're doing Ask Us Anything, the real estate edition. We've been getting so many listener submitted questions about real estate that we decided to do an entire show purely on listener submitted real estate questions. So I'll just tell you right away, if you are not interested in real estate, I would recommend skipping this show. If you are interested in real estate, I'd recommend listening. And since I don't know Jack about real estate investing, I'm going to be reading the questions out. And Paula will be the expert in the seat, hot seat answering them.

Before we get to this episode, I would like to. to take a moment to thank the people who keep us on the air and allow us to keep paying our producer, Steve. Yep, they are digit, awesome, free service. You attach your checking account with them. And every few days, their algorithm pulls a couple dollars here and there that it thinks you won't miss and drops it into a savings account for you. So it basically saves you money for doing nothing automatically while you're doing nothing, which is awesome if you're either, A, lazy, or B, suck at saving money and want to try something new to see if it sticks. So you can sign up at themoney show.com slash digit.

That's themoney show. dot C-O-D-I-G-T. So with that being said, let's jump into the meat of this. Ask us anything, real estate edition. All right. I'm going to go down them. So Paul is the resident real estate expert, and J. Money is not. I do not like real estate.

But I appreciate it. And I love these questions because I'm going to learn too long with you guys. So we'll start with some, a lot. This dude named Hank sent in a bazillion of them. Really cool, really smart dude to help us. He had a lot of questions. So the very first one, are you ready, Paula? Let's do it.

Did you just happen into your real estate niche by accident? Or did you choose it for specific reasons? All right. So before I answer this for the sake of all of the listeners, I want to talk about what a real estate niche is. When you say real estate, you're talking about a huge umbrella of possibilities. First of all, there are different types of properties. So there's residential properties, which is what most people think of right away.

There's single-family homes, duplexes, triplexes, four-plexes. There are also shopping malls, strip malls, warehouses, storage units, mobile home parks, bare land. There's every type of property. Tiny homes? Those would qualify as residential. Okay. So there's every type of property out there. And my recommendation to anybody who wants to...

get started in real estate is to pick one specific vertical because you can't jump in and become an expert at mobile home park investing and buying strip malls and buying apartment complexes and buying single family homes. It's too much. Your brain will explode. So pick one thing and get really, really good at that one thing. And to me, I chose residential because the financing is easiest, particularly if you're a beginner, because you can qualify to buy residential properties, either as a primary residence or as an investment property. And just that qualification process when you're looking for loans is much easier if you're a beginner. It's also just a little bit easier to understand that world because you're more experienced in it.

It just feels a little bit more familiar. So that was why I chose residential. And then the other kind of aspect of it of real estate investing is choosing your money-making strategy. So there's niche and their strategy. And so strategically, you could decide that you want to be a buy-and-hold long-term investor who focuses on cash flow and passive income. You could decide that you want to try to generate as much money as possible by having an active business, which examples of that would be flipping houses or wholesaling. You could decide, you know, there are a lot of different strategies that you could have.

And the strategy that I chose was long-term buy and hold, cash flow-focused investing. And that's an important distinction to make. there's buying a property for the sake of appreciation, capital appreciation, which means that you're buying a property with the hopes that the value will rise over time. Or you could buy a property for the express purpose of generating monthly cash flow. Now, of course, you might be thinking, yeah, but won't you get cash flow and also the property value will rise over time? Sure, yeah, in a perfect world, of course. But when you have to pick priorities and when you have to choose, you know, what is my purpose and what singular metric am I going to value over all others? For me,

it was passive cash flow, residual rental income. And so I guess to answer his question, so that's the background for all of you. It's a good background. Thank you. And to answer his question, did I stumble into this by accident or did I choose it for specific reasons? I never wanted to be a full-time real estate investor. I want to have real estate humming along in the background, earning money in my sleep, so that I can spend my time recording this podcast and traveling to France and like, giving J money lots of money. Yeah, and then badgering will as to whether or not we can get a cat. So, you know, my goal was to was for that. I don't want to be the next Donald Trump. My hair is way better

anyway. I just, I want to have real estate kind of producing that passive cash flow. So I set up my goals based around, you know, I basically figured out what my lifestyle goal was and then made business decisions based on what would most enhance that. Is that how you did real estate? So when you said, all right, I need passive income. I need to grow some businesses on the side. Let's see. There's stock market. There's real estate. There's this and that. And then you said, oh, let me look at real estate. Or did you already like homes? Oh, no. I had no interest. in homes before I went into real estate. So when it comes to the goal of generating cash flow, monthly cash flow, in my very

adamant belief, rental properties are a much better vehicle for that than stock investing. I know we're going to get a bunch of angry letters based on what I just said, but hear me out. stock investing is fantastic if your goal is capital appreciation because on average over a long-term manualized average, the U.S. stock market historically has grown at a rate of about 7 to 9% over the long-term manualized average. Of course, there's monthly or yearly volatility within that. But if you do what J Money does, you buy a total stock market index fund, which has no commissions and low fees if you do it through a low fee brokerage like Vanguard or Schwab. You know, you buy a U.S. Index Fund, you let it ride.

