Zero to One: How to Get Started in Real Estate Investing
On this episode, sponsored by Insuring Income, Nate Hedrick and David Bright, co-hosts of the YFP Real Estate Investing Podcast, share their top tips and strategies for getting started in real estate investing.
Episode Summary
The concept of real estate investment can be so broad, with many different avenues you can choose to take, that getting started can feel like a daunting task. One key concept to ensure that you can weather the storms that may come when investing in real estate is to, first and foremost, get your own financial house in order. By building a firm financial foundation, risk-averse pharmacist real estate investors can be more confident with the ups and downs in this ever-changing market. This week, YFP Co-Founder & CEO, Tim Ulbrich, PharmD, welcomes David Bright and Nate Hedrick, co-hosts of the YFP Real Estate Investing Podcast, back to the show. Top moments from the episode include David discussing the main categories of real estate investing and why he and Nate have favored buy and hold investment strategies. You will also hear a frank discussion on the individuals you should consider surrounding yourself with as a part of your real estate investing team, plus a few strategies for finding and evaluating an investment property. Nate and David also take a few moments to answer some frequently asked questions about real estate investing for those getting started in their real estate investing journey.
Key Points From This Episode
- An update from David and Nate regarding their coaching program.
- The importance of having a strong personal financial foundation.
- How to break down real estate investing.
- Categories best suited for first-time investors.
- Nate shares the team aspect of real estate investing to bring down the stress and reduce the barriers to entry.
- Where to find a good investment property: off-market.
- The importance of being able to define and state your criteria to a real estate agent.
- Using math to evaluate an investment and what that looks like; setting up categories.
- FAQs you’ll hear when starting in real estate investing.
Highlights
“Getting your [own] financial house in order, [is] such a critical first step before you go on that journey to invest in real estate.” — Tim Ulbrich, PharmD [0:05:34]
“Having a firm financial foundation beneath you means that you can weather some of those storms and deal with some of those ups and downs of real estate.” — David Bright, PharmD, MBA, BCACP, FAPhA, FCCP [0:07:13]
“We’re investing in houses that are far enough away that we’re not going there and we’re not in that day to day aspect of the investing, which is really helpful when you work a full-time pharmacist job and you don’t want to be distracted by your real estate investing.” — David Bright, PharmD, MBA, BCACP, FAPhA, FCCP [0:22:02]
“To be considered a good investment property, it needs to pay for itself every single year, year in and year out, and put money back in your pocket. Running [those] numbers is important and not just looking at the simple things but truly diving into the details.” — Nate Hedrick, PharmD [0:24:30]
Links Mentioned in Today’s Episode
- YFP Real Estate Investing Podcast
- YFP Planning: Financial Planning for Pharmacists
- Schedule a free Discovery Call with YFP Planning
- Insuring Income: Get Quotes and Apply for Term Life and Disability Insurance
- None to One Group Coaching Program
- YFP 241: The Top 5 Objections to Investing in Real Estate
- YFP 212: Checklist for Building a Strong Financial Foundation
- YFP Real Estate Investing 46: Building a Family Business Around Motel Hacking
- Download a FREE copy of the YFP Property Analysis Spreadsheet for Pharmacist Real Estate Investors
- YFP Real Estate Investing 50: Deep Dive Into Spreadsheet Analysis
- Join the YFP Real Estate Investing Facebook Group
- Your Financial Pharmacist Disclaimer and Disclosures
Episode Transcript
[INTRODUCTION]
[0:00:00.4] TU: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.
This week, I had a chance to welcome back onto the show, David Bright and Nate Hedrick, co-hosts of the YFP Real Estate Investing Podcast. During the interview, David, Nate, and I talk through zero to one, how to get started in real estate investing and make the hardest move, which is that first move.
Some of my favorite moments from the show include David talking to the main categories of real estate investing and why he and Nate have favored buy and hold investment strategies, a discussion on individuals you may consider surrounding yourself as a part of your team as you begin your real estate investing journey and strategies for finding and evaluating an investment property.
