What Is The Best Strategy For Investing In Real Estate?

[00:00] Dave, do you have a formula or percentage? Like in that scenario, if someone was going to do both, where they were going to do some real estate and some just putting in an investment,

[00:14] do you have any kind of percentage or just whatever you're comfortable with, whatever you're interested in? Just whatever you're comfortable with. Mine has resulted in being much heavier real estate. Yeah, because you love real estate. A, I love real estate, but the other thing that happened was 2008.

[00:28] Yeah. So I bought like about $200 million worth of real estate in 2008 for about $20 million. Wow. About 10 cents on the dollar. Real estate was just a, it was on sales, on fire sales.

[00:41] Yeah. So consequently, my net worth is lopsided just from the fact that I got, that I stole that stuff. Right, right. And that changed it. But so even more so than just investing steadily into it.

[00:54] I just caught that wave, the best wave of my entire 60-year life in terms of the market being way down. And it was really good for people who had money to buy stuff while it was way down. And then we've developed these properties that our offices are in.

[01:11] And they're very expensive, too. So I've got those two things that's caused mine to be very heavy real estate. You certainly would not want to do that if you don't want to deal with tenants. yeah and in my case we've got uh Rachel's husband Winston as you know runs all of our uh property

[01:24] management and our development and all that uh and so I'm blessed that I have Winston and a company that manages a real estate company that does that for me day to day so that takes a lot of hassle off of me personally yeah uh I not over trying to make sure the heat and air is getting fixed on a house or something I not because I got to run this place And so but anyway all that to say that when you first starting you know you can change the ratio back and forth

[01:51] You could get into real estate and go, I don't like it. Yeah. And move back towards mutual funds or vice versa. Let's talk about this real estate thing. Because I'm thinking there's probably people listening right now that they may be in that spot where they are ready. They've maxed everything out, and they want to get into real estate,

[02:04] but they've never done it before other than their own home that they've paid off. And they're looking to save up and pay cash for their first piece of real estate. Do you have any advice for them? Like, hey, you've got to do this. You're just getting into it. Here's what you need to know from someone who's done it.

[02:18] Things to look out for, that type of thing. Yeah. The cheaper the property, the better the rate of return typically is, and the higher the hassle factor.

[02:30] Interesting. So you can buy lower income stuff in that end of town that your ROI, your math on it is really sweet. Okay. But your ROI on your time is not.

[02:43] It's quite the opposite. Yeah. So on the other end of the spectrum is like credit commercial real estate. So if you've got a household name as a tenant, or let's even go further, the post office wants you to do a build a suit on a commercial.

[02:57] So the post office is your tenant, the federal government. Right. Well, that's kind of like automatic. Right. You're going to get your check, right? You don't have to worry about the collections. And it's a 50-year lease. It's kind of just becomes, you just go to the mailbox, open it, there it is, and there's your money.

[03:11] But your rate of return is way down Gotcha They don give much of a cap rate much of a rate of return on that So like a Walgreens there a lot of Walgreens Walgreens doesn buy those properties They do

[03:23] build the suits and they get investors. But Walgreens is a credit tenant, meaning that you can actually take that contract to the bank and borrow against it. It's that strong. Wow. But on that end of the spectrum, that's the least hassle. And so kind of in the middle is like

[03:39] just regular offices or apartments and then on down a little bit. It's just a nice single family home. You're not going to make as much on that, but you also are dealing with a little different class of person typically and how you're going to interact with them and the hassle factor goes down.

[03:52] So that's thing one. Thing two would be your money is made at the buy. And what happens on almost all of us, including me, on our very first investment property, we get really excited about being an investor.

[04:06] Yeah. And you pay too much. You pay too much. You should always buy investment properties at a discount. You should never pay appraisal, ever. And in a market like today, that sidelines you.

[04:19] Right. It's very difficult. You don't have a chance. Very difficult to find deals today. It's quite the opposite of 2008. And so, but if you buy a $200,000 property for $200,000, it's a little tougher to get your ROI on it.

[04:32] But if you can pick up that $200,000 property for $150,000, now you've got that built-in 50 to start with, And you're going to always not only have the appreciation, but then your rents, your rate of return on that $150,000. Because your rents aren't based on what you paid for it.

[04:45] They're based on what it's worth. Right. Right. All right. That makes sense. A house rents for the same whether you got a mortgage on it whether you don whether you paid for it or whether you paid for it It still rents for the same amount Yeah And so your rate of return on your rents and everything is changed by the monies made at the buy

[05:03] which requires this most difficult thing in real estate, and that's patience. And you're just shopping and shopping, and you're not emotionally involved, and you're looking for a deal. We're not trying to hurt anybody's feelings. We're not trying to rip anybody off. But I just don't put money in stuff unless it's a deal.

[05:15] Yeah. And I own— Because that's why you're doing it, is to make money. That's why you're doing it. If you remember that, that's going to help you resist that temptation to overpay. This is a mathematical transaction. Right. Nothing else.

[05:27] Right. But there's something about real estate that's just very emotional for all of us. Even if you're not going to live there. The first house I flipped, I made $800 on. Wow. Translation, I almost lost money. Yeah. Yeah.

[05:39] If I hadn't crawled around under the stinking house and put the pipes in myself, I would have lost money. Lost money. So I didn't even make my labor back. Yeah. You know, I probably made a buck an hour on working on the stupid thing, right, on my labor and didn't make a dime as an investor.

[05:52] So that's unwise. But I was all excited. I had to buy it. And I thought it was a HUD foreclosure. I thought because it said foreclosure on it, it meant deal. I didn't think that. But something in my emotions said, oh, it's a foreclosure.

[06:07] It justified it for you. It's got to have some work. I got to work on it. It's got to need some fixing up. It's a fixer upper. But I paid stinking, obviously, full price for it almost. Yeah. because it took 90 days to sell the stinking thing. It didn't sell super fast, and I had to work on it,

[06:21] and I barely got out even with my own labor in it for free. Yeah. So that's all about I was excited to be a real estate investor. Now, granted, I was 21 years old too. Sure. But still, that's the mistake that beginners make.

[06:34] Yeah. That's a good discussion. Good.