And over the very, very long term, you can historically, you could expect 7 to 9% returns, which is great. But in terms of the dividend payout that you get, it's going to be like, and you're putting it back into buying more stock. So if you, like, if I invest for 50 years, I'm not touching any of it until I need to. retire or pull it out or whatever. Whereas you, you're using your cat, you're getting cash every month in your hands that you can then choose what to do. Exactly. I mean, you could choose not to reinvest the dividends within your index funds. Sure, but yeah. Yeah, but you should do it. Yeah, but it's a good idea to do it. But so with rental properties, your capital appreciation, on average, you, you know, obviously real estate is very local. So the real estate market in Detroit,

is going to be different than the market in San Francisco. But as a nationwide average, you're really not going to be in it for capital appreciation. On average, historically, real estate tends to appreciate at about 3% over a long-term annualized average, which is equal to the rate of inflation. So basically what that means is that you can expect your properties to be an inflation hedge, but nothing more. You're not really going to get, you'll get nominal additional dollars out of it, but not actual additional purchasing power. So where the investment really becomes strong is on a cash flow basis. It gives you that passive income that you can use to quit your job, retire early, you know, fund your podcast. Do whatever you want with it.

Or reinvest back in properties, if that's what you, choose to do. Yes. Very nice answer, my friend. Thank you. So some of these next ones are going to be similar. Maybe I'll batch them a little here. Okay. Are there any real estate niches that look particularly promising in the next five to ten years? And with that, are there any you would stay away from? Are there any niches that may pair up with certain investors better than others? For example, someone with low capital, better looking at X for someone with a lot of free time, could look at X. Yeah, that'll be good. I mean, you covered some of this, but is there anything you want to add to this?

Absolutely. For the first two questions, are there any niches that look promising in the next five to ten years and are there any that you would stay away from? You know how when you hear people talk about stock market investing, they always say, don't try to time the market, don't try to guess the market, just have a disciplined, methodical approach, you know, put 500 or 1,000 or 1,500, put X number of dollars from every paycheck into index funds and just leave it. The same is true in real estate. You can't make wild, crazy predictions about what the market's going to look like 10 years from now. What will the market look like in 2026?

I don't know. Did anybody or did a significant proportion of the population predict the housing crash of 2007, 2008? No. So don't try to guess what the market is going to do. Now, obviously, on a local level, you can see neighborhoods, specific neighborhoods that have indicators of development. So things that you might look for at the local level would be a number of new building permits issued. Number of – and you'd look at both new construction permits as well as repair remodeling permits. And that's a good indicator of the neighborhoods that are in which contractors kind of are pouring in some money.

Obviously, you can look at job development. you can look at infrastructure development. So those are all indicators, positive indicators of growth at the local level. But again, I would really caution you against trying to pretend that you have a crystal ball and guess what the market is going to do. I think a more sound approach is to choose your niche and your strategy and methodically make decisions. decisions about each individual property based on that criteria. So, for example, my strategy is cash flow. And so I'm not going to try to guess if nationwide real estate is going to explode in the year 2020. Like, I don't know. What I'm going to do is look at specific neighborhoods

that have indicators of growth or at least indicators of stability and then find a property within that neighborhood that has a high cap rate, a high cash on, well, cash and cash return is a different topic. Let's not go there right now. But, you know, that has a high cap rate. And cap rate is a measure of cash return on an investment. That's what I would look at. Don't put away the crystal ball, put away the magic eight ball, and just focus on, does this property help me get a little bit closer to achieving the passive income that I need in order to retire early or at least have some supplemental income. So what you're saying is you actually have to do work.

Totally, Jay. It's terrible. That's good. That's good to know because some people are like, I'm going to buy this half and flip it. I'm going to do this and they don't understand all the stuff that goes into it. It's good that they're listening to it. Yeah. It's, you know, it's, it's terrible. So here's what's weird about real estate is that it's the only industry that I can think of where the average mom and pop, Jane and Joe investor has access to some serious leverage. And as a result, you have people who, and the other aspect of it is that it's familiar. All of us live in homes of some kind, whether you live in an

apartment or a single family house. We all live in some sort of home. So the asset class feels familiar. And when you combine this false sense of security that comes from that familiarity with the opportunity to get very high leverage, you end up with a lot of people who make extremely bad decisions and then end up regretting it. And that's why it's so important to do your homework and just don't rush in blindly and say, well, real estate always goes up, so I guess I'm going to buy this property. Like, oh, my God, don't do that. Yeah, that was me in 2008. And this goes to home. ownership in general, by the way. It's the one of the biggest, the biggest expense you ever make in buying a home to live in or to invest or whatever.

Like, do the same homework and pay attention and figure out what you can afford and not what the bank says, hey, you're approved for half a million when if you get that loan, you're screwed, you know? Yeah. So all the research for the most part is pretty dead on for home ownership too. And again, like with the leverage, I mean, you know, I had zero money down. I had like a solid job. and they approved me for like 400,500,000, I got $360,000 for a house with like no money down or anything. And they're just like, here you go, here's the money. And within like days, we had a signed contract. Right. And I did not do my research.

