We Study Billionaires - The Investor’s Podcast Network - TIP 034 : Real Estate Investing with BiggerPockets' Joshua Dorkin (Investing Podcast)

Episode Date: May 10, 2015

IN THIS EPISODE, YOU’LL LEARN: Who is Josh Dorkin? Josh’s biggest learnings as a real estate investor. Josh’s biggest concerns for the real estate market in 2015. Diversifying one’s portfolio. How to identify which real estate investing strategy works for you. Ask the investor: Which free stock screener and investment research site can you recommend? BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. BiggerPockets’ official website. Annual Reports available on Morningstar. New to the show? Check out our We Study Billionaires Starter Packs. Our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Check out our Favorite Apps and Services. Browse through all our episodes (complete with transcripts) here. SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

This is episode 34 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is The Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Sting Broderson. All right, how's everybody doing out there?

This is Preston Pish, and I'm your host for The Investors Podcast. and as usual, my company by my co-host, Stig Broderson, out in Denmark. And I'll tell you what, folks, we have a major player on the show today. His name is Joshua Dorkin, and he is the founder and CEO of BiggerPockets.com. Joshua has been featured on numerous channels like CNBC, Bloomberg, Business Week, NPR, Entrepreneur Magazine, AOL, a whole bunch of others. And his community that he stood up is a community that specializes in real estate. estate and investing in real estate. And so we've had a lot of people on our show that are very interested in investing in real estate. So we thought Josh would be the perfect guest for you today.

And also Josh has a podcast of his own. So if you guys ever want to check out his podcast, it's over at biggerpockets.com. And you can find that on iTunes and also his website. But Josh, fantastic. We are just thrilled to have you on the show. And we're really excited to get to some of the questions we got for you. Yeah, it's great. Thanks for having me, guys. All right. So Stig, I think you got the first question. So go ahead and fire away. Okay. So today you are a big authority in real estate online, Josh. And there people out there, they're looking for you for advice. Now, I know from listening to you before that you had a very humble beginning and you are not afraid of talking about how you lost money in your first real estate deal.

What did you learn from that experience? Sure. So we all make mistakes. Let's let's, let's, let's, start there, right? As a real estate investor, if you're not making mistakes, you're probably not doing anything. It's almost impossible to do this business, get into this field without messing up. So, you know, technically my first real estate deal was this condo that I bought in California and lived in and actually did make money on that. So that went well. That went well,

although I learned a whole hell of a lot in doing that. You know, I rant and rave about, you know, condos and boards and things like that and all the chaos that that can come with buying a property with a board. Lots of things kind of leave your control when you do that.

But yeah, I, you know, I was inspired by my brother who had purchased a bunch of property. And he had come to me and said, hey, Josh, I know you're kind of sitting with some money on the side. Why don't you buy some real estate?

And I said, oh, sure, you know, let's do this. Yeah, I'm a smart guy. I can just go and pick up some property and figure it out. And so I did that. And it turns out smart doesn't really matter. So, you know, I had bought property thousands of miles away because it was cheap. And people now give me a hard time because I rent and rave about places like Detroit and say, hey, you're crazy if you buy in Detroit.

I don't think you're crazy if you're buying Detroit. I think you're crazy if you're buying Detroit and you don't actually know Detroit. And so I bought in a place that I thought I knew that I really. was unfamiliar with and I was you know I said hey I'm going to buy inexpensive property that should on on paper have good returns but at the end of the day you know you buy a property in a you know sea level neighborhood um you're dealing with war zones and so I bought property in a war zone uh property that um was difficult to manage was difficult to screen tenants for uh was difficult to oversee. It was difficult to deal turnover. And I got myself in a lot of trouble. And so not,

you know, actual trouble, but, you know, financially, it was, it was really a challenge. And, and so I made a, I made a lot of mistakes. And as a result, I started this platform, I started bigger pockets, because I was looking for answers to the questions that I had after the fact. a little too late, but, you know, it's okay. And at the time, the landscape of the internet and the landscape of kind of what was out there was very different. And so, you know, at least what I saw is the only viable sources of education in the real estate investing field.

At the time, they were the kind of get rich quick guys, the guys with the babes and bikinis and the mansions and the Ferraris and the late night commercials. and, you know, I saw that and I said, oh, I don't trust this. I really, you know, I don't believe that the information I'm getting is going to be, you know, forthright. I believe that there's going to be something in there. It's going to be a pitch. There'll be some value and then I'm going to have to go do more.

And I was right. And that's kind of how that business works is there's a funnel and, you know, you get some free tidbits. And then to get any more that's of value, you got to spend $997. and then you got 5,000, then 10,000, then 25, and then 50 and so on and so forth. And I was like, that's crazy. I don't believe it. So I started Bigger Pockets.

It was a community of me. It was a form of one. Wow, this sounds cool, Josh. Yeah. Community of me. I want to do that too. Yeah, man. Answering my own questions.

No, I, I couldn't, I can totally empathize with this because when we started the Warren Buffett Forum, that's what it was like. is like, you know, there's five people on there. We're like answering each other's questions. We don't even know what we're talking about. And then like it grows. And it's such a awesome experience. But go ahead.

I'm sorry to. Please come. Yeah, I beg you. Somebody is, you know, so I, you know, began to kind of build up this, this community. Little by little, people would drip in. I was doing these internet marketing techniques before the internet marketing was internet marketing. And, you know, I mean, sadly, we predate, you know,

the MySpace, you know, it was my space was getting hot at the time. So, you know, I'm a dinosaur here, I guess. But, you know, little by little people would come and would actually help out and answer questions. And I got value. And suddenly they got value because, you know, they would help somebody. And it felt good to help out. And there's this level of kind of mentorship that comes with that. And it started to grow. And it was organic and little by little. And so what was cool was one day I realized that this was not just a place where I'm getting help for myself, but people are helping each other and it's actually becoming a community. So I, you know, what was this selfish beginning became something that could help others. So my tragic misfortune and, you know, tens of thousands of dollars in losses in real estate turned out to be.

a gold mine because today, you know, we've got millions and millions of people who come to bigger pockets across the various channels and, and, uh, we're, you know, our goal is to help people not make as many mistakes, you know, to be successful, to connect with other people, to find partners, to find opportunities and to learn. And so, um, you know, mistakes, mistakes are okay. They're going to happen. The key is to, um, educate yourself up front to the point that you can mitigate those mistakes and know at least how to proceed if you do start making those mistakes. Yeah.