Make sure to hang with us to the end of the show when I ask David and Nate frequently asked questions for those getting started in their real estate investing journey. Now, one of the things that we talk about on today’s episode is why getting the financial house in order is such an important and crucial first step before diving into real estate investing.
That is a great opportunity to highlight what I think many folks may not be aware of, which is the incredible work that the team at YFP planning does and working one-on-one with more than 240 household in 40 plus states.
YFP planning offers fee-only, high touch financial planning that is customized to the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.
Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom.
Okay, let’s hear from today’s sponsor, and then we’ll jump into my interview with David and Nate.
This week’s podcast episode is brought to you by Insuring Income. Insuring Income is your source for all things term life insurance and owned occupation, disability insurance. Insuring Income has a relationship with America’s top-rated term life insurance and disability insurance companies so pharmacists like you can easily find the best solutions for your personal situation.
To better serve you, Insuring Income reviews all applicable carriers in the marketplace for your desired coverage, supports clients in all 50 states and make sure all of your questions get answered. To get quotes and apply for term life or disability insurance, see sample contracts from disability carriers or learn more about these topics, visit insuringincome.com/yourfinancialpharmacist. Again, that’s insuringincome.com/yourfinancialpharmacist.
[INTERVIEW]
[0:02:40.9] TU: David and Nate, welcome back to the show.
[0:02:43.8] DB: Hey Tim, always great to be here.
[0:02:45.7] NH: Yeah, thanks so much.
[0:02:46.8] TU: First of all guys, congratulations on the work that you’ve been doing with the YFP Real Estate Investing Podcast. You’ve crossed the 50 episode threshold, which is really an incredible accomplishment and I think it just speaks volume to the commitment of time and energy and effort that you guys have put in so thank you so much for that and it’s been fun to see the reception among the pharmacist community in terms of the focus here on real estate investing and the community of pharmacist and I think that’s a good segue.
I’d love to hear from you guys, just for a moment, an update on what you’ve been up to. When we talked last at the turn of the year, you guys were just getting started with the none to one group coaching program to help folks begin their journey in real estate investing. So, David, Nate, we’d love to hear the update of how that course has gone and what you’ve been seeing.
[0:03:34.7] NH: Yeah, we had a ton of success with that. It’s been really fun to bring together this group of pharmacist that are really eager to buy their first investment property. We actually ended up taking on 10 pharmacist and we are meeting every Sunday for the past two months now, David, and it’s been going really well. It’s a really cool class of individuals, it’s been a great time to talk to everybody and learn along with them, right?
We’re there to teach and kind of coach but at the same time, there’s always more that we can learn and so it’s been really interesting to have problems brought to us and we’re dealing with people all over the country, so it makes David and I expand our horizons a bit. It’s been really enjoyable.
[0:04:08.0] DB: Yeah, it’s also been a lot of fun to see the victories come out too, right? The problems are one thing and the problem solving is like inherent to pharmacist so we enjoy that, right? The victories are also a lot of fun seeing folks who get offers accepted and move through inspections and conquering that investing world has just been really inspiring to see other pharmacist jump into that and do that.
[0:04:27.0] TU: We’re excited to hopefully share more of those stories into the future and be able to offer that out to other pharmacists as well so we really appreciate you guys and the commitment you’re putting enough time, we’re recording here on a Monday, early morning, you guys are up last night with that group. I know it’s got energy and enthusiasm that you’re putting into it as well but it is an investment of time, so thank you guys so much for that work.
This is a follow-up to episode 241. We talked before and we’ll link to that in the show notes about some common objections and barriers to getting started in real estate investing and the idea with this episode is that for those that have worked through or are working through some of those objections and are ready to make the move, what should they be thinking about in terms of going from none to one, right? That hardest move that we often hear folks talk about in the real estate investing journey.