So this is important for that level too. Right. Yeah. You know, I have a blog post on afford anything.com that's called Renting is throwing your money away. Right? And I've gotten more hate from that post. So in that post, I basically just make the case that you're supposed to actually do the math and do your homework rather than believing in this oversimplified cliche. I have gotten so much hate for merely suggesting that people crunch the numbers.

It's, it's because American, homeownership's American dream and everyone thinks that's the right way. And you're, you just brought up with that opinion. You own a home, right? Like that's everywhere. Right. And renting is bad. Renting is throwing your money around. Yeah.

Exactly. Exactly. Everybody's like, ownership FTW, which is for the win. And I'm like, and I'm like, home ownership, WTF. And not for me. And FM. And obviously I'm not dissing on home ownership or real estate investing. I mean, I own the home that I live in. And I also own seven other units. So, and also I'm a licensed real estate investor. And also I'm developing a course on real estate investing, so clearly I'm not dissing on it. But I absolutely think that it is a mistake to buy into this cliche that renting is throwing your money away. Everyone, regardless of whether you're an investor or a primary resident, you need to crunch the numbers.

You need to do your homework because this is a six-figure decision that you're making. You, I mean, you read Amazon reviews for like a $50 product and you're not going to do your homework for a $200,000 product. I mean, come on. Well, and everyone, not against you, but like everyone that's in the business is all trying, wants you to sign up and give the money away, right? The banks, the lenders, the realtors, everyone in it is egging you on to go down that specific path. Right. You know, and no one's going to, I mean, you know, we're the only ones that can pay attention to our money. You know, we have moms and people that we love and care for us that will help us.

But at the end of the day, it's our money and no one cares as much as we do. So, yeah, research. And, I mean, yeah, that whole world. That's a whole other topic that I know we've covered here and there. Right, right. But I want to get to this guy's, the third aspect of his question. Are there niches that might pair with certain investors better than others? Yeah.

So, okay, so here's the thing. And this is also kind of a scary thing a little bit. It is fashionable. If you are in the business of selling real estate education on the internet, which, you know, is a business that I am entering, one of the biggest objections that you hear from the public is, well, but I don't have any money. Like, I don't have any. I have no cash. I have no credit.

I can't find my pants. You know, what do I do? And so unfortunately, there are so much material out there that's like from zero to $8 million in the next five minutes, even if you have no cash, no credit, no common sense, and no hair. Hence. You have a Mohawk. And if you actually go through and kind of take those courses and follow what they say, one of the biggest pieces of a device that people promote is a strategy that's called wholesaling. And wholesaling is the act of putting a property under contract.

So you make an offer on a property. The seller accepts your offer. you enter into a binding agreement, and so now you are in a legal status that's known as being under contract for that property. And then before your closing date, you flip that contract to another investor. That is known as wholesaling. So you put a property under contract, you put down some earnest money in order to do so, and then you flip that contract and you make a few thousand dollars from that flip. It is a way that you can enter the real estate market for, you know, virtually zero money for the cost, your risk is the cost of your earnest money if that contract falls through.

It is, however, and you should know this, it is a lot of work. So don't believe the hype. I mean, it is accurate that, yeah. Yeah, that is the lowest money form of entering the real estate market because you are only pledging the earnest money. But you are pledging a lot of time to be able to, number one, find a really good property and get it under contract at a price that's low enough that you could flip it to another investor. And remember, investors are very savvy buyers. So you need to put this property under contract at a price that's low enough to be able to flip it to an investor, make a spread, and still. and still make it a win for the investor.

Without them knowing that, you're doing this. No, no, no, they totally know. Investors buy properties from wholesalers all the time. Oh, okay. But I mean, like, you would know the stuff in your area if you're paying attention, so they'd have to, unless they're looking at a different area, yeah. Well, so from my perspective as an investor, finding a good property is a shload of work.

So if a wholesaler came to me with a property that was an excellent deal, I would happily buy it from that wholesaler. The problem is I've looked at a lot of properties brought to me by a lot of wholesalers, and at least the ones that have come across my desk, I've passed on all of them because the numbers just haven't been right for me and for my strategy. So what you need in order to be a successful wholesaler is to do all of the work required in getting a property that is substantially below retail and then have a very, large network of investors who you could bring that property to under a very tight deadline. Or could they know just how your style is and what like I know everything what Paul is looking for so I'm like your dedicated person? Like would that help you since then you don't have to know

what 100 other buyers are looking for exactly? Sure. I mean I wouldn't unless you have an investor who it buys a substantial volume, I wouldn't recommend necessarily putting all of your eggs in one basket. But yeah, you could have like tight relationships with maybe 10 investors and then kind of be their their sleuth. I mean, at that point, you're, you're functionally a bit of a commission only assistant if you want to look at it that way. Who helps them find properties. But again, yes, you are technically in the real estate industry for a small amount of money. But that being said, like wholesaling versus buying rental properties for passive income are too completely. completely different fields. Yes, technically they both relate to real estate, but wholesaling is a job. It is a lot of work. And like hats off to the wholesalers who do it well. Because a lot of people, it's a bit like blogging. Because there are low barriers to entry, a lot of people try to do it. And some manage to break out and do it very, very well. And my hats off to them because I understand that that is a lot of work. But a lot of