A lot of people don't even know this, but that's how Stig and I met was on our Warren Buffett forum. Oh, nice. Yeah. So here we are. We got our own show together now and just like, it almost feels like I've known Stig my whole life, but it's weird to think that that's how we originally met was on the forum.

That's so cool. You were two people on the forum. Oh, you guys are the first two. Yeah. Yeah, we were just talking back and forth to each other. Oh, my. That's awesome. That's great to hear the background and how you kind of got your start there, Josh.

So, okay, I'll go to my question here. So this one, we're really changing gears here compared to the first question. So I bought a house, and this is the first house that I bought a few years back. And I bought it post the 2008-2009 massive crash, real estate crash. And I was able to lock in a very, very. good interest rate at 3.5%. And at the time, I had the opinion that I would have taken out a 100-year loan if they would have given me a 100-year loan because the interest rate was so low. And I wanted to put down as little amount of money as possible on it because I felt like

with inflation that I anticipated to occur, I might actually even make money on the loan if inflation was higher than 3.5%. So here I am owning this house. And now as the market conditions continue to change. I've got a growing concern because I'm going to have to sell my house probably within the next five years. That's the position that I'm in. So my concern is that I have a increasing concern that these long-term interest rates have been highly manipulated by the Federal Reserve. And I don't think that there's too many people out there that would dispute that fact. You even have like Ben Bernacki going on and, you know, talking about how his quantitative easing was specifically pointed towards the long-year treasury in order to manipulate the long-term interest rates. So my concern is, is if I'm looking to potentially sell this house in the next, you know, a couple years, and let's say that there is a market downturn, I'm concerned that these long-term interest rates cannot continue to persist at such low rates.

and if the rates go up, do you see the housing prices kind of collapsing and going down? Is that a legitimate concern that I have? I think it's legit. The market is, I'd say there's no doubt that it's being manipulated. My home, I refinanced at three and a quarter, I think. I'm sitting on a 30-year loan at three and a quarter. And like you said, I was like, holy, you know, let's, It's crazy.

This is crazy. We just bought a new house because that house we've outgrown. I've got three kids and need more space. And so over the past couple months, I've been dealing with the equation of, you know, I'd be crazy to get rid of a house with a three and a quarter percent loan. Yeah.

Yet I'm going to get rid of that house. Yeah. And the reason I'm going to get rid of the house is I did the math. And what the math tells me is that my return, on that home at 3 and a quarter percent is going to be somewhere under 2% per annum as a rental property. And, you know, so is my cash better deployed in this home at 2% return? Or can I beat that? And I sure hope I could beat it, you know, and if I can't beat it, then, you know, I'm doing something wrong. Are you accounting for the house potentially appreciating or just basically

holding the value that it has. Holding the value. I don't ever, I don't, you guys are a value investing show. I don't ever, ever, ever account for appreciation personally. Yeah. Because you can't predict appreciation. Yeah. You cannot predict it. And so, you know, it's, it's the icing on the cake. You know, if you get appreciation, that's great. And you get all these other, you know, this other value with, you know, you get tax incentives and things like that with with long term holdings. But, you know, I, I think if you're savvy, you can find other ways to get better returns. I mean, I could be a private money lender at 8% on my cash and I'm beating that 2% in this property. So, you know, it's hard. It's, you know, there's this emotional attachment saying, you know, hey, I can't get rid of this house. This is crazy.

This makes no sense that I should be able to own a home at three and a quarter percent. I'd be nuts, you know, it's going to be worth, you know, X amount in 10, 20 years when I've paid the note off. But, you know, again, if it just kind of follows inflation and, you know, I could probably beat it. So to your question on, you know, what's it going to do to the market, long term, short term, I certainly think that it affects housing prices to the negative. It's going to make it harder for people to buy. So theoretically, You know, it's, that's going to shrink that, the, the, the, the, um, the, um, the, um, the, um, the, um, the, um, you know, I think over, over the long term, that's good, that's going to, to, um, reduce prices. It's going to increase rentership. Yeah, yeah, you're right about that.

Now, that's great from an investor standpoint. If I'm a buy and hold investor, I've now got a strong pool of renters. And so is that good for me or bad for me? I think at the end of the day, from the real estate, you know, I probably can talk more intelligibly about the investor market than just the traditional buy, you know, mom and pop buyer market. And I'd say from that perspective, you know, yes, there are negatives, but there's also positives.

You know, you all real estate first of all is local, as they always say. And it's true. I mean, you, you know, during the bubble, you know, you had places like Las Vegas that were, you know, going crazy in Phoenix. And you had other markets like, I don't know, well, Baltimore and Milwaukee that were probably not. And so real estate's definitively local. You're in good markets. You're in a place where, you know, jobs are growing and the economy is strong. Then the market's going to be solid.

So the key is, can I buy for cash flow now? You know, not stress the appreciation. And if prices drop, then, you know, theoretically cash flow probably is not going to shift that much, right? Rents could drop. but, you know, it's, it's not as likely because rents themselves aren't tied to interest rates, right? So what is the key? The key is, can I buy this piece of property at a property that, at a property, at a price that makes sense? You know, can I buy it at a discount?

