Epic Real Estate Investing - 7 Things to Prepare for as a Cash Flow Investor | Episode 133

Episode Date: November 17, 2014

If you are listening to this show, it’s likely that you are looking to achieve financial freedom through real estate investing.  The good news is that real estate investing works.  But that doesn���t mean that it will be easy or that it will happen overnight.  Today Matt is setting realistic expectations by sharing the 7 things that all cash flow investors need to prepare for. ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E ducation P roperties I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Broadcasting from Terrio Studios in Glendale, California. It's time for Epic Real Estate Investing with Matt Terrio. Yeah. Hello, and welcome. Welcome to another episode of Epic Real Estate Investing, the show where I show people how to escape the rat race using real estate. And the way to get out of the rat race is by creating a monthly stream of income that exceeds your monthly expense. It's a very simple formula. You see, when you have more money coming in every month than you do having going out,

you're out of the rat race. It just takes one shift and focus. Stop focusing on making piles of money and start focusing on making streams of money. Now, I lead this podcast off just about every episode with that message or a very similar message. And I realize that that shift and focus sounds very simple. And it is. It is very simple.

But it doesn't necessarily mean it's easy. You know, whether you're going to take the traditional route of working the next 40 years and following the traditional advice of living below your means and saving, saving, saving, so you get this pile of money to which will hopefully ultimately create a stream of income for you. Or if you're going to take, you know, what we talk about here on the show and first create the stream of income, do that first and then allow it to create your pile of money, you must realize that they are both hard work. Okay? both ways hard work neither one is easy but the difference is when the traditional route of saving money

is backed by hard work the traditional route it takes 40 years to achieve the goal of exiting the rat race but when the route of creating streams of income is backed by hard work it can take just a few years that's the difference both are hard work neither one are without challenges and setbacks with both routes are inevitable i mean it's just life life happens so under understand that there's no escaping the hard work and the challenges that accompany escaping the rat race. You will have to work hard to escape the rat race, but the question is, for how long do you want to work hard?

That's the difference. So I'm going to assume that you would choose probably the shortest time possible of working hard. So let's go over what you can expect while working hard. And let's go over what you should be prepared for in pursuing the stream. of income approach. You know, I suppose it's needless to say that rental real estate is probably the most viable way the average person can create streams of income for themselves.

That's the very reason for this podcast. You've heard me say that countless times. And, hey, if I find something easier, I will start a podcast on it. And that new podcast, though, would not be in replace of this one. It would just be in addition to. You see, real estate works, and it works well. It works well for me. it works well for my students, and it works well for my cash flow savvy clients.

Now, having said that, let's define what quote-unquote works means. Okay, so there's a big, there might be some confusion around that. And when I say real estate works, I'm not suggesting it works on autopilot. I'm not suggesting it just happens automatically. And I'm not suggesting it happens all the time or it works all the time and around the clock. You know, there's a big fascination with passive income. And believe me, hey, I'm fascinated and I've done everything I can to educate myself on how to create it and I've done a pretty good job at it at creating it. But passive income does not mean problemless income. It does not mean

challengeless income. It does not mean uninvolved income. That's probably the biggest distinction there. Passive income doesn't mean that you're completely uninvolved. You just let it go and it happens. You know, like anything else, real estate and the passive income that accompanies it is not without its challenges, but those challenges can be mitigated and they can be downright managed. And that's what we're going to talk about today. The seven things every cash flow investor should be prepared for, all right? So number one, patience. Yes, be prepared to exercise a certain amount of patience. You know, rental real estate is a much faster approach to escaping the rat race, but it's still,

not an overnight approach. Okay, it takes some patience. The speed of which you progress is going to greatly be determined by four factors. The first is your knowledge base. What do you already know about real estate and specifically holding on to real estate for the purposes of income? Do you know enough to at least create a plan? Second thing that's going to rely on is your time.

How much time do you have available to dedicate to building your streams of income? A lot of people are time strapped. A lot of people have careers already. That's why cash flow savvy is in place to help those people out that don't have the time. But a lot of people have a bunch of time. So that's number two. Third, your financial resources. How much money do you have available to execute your plan?

Maybe you have it all right now or maybe it's going to trickling over time and you're going to execute that plan slowly over time. I mean, are there other assets that you have that aren't performing as well as you'd like them to that you could liquidate? Okay. So your financial resources is going to determine how long it's going to take you. And the fourth factor would be your credit or your credibility, like with your network. You know, leverage, it's one of the more powerful aspects of real estate, where it can really speed up the process if you can, you know, utilize it. And that may be through your credit score to access institutional financing,

or that may be your credibility with your friends, family, and associates, where you could create partnerships. You know, everyone's situation is different. Everyone has a different combination of all four of those things. and I've yet to meet somebody that had everything of all of them. Just everyone's situation is different. Everyone has different strengths and different weaknesses. Yet most people can't see past their weaknesses.