people don't manage to do it well. And then you end up in this scary situation where you've just put down $1,000 in earnest money, which to you is a lot of money because you don't have a lot of money, which is why you're wholesaling. And, you know, so you've put down a thousand in earnest money, and then you can't find an investor, and then you lose that earnest money, and then you get back on the horse and you do it again. And, you know, so, I mean, ask yourself if that is what you want to get into, basically take a step back and ask yourself, why am I interested in real estate? And if you're interested in it for the sake of passive income, long-term buy-and-hold cash flow, then wholesaling probably isn't right for you.

Your better bet would be to save up enough money to get an FHA loan with 3.5% down, and then house hack for a year, which means buy a multifacetful. family with an FHA loan, move into one of the units, rent out the others, live there for a year, and then you can move out. That is a much simpler, and in my opinion, much easier. And I don't mean to call it easy, but it is more aligned with your goal if your goal is passive cash flow. Learn something every day, my friend. I'm like, when you're talking, I'm like, can I be Paula's personal broker person or what did you call it? I don't know. I compared it to being a commission-only assistant.

So, okay, let me actually make another comparison. There are some people in the world of blogging who go out and they look for ads that, you know, they try to be the matchmaker between advertising companies and bloggers. So they will go out and they will talk to various companies and see if they can find advertising deals. And then they present those advertising deals to a list of bloggers who are, you know, in their network. And then they'll make a commission if it's a match.

You know, that is in a sense, and it's not a perfect analogy. And I know I'm going to get a few angry letters about the flaws in this analogy. But in a sense, that's a little bit what wholesalers do. Wholesalers, yeah. You know, they go out and they find a fantastic property that would be a great investment, that would have great investment potential. And then they present it to an investor. and then they flip that contract, and by virtue of doing so, they make a bit of a commission on that find.

Not a quote-unquote commission, but, you know, that's the analogy. But again, take a step back and ask yourself, why am I interested in real estate? Do I just want to make a couple of thousand dollars or do I want to build a stream of passive cash flow? And if your answer is the latter, if your answer is the stream of passive cash flow, then I would encourage you to keep your focus. on rental properties rather than being like, I'm going to wholesale and I'm going to flip and I'm going to be in rental properties and maybe I'll invest in China. Okay. Good ending to that question.

The next question is going to be, it's my favorite because we all talk about all this stuff we're great at, right? And we all talk about, look, I'm a blogger. Oh, I made X money. Oh, look at all the traffic I have. But we all suck at times. We all, you know, like we're all people. So we do stupid stuff.

So this question is one of my favorites, regardless of any business you're in, because it humanizes you and it makes people realize, hey, you're not Miss Perfect Paula Pants. Pants. The question is, Miss Perfect Pala Pants, can you give us an example of some costly rookie mistakes you've made? And they see it or seen, but I personally want to know ones that you've made. And you could talk about others too, if you are. Sure. I would say one of my biggest mistakes, this is going to, the frugality crowd is going to hate me. for saying this. One of my biggest mistakes was that during the depths of the recession, when properties were hella cheap, and there were lots of great deals out there, and there's still great deals, but now you have to actually work to find them versus 2010 when you could just

like blindfold yourself and throw a dart at a property, and it was a great deal. During that era, which was the heyday for a perfect time to invest, I was trying to pick up pennies. I mean, I just bought my first rental property and I was freaking out because I never bought a rental property before. And so it seemed very grown up. And in order to save money, Will and I were trying to do a lot of the work ourselves. And granted, that was partially because that was a stage in our lives where we didn't have a lot of money. And so, you know, each dollar was much more precious to us. But yeah, we just spent a lot of time doing the work ourselves rather than building out a business and putting a team in place.

And that cost us greatly because it cost us the opportunity cost of not acquiring more properties at 2010 values. So that's the most expensive mistake I made was trying to run this as a one man or a two-man show, or a two-person show, I guess, one-man and one-woman show. rather than, you know, basically treating it as a hobby rather than treating it as a serious business. Because that's the thing is, you know, there's that cliche of like, well, I don't want to get plumbing calls at two in the morning. If you're getting plumbing calls at two in the morning, you have failed to build a team. You have failed to build a system that will handle that so that you can focus your limited time and energy. on finding more deals or paying down the deals that you have. Do you think it's good like for blogging, right?

Like if you hire assistants, which I know you have, right? Yeah. Like at least for me, I'd want to know how everything works. Well, I want to know how to do a blog post and I want to know how to do advertising and images and all this stuff. So then I could train the person I'm bringing on to do this stuff. So for you, I mean, I know, yeah, I guess it's a fail, but I kind of feel like it's also good that you went through the process and learned how it all works, even though it sucked and you wasted time.