And so the place where a lot of investors mess up is, they buy retail. They pay retail. They don't know how to account for all the numbers that go into an income property. They think, hey, listen, well, if my property is,

you know, if my mortgage is $1,000 and my taxes and insurance, right? And I make $1,200 a month in rent, then I got $200, $200, in positive cash. flow. But I mean, but you laugh. That's where that's where the analysis stops. People screw up. Yeah. That's where they mess up. Yeah. You know, they don't take into account vacancy rate. They didn't take into account, you know, cap X. They don't take into account,

you know, management, even if they're managing their own properties. They don't take into account all these expenses that suddenly make that property a loser. Yeah. And they're looking at the top line, really at the end of it, they're really just looking at the top line and they're not doing the hard risk analysis of, okay, what are the 10 other things that are going to go wrong and then accounting for those into the equation to get to the bottom line? Absolutely. Absolutely. Which then makes opportunities for the sophisticated investors who are going in and, you know, listen, some people are going to say these guys are predators. They're actually saving these guys's backsides who are losing all this money on bad properties. But they're getting it. at a great rate, at a great price, because they've lost so much, they've got to get out. You know, tired landlords,

people who just, you know, didn't do it right, who didn't evaluate it right and want to get out. And it's, you know, it's a really good, body of people to get discounted properties from because they did it for X amount of time.

They've just been bleeding for so long, and they just want somebody to take the property away from them. You're going to save my back. I'm bleeding here. Take it away, please. And then I get it and I'm good. And so what you're really getting at is patience and doing your homework. Oh, yeah.

You know, I mean, if you're doing your homework and you actually know all those different things, and there's a book that I read, I cannot remember the name of it that talks specifically about coming up with valuation for investing or for real estate. But we'll put that in the show notes whenever I find out what it is. I can't remember the name of it. I read it a long time ago. But that's what it talks about it. It talks about all these other.

critical variables that you've got to account for. And then you've got to be patient and you've got to wait for the right opportunity in order to pounce on it. And just because you make an offer on a place that you really like, if the person's not willing to come to that price point that you think it's worth after all that analysis, you've got to pass. Yep. Yeah.

So I think one of the big mistakes that new investors make is they don't establish a criteria. They don't say, hey, here's, well, first off, do the analysis. secondly, establish some set of criteria that I'm only looking at these kinds of properties that have these issues, you know, three-toes and blue-collar neighborhoods

where, you know, there's got to be at least, you know, grocery store and this, that, and the other, you know, you kind of create your own criteria, right? Everybody builds their own box. And they don't do that. And then what happens is they find a deal that's awesome. They're like, oh my God, this thing's amazing.

And then they chase it. And they set, you know, their cap prices X amount of dollars. And they're like, all right, well, you know what? If I bid this to one, my say the price was 120 and I couldn't go above 120. And I think, but I could get this for 125. I'm emotionally in this. Oh, yeah. Well, man, you just went up $5,000 on your offer.

You just destroyed your own criteria. And now you're damaging your cash flow. So you can't do that. every time I have a chance to talk about stocks, you know, I think Preston knows this. It doesn't matter what we're talking about, but every time I have a chance to talk about stocks, I'm thinking, yes, I want to share this with the world, you know.

So I really think that you're completely right about the criteria thing, Josh. And one of the other things that you said, a few minutes ago was that you don't, well, you might hope that your house would appreciate value, but you don't count on it. And I think that's kind of like the same way Preston and I look at investing. Like, we're looking at the, earnings of a company. And we hope that you will increase, but even though that it was just stable,

you know, if that's a good business deal for us. If it can just sustain the earnings and you can still buy it at a good price. And I guess it's the same thing you're saying about investing. Like, if it increases in value, I mean, that's amazing. But that is not what you are basing your investment decision on. And I think very few people do that. I think most people do try to account for it's going to grow at 3% a year and the house will be worth 100,000 more within five years. And they actually build that into their model. And I think that that's a very bad thing. And I'm very impressed that you said that you did not do that because I think very few people do.

I agree. And I think you can go and become an appreciation investor. So you can take my market. I'm in Denver, right? Denver and then you've got the city of Boulder, which is about a half hour away. Denver and Boulder is in the path of growth, right? You know, this market's crazy. Job growth is, you know, fantastic here.

And what you're seeing is the Denver Boulder corridor filling in. So you got one city here, you got one city here. And before it was just, you know, emptiness and a few scattered ranches and things like that. And over the past decade, you've seen that entire thing fill in. So if you could have looked at the market and said, hey, job. growth is booming. Everything is going the right way for Denver and the same for Boulder. You're going to make an extrapolation and say, hey, this corridor is going to kind of come together. Yeah. And so as that corridor comes together, you know there's going to be some kind of pathway

to growth. And so with that, you're going to see, you're going to see, you know, property values go up in that pathway. And so, you know, it is one way to go. Is it predictable? No, but nothing's really predictable. Let's take a quick break and hear from today's sponsors. All right, I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year,

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slash WSB. That's Shopify. dot com slash WSB. All right. Back to the show. But that's something that's very, there's a lot of people at play there. There's a lot of,

that's a lot of area. And you could see a trend line. You could see, you know, you could look back at the last five, 10 years and see something that's what I would expect to be a fairly steady

and stable trend line that could show you some type of predictive analysis of something in that area. Right. For sure. And now, let's go back to the cash flow. The guys who are buying five, units and more, so a duplex, a triplex and a fourplex, those are all considered small multifamilies. The small multifamilies are typically valued the same way that a house is valued. It's valued on comps. The nice thing about five units plus in the multifamily space, is that's valued based upon cap rates. And it's valued based upon multiples of income. And so the growth, you know, as a market goes up,

that's not necessarily going to affect the value of a small multi, mid-size or large multi. That's going to be determined based upon rents and other income that you can bring in. So if you're somebody who's a value guy who says, you know, I don't care about appreciation from, the market, you can actually drive appreciation with these small multis by making improvements, by reducing expenses, and suddenly your multiples are going to drive the value of your property. So you can take a property that's got springing in a thousand bucks a month.