Let’s get started, I want to jump in and talk about the importance of having a strong personal financial foundation, it wouldn’t be a YFP podcast if we didn’t talk about that. Getting your financial house in order, such a critical first step before you go on that journey to invest in real estate. Let’s start there, Nate. Tell us more about why you and David emphasize this concept so often on the YFP Real Estate Investing Podcast as well as for your own personal journey why this has been so important.
[0:05:49.4] NH: Yeah, it’s something we reinforce all the time, right? Even the very speaking in the none to one, the very first half of the first class was all about, like, “Okay, you need to establish your own financial house and if you don’t then we need to take a pause and reset,” because without that, right? Nothing else can really track from there, right? We need to make sure that our own financial house is in a state where we can feel comfortable investing and that that investment decision is not going to be make or break, right?
We are very risk-averse, safety-oriented pharmacists as David and I like to say and with that, comes the concept that you need to be in a position where if things don’t work out perfectly, you’re going to be just fine financially. These are decisions we’re making not in a do or die situation, right? We’re trying to buy these properties or invest in a way that it supplements our financial plan, rather than, is the make or break piece of it.
[0:06:39.3] DB: Yeah, and there’s a lot of just potential instability or seeming instability in terms of real estate investing versus a lot of other types of investing. Kind of like in your personal budget, if you’re saving up for a car, you might be putting away money every month and eventually that car happens. There’s same kind of thing with the real estate investment if you may need to save monthly for a roof replacement or save monthly for furnace placement that’s coming at some point though those kind of things maybe a little harder to plan for.
So those evictions, late rent, there’s just a lot more instability and so having a firm financial foundation beneath you, means that you can weather some of those storms and deal with some of those ups and downs of real estate, knowing that in no month is it ever coming out perfect, that all of the bills just perfectly line up but over time, hopefully, the average is added to something and ends up being a good investment.
[0:07:29.4] TU: There’s lots to dig into of course in that topic, in that umbrella, building a strong financial foundation, we’re not going to do that here today because that’s what we do every week on the show but I would point folks to episode 212 where I talk through some of the components of building a strong financial foundation, what does that exactly mean and why is that so important as you begin your real estate investing journey.
We know that real estate investing is such a broad umbrella and I think that’s one of the things that you guys have done such a nice job on the YFP Real Estate Investing Podcast is really introducing folks to the variety of different ways that they could invest in real estate but I think that because it’s so wide and because there’s so many options, that can be intimidating for a new investor. So David, tell the us more about how you and Nate break down real estate investing and what categories might be easier for first time investors as they get started?
[0:08:21.3] DB: Yeah, there are plenty of different avenues for real estate investing, kind of like the professional pharmacy, many different ways that you could practice pharmacy. As far as real estate investing goes, Nate and I like to break this down into buy and hold real estate investing where you just buy something, you rent it out long term, or flipping real estate where you buy it, you may fix it up and you may quickly then sell it.
You could apply those terms to single-family houses or multi-family apartment buildings or storage units or vacation properties or so many different categories. Just to make things pretty simple and to stay with areas of investing where people have some general familiarity often times just from buying their own primary residence, we talk a lot about the single-family, buy and hold, long-term rental where you’re simply buying a house, presumably a lot like what you live in and renting that out to someone else so that that simplicity and the clarity of buying a single-family house seems to be one way that people can make an easier jump into real estate investing.
It seems just a lot less intimidating to go buy a single-family, three bed, one and a half bath house than it is to buy an apartment building or buy a strip mall or buy a storage unit complex or something like that, there’s ways to dial back the intimidation factor that way.
[0:09:40.8] NH: Yeah, at the same time, we got a lot of people that come to us and say, “You know, Nate, I want to buy a vacation rental anyway, tell me about the short-term rental thing, you know? Can we do that?” And so there are other ways to get more adventurous with it if that’s what you want to go, where you can buy a property that you can use on the weekends here and there for the rest of vacation property and then rent it out the rest of the year.
