Having missed a handful of real estate investment opportunities in the past, I wanted to improve my knowledge about types of real estate deals. That’s when I stumbled upon a book called How to Invest in Real Estate by Joshua Dorkin and Brandon Turner.
Brandon also runs a top website that you might already know about – BiggerPockets which is claimed to be the biggest real estate portal in the world. I have personally checked their forum on the site which has a great community. If you have any questions related to real estate, just post it in there and you will get really good answers from experts – free of cost.
BiggerPockets also runs a weekly podcast which is great for anyone who wants to learn about real estate investing by listening when driving.
I really liked their podcast where they invite one guest every week to talk about their real estate investing journey. I highly recommend BiggerPockets podcast to anyone interested in real estate.
Let’s talk about How to invest in real estate book.
Real Estate Investing has many frontiers. Based on your experience and interest you can choose the path that suits you for your real estate investing career. This book introduces variety of paths you can take as a newbie to start your real estate investment journey. The success stories of people in this book will inspire you to take the first step and get started building wealth.
How to Invest in Real Estate Summary
This is my summary of how to invest in real estate book by Joshua Dorkin and Brandon Turner. I have informally taken notes while reading this book and may also include some of the interesting quotes or phrases directly from the book. Wherever relevant I have also given my views on the subject. So let’s get started:
Benefits of Getting Real Estate License
- You can get access (keys) to listed homes quickly than someone without a license.
- Commission of 6% is split between both the agents (from the seller and buyer side). If you are the buyer and holds a real estate license, you can present yourself for the deal and get a 3% commission which can cover your down payment on the house.
In addition to benefits, there are some drawbacks to having a real estate license too:
- It’s required to go through extensive preparation to get a real estate license.
- You will have to pay several thousand dollars in fees to keep your license active each year.
- There are different tests for different US states. So you will have to take multiple tests to get licensed in multiple states.
Options for buyers when the market is high
- Don’t invest and forget about it (not recommended).
- Look harder like a real value investor does and find opportunities that are missed by others.
- Change your strategy such as instead of being a buyer, become a seller and offload your properties at a high price.
- Explore new locations that are still offering better opportunities.
It’s hard to find good investment opportunities when markets have peaked. But great investors are those who consistently keep looking and finding the deals or making ones that others often miss. Here’s a quote I liked in the book:
You are either consistent or non existent
House Hack – Living for Free
There are many investing techniques that are explained by authors in the book but this one is my favorite.
- Buy a 2/3/4 unit house. You can live in one unit and rent the rest.
- In the USA, apartment buildings having 4 or fewer units are termed as residential while anything 5 or above is commercial.
- The difference will be in the rate of loan and terms you will face in residential vs commercial deals.
- Apartment buildings are easier to deal with.
- As a newbie and probably with no business behind you, it will be better to start with residential property to qualify for a mortgage on your first deal.
- Before buying a multi-family apartment building, find out what current tenants were paying and how much rent can be increased.
- Evaluate what investment will you need to boost the value (add extra bathroom or bedroom) of the property and thus increase rent.
- The most important rule is that each property must generate free cash flow. That is the cash left after paying the mortgage and all expenses.
- Natural wear and tear are the largest expenses over time.
- Rehab the property with high-quality material such as good paint, double varnish layer on the floor, porcelain tiles, quartz countertops, etc. This will avoid recurrent rehab costs every few years down the line.
How to Find Great Deals for Free
- There are some great apps (Realtor.com, Redfin, Zillow) that provide information about current deals in your area.
- The best source of a property listing is MLS which is not free for the general public.
- MLS gets the listings sooner than other businesses too in most cases.
- In order to get listings from MLS, build a relationship with real estate agents or brokers serving areas you are looking for. Then provide your broker the list of things you are looking for (location, schools, type of property, budget, etc) and broker can set up an automated notification service for you on MLS to get those properties sent out to your email, free of cost.
- Building good relationships with great agents and mortgage lenders is the shortest way to get great deals delivered to you free of cost.
- Remember LAPS – Leads, Analysis, Pursue, Success. Make sure you follow this framework for any leads received from the brokers.
Real Estate Investment Niches
There are many real estate investment niches discussed in the book but I have only listed down what I found interesting for newbies.
- Private Notes – A private note gives the lender the right to receive monthly payments from the borrower until the loan is paid off. This is like being a banker for someone and buying their loan from the bank.
- This is great for those who have extra cash lying earning no returns.
- Promissory notes or private notes can earn 6-9% returns on your money.
- They are tricky to implement as you will need to find someone who can sell you private notes.
- You will also need to work with the borrower to come up with a payment plan.
- Often borrowers are going through tough times and that’s why lenders sell their notes.
- What if borrower defaults. You get to foreclose their property and recover your money.
- REITs – Real Estate Investment Trust.
- These are like mutual funds of real estate.
- You will earn dividends as interest on your investments.
- There are many companies offering REIT investments in the stock market.
- Look for their history returns, dividend payout consistency, whether the dividends have grown consistently in past, debt to equity ratio before making any investment in REITs.
- Syndication – Few investors pool in their money to buy large real estate properties with the potential to generate free cash flows.
- This may not be for newbie investors.
- Find bad properties in good neighborhoods and rehab them to boost their value.
- After rehab, either sell the property with a profit or rent it to tenants.
- In case of renting, refinance the property and get the interest rate lowered while taking a larger loan to recoup your initial investment + full payout of previous loan + some profit.
- Distribute the initial investment + profit back to investors after refinance so their money is back with a profit in 6-9 months.
- Investors will get their money back plus their share to monthly free cash flow generated from rental units forever. The property is free for investors at this time.
- Repeat it.
- BRRRR – Buy, Rehab, Rent, Refinance & Repeat
- This is similar to syndication investment mentioned above.
- The difference might be that you start on your own instead of a couple of investors.
I really enjoyed reading this book – How to Invest in Real Estate by Brandon Turner and Joshua Dorkin. If you are interested in real estate investment or want to buy a home, I highly recommend you get a copy of this book and explore your options.