But then you can at least know what the other people are getting into. Is there a value to that? Right? I do believe that you should learn. You should become fluent in contractor language. So you should learn enough. You should learn what a house is. Like what are the components of a house?

You know, because a lot of people don't know that. What are softets? For example, what are joists? Where are they located? What is a subfloor? Yeah, I have no idea. You're right. I thought that was the dumbest thing you said, but yeah, right, I have no idea about it. Yeah, we all know what a bedroom and a bathroom is called. Good. Keep talking. I'll just stop talking. You run the rest of the thing. What is the difference between a slab foundation and a concrete block foundation? And what are the relative pros and cons between the two?

those are the things that you should learn. But the most effective way to learn that is by learning it and not by getting down on your hands and knees and tearing the baseboard off of a wall at, you know, at 8 p.m. on a Friday night. I'm like, what's in there? All right. Fair enough. Do you want to talk about rookie mistakes other people have done or what we should? Like if I'm going to go out and start researching tomorrow, like, is there stuff that you can tell me like, you just like quickly some things to watch out or not do or or what. or are you seen other people do?

Sure. The biggest mistake that I hear from my audience. So at Afford Anything.com, I write a lot about real estate investing. And so I get a lot of reader questions and comments and emails related to this. The biggest myth that I try to battle when I'm talking to a beginner is the mentality of, well, I'm just going to buy this. And I'll live in it for a while. and then I'll rent it up and it'll probably also go up in value.

A lot of people enter into the real estate world thinking that. And that tells me that you don't have a strategy because when you are saying, I think I want a little of it all, what you're really saying is I don't know what this property is going to produce. And, you know, if you want it all, you get nothing. Buy property strategically. don't buy them with the hopes that maybe it'll go up in value if I just hold on to it long enough

I really hope so Oh, you're funny, dude You need to be a voiceover actor We need to get that show We need to record that one on side hustling as a voiceover actor, which we have lined up So cool Anyways continue forward, yes

So yeah, I would say that that is the biggest rookie mistake is not having a strategy in place. Okay. Good one. I like it. Let's go down the list and do some more here. You mentioned finding realtors and investors to work with or to talk with, especially ones involved in the neighborhood one is looking into. What? He's saying, in the neighborhood, that one is looking into, find. Okay. Do you have any suggestions on how to find them. Are there meetings or forums or places that you have frequent or that they frequent that you can get FaceTime with? Yes. If you live in the United States, Google the name of your state plus real estate investors association. So, for example, Georgia, real estate investors

association, or you can even just Google the acronym, R-E-I-A. So just Google the name of your state and then that. Or if you live in a major city like Chicago or Atlanta or San Francisco or L.A. or wherever. You guys know what major cities are. I don't know why I just gave those examples. If you, oh man, I'm losing it. If you live in a major city, just Google the name of your city and then R-E-I-A, and you will find your local real estate investors meetup. And what I would actually recommend is that go to a few of those RIA meetings, is what they're called. Personally, I was disappointed when I went to some of the Georgia Ria meetings because they bring in people who sell high-priced educational platforms. So you go to this meeting and it's, and this might not be true of all Rias.

And, you know, let me give the necessary disclaimers. A, it might not be true of all Rias. And B, maybe I just happened to be the unlucky kid who went to a statistically skewed sampling of Georgia Ria meetups. But in my personal experience, everyone that I went to just felt like a sales pitch. So I wasn't actually that happy being there, but the big advantage that I got from it was that while I was there, I found out, just by talking to people, I found out about a smaller niche subgroup within that that was called the in town in Atlanta. It was the in town before and after group. And this is a group of people who invest specifically in the same neighborhoods of Atlanta that I invest in. The reason it's called the before and after group is they're investors who, when they purchase a home, they'll say, hey, I just purchased this place. It's a dump. Come take a look at it. And so we'll all tour the home together. And so we get to see the before. And then they'll renovate it. And then we'll all tour it again after those renovations are done. So cool. That is all. I love that. Yeah. It's awesome. And everybody, because it's just investors helping other investors, everybody is very. transparent about their numbers. So they'll say, you know, I bought it for X. I'm putting Y amount

into renovating it. I'm putting Z amount into the holding costs. And I'm hoping to sell it at, you know, such and such. Most of the people in the before and after group are flippers. I'm a little bit of the oddball because I do my strategy as buy and hold exclusively. But I still found it extremely valuable. So start by going to your local RIA and then from there, find out what other specific targeted subgroups there are. Another good resource is just meetup.com. There are always real estate meetups there. So check that out as well. Awesome. All right. This one I'm going to ask you and then I'm going to run to the bathroom to go pee and then I'm going to come back. So you keep talking, all right? You're like, I'm going to ask you this question, but I'm not actually going to listen.