We also see people and we’ve talked to individuals that are house flippers or even wholesalers where you’re taking basically, a great deal putting some capital into it or maybe very little capital into it and then flipping it to someone else. There are lots of options out there and just like David said, it’s just as diverse as pharmacy, you can – the term real estate investing is so broad, there’s so many different avenues you can walk down.
[0:10:18.0] TU: Yeah, for folks who haven’t yet listened to the many great stories on the real estate investing podcast, this is one of the areas that I love that you guys have done. I think really focused intently on the buy and hold strategy, David, for the reasons that you’d mentioned but you’ve also featured and then sprinkled some other areas to show the diversity that can be there, you know?
I’m thinking about the recent episode 46 where you had on Stuart and Elizabeth talking about motel hacking. I know you’ve had a couple of folks talking about short-term rentals so certainly, a lot of buy and hold, more of that traditional investing stories but other avenues that folks maybe thinking about as well. Now, I’ve heard you both talk a lot about the team aspect of real estate investing as a way to bring down the stress, reduce the barriers to entry.
Nate, do you mean investing in partnerships when you talk about the team, finding a mentor or something else altogether?
[0:11:06.8] NH: Yeah, it’s kind of a little bit of everything right? There’s nothing wrong with a partnership or a mentor but a lot of times, we focus on just building this team around yourself that can help and it can be something as simple as the YFP community, right? As part of your team, you’ve got people that are helping you out, supporting you in those decisions, helping make things just a little bit less stressful but really, truly, that team that surrounds you, starts with a good real estate agent.
Someone that has your fiduciary interest and making sure that you’re going to be successful and really, as that starts to expand, then your team can expand as well. You know, when we talk about building a team, it sounds really intimidating and so we really try to focus more on starting with really good core individuals around you and then expanding from there and then as you build your confidence and as you start to expand what your kind of projects you’re able to take on.
[0:11:50.3] DB: Yeah, that’s absolutely how we guys started to, we started with the realtor from our own investing and that realtor helped us, the first property that we bought, we needed someone that new plumbing because there’s a plumbing issue so I asked the realtor for a contact for a plumber, the realtor offered us a few different contacts, we were able to find a plumber. From there, we needed someone that could do dry wall, we reached out to the realtor.
And so, our team grew very organically just in terms of reaching out to that realtor, even when it came to an insurance agent or a property manager, those connections all happened just from that initial networking through that initial realtor and then contacts from contacts and going from there.
Even like Nate mentioned on the Facebook group, online connections, online networking, other local real estate meetups, we were able to over time add a book keeper and a tax accountant an attorney and lenders and other folks from there so you know, absolutely, that can sound intimidating on the front end of this enormous team that feels like is necessary when you listen to podcast and read books but for us, it just started out with a realtor and one foot in front of the other. Finding one contractor at a time as we needed people on our team growing that organically.
[0:13:01.6] TU: Love the simplicity of that, David. I’ve heard you and Nate mentioned that before as I think folks often hear stories of investors that have been at this for several years and they’ve got that team, right? They’ve got contractors, they’ve got insurance agents, they’ve got property managers, they’ve got, on the financial side where there’s bookkeeping, individual financial planning, tax side, they got attorneys, they’ve got a team that has really been built over time but they didn’t start there and so I think that step of my team and having that team in place can often paralyze folks if that’s something that they don’g think — maybe I can start with one individual, what if I start with a really good realtor that can help me take that step forward, that’s feasible, that’s manageable and then I can build my team out over time.
If I’m listening and I’ve narrowed down the type of real estate investing, let’s say I’ve determined what type is a good fit for me at least to get started, I thought a little bit about the team or finding that agent who is going to help me overtime, build out that team. The next question I think that comes to mind, especially in the current market is, where does one find a good investment property? Am I leaning on my team here, am I doing my own search on Zillow? Nate, what are your thoughts here?