If you can cut your expenses, your multiple is going to be maybe the same, but the value at the end of the day on the property is going to be worth more. Hey, real fast, I mentioned that book that I was originally talking about. The name of the book was the small business valuation book. I also want to highlight Josh, I want you to be able to talk about the book that you wrote about investing in real estate if you want to throw that out to our audience because I didn't say that in the intro. That's okay. I wasn't going to give you grief about it. I was just waiting for it to come at some point.

No, we wrote a book, myself and Brandon Turner, who's the co-host of the Bigger Pockets podcast called Yelter. Beginner's Guide to Real Estate Investing. You can find it on Amazon. You can find it on our site. And the idea behind the book was there are all these people that many of whom are listening and many of whom are not who are interested in real estate but are scared that don't understand it, that don't know what to do. That all they know is, hey, there's these guys selling courses talking about getting rich or whatever it is. Right. And so we wanted to build to put together this kind of beginner's manual, if you would call it that, to real estate investing. And it's it's the basics. You know, what are the niches that are out there? What are the strategies that are out there?

What is flipping houses? How does it work? What is being a landlord? What is a rental property? How do you evaluate? How do you do the math? Lots of basics. We don't hold anyone's hand and say, this is how to do a job.

deal. Our platform helps with that. Our podcast talks about that. But this book is designed to give you the fundamentals so that you can actually speak the language so that you have the vocabulary and understanding to move forward and start planning out your path because everyone's going to have their own path. And this thing is designed for that. I actually have a question about that. Funny enough, that's about stock investing. But I'm also sure that is a question that you answer in your book because when I think of a stock investing for a. instance, you know, it's fairly easy for me and I think for a lot of the listeners to have a understanding of how many stocks you need to buy to be diversified and perhaps also international

exposure and with sectors. But how is in real estate? I mean, if you buy a home in Denver, I mean, you're really exposed to Denmark, I guess. So how do you, how do you diversify in real estate investing? What's your thoughts about that? Sure. And if you want to talk about the stock market stick, we can do that. I mean, you know, it's, it's your. It's your show, man. This is your world, baby. So diversification from a real estate portfolio perspective is just like your first property is going to really depend on who you are and what you want. What are your goals. So I just mentioned niches and strategies. We've kind of defined niches as things like land and single family houses and duplexes and multis and small apartments and commercial and

the mobile homes and so on and so forth. The strategies are things like buy and hold, flipping, wholesaling. And so you can have strategies in different niches and things like that. So you can diversify by just doing different niches in similar market and have different strategies. At the end of the day, what's the best way to diversify? I guess it depends on what's your goal. So if you want a job, then you should flip houses. Flipping houses is, is not a passive activity. It's a fairly active activity. Buy and hold is far more passive,

particularly if you've got, say, a property manager. You still have to do some work. You've got to manage the manager, things like that. But there's a pretty high level of passivity. Is that a word? Passiveness. It is now. Yes.

In managing these rental properties. So I would tell somebody who's looking at diversify, you know, first you have to figure out what niche you're going to start in. What's your goal? And then I think what we've seen over the years in talking to, you know, countless investors is what people will do for their own diversification is they'll start with one. Say they start with single family houses. I'm going to build a little portfolio of single family houses in a market that I know.

Typically, we always tell people invest in a market that's no more than two hours away. The reason we say that is because you want to be able to, especially as you're starting out, be able to very easily get out to that property. Yep. You know, if, if, if you do like I do and buy a property that's 2,000 miles away, that you have to get on a plane to go visit, you're going to have a hell of a hard time or a really expensive bill every time you want to go out and check it out. So, you know, if you can start to, you know, pick up houses, it's like the monopoly game, right?

You buy little little greenhouses. And suddenly you're confident, comfortable, you know, you have a, you know, a solid understanding of that maybe you move up to the small multi and you buy, you know, a duplex or a threeplex or fourplex. You get some experience there. And then they move up to the small, you know, the mid-sized multis, you know, five-plus units. And now they're managing apartments. You know, maybe they have in-house managers, things like that. You know, so you kind of build up. And this is, again, just based upon what I've seen from countless people, this is the typical, if there is one, path. And from there, you know, maybe they say, oh, okay, well, cool. Now we've got all this cash

going. We've got cash flow. It's predictable. I want to play around in development and see if I can kind of get that big pop and go from there. But you know what? That's a guy who's going full time into real estate. That's not the guy who's working a full-time job and, you know, just trying to build wealth for his family who may just want one or two properties. So diversification is going to be diversified based upon who you are, right? So there's a lot of ways to do it. You can diversify by buying turnkey rentals, properties at a distance managed by, you know,

these, these quote, turnkey companies. You can buy houses in different markets. So, Josh, the turnkey. So what you're saying is there's companies out there that you could hand over,

let's say you bought a foreclosed property, this turnkey company would come in and basically turn it around. for you at a price that you knew, a fixed price up front, that maybe they would come out and give you an estimate beforehand before you'd even purchase it? Is that what you're referring to? No.

So there's this niche within our, within the investing space of companies that, they call themselves turnkey companies. And what they do is they go, they find the discounted properties. They fix them up. They put renters in. And they say,

hey, Josh, come buy this turnkey property. So I go, I buy it. And it's already been fixed up. It's already, you know, got a renter in there and they're going to manage it. Now, you know, for anyone who hears this and says, hey, I'm going to, oh, that's great. I'm going to just go jump on and buy the next property from a turnkey company. Just be careful. I mean, there's, you know, just like anything else, there's shady operators in, you know, every space.