Yeah, I'll let the listeners. All right. Are there things that newbie could offer that would be valuable to a realtor or investor they would like to learn from? Example, time, information, praise, X, X, X. If we're going to talk about porn when I'm back, like, hit pause and wait for me to come back to talk about it. All right. You go and I'll be right back. So I'm interpreting this question to mean, if you are a beginner and you want to pick the brain of an experienced investor, but you want it to be a win. win. You don't want to just be asking them for a big favor without giving them some sort of value in return. What do you have to offer? That's the question that I'm interpreting this to mean. This is a hard one. My personal perception of this is a little bit skewed because I communicate.

I'm a blogger and podcaster, so I kind of communicate at the mass market level. So let me start by telling you what not to do, at least from my own. my own perspective is there are people who will email me their life story with incredibly detailed questions and ask for very specific advice. I don't mean to sound like a jerk, and I realize this is going to come off terrible, but I don't have the time. I'm sorry. I just, I don't. I would love to. If I had 100 hours a day, I would love to answer every single one of your questions, but I just cannot give individual one-on-one attention. like that. And that might not be true for all investors, but because I blog and I podcast about it, I get a lot of questions and I just can't deal with all of those questions. If I did, I wouldn't have any time to be on recording this podcast right now.

I'm back. Are you talking? I'm still talking. Talking about X, X, X, X. X. All right. Let's get to it. So what I would suggest would be if you wanted to learn from a – actually, Jay Money, you can chime in too because I'm – Okay. You know, I'm taking this question from my own personal perspective, which is all I can do. And I'm saying, you know, from the point of view of a blogger, we can't give a whole lot of personalized one-on-one attention because we get so many inquiries. But, you know, from a blogger or podcaster's point of view, just the thing that really helps us is, share our blog and our podcast with all your friends, you know. Yeah, totally.

Share us on Facebook. Share us on social media. If we send out an email, you know, forward that email to a couple of people who you know. You like help us grow our platforms and help us spread the message because that's what we're really trying to do. So that's the biggest piece of value that you could offer. Well, I'll also say, too, at least with blogging, like we get inundated with emails and questions. and PR releases that, I mean, hundreds, literally hundreds a day. And I love it when people, I mean, it takes them like five seconds to just say, hey, like,

here's how I came across your blog and here's what I like. I just want to say hi and thank you. Or something like really small like that, it reminds us like why we're doing this kind of stuff and it's fun for us to read. And it's like interaction, but like personal level. It's not like a company emailing us. Right. That is really helpful.

And that just gives us like remotivated and energized. I spent six hours yesterday trying to get to inbox Zee. And I still had like 50 emails left, but the ones that just said something really nice and short or hey, like I passed on the word or whatever, I loved it helped me so much. It makes us feel good and it just motivates us. Yeah. Yeah. And there's some people too that's like, hey, I know you like beer.

If you ever in this place or hey, give me your address. I'll mail you a six pack or something crazy like that. Like, you know, like if you interact, I mean that, you know, like offering up something and that was a bad example. But maybe it's like, hey, like I'm a coin collector, right? Like, hey, like, if you ever need help with this type of coin, let me know. Like, telling us what you're good at or your skills are at. So maybe we can, you know, we might be able to use it down the road. Yeah, actually, when I started blogging, which was in 2011, I was brand new to the world of blogging.

And Jay was, his blog was already three years old. So he was, you were well established, Jay. And you were like, big, you know. I was like, one day, I'll grow up to be. J. Money. And I remember in one of your blog posts, you wrote that you loved checking the mail. You loved going to your PO box and getting physical mail. And so I sent you a postcard. I don't know if you remember this, but this was five years ago. I sent you a postcard and said, hey, thought you'd enjoy getting a postcard from Georgia, parentheses, the state, not the country. That's awesome. I have a horrible memory, but if I went there now, I probably still have it somewhere.

That is awesome. Yeah, and that took you a little bit time, hardly anything. It was such a physical, like, you know, normal people would remember that because it's awesome. Yes, that's exactly right. Like, you did something just nice. Yeah. And it related to what you knew about me, which is I like seeing physical stuff in the mail. And that was a piece of what started our friendship.

And five years later, now we have. a podcast together. Yeah, yeah. And your blog's blown up. It could be even bigger than mine. I don't know. Like, you're doing it, right? You have higher traffic still, but I have a bigger email list. Ah, there you. See that? Awesome. I feel like we should wrap this up because we're coming on like about an hour. Okay. Do you want to look at some of the questions or do you want me to pick random ones? I wanted to talk about the LLC and all that kind of how, you know, when you start the business and all that stuff. Okay. Yeah. Let's do one final question. And yeah, I get the LLC question a lot.

So let's find one that a listener actually wrote in and take it away. Okay. Would you recommend setting up a business before starting a side hustle or getting into real estate, for example? Do you have a separate business for each hustle property? Would you set up yourself recommend going through a service? Holy moly. I said one question, Jay. No, no.

But yeah, it is all. It's one paragraph. These are just a few of the questions. I'm so there's more to ask. Yeah. Okay. So, first of all, one of the most common questions I get, should you buy your properties in an LLC or should you buy them in your own name?