[0:14:11.2] NH: Yeah, I think it’s a common question we get and I think the misconception that comes to us often is, the only way to find a good investment property deal is off-market because especially if you listen to some of the bigger players, people that are doing this for a long time, they find some of their best deals off-market but that’s not the only place to find them and so I think, again, that’s another intimidation factor that David and I really focused on dispelling is that there are absolutely deals that you can find on Zillow on the MLS or your real estate agent, you can go off-market and there’s advantages and disadvantages to doing that but you don’t have to.
Even something as simple as connecting with a good agent, getting an MLS, auto email setup and what I mean by that is, you put your criteria and your budget into the system and every morning, you’re going to get an email that says, “Here are the houses that meet your criteria,” and starting to understand your market, you’d be surprised at how quickly you’ll start to find a deal because now, you know everything in that market and so when a property pops up, now all of a sudden, you know, “Yeah, that one’s worth looking at” or “No, we can skip it, that’s not worth our time.” It just makes that deal-finding so much easier.
We were actually just talking about this last night on the none to one course about an individual that’s like, “I know there’s exactly 10 duplexes available in this particular area when the 11th one pops up, I know what to do in terms of whether or not it’s worth offering on” and that is how you really understand the market and when a good investment property comes along, you can really take action on it.
[0:15:29.4] DB: Yeah, I think that’s really important. One of the things that Nate, that you said there was the word criteria. I think that that makes it so helpful for a real estate agent that you’re working with when you define, we need to say, I’m looking for a great investment property, the realtor in the other side there is like, “What precisely do you mean? What am I looking out for you?”
That can be really puzzling but if you’re saying that, “I’m looking for a duplex between this street and this street, around this school” when you can be that clear. “At this price point, I want one half to be vacant, one half to be tenanted because I want to move in and house hack.”
Whatever those criteria are, the more precise and specific that you can get for that real estate agent, the easier it will be to find a search, even if there are only 10 on the market right now in that example, it’s so much easier to identify that when it pops up and to jump quickly, which is a big thing in this market is not falling into analysis paralysis once you see that opportunity but being ready to jump on that when it shows it face.
[0:16:29.3] TU: Yeah, speaking of analysis paralysis, you know, I think that pharmacists, it’s safe to say are very numbers-oriented and so when I hear you guys talk about like criteria and is it worth it, I am sure that many would be relieved if there is a sure-fire way to run numbers, identify if an investment is a good one or not and so you guys just released episode 50 where you talked about a spreadsheet analysis.
That brings comfort to me as a pharmacist, right? I can put numbers into the spreadsheet and that can at least help guide me. Tell me a little bit about how someone can use math to evaluate an investment and what that looks like?
[0:17:02.7] DB: Yeah, the math I think sounds intimidating right? When we talk about math pharmacist think like amino glycosides and it gets really complex in a hurry but when we talk about math in the real estate standpoint, it is relatively simple compared to what we do in the pharmacy world.
There is a common misconception that as long as the rent is higher than the mortgage payment, I will be making money and I feel like that is one of the key drivers behind the episode that we had to walk through the numbers and what are the other expenses that you may not be anticipating but they factor in.
So things like paying a property manager, if you choose to not self-manage the property or paying for those repairs and those larger expenses like we mentioned the roof and the furnace and things like that that if you own the property long enough, you will have to replace those things and setting aside money for that.
There are a lot of other smaller expenses that are easier to overlook and so again, that’s kind of the driver of setting up that spreadsheet and not just setting that up to make sure that those categories are captured but also setting that up with some notes in there to make sure that the information going in is good.
If you have your estimates wrong on each of those categories, it’s going to be a garbage in garbage out kind of analysis and it will be hard to trust those numbers, so we try to spend some time in that episode to talk through what are those categories, how might you estimate those, how would you get a little more precise in that math so that you have a better idea of how you might expect that property to perform from an investing standpoint.