There's, there tend to be a few more in the real estate space. There are definitely some good ones. But, you know, do your homework. get reviews, find out who, you know, who these people are, get, you know, track records and things like that. And that goes with everything in real estate. I mean, whether you're dealing with contractors, the main of the investors' life, or, you know, or any kind of company that's offering services, management companies, you name it. It's funny you bring up the contractor because that leads right into my next question. So my wife loves these shows on TV where these,

people, I don't know the names of any of these shows, but these people come in and they find this house that just tore up, looks horrible, and they come in and they basically do a whole renovation on the house. And, you know, they might buy the house for 200,000. They do 150,000 worth of renovation. So they have 350 into the house, and then they sell it for 450. And so this is flipping homes. And I always tell my wife, as I'm kind of walking by and she's watching this show, I say, you know, that would be a great business if you owned your own contracting company and you had sunk cost people that are, you know, doing those things. And I feel like maybe that's the only way to really be successful at flipping homes. I'm really curious to hear if you kind of have the same opinion or if there's other people that you've talked to that are house flippers that don't own their own contracting company and necessarily how they do it. So, you know, you're about to get me going. I think the flipping shows are one of the best things for the investing business. And I think they're one of the worst things for the investing business.

They're great because they're, you know, they make it sexy and they make it interesting. They're terrible because most of them lie. And it's not outright lies. It's just lies by omission. Yeah, they get all the furniture from free from IKEA if they put up their advertisement on the shit. I don't know what they're doing. I'm not going to call, you know, I know the names of the shows. I'm not going to mention them by name so they don't get mad at me or you.

But, you know, that property that they paid $154, they spent $100 on renovation, whatever you just said. You know, so there are $250 all in. Yeah. And, you know, they sold for $350. No, that $250 all in was $250 for repairs, $254 labor. It was not $250 for the time hold, the time value of money. Yeah. that they had to borrow.

Cost of capital, yeah. It was not the cost of capital. It was not the holding costs. It was not all sorts of other things that that show never told you about. At the end of the day, that guy may have walked away with five grand or may have lost 50. You know, you don't know. And so is flipping,

is it possible for flipping to be a profitable endeavor for somebody who does not own a contracting company? absolutely absolutely I said it earlier though flipping is a job you're not going to go and say hey I'm going to flip houses while I'm working my full-time job and get it done you know during your lunch break that's not going to happen it's not going to happen and and so you know there's a whole hell of a lot that goes along with flipping a house and and so you you got to know real estate you have to know real estate you have to know the numbers again. This, this,

everything in real estate goes back to the numbers. And I think most people get it wrong because they don't realize that. So if I'm, there, there's the, we call it the flipper formula. Um, it's,

uh, the 70% rule. Um, and so if you want to flip a house, we tell people, if you're going to flip a house, then you want to just pay attention to the 70% rule. Now,

it's not a strict thing that you have to pay attention to. But you're increasing the likelihood of, success by doing it. So the 70% rule says that you want to pay 70% of the after repair value. So that's the sell retail sale value at the end. You want to pay 70% of the after repair value minus the repairs. So an example of that, let me try and it's early here in Denver. These guys had me on at 7 a.m. on a Sunday. Sorry about that, by the way. I was pretty sure you were on the East Coast. We tell that to everybody that's on the West.

Yeah, as long as it's convenient to you, Stig, we're good, man. Yeah. All right. So here's example. This house is going to sell for $100,000 after I fix it up. I want to pay no more than 70% minus the cost of repairs. So if it would cost me $10,000 to repair, I don't want to pay any more than $60,000 for this property.

That's going to sell for $100,000. And what that does is it pads you. It protects you. It ensures that you've got some level of profit. You've calculated your profit into the property beforehand. No single house flipper has ever gotten the numbers right on their first deal. And, you know, that's an exaggeration. But odds are pretty, pretty slim that you're going to.

You're typically going to do have cost overruns. You're typically going to take longer than you think. And so what that does is it gives you, it gives you some sense of padding. to ensure that you walk away with some kind of profits. I mean, the negatives of flipping houses are frightening. You know, you can overpay. You can hire bad contractors. That's almost a given.

Almost guaranteed. Finding financing. You know, selling at the price that you actually expect. I would think like mold and things like that you can't see on, like, when you go into the house and you're like looking around. Like, okay, well, yeah, this looks like this needs about $10,000. dollars worth of work. But then whenever you pull the ceiling layer off or whatever, there's not a support structure there. There's like all sorts of things that you start figuring out after you already paid for it that were really your high risks that you don't necessarily

see. Yeah, absolutely. And especially as somebody who's new at this, you know, it takes time to acquire that skill. Real estate investing is art plus science. And the art is, you know, as a real estate investor on a property. When you first look at a property and your realtor says, hey, this thing is worth X, Y, Z, and you're like, okay, great, you know, as you go over time, one of the things we tell new investors is go see every house that's in a market. You want to see every house for sale in a market. If you do that, you can probably acquire the skill set to eyeball what that property is worth. You know, after you've looked at 50 or 100 houses, you kind of know what houses are worth. Well, the same goes with with flips and other things. You know, you can go into houses and for the

most part predict, but you're not going to predict everything. There's going to be mold behind the walls. There's going to be, you know, who knows, you want to, you know, pull up that carpet and find that really nice, beautiful hardwood. Well, wait, it's not there. Whatever it is. Yeah. So, Josh, I can't help to think, like, you'll be talking about buy and hold and flipping. And we also talked about fix and flip and in other strategies, you know, when do I know which strategy is the right one for me specifically? How do you determine that? That's going to depend on who you are. It totally is going to depend on who you are and I'll go there in a second. I want to go back. I'm saying that because I'm saying the exact same thing when people are saying, how should I invest? And I always

saying it depends on you, Josh. It does. Well, let me go back a second. That works so well. Yeah, I'm not going to answer your question. I want to go back to the flipping because there is, something, you know, I talked a lot about the negatives. There, there is, there is a way to do it, though, you know, A, you can do it. I mean, if you really take the time and have somebody that you can potentially partner with or things like that. But another way of doing it is the live and flip. And so what that is, is that's buying a property that's, that's in bad shape and sucking it up. You know, that's, you know, you're living in a place that's got a 1960s kitchen and you're fixing it up little by little by little over the next, you know, year or so, you've,

you've put in the time, you've done it on nights and weekends, but you're, you're also living there. So you're deferring that holding costs by paying your mortgage, you know, instead of paying rent, you're living in this property and you're fixing it at the same time. So live and flip is, is a decent strategy for, you know, at least getting to understand what house flipping is like at the same time as getting the value out of living in a property. So I just wanted to kind of cut back to that part. That's kind of something we kind of call house hacking a little bit. House hacking, and I am going to get to your question, by the way,

but I do think your listeners want to hear this because it's something that we really encourage, especially young people who don't have a lot of ties. once you get married and have kids and things like that, if that's your path, it becomes harder to house hack. But house hacking is you go, you buy a duplex or you buy a triplex or a fourplex. Typically, we say do it with a small multi and you live in it. So the nice thing about that is up to a fourplex, you're getting conventional financing on these properties.

