Investing in Real Estate for Beginners
I’d like to thank Lloyd for taking the time to write this post and make all these videos.
I write about making money online regularly, but this is the first post on offline business.
Online is great, but it’s not the only way to make money.
Unlike myself, Lloyd has experience with real estate investing. I’ve found his comments and advice helpful and you will too.
For more similar content, check out his blog Business and Bullets.
Today we’re going to talk about hustling offline. First, I have to give you all the usual disclaimers. I’ve also included a video introduction to the post here:
Red Pill Reviews Guest Post and Hustling Real Estate
First Things First
Running an offline hustle is usually (but not always) more expensive up front than going online. This is just the nature of the beast.
It’s a pretty obvious difference.
For some of these, you’re going to need some cash stacked to play with. It’s just easier that way.
Most businesses I’ve consulted with operated for the year at a deficit even though they were seeing profits daily.
How? One word…
With that in mind, I’ll outline a few offline side hustles in real estate. I’ve done them the hard way and can tell you how to do them easily.
Hustling in Real Estate
Real estate seems to be the first place people go. I can’t count the number of people I know who have rental properties.
Hell, Donald Trump’s dear old dad made his money on everyday rentals.
That was a different world. Uncle Sam has changed a whole lot of regulations since those days.
There’s another big reason I don’t recommend going down that road, which is ultimately more important.
You must minimize your downside.
If you’re smart, you’ll already know there’s no such thing as totally passive income. Passive income takes a whole hell of a lot of work.
As a matter of fact, I spend far more time on a daily basis working for my “passive” income than my “active” income. The downside I’m talking about isn’t financial – I’m talking about time.
Simply put, being a landlord sucks.
Being a Landlord Sucks
If you think being a landlord sounds like a good idea, I agree with you. It sounds great.
You buy a home and plot of land, someone lives in it, and everybody wins. Everybody but you, because you’re the one they’re going to call when the toilet stops working.
Sure, you could farm out the work. That’s assuming you’re making enough in rent to cover that expense. Often, you’ll end up doing it yourself.
I clearly recall the muggy summer morning where I spent five hours worming a tenant’s septic line. That’s a smell you can’t get out of your nose and a squish you can’t get out of your boots.
Even when it isn’t that extreme of a repair job, it’s still a time suck. Those are your options – spend your money or spend your time, because you’re going to spend one or both.
I’ve been there, done that, got the t-shirt, and sold the properties. It isn’t worth it.
At least, it isn’t worth it to own the house. Lot rent is nowhere near as bad, but it isn’t the easiest method either.
Hustling Real Estate the Easy Way
There are two ways I know of that make hustling real estate easy.
The first method is tree farming. The second method is “real estate investing”.
Tree farming is great, but it isn’t something you expect to make money quickly from. Quite the opposite, it’s set it and forget it – for fifteen years.
You don’t need that large of a property to get started. You’d be surprised how many trees you can fit onto a quarter acre – I’ve harvested as many as 42 on properties that small.
A few calls per year from the forester (sometimes less frequently than that) is all you’ll have to think about it for decades. That’s assuming you do it right.
Real estate investing is a different animal.
The concept behind real estate investing is simple enough. You buy land and home (or just land) and sit on it until you find a buyer.
In practice, it isn’t this simple. First and foremost, I would recommend you understand Benjamin Graham’s style of value investing.
The abbreviated version is this: When you buy something at a price below its intrinsic value, you have a reasonable margin of safety.
Investors wear this rule around their neck. For the real estate investor, this also means a greater profit margin and return on investment.
Sounds like a solid concept. Why isn’t everyone then a successful real estate investor?
Two Reasons: Debt and Improper Valuation Technique
The first reason is simple enough. You take out a loan to buy a great deal of a property, but end up sitting on it for so long the debt cripples you.
Eliminate this problem by buying in cash. You’ll usually get a better price when you offer cash up front instead of financing.
Money talks and bullshit walks.
The biggest reason people fail at real estate investing is using a faulty valuation metric. Most people value real estate using relative value.
How many times have you heard, “Location, Location, Location!”?
This couldn’t be more wrong, and it couldn’t be more harmful for the man hustling real estate investments.
Relative Value and Real Estate
Most of the time, people look to see what comparable homes in the area are selling for. People consider the value relative to the area and how this particular property stacks up to its neighbors.
You might see how this could be a problem for the man who’s hustling offline and trying real estate investing.
Relative Value & Real Estate
How much sense would it make for you to sell a different product, like plastic cups, at a higher price just because of your store’s location? How much would the location of a product in the store change its price?
It’s one thing to adjust prices relative to the average standard of living for your area, and another to change prices from one block to another. Changing prices on groceries relative to what the other products on the same shelf cost would be ridiculous.
Relative value doesn’t address intrinsic value. Because of this, relative value doesn’t satisfy the requirements of value investing.
If you’re just going to take an agent or a site’s word for what a property is worth, don’t even bother.
Valuing Real Estate the Right Way
Hustling real estate is more about protecting your upside and eliminating your downside. The best way to do this is having a real intrinsic value for the property.
Defensive Intrinsic Value in Real Estate
You can answer this question yourself:
If the house burns down after you bought it (a real concern for many) then what will you have left?
Easy. You’ll have what the insurance man gives you for it.
You want to use the same mentality as an insurance man to value a property. How does that work?
Simply determine what it would take to build the same house on the same property at today’s market price. Next, account for depreciation for the age of the building.
When haggling a purchase price for the property, that figure will be your MAXIMUM price. If you buy for more than that, you’re not buying at a discount and forfeit your margin of safety.
You can use the same method to value the land and building of a business, instead of just taking someone’s word for what it’s worth.
That’s right, boys.
Everything you’ll learn in real estate investing will carry over to building your business empire after you’ve stacked some startup cash.
How To Get Started Hustling
The good news is that pretty much anybody can get started hustling real estate. Depending on who you are, your plan of action is going to be different.
If you’re a man with high income, stack some cash and you’re set to go. Start hunting a deal and chase that paper.
If you’re a man with average income, the same applies to you. You’ll just get started with smaller properties.
If you’re a man with little to no income, you’re going to need to add more revenue streams that don’t cost as much to start.
How to Start Your Offline Hustle
I also recommend YouTube. It costs nothing to start a YouTube channel, it’s easy to monetize, and almost everyone has a smart phone now.
Your smart phone has all the recording equipment you’ll ever need. I’ve seen people make a good living with just their phone and their thoughts – it just takes time.