[0:18:33.2] NH: Yeah, really good point David about the numbers and not getting too lost in the spreadsheet. It is important to use and it’s a great way to start using math to evaluate a property but you’d be surprised the amount of things that you can catch that don’t have to do with math, right? Maybe the property you’re looking at is on the same street as another one that you like or another one you are comparing it to but it just so happens to be right across the school district line.
So now, it’s not the same school district, which means it affects the property value or it affects the rent rate and so there is all these little nuances that can go along with it, and again, that’s where your team can kind of come in and help you out. Again, relying on that real estate agent, relying on maybe a property manager to help with rent rates and just taking a double look at things, once you’ve done the analysis to make sure that it actually marches out in real life.
If you are interested too, I don’t think we’ve dropped this here but I would mention in episode 50, we actually put together that spreadsheet that you can download yourself. If you head over to yourfinancialpharmacist.com/analysis, you can download that spreadsheet for free. A great way to again, run the numbers the same way that David and I do.
[0:19:25.8] TU: Awesome, thank you guys so much for putting that together. Again, yourfinancialpharmacist.com/analysis, we’ll link to that in the show notes. All right, so we’ve talked about several things so far. We have talked about the importance of having a strong personal financial foundation before we jump into real estate investment. We’ve talked about the different categories, the aspect of forming the team, and how you potentially find and evaluate an investment property.
Let’s transition to some common FAQs that you all hear from folks that are getting started in real estate investing. David, the first one here is, “Can I only invest close to where I live? Don’t I need to see the house before I buy and drive by the house regularly?” this concept of investing in my backyard or perhaps, is there an opportunity to invest at a distance?
[0:20:11.5] DB: Yeah, it’s a great question, one that we hear often and it has come up quite a few times in the none to one course particularly when we are talking with pharmacists that live in really pricey markets where it just feels intimidating to try to buy in that area compared to for instance the Midwest where Nate and I live and where properties are much more affordable than something on one of the coast.
I think the short answer is you don’t have to invest where you live. It may be less intimidating to invest or to go through your first investment process close to you and that is something that I did personally. We bought a house that was very close that I drove past on my way to work and so it was just very simple to keep an eye on that and to feel that kind of sense of security until I started doing that and realized like really not bringing a lot of value to this.
When I walk a property compared to when a contractor or realtor walks a property, they see a lot more than I see. When I drive by that house, I’m like, “Well, it is still there, it hasn’t burned down” I mean, there’s not really a lot of value that I brought to that so we started overtime in an area about a 45-minute drive from where I live, which I know to a lot of people that’s a daily commute, right?
That is not super far but it’s the point where we’ll buy a house, there have been houses that I have not been inside or driven by because we just value that team so much and the team perspective that if the contractor has walked it, if the realtors walked it, if the property manager is on board, there’s again, just not a lot of value that I bring to that equation. Again, even though it is not far away, we’re investing in houses that are far enough away that we’re not going there and we’re not in that day to day aspect of the investing, which is really helpful when you work a full-time pharmacist job and you don’t want to be distracted by your real estate investing.
[0:22:04.2] NH: As someone that does both in state and out of state myself, I totally attest to that like the ones that are out of state are so nice because I don’t have to worry about them, and then the ones that are in-state, you end up doing what I did, which is spend pretty much my entire Saturday painting and demoing a basement this weekend, so you can fall into that trap pretty easily.
[0:22:21.4] TU: You beat me to it Nate, before we hit record you are talking about your time spent this weekend and I was just thinking about that in terms of being in your backyard. David, one of the stories that I remember you telling early, I can’t remember if it was snow removal or mowing the lawn but you had mentioned that itch. That hey, I drive by this property, I see it all the time and I maybe have a tendency to think like, “Ah maybe I don’t have to depend on the team. I could save a little bit of money if I just shoveled the snow myself” right?