In a perfect world, you would buy them in an LLC. The problem is most banks are not going to want to issue a mortgage into the name of an LLC, particularly if it's a single member LLC, if it's just you or if it's you and your spouse, you know, most banks are going to want to issue the mortgage in your own personal name. And so you're going to have to, particularly if you're a beginner, and maybe you'll get lucky, maybe you'll find a lender who's like, oh, yeah, we'll get, you know, but most people will find that lenders only will issue a loan on a residential property into, your own personal name. And so you buy the house in your own name and then you have a choice. You could use a form that's known as a quit claim deed to transfer the ownership of that property from your own name into your LLC. The problem here is that most mortgages have what's known as a due on sale clause, which means that if the ownership transfers, the entire mortgage balance is a

immediately due. Now, before you freak out, before you're like, ah, the whole mortgage balance is due tomorrow, here's where it gets a little dicey. Most mortgages have a due on sale clause. However, a lot of lenders don't enforce this clause, especially if you're current on your loan. And so you have to make a judgment call. Do you want to subject yourself to the risk of your entire mortgage getting called by using a quick claim deed? to transfer your property into an LLC? Or do you want to hold the property in your own personal name and not subject yourself to the due on sale risk? So basically, like, one way or another, you have a risk. You're just choosing which risk. It's like, choose which devil you want to dance with, you know, like choose which risk you want to have.

If you put your property in an LLC through a quick claim deed, there is a, a risk, and it may never happen, but there is a risk that the bank could call your entire mortgage balance. Conversely, if you don't quit claim your property into an LLC, if you continue to hold it in your own personal name, then your personal assets are exposed. Which risk would you rather hold? In my opinion, having an LLC, you know, in a perfect world, that would be great, but you can really reduce your risk through a couple of other mechanisms that don't trigger the due-on-sale clause. Number one, buy an umbrella liability insurance policy. Buy a big one because they're incredibly cheap.

You can get several million dollars worth of coverage. You know, get two or three million dollars worth of coverage. It'll cost you a few hundred dollars a year and it is absolutely worth it. So reduce your risk through an umbrella. liability insurance policy. I have that too, just by the way, guys, for blogs, if you're building other stuff too, that's good for all kind of areas, not just real estate. Yeah. And then number two, there is something to be said for hiring outside property management insofar as it does reduce your risk, assuming that you're using a licensed property manager, you know, assuming that you're going through all of the proper platforms.

They know what eyes to dot and what to use to cross. You know, they know how to be in compliance with the letter of the law. And they're much more experienced at that than you are because that's what they do all day every day. So that is another, albeit roundabout method of limiting some of your liability exposure. Number three, always use licensed, insured contractors. You know, don't go on Craigslist and hire like Joe off of the street to come install your electric. panel. You know, use proper licensed contractors because that way, if heaven forbid, if you have to appear in front of a judge and answer for some of the repair work that you've done, you can say,

yes, I used actual licensed insured contractors. You know, this is not shoddy work. Because umbrella liability coverage is not going to cover negligence. So just don't be negligent. And that's one of the best ways to protect yourself. I like that. And Alzheimer's, So one of the questions, setting up a business before, side hustling. And this is for anything, man. So many people spend so much time getting an LLC, making business cards, printing letterhead, building out this fancy website, building out like all this e-commerce. It depends on what you're doing, right, brick and mortar, real estate, blogging.

I mean, there's a million ways to have a business. But a lot of the times you don't need to do all this stuff. What you need to do is figure out if someone wants your product or service. and then go sell it before you even have anything. I can put out today on Budgets Are Sexy.com or Twitter or whatever, hey, I'm going to sell this ebook for this thing. Do you guys want it? If so, pre-order now?

And I haven't even written the thing. It's not even, it doesn't even exist. And I test it. And if people start signing up and giving me money, all right, well, damn, I'm like, people want this. And now I can go and spend the time to design it and build it and blah, blah, blah. And that's a really simple, simplistic, you know, thing. and I have an audience and a lot of people don't starting out.

But the point is you don't need all this fancy stuff up front. It's best to figure out if people want your service and test the market and talk to people and research all that stuff. And even then, let's say you're starting a blog, you do it. If it starts going well, if you don't burn out, if you start making money, at that point, once you know you're on track or you're going to stick with it, then say, all right, do I need an LLC? Do I want this protection?

You know, do I want to trademark this? Do I want to copyright this or whatever? You can then get into that realm. But in the beginning, just do it. Just do whatever it is you're trying to build. Just get out there and get dirty and start. And if it takes off, you know, boom, sign up and do. I mean, even with this podcast, right, Paul and I, you know, and we work a little differently

so you might have a little different opinions. You know, I remember one of the, because of the way you're structured and your businessy, right? You say, hey, like, we should have an LLC or, you know, do we need this for this podcast? and we should have a contract, right? And how are we going to do this and this? It was all this stuff, which probably didn't hold us back,

but it was like one of those things that added an extra month before we can even get started. And so our agreement was, hey, let's put out the show. Let's see if it's fun. Let's see if people like it. And if we're in this thing, you know, or we start making money. Yeah, let's go ahead and do all the annoying, like, contract legalese type stuff. Yeah, it was funny because this shows how much we misjudge the market. Jay, you and I agreed that if we got 10,000 downloads within the first month, we would look into, like, making a contract between the two of us and formalizing this.