So you can get a good, reasonable loan. And you go, you can even get an FHA loan, which, you know, is really cheap. And you now have a property that you're living in. You're also renting out. So you're getting rental income and you're deferring your own costs. So say I'm spending X amount of dollars on rent. You know, I can go in house hack, buy a small multifamily, live in one of the units, rent out the other units.

And I may even make money and not have any cost of living. house hacking is a really cool strategy we write about it a bunch on on on bigger pockets we talk about on the podcast and it's something that um along with you know live in flips is a really good way to get exposure to real estate investing to see if you're if you're cut out for it you know if you turn out to try this live and flip and you know you realize how much you hate tenants and toilets um then you're uh you know maybe you should try a different niche a different strategy, which goes to your question. I told you I was going to answer it.

Which is, there is no one path. Let's start there, right? There's no one stock I have to buy, Stig, right? I mean, unless it's Parkshire Hathaway, maybe, you know. You know him so well already. Yeah. But, so there's, listen, there's no one path, right? It's going to depend on who you are, where you are, what you are.

If you are a 22-year-old guy who's got cash sitting on the side, you're going to take one path that's going to be very different than a guy who's 65, who's married, who's got, you know, no money towards retirement and needs to get there quick. Everybody's going to have a different path. You know, you've got to look at where you are in life. What are your goals? Are you looking to be an active investor or a passive investor? So active investor, we call it investor, but is flipping houses really investing? No, it's kind of, like I said, it's a job. You're not investing.

I think actual investing is just buy and hold. That's investing, right? Otherwise, you're flipping. You're trading. You're like a day trader. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up.

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to do it with a business plan and no money. So I guess the question I got for you, Josh, is how do people, if you don't have a large down payment, is there any tricks? Is there any hacks for being able to get into the real estate business without having that large down payment? Well, I'm going to plug a book. I will plug a book later. But there's no trick. There's no secrets in real estate. And again, anyone who says there are runaway. Do not listen to that person. There's really, there are no secrets. I'd say I'm going to answer it by not answering it. No, I'm not going to do that this time. If you don't have money, you need to get money. I mean, that's one answer.

And I do believe in it. If you are dead broke, you're dead broke for reason. And the odds are, you're probably. not in a good position to become a real estate investor. Get your financial house in order. And at that point, you're probably better positioned to get into the game. If you're flat broke, the odds of being successful in real estate are slim. There are strategies where you can invest with no to little money.

but you need to have money in order to do it. So you can invest with, you can invest with no money, but that doesn't mean you can do it without having any money. If that makes sense, there was a distinction there, right? And let me explain.

So there's a strategy called wholesaling. Holesaling, you're flipping contracts on properties. essentially to put it briefly. You go, you lock up a property and you you sell that contract to somebody else who then closes on the property and you make a cut. You make a, it's illegal in some places. You know, I'm not going to say where it's legal, where it's illegal. It's up to the investor to, you know, do their homework, talk to their lawyer.

But it's a strategy. Now, so if I can go, I can lock up a property and then sell the contract, I can make that split. This is called a wholesale. but I'm never going to get that property without having any money because I've got to go and do marketing. I've got to go and find that property. And to find that property, it costs time, time, money, hustle, whatever it costs, you got to get that property. Same applies for like buying holds and flips and things like that. There are ways to get acquire properties with no to little cash, but at the end of the day, you need some cash to be able at least to kind of get the ball going.

One of the strategies that we talk about, well, first off, and so with that in mind, if you don't have money and you want to get into real estate, get a job in real estate. Get a job, J-O-B in the field that you want to ultimately kind of spend your life in and do that. So become a real estate agent, become a contractor, become an appraiser, you know, get a job that pays you money. and when you have money, you can then go and invest it. Go ahead. I think that's fantastic advice. I mean, that's exactly, you know, if you don't have any money, get involved in what your interest is.

And that's a form of investing in itself. Or go out and read, you know, Josh's book or read other people's books on investing or in real estate. And whenever you're doing this, you might not be able to accumulate real cash or real returns. But that knowledge is planting a seed. And what you're doing is you're able to warp your stuff. yourself into a position that whenever you do have the cash to invest, you already know what to do because you've invested the time to understand it and to learn and to have that foundation,

that knowledge base, to act upon. Yeah, absolutely. And so, you know, there's various ways to invest with, quote, no money. You know, you can work with partners. You can get harder private money, wholesaling, things like that. I want to talk about partners because I think it's one of the more viable ways to do it. So you Preston are broke and Stig there is loaded, as we know. He's got the fancy shirt on, you know, we can't compete with him. And so you Preston say, you know what? I want to do some deals.

And Stig's like, yeah, you know what? I also want to do deals. I've got some cash sitting on the side. And you pressed and say, I have nothing. I'm dead broke, but I've got time. So you say Stig, let's cut a deal. I'm going to hustle. I'm going to find the deal.

You're going to finance it. And we're going to split the profits. So you guys work together as a team. You take one part. He takes the other part. And suddenly you've got this deal. You're not making, Stig wasn't going to buy the deal anyway before you because he didn't have the time to go and find it.