Obviously as you build out a portfolio, as you have, and of course you’ve built out a team that has helped you but that risk, I guess if you call it that can be real when you see the property so often.
[0:22:56.2] DB: Oh absolutely, yeah. I have vivid terrible memories of like six in the morning standing there with a snow shovel because the house was halfway between where I live and where I work and I am like, “Oh, I could just do this real fast” and then my feet are soaking wet and freezing and all that kind of stuff, it’s like why did I just pay someone the five or ten dollars or whatever it would be to shovel this?
Why did I feel like that was a good use of my time at six in the morning? So yeah, with some of this stuff there is some healthy separation when you’re investing just far enough out that you aren’t tempted to go run and do these things yourself.
[0:23:30.3] TU: Nate, the second question here and David hit on this briefly but I want to come back to it is this idea of is it a good investment if the rent is more than the mortgage and what’s the potential trap in that and what are some things that folks could be looking for to help avoid that?
[0:23:44.9] NH: Yeah, I think this actually goes back to that spreadsheet we talked about was it is not just simple numbers of, “Okay, the rent is 1,500 and the mortgage is 1,200 so cool, I am cash flowing 300 bucks a month” like that is not actually how the math works, right? We need to figure out a lot of the other factors that go into it because this is again, it is truly a business. It is an investment and so it has to run itself and by that, I mean that the repairs take care of themselves.
In terms of cost, the capital expenditures, big things like a roof or a furnace that breaks, again, the investment should be paying for all of those, so when we run the math on what a good investment property is, it needs to pay for itself every single year, year in and year out and put money back in your pocket to be considered again, “a good investment property.” I think running those numbers is really important and not just looking at the simple things but truly diving into the details and even though it sounds complicated, you can do this in three minutes, right?
Running the back of the napkin math and then getting into the nitty-gritty details if everything checks out.
[0:24:40.1] DB: Yeah and we try to sneak into that spreadsheet a couple of things too like other rules of thumb that you can look at. For instance, you may expect that the overall rent about half of that rent may go to general expenses like your taxes, your insurance, your repairs, property management, some of those things and so again, if that rent starts looking pretty suspiciously close to the mortgage payment, I get nervous that that property is not going to create positive cash flow every month.
[0:25:09.1] TU: Next question David is, do I have to do major renovations to a property? I think that is one of the fears I know I had, I suspect many have is how handy do I have to be and obviously some of the financial things that can come to this as well. So talk to us through this question.
[0:25:24.9] DB: Yeah, it’s a great question because people that watch HGTV think that yeah, all of these investors that jump in and buy these houses, they spend hundreds of thousands of dollars on these extensive rehabs that take months and multiple crews and it just feels super intimidating. We bought a house late last year that already had a tenant in it. It had just been fixed up, it was a great house and we liked it for the simplicity of not having to do any kind of renovations to that property, so that’s definitely an option.
We’ve also bought houses where all we had to do was go in and do paint and flooring and for a few thousand dollars it was done. So you can do no renovations, you can do minimal renovations or if you want to, if you want to do a pretty extensive rehab, there is potentially more money to be made and you could argue it is a potentially better investment but it may take more time. If time is scarce in your pharmacy world, don’t feel like you have to do major renovations to a property to have a solid real estate investment.
[0:26:27.6] TU: Speaking of time Nate, you know I think one of the common questions that comes up is, do I have to work with a property manager? Could I save a little bit of money here and do this myself? Although recognizing that some time might be involved and invested here. Talk to us about that question of, do I have to work with a property manager?
[0:26:43.8] NH: Yeah and again, I’ll bring in my own experience to kind of speak to this. I manage our local properties myself and then the out of state ones, I absolutely push off to a property manager. I have a foot in both worlds and there are advantages and disadvantages to both. I like doing some of the property management here locally one, because of the cost savings but two, it helps me be a better manager of my property manager.