And this can cause impatience. And you can get past this though by maintaining your focus on your strengths and explore the possibilities of partnering with someone or something or a group or an institution that complements your weaknesses. But focus on your strengths. You know, most people, they just bring a lot more to the table than they think. You see, what's easy for you is difficult for someone else. And most people don't realize that.

And vice versa. So with all that said, everyone will progress at different speeds and everything isn't going to be, to go perfectly either. So patience. Patience will help you stay the course and focused on the big picture. This is the fastest route to financial freedom, but it's still not an overnight route. Okay. Number two, vacancy. got to be prepared for vacancy.

Properties do go vacant. People do move. It comes with the territory. So be prepared for it. Keep some money and reserves. If you have just one property with a loan on it, you don't want a vacancy to cause a financial hardship for you. So maintain some reserves.

Keep that in mind. And also, on the other side, the more properties you own, however, the less of an issue vacancies become as your occupied properties can pick up the slack if another property goes vacant. But be prepared for vacancies. Especially on your very first property.

You want to make sure that you're going to be able to manage that should it go vacant. Number three, maintenance. Got to be prepared for maintenance. Things break. It just happens. So you want to maintain reserves for maintenance as well. You know, if your properties, for example, are where it gets cold,

you'll probably be repairing heaters more than you would in other places or furnaces. Or if your properties are where it gets really hot, you'll probably be repairing air conditioning units more than other places. I know I've got some friends and fellow investors in Arizona, and they seem like they're replacing air conditioning units all the time. So expect maintenance, okay, be prepared for it. Things break, things go down. Things get used, and they have got wear and tear,

and they need to be replaced. They need to be fixed. Number four, problem tenants, okay? Be prepared for them because they're out there. You know, if you were brand new to real estate investing and you attended your very first real estate investor meeting, you'd probably think anyone that would hold on to rental property was absolutely crazy, given all the horror stories of problem tenants you're going to hear at these meetings. You know, it's unfortunate that those are the only stories anyone shares. I mean, everyone likes to one up the other with a good horror story. Oh, you think that was bad.

You shouldn't hear about my tenant who put cement down the toilet and it backed up the whole block and the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the. city came and they sued me and blah blah oh you think that's bad my tenant blocked up the whole county whatever okay for some reason everyone likes to one up each other no one wants to talk about the good properties that they own you know as i as i've shared with you i have more than 240 units in my rental portfolio i always have some problem tenants always they're always happening and it's those problem tenants they stress me out they keep me awake at night sometimes and but then out of 240 units we're really only talking about five to ten of them can be a problem at any one time. I have 240, but that means 230 are not a problem.

You know, at any given time, I've got five good horror stories that I could share with you. But I also have over 200 properties that I've got absolutely nothing, no stories at all, to share with you. Keep everything in perspective. Don't let the horror stories deter you from creating streams of income for yourself. But at the same time, expect a problem tenant here and there. They're out there, okay? And the most due diligence that you could exercise in screening your tenants,

sometimes that still just isn't enough. So be prepared. And that would bring me to number five on what you should expect. Legal fees. Yes. There will be times when you have to evict. And there are fees that are attached to that. And again, it's not the norm.

But it does happen. So be prepared for it. Don't freak out when it does. It's coming. Okay? It's not if it's when. do your best on screening your tenants and make sure you follow through on your end with regard to your responsibilities as a landlord and problem tenants and legal fees they can be reduced significantly but it still happens okay so expect it and prepare for it just part of it comes with the territory it's part of real estate investing it's one of the one of the aspects of it just happens as part of the game number six property management okay um prepare for it unless you like landlord type of work unless you want to do it yourself, I would recommend hiring a property manager.

You know, a good property manager can make your life an absolute breeze, yet a bad one can make your life an absolute nightmare. And I've had both experiences. In fact, I'm dealing with some serious issues right now with two different property managers, yet I have a dozen others that are totally awesome. So two things that I've learned over the last few years with regard to working with property managers. And this is what I'm about to give you right now.

this is a, I was at least a $200,000 education. That's what I paid for this lesson. But I've got the lesson now. And now because I took that lesson and I've applied it, it's not an issue anymore. But I'm giving it to you for free so you don't have to go through what I went through. So the two things I learned. One, be slow to hire and quick to fire.

Property managers, as you're interviewing them, they will tell you everything that you want to hear before you hire them. and, you know, it's difficult to tell who's lying and who's not or who's being sincere or whatever. And I think a lot of them have the best of intentions in mind, but, you know, things just happen. Keep in mind that they're going to tell you everything that you want to hear before you hire them. And sometimes it's just a different story after you've hired them. Most of the time, you're just not going to know until you do hire them. So be very slow to hire, check their references, check referrals, and then be quick to fire.