You weren't going to buy it. because you're broke. And now working together, you guys both get about a half of a deal, but a half of a deal is better than no deal at all. And so now you just went with no money, partnered with Stig, and walked away with a deal.

So that's a great way of going. The problem with that is Stig doesn't trust you because you've never proven yourself. This sounds so familiar. It does. I hear the story all the time. Let me tell you, stick requires a whole lot more equity than 50%.

but so so what what do you do you know that's something working with partners as you become established is a really great way to to build a portfolio the problem is how do you get that first deal done and what a lot of people do if they're in a good position they have family potentially that has some money the family trust them probably shouldn't have it gives them money and they do a deal friends, things like that. That's one way to go. And again, that'll help you build your track record of success. And then you kind of can go from there and move forward.

I'm real curious. Have you ever seen a relationship like that build on your forum? All the time. Really? On a daily basis. Wow. On a daily basis. Yep.

And I'll brag about our site. I mean, it's amazing. Our site went from a place where people go to, to learn to a place where people go to learn. And because people go and invest their time and share their knowledge on this platform, they build their own brand. They build their own name. They build trust.

I know that you know what the hell you're talking about. So when you say, hey, guys, I found this great deal. You share the deal. You share the numbers. And you say, I'm looking for some partners.

I'm tapped out. All my cash is deployed to these six other deals that I've got. I'm out of cash. I'm going to say, you know what, look at this. Okay, these numbers look good. Let's find a way to work together. And yeah, it happens all the time. It's amazing.

I'm astonished that I built something that is helping so many people do business. And, yeah, it happens all the time. So, Josh, now we speak on this, could you recommend any resource if people out there listening and they're really thinking, I want to dig into real estate. That might be the right thing for me. Do you have any resource that you can recommend to people? Any books, perhaps, or websites?

So, I mean, that's like, you know, give me, give me like a ball on a t-ball stand and let me get my big league slugger and whack it out of the park here. I mean, bigger pockets, obviously, is the site to go to the bigger pockets podcast is the podcast. I mean, we've written, we wrote a, we wrote the book on flipping houses. It's literally, it is the book on flipping houses.

It's on Amazon. We've got the book on estimating rehab costs, which kind of pairs with the book on flipping houses. And we also wrote the ultimate beginner's guide we talked about. And then the book on no and low money investing. We've written all three. We've got more books coming. That's just me plugging and being, you know, really greedy here. So I apologize.

We're on a money show. I've got to be a little greedy. but more like the books that have played a role for me. Yeah, what books influenced you in the real estate arena? The book that influenced me was Rich Dad, Rich Dad, Poor Dad. It influenced me in so much as that it opened my eyes to the fact that real estate was kind of a great means for wealth building. I'd say one of the books that I'd say the book that really got me

kind of hyped up on finance and personal finance was the richest man in Babylon have you guys read that? I have not read that one. It's, you know, I think it's a great book and by that I mean like the first three minutes

but it's so tedious to read. Like the language is so old. What's wrong with old people, man? Come on. I think it's just like, wow, really? No, sorry about that. It's a bunch of parables, right? It's, it's, it's, it's this, the story of, you know, this, it talks about, for, for me, I love it because it's, it's these different ways of thinking about, um, saving and making money.

And, and, you know, it's written, it's like a Babylonian parable or something like that. You know, I'm, I'm going to be completely misquoted here, but, um, the thing was great. And let's just leave it at that. That was amazing. For me, also on real estate was the Forbes list. Looking at the richest people list, I would always dig through that when I was a kid and look at like, how are people making money? And if it wasn't inherited and if it wasn't made through, you know, some unicorn where you're suddenly a billionaire, a lot of those folks made their money in real estate. And so it wasn't a book, but it was kind of seeing these people who are the,

the wealthiest people on the planet. And seeing that many of them had a path that started with real estate was inspiring. And we talked about earlier, you know, a lot of people's pathways vary. You know, they start with single family homes and move up to multis and the multies to the next, to the next, to the next. And I've interviewed and talked to so many investors who are extremely successful and watching that growth for somebody who wants to. to be full time and really build well through real estate is fascinating and it's possible.

And it all comes down to having a strong knowledge base, doing your homework, working hard, being patient. There's no get rich quick in real estate. There's no get rich quick in real estate. And there's no get rich quick in real estate. I mean, no matter what somebody's going to try and sell you, that's not true. You know, it's play the long game. You know, Josh, it seems like for the person who is starting out and maybe wanting to do it for the first time, they need to be even extra conservative with the prices that they might pay and their analysis because they're just going to make those amateur mistakes.

They're not going to make the guy who's been doing it for 10, 20 years who knows already the mistakes he's going to make or potentially make on the deal. You don't have that knowledge base to pull from. So it seems like, you know, reading the books that you've put out there, some of these other resources that you're talking about, definitely your forum would be a great place for people to try to catch up and maybe have a little bit of that experience before they, you know, maybe step into this and try it for the first time. But, you know, our audience knows that we don't bring somebody on the show that's not an absolute expert on what they do. And I think it's a testament to you. And we'll definitely have all the links to your forum, to your books in our show notes that people can. pull that up and reference it. And folks, we can't encourage you enough to go to Josh's site because you can tell from this interview, he's a very genuine person. He's somebody who's trying

to put out good information that is going to help you oppose to force feeding you down a path that might not be right for you. So I think everyone could absolutely see that from our interview, Josh. And we can't thank you enough for coming on our show. This has been such a fun interview. And we really appreciated the conversation we had before we started recording. Thanks. Thanks. Yeah, I really appreciate the opportunity. Stig. I hope I didn't beat you up too much. I loved it. Yeah. And as you said, for somebody who's looking to start out, just be smart. Be careful. I would, if there's folks out there who I believe prey on new real estate investors, there's nothing worse than losing money.

in real estate. It's really, it's heartbreaking. It's really a challenge. And even, listen, even experience people do bad deals, but it's really easy when you're new to mess up. And so I encourage people before they jump in, be smart, do your homework, do your research, take the time to map out your path, to draw a plan and do it. We as a financial media, you know, I consider you guys, you are the financial media, right? You and all the shows on TV and the magazines, I'm happy you have me here because I think it's great to get exposure for people

so that they can better understand that real estate does make sense, but you just have to be smart about it. And I wish everybody who's listening to luck and they can reach out to me through bigger pockets if they've got questions. And you guys are rocking it. You guys are doing such a great job.