I know how I want things to operate. I am a very detail-oriented nerdy pharmacist, right? I know how I want it to run. I know what my expectations are and so I can put the same expectations on the property manager that I am hiring so it helps to do both but it is not for everybody. I think David and I talk to people all the time about individuals who quickly identify, “This is not for me” or “I always want to be have a hand in this, I want to be involved. I like talking to my tenants.”
It is across the spectrum, there is no wrong answer to this. I think a lot of it pans down to what do you want to do and how do you want to operate.
[0:27:35.0] DB: Yeah, even when it comes to the property manager I think one thing to consider is, what is your pharmacy job like? There are certain pharmacy jobs where you can be interrupted and take phone calls and manage things two minutes here, three minutes there and there is others where you just absolutely can’t and so for me, I didn’t want to be in a position where I had to take phone calls during the day, I wanted a property manager to create that separation but again, that’s not for everybody.
If you do want to be a little more hands-on, you want to see those things, you want to be able to manage a little more closely, that is not necessarily something that you need to do and you could potentially save money if you are willing to take on those property management tasks yourself.
[0:28:09.7] TU: David, last question I have here relates to financing. Nate and I recently did a home buying webinar. We also did a LinkedIn live session and it seems like one of the topics that has a lot of interest that relates to the pharmacist’s home loan products where there is either a low down payment or in some of the physician loan products are out there, a zero down payment.
So often, I think folks might be wondering as we translate that from primary residence to real estate investment properties, are there zero down or close to zero down payment options for investment properties or what does that look like?
[0:28:41.9] DB: The short answer is not really but kind of. So when it comes to real estate investing, if you are just going to go out and like I mentioned before, finding a property that already has a tenant in it that’s already fixed up, the lending options are mostly putting a pretty decent down payment, 20, 25% something like that down on a property like that. That is the most common type.
If you are trying to get into real estate investing with less money down, there are options that just take a little bit more creativity or finding a loan product that aren’t quite as common. What we did in our first rental is we bought a property that we thought would be a good rental someday and we moved into it and we lived there for a period and then when we were done with that property and we were ready to move on to another personal residence, we kept that original property.
So that is where if you’re buying a property to live in with a zero down payment or very low down payment mortgage, you can often times keep those properties as rentals when you move somewhere else. If you do zero down to move into it personally, two, three years later, you do zero down and move into something else and you retain that property, that can particular in the price of your market save you from that 20, 25% down payment that can feel kind of overwhelming to save up for, for a real estate investment standpoint.
[0:29:59.2] TU: Great stuff guys. We’ve covered a lot of ground in a short period of time and I would highly encourage folks if they aren’t yet tuning in to the YFP Real Estate Investing Podcast, each and every Saturday morning a new episode goes live, please make sure to do so. We’ll link to that in the shownotes, you can find it on Apple podcast or wherever you listen to your podcast.
Also, if you are not yet a part of the YFP Real Estate Investing Facebook group, we’ll link to that in the shownotes as well. A great opportunity to come together with a community of other pharmacists that are everywhere in the real estate investing journey from, “Hey, I wanting to learn more, I am thinking about it” to “I am actually pulling the trigger on the first property” to “I am beginning to build my real estate portfolio.”
David and Nate, thank you so much for taking time to come on the show, I really appreciate it.
[0:30:37.0] NH: Yeah, happy to be here.
[0:30:38.6] DB: Thanks so much.
[END OF INTERVIEW]
[0:30:40.0] TU: Before we wrap up today’s show, let’s hear an important message from our sponsor, Insuring Income. If you are in the market to add own occupation disability insurance, term life insurance or both, Insuring Income would love to be your resource. Insuring Income has relationships with all of the high quality disability insurance and life insurance carrier you should be considering and can help you design coverage to best protect you and your family.
Head over to Insuringincome.com/yourfinancialpharmacist or click on their link in the shownotes to request quotes, ask a question or start down your own path of learning more about this necessary protection.
[DISCLAIMER]
As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.
Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.
Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.
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