Episode 4: The “Rules” As A Real Estate Investor
An investor is just that - someone who puts money into something with gaining more money out of it. A real estate investor uses property and housing to grow their wealth in the form of equity and/or cash flow. It is critical, as a real estate investor, to know your *actual* numbers, to not feel pressured into buying a property when it may not be right, and to know that there are "deals" every day. You must budget your time and efforts, and money, properly as a real estate investor.
Listen to full episode :
Full Episode Transcription
Welcome to My Life as a Landlord, where we untangle all things housing and educate the curious. If
you're looking for some entertainment with some honest, awkward conversations, you've come to the
right show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it. Hello.
Welcome to today's episode of My Life as a Landlord, where we're discussing the rules as a real estate
investor. When most people hear the words real estate investor, they automatically think, oh, you're a
house flipper like on TV. I shake my head. And I must tell you, that is not often the case. A real estate
investor, any investor, implies that a person is going to make money with an investment, and in this
instance, they're going to make money with real estate as an investment. Often, a real estate investor
works alongside a real estate developer. And like my husband and I, we're actually both, we're real
estate investors and real estate developers. But I must tell you, often we've worked along real estate
investors, investors who are not involved in the development at all, but they want to make money. And so
we can utilize their money in our development and there's safeguards and things with them. But as a real
estate investor, with my hat, as a real estate investor on I live by three rules. It's very simple. Rule
number one, do not fall in love with the property. Fall in love with the numbers. In any business, it is
about the numbers. You've got to keep your eye on the reports, on your cash flow, on your investments,
on your timing. You've got to not fall in love with the property because of a feature or its location or
whatever. Remember, this is an investment. So all of the amenities and the locations and it's got three
bathrooms that are purple or whatever it is that you're in love with, that's fine. But you fall in love with
the numbers. Most of the time, the properties that you're going to invest in are not where you're going to
live. They're not your personal residence. So if it's got attributes that you really like, maybe you should
buy that house and live in it. But as a real estate investor, rule number one, don't fall in love with the
property. You fall in love with the numbers. And when we're talking about the numbers, I mean all costs,
your capital costs, your monthly expenses, your revenues. And when you're doing your due diligence,
when you're acquiring this property, you must look at the source documents. Now, source documents is
what I call everything that boils down to the bare minimum. Now, I know I'm talking about a lot of
terminology here, but a source document at its core is not a number that somebody else wrote on the
paper. You're looking at the number between. So for example, a source document would be a lease.
You're looking at a lease between the current owner and the tenant, the tenant that you're ultimately
going to inherit. You're not going on what the seller is telling you the rent is. You're going by what the
lease says, which is the legal document that is binding between the two of them that you're going to
inherit. That's a source document. Another source document would be an insurance binder. That's the
insurance policy. And that says how much the premium is. You can also look at the reports from the
seller. Let's say you're going to buy an apartment building and you want to know what the maintenance
costs were for last year or the costs for the vacant units, for example, all of these things. You want to go
to the source documents, you want to see the actual electric bills, the cable bills, whatever it might be that
you've got on your expenses all add up to the numbers. If it says pro forma in front of it, it might as well
say the word guess. That's what they think it's going to be. Most of the time people are guessing high
because they want everything to look really good, so that if they're guessing high on their rents and low
on their costs, the property very likely will appear to be more valuable. But again, go to the source
documents. And the source documents is where I get my numbers from. You want actual numbers for
your property analysis, not theoretical. So again, fall in love with the numbers, not the property. And as
an investor, you're trying to make more money on this investment with real estate. So rule number two,
very simple. 1s You make all your money when you buy the property, not when you sell it. You make
your money when you buy it, not when you sell it. Many people will say the day they buy their boat is
their second happiest day of their life. The day they sell it is the first. Ha ha. Anyway, you make all your
money when you buy a property and when when you're buying real state, the cash flow projections, your
source documents, your actual numbers usually don't work unless you buy the property as a realistic
investment or below market value. Meaning there's something that you can do to improve the property,
whether it's renovate the units or you add amenities, whatever it might be. You make all your money
when you buy a property. And we'll go into this more as we progress in the podcast. So that's just rule
number two. So, rule number three, my favorite for my husband who likes to do everything all the time.
Just because you stumble on a deal doesn't mean you have to take it. Rule number three there is a deal of
a lifetime every day. There's a deal of a lifetime every day. You can only fall in love with the
numbers. And even if the numbers are great, every day, you get to the point where, number one, you're
exhausted. Number two, you've got, you know, how much attention can you can you use as an investor
on scanning deals, on working with the numbers of all these different properties? So you've got to build
your team. But just because every single deal of a lifetime is good, doesn't mean you have to do every
one. Now you can, but you have to be prepared to do those deals. You have to be prepared. Real estate
investors invest, so that means you have to go by the actual numbers. You make all your money when
you buy the property and there will always be another property to buy. So don't feel pressured to buy the
one that may or may not be right. Here's your call to action. Here, at the end of each podcast, I get to
challenge you as an investor. If you're a current investor, I challenge you to update all of your current
assets and liability numbers. Meaning current assets are current liabilities. Current assets is assets that
you're going to collect within a year. So this is either inventory you're going to sell or current liabilities
means that you're going to pay within a year. You have a one year time frame. Most of the time I find
when people are doing their books, their current assets and their current liabilities may not be actual
numbers. There are placeholders in there. Now, your accountants will fix this and your bookkeepers
might fix this. But if you are an investor, I challenge you to pick an investment, pick a property and make
sure your current assets and your current liabilities are actual numbers, not theoretical. And then what's
that property worth right now? Meaning what's your mortgage value right now? What is your tax
assessment on that property right now? What are your comps? If you have the ability to run an MLS
comp list on that property, what's your equity value in there? It. 1s And as you are investing, you will see
that you've got equity in the property, you've got cash flow in the property, you've got your net operating
income. All of these things we will discuss as an investor. But this is a great exercise to see how well
your return on investment is on your properties. And as a real estate investor, you have got to keep your
eye on the numbers. You've got to make sure that you buy it right. And then you've also got to make sure
that you budget your time and effort on the best deals for you. 1s Thank you for joining us this week. To
view the complete show notes and all the links mentioned in today's episode, visit our website at
www.mylifeasalandlord.com. If you're looking for educational resources for getting into real estate investing,
becoming a landlord, or even a better tenant, then I have a page on my website to get you started looking
for a solution to the pickle that you're in. I have suggestions for that too. You can throw your situation on
my Facebook group, My Life is a Landlord, and let our community help you with solutions. Also, before
you go, make sure you subscribe to the podcast so you can receive new episodes right when they're
released. You can either subscribe right now in the app you're listening to this podcast on, or you can sign
up at www.MyLifeasaLandlord.com thank you again for joining me, Dr. Jennifer Salisbury, in
this episode of My Life as a Landlord. I'll see you next time.