Okay, if you get one, two, three things that are like just not going right, it ain't going to get better. That's been my experience. So number two, use more than one property manager. You want to split up your portfolio. Don't keep all your eggs in one basket when it comes to property management. I mean, if you have one, two, or a half dozen properties, you know, working with one good property manager, you're probably going to be okay. But when your portfolio starts to grow to 10 properties or more, you probably don't want that one. property manager in control of your entire passive income stream.

So I've learned the hard way to diversify my property managers. And I'm well positioned in all of my markets now that if any one thing was to happen to any one property manager, that it wouldn't affect me. I did learn a lesson. And I didn't give up and I didn't throw in the towel. And life is getting better every single month because of it. Everything is looking very rosy again and moving in the right direction and I'm very comfortable and secure it in my portfolio.

So diversify your property management. And you know what? Even the property management, I didn't plan on talking about this. This is one of the seven things. But you want to look at your business from every aspect, even if you have another business on the side of real estate. You want to look at where you've got single points of failure.

So we diversified our property management because we didn't want any one property manager having too much control over our passive income. Then we diversified our markets because we didn't want anyone market to have too much control. and then we diversify our property types because we didn't want any one property type. So we keep looking for that and we started diversifying all of our contractors.

In fact, we're pretty much got that diversified over all of our markets as well. But look at single points of failure. It doesn't have to be property management. It could be anything. Look at your single points of failure and you want to eliminate those. That's one thing I learned in the music business.

I had one distribution channel. And when that distribution channel went under, so did my entire business. And I never did recover. cover from that one. Okay. And then number seven that you should be prepared for. You need to be prepared for growth. Yes, be prepared for growth. Not all is bad. Remember why you're holding these properties, right? It's to grow your streams of income. And if you keep going, your streams of income will grow. Your portfolio will grow. I mean, even with all the challenges that accompany building streams of

income, as long as you're prepared for and manage those challenges, you will grow, of which is the object anyway. So don't let the potential headaches derail you from the big picture. Don't let the potential headaches, and a lot of them are the likely headaches. You're going to experience them every once in a while. Don't let that derail you from exiting the rat race and growth. It happens in a couple ways. At first, the market can cause your growth via appreciation.

We all know what that is. And your growth can happen through rental demand. We all know what that is, and in which we know those happen over time, and they're going to continue to happen. And second, you can cause your growth to happen yourself. You grow by continuing to purchase properties. You grow by continuing to sell properties to buy new properties, by improving properties, by upgrading properties, by consolidating, by strategically moving your money around,

you will experience growth. So expect it and be prepared for it. for it because with all the challenges that you hear about, the things that you should be prepared for, the things that can go wrong, if you are prepared for those, more than likely you're going to experience the good things that go with it. The one thing that I'd hope you'd walk away with from today's episode is a certain amount of perspective, meaning you've got a choice. Okay, we've got that traditional route, we've got this new route that we've learned about,

you've got a choice, and that choice is you can deal with a broken toilet, a vacancy, or a bad tenant every once in a while, or you can deal with a 50-hour work week, a bad boss or an unfulfilling job on a daily basis for the next 40 years. That's perspective. That's your choice. And then on the other side,

with the right kind of education and good preparation, you're more than likely to experience an increased level of financial stability, free time, and working a fulfilling job because you want to rather than because you have to.

Do you pick your poison? or do you pick your antidote? You know, depending on whether you're a glass half-empty person or a glass half-full person, you know, real estate, it's a less toxic poison than the alternative. Or you could look at it as half-full. It's a more rewarding and fast-acting antidote than the alternative. Either way, as long as you stay focused

and exercise some patience and prepare for what's likely to happen and you just stay the course, real estate wins. whether you're looking at it is half empty or half full. When you look at you, the choice that you have, real estate wins. So I share this all with you because, you know, tough lessons are going to come from your real estate investing experience. I just want to make sure that you walk away with the right lesson. The lesson is not to give up.

No, the lesson is, I won't do that again. Let me get back on the horse and keep going. Remember the big picture. The big picture is for you to exit this rat race, for you to get some stability around your finances, to get some more increased free time with to do what you want to do, to spend the time with those that you care about. That's the big picture.

And if you stay the course, this is a much quicker route and a much more for certain route than the traditional alternative. That's what I want to leave you with today. Real estate wins. So this episode's winner of a $100.000.com gift card goes to, I'm all prepared, so I'm not going to go to iTunes. But if you go and leave a review at iTunes, I'm picking a winner on every episode and giving way a $100.com gift card for the month of November.

And today's goes to Freedom Fighter, five stars. And Freedom Fighter writes, thanks for keeping it real, Matt. I tune in every episode to get the goods on what's good about real estate investing and also what I need to watch out for. Keep doing what you're doing. Well, Freedom Fighter, thanks, bud. Send me an email to podcast at Epic Real Estate.com, and I'll reply with your $100.000. com gift card.

All righty? I'm Matt Terrio. Living the Dream. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio.

This podcast is a part of the C-suite radio network. For more top business podcasts, visit C-Dash. sweet radio.com