Right. And we are currently, so at the time that we're recording this, we are approximately 24 days into the release of this show. We hit 10,000 on day two. Yeah. Just to give you a quick example. We're now at 72,000. Yeah. So, you know, which is awesome, right?

because you guys are listening, like we love you for it, right? But it could have gone the other way. We could have launched and like five people downloaded it. Or download the first one, hated it and not come back. You know, in which case, we would have wasted all this time, all this money, all this paperwork, all this annoyance, the extended time of launching just to shut it down after the first month. Right.

These examples aren't the best for like, I want to build a business or I'm a lawyer, you know, like I need to have a practice. Like all that's way different. But for like mostly like the online world, side hustling, moly mons, you know, all that kind of stuff. And it all depends on how it's set up and stuff. But a lot of it's like a legal protection thing. It's not necessarily like I can't be called a business until I'm officially an LLC or C-Corp or whatever.

You know, if you're a regular person doing stuff and you're making money, the IRS says, oh, you're making money. Like, technically you're a small business. Right. You don't have to have an LLC. When I started blogging, this is funny. I started blogging. I made like $600, I think, after like the eighth month or somewhere towards the end of the first year.

And I remember people saying like, oh, Oh, like you have a small business. Very cool. I'm like, it's not a business. It's just a blog. It just happens to make money. But technically they were right. And after the time, like, oh, you know, this is a business.

You know, like I need to do some stuff to protect me. You know, especially when you're talking about advice and, you know, there's all kinds of crazy people. Probably not any of you. I was like, well, I don't like what Paula said on that podcast. I just did it. And now I just bankrupted myself or whatever it is, right? Like you do want protection. But if no one's listening to the show or reading.

you know, no one wants your product. It doesn't matter. Right. And Jay, you know, you mentioned you have an audience and a lot of people who are most people who are listening don't. But that's, you, you don't need your own audience when you get started. You just need to get in front of an audience. Yes. So you can, for example, write a guest post on somebody else's site or, you know, just like form relationships with people who have audiences and see if they're willing to let you.

present in front of their audience, maybe for an affiliate committee. Okay, like we have a sponsor, Digit, right? And they've grown, but, you know, obviously when they started, they didn't have an audience. So what do they do? They come to people like us. They come to podcasters and bloggers who have audiences and say, hey, can we work out an agreement that would allow us to get in front of the audience that you've built. Yeah, and that's what happened.

Yeah. And so then we worked out an agreement. and so now they're a sponsor of the show. Good. Should we wrap up? Yeah, let's do it. And we have, by the way, we get all of your questions. I mean, we have like a Google Doc that we go through and try and start answering them.

But some of them, I mean, they're all awesome. They just take a lot of time for us to answer and to work into a show. Right. So if you don't hear yours yet, like, no, it's probably in the hopper. It's just a matter of when. And we have like 10 pages worth, you know. And even though questions today, what, we did like in half a dozen or something? Yeah.

You know, and so we are getting them and we do appreciate them. And we're going to do our best to get to get through them as time goes on and the show goes on. Yeah. Yeah, so thank you, everyone, for listening. We, you know, we would not be here if it weren't for you. So we really appreciate it. And thanks for now forcing us to have to do legalese and contract stuff. Now that we know the show's going to continue on.

Crap, Jay, you. Paula gets her dream. You and I need a contract or something. Trademark stuff. And, oh, man. Okay. Okay, well, if something happens to me, you have to take care of the cat. Okay.

Thanks for listening, guys. We'll see you around next week. All right. Take care. We'd like to thank our sponsor, somebody. We finally got a sponsor, which is fantastic because it means that we can start paying our producer, Steve, in real money, rather than just cat food and kisses. Our sponsor is an awesome company called Digit, a company that helps you automate. automatically save money. You link digit to your checking account and small increments of money,

two bucks here, four bucks there, flow from your checking account into your digit account. You don't notice yourself saving until one day, six months from now. You wake up, check the balance in your digit account, and notice that it's grown pretty substantially. Check them out and sign up for free by going to themoneyshow.co slash digit. That's the money show.com. That's the money show. They didn't actually ask me to sing a ma-j-j-i-j-i-t. They didn't actually ask me to sing a ma-jingle. I just like that part. If you enjoy the show, please also do two things for us.

Number one, subscribe to the show on iTunes. And number two, leave us a review. Thank you so much. We really appreciate listening. Hey, Jay, guess what we're going to do for this episode? I think we're going to talk about what are we talking about. Three, two, one. Hey, Jay, guess what we're going to do for this episode?

We're going to answer some reader questions. They're listeners, not readers. Hey, Jay, guess what we're going to do for this episode? We're going to answer some listener questions. Okay, let's do that one more time. Why? Hey, Jay, guess what we're going to do for this episode? We're going to answer some questions.