And thank you. Great having you on the show. Thank you so much. It's a pleasure, guys. Okay, so this is the point in the show where we take a question from our audience, and this question comes from Charlie Leske, and here's what he's got for us. Hey, Preston, hey, Stig. This is Charlie Leske from British Columbia.

A big fan of the show. I've been listening to it every day on the way to work, and please keep it up. I had a few, well, I've got a lot of questions, but the two that I wanted to ask right now, currently I use FinViz as a stock screener for equities, just trying to do some general research and looking at companies' backgrounds. And mostly they have U.S. equities. I live in Canada, and I would like to have some Canadian equities

in my portfolio eventually. Can you recommend any free stock screeners out there that are similar to FinViz having a lot of different criteria that we can use for free that will also have a lot of the Canadian equities? and my second question is are there any free websites out there that offer, you know, a background of financials, you know, up to 10 years for all the different companies out there that you don't have to pay a membership fee to because a lot of the ones that I've looked at, they want to charge you an annual fee and me being a starting investor. You know, that's not something that I want to do at the moment. So if you could answer that, that would be fantastic. And I would also like to say thank you to Stig. I did send in a question earlier last week, and even though I did not make it on the show, he was nice enough to respond to me, which I really do appreciate.

So thanks, guys, keep it up. Look forward to hearing from you. Thanks. All right, Charlie. Great question, and Stig's going to go ahead and answer this one for us. Yeah, so Charlie, first of all, hey, thanks for reaching out. We always appreciate getting a lot of questions. I think one of the most public questions is the one we have about stock screeners.

And, you know, I'm not really endorsing anything, but I do want to say that the one on Google is completely free. So you can just Google stock screen around, I'm pretty sure it's the top one. And I really like it, probably because it's free, but it also covers all of the major exchanges. For instance, the Canadian equities. So I just pulled it up before the show, and there was close to 6,000 stocks in there. So I'm not completely sure how many listed companies are in Canada. that, but that seems like it covers a lot of them. And yeah, and there's plenty of criteria that you could put in there.

So that's probably the one that I would like to, if not recommend, then just say, hey, that's an option. I don't know about the second one, Preston, if you have a favorite resource that you go to. So I personally use Morningstar. I like Morningstar. I have a paid account with Morningstar. I don't necessarily know that that's something that everyone should get. The thing that I like about the paid subscription with Morningstar is you get access to their certified financial analysts that write about particular picks. One of the things, I guess this is one of my complaints with Morningstar is that they don't have every single major company listed under that paid subscription, which you think that they would.

They've got a lot. Don't get me wrong. But there's some that I do pull up that there's no analysis to. I particularly use that, not necessarily for the estimate that they give, like their intrinsic value estimate, which, they do give with the paid account. But I look at it more for the use of identifying risks with the company. Those certified financial analysts will list out what they think that the potential risks with the companies are. And a lot of the times I find myself reading some of these risks that I did not identify myself. And so I find that very helpful for trying to mitigate what could

potentially go wrong with the pick. So that's what I personally use. I think there's other tools out there. I know if you have a Fidelity account that sometimes they have free types of financial analysts reports that come with that, depending on what dollar threshold you got, but there's a bunch of different ones out there. I also like Morningstar because I feel like it's kind of an unbiased opinion. Like there's nobody that's trying to sell me some brokerage account through Morningstar, and I think that that's an advantage. But that's what I personally use. Yeah, I use Morningstar too, and I think the free service is great. There's a few things that is not covered.

So, for instance, I like to look at the last 10 years, as you're saying, but it only shows the last five years for financial statements. So that's just one drawback. But it is showing you 10 years for all the major key ratios. So I think that's sufficient. Like if you have 10 years, you have a pretty good picture of the company. And then if you like the company, then you will go and read their annual reports. But you would go read the annual reports anyway, even though if you had a page description,

But I do completely agree with that. We're present about the qualitative criteria that you can find in the analyst reports. Now, it is not so that you can find them in articles, you know, on Seekin Alpha, which is completely free. But I think it's really nice because it's short, so it saves me a lot of time, and it's usually very concise the information that's in there. So it's not information again that you can't find elsewhere. It's really just a time saver, I guess. I guess the reason I like that, too, is I can see everything's,

organized in the same manner. So if I pull up a company like IBM and then I'm comparing it to Microsoft or to Google or whatever, it's laid out in the same exact manner so I can kind of compare apples to apples as I'm looking across the industry where if you're using like some free seeking alpha, you're going to read some random article by some person that you don't even know what their credentials are. And they might be talking about something that's just random down in the weeds, only going to impact the company by one or two percent if something would fail. Like you're not hitting those big nuggets where I think with the Morningstar account, I'm actually getting that. So maybe I'm biased, but that's what I'm using.

Yeah, and just for a fine disclosure, I know we're talking a lot about Morningstar. Before that, I used Emerson Money, but it's not like we affiliated within those sites. So it's not really what we're pushing again. Morningstar is not trailing to sell us anything. Even though we had a few amazing guests from Morningstar on, it's not like we are in a cooperation with them at all. So that's all we got for you guys today. we really want to thank Josh for coming on the show. I mean, he just gave a fantastic interview with the information that he has on real estate. And if you guys haven't checked out his site, you definitely need to go there and look at that if you're interested in investing in real estate. So that's all we have for you today and we'll see you guys next week.

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