Welcome to another episode of Ask Marco where I answer your investing related questions. If you are new to this podcast, remember to click that subscribe button. So you never miss another episode of this great show. I want to teach you how to create wealth and passive income with real estate, so you can achieve financial freedom. That is the ultimate goal because that leads to time freedom. So I guess you could say time, freedom is the ultimate goal. It’s not about the money and it’s not so much about having all the money in the world and being rich or wealthy. It’s really just to live life on your terms and enjoy it with your friends and your family and be able to do what you want to do with it, which is a good segue into today’s question, which comes in from Lucy, and Lucy says, hi, Marco, I’m a 30-year-old woman living in Buffalo, New York, looking to purchase my first rental property next year. I’m having a hard time understanding the real estate lingo and therefore get discouraged from pursuing this venture.
I think Lucy, we all have this problem, even with more experience under our belt. You’re always learning in this industry. There are things that are going to come across that are just new and you have to look it up, whether it be something related to cost segregation or a negative amortization loan. I mean, these are things that you don’t normally hear day to day. Anyway, you go on in your email to say which educational resources would you recommend besides your very helpful podcast that can break down the real estate buying process in layman’s terms.
Thank you, Lucy.
All right, Lucy. Thanks for submitting the question. Great question. I think there’s a lot of people who are looking for either tips on getting started, or just, how do I begin investing in real estate?
So here are five or six things I would recommend for you and anyone else listening to this as far as getting started or strengthening your existing position because maybe you’re not exactly a newbie, a beginner, maybe you’ve already purchased one or two properties, or maybe you have 5 or 10 and you still feel like you’re just beginning and you are still green. My first rule of my 10 Rules of Successful Real Estate Investing is to educate yourself. And that applies regardless of whether you are a beginner or a seasoned real estate investor. So I’m just going to recommend three books. Now I’m not specifically recommending these three books because they are the be-all and all, or the only place to start. It’s just three that I know are very good. And even if you just read one of these, you will be much further ahead, but this will help to build that real estate lingo and understand the real estate investing process, the parts, how they fit together, and what to look for and what to avoid.
And by the way, I have a book coming out later this year. In fact, it should have been out already. It’s in manuscript form right now. So just keep an eye out for it. I will certainly email and notify everybody and mentioned it on the podcast when it is available, but it will be definitely yeah. A good primer for you or someone like you. That’s looking for that foundation. So the three books I would recommend for now in no particular order are the ABC’s of Real Estate Investing, it’s by Ken McElroy, my buddy, Ken, who is a Rich Dad advisor. And it is a very, very good book. It is fairly comprehensive but doesn’t cover everything. And so this is why reading two or more books is going to be helpful because you’re going to have overlap, but you’re going to have some additional information that is not available in just anyone book.
And this is the whole reason why you should be a perpetual student, just always be learning. The other book I would recommend. The second one at least is believe it or not a Dummies Book, Real Estate Investing for dummies. And that does not imply that you are a dummy. It covers a lot of very, very basic stuff, but it is well written and it also has a lot of good nuggets that you can take away in there. So that is something to certainly keep an eye on, especially if you’re very green. I think that would be one of the books I would recommend reading last but not least is a book called How to Invest in Real Estate and that is by Brandon Turner. So you’ve got a rich dad advisor book here, you’ve got a dummies book by, I think the author is Tyson, I forgot his last name, he’s written several books actually on real estate investing and then how to invest in real estate.
So educate yourself. That’s the first thing I’m going to recommend. And that I think goes without saying, you’re already doing that by listening to the podcast or other podcasts. The second thing is to get your financial house in order, or basically your finances in order. And I’m going to break that down into two categories, cash, and credit. You really need these two key things in order to begin and continue investing. You need good credit. It doesn’t have to be stellar credit, but good credit. And ideally you want a credit score of seven 20 or above, but if you have a credit score of six 80 and above, and you don’t have any major derogatories on your credit, you are creditworthy. The cash part of it just allows you to have, have the down payments and closing costs to purchase one or more properties.
So your capacity is limited by your cash and your credit. So work on those two things. And that is the financial part of this. All the next piece of advice I would give you tip or otherwise is to start small. Now, let me be clear about this because people mistake this suggestion to start small doesn’t mean that you start with cheaper properties or in cheap neighborhoods and you know, worse yet both at the same time, starting small means that you don’t shoot for big apartment buildings, right from the get-go or an eight Plex or even a fourplex. If you’ve never purchased property before start with the most basic housing unit, a single-family, residential property, like a single-family, detached home, a three-bedroom home in middle America or Southeast that is starting small. You should focus on good markets, great neighborhoods, and the best property you can find within those areas.
If you do that, you’ll have a great experience. You’ll have few, if any problems or headaches and you’ll be off to the races, that is the best way to start. So starting small means don’t go outside your comfort zone to the point where you doing something that you completely don’t understand. Single-family homes are easy to understand. You’ve probably grew up in one. They’re easy to fix, easy to finance, easy to maintain, easy to walk in and live in and understand. And I guarantee you’ve been in too many other people’s houses that were single-family homes so that’s starting small.
Focus on cashflow is my next point. You want to focus on cash flow because I’ve said it time and time again on the show. Cashflow is the glue that holds it deal together. In fact, I had a pretty in-depth conversation about this with a pretty sophisticated investor earlier this afternoon. And she and I were talking about her investment strategy going forward. Now she’s focused on growth, capital appreciation, but I brought up the conversation that focuses on cash flow. So should there be a worst, worst-case scenario? Like we go into a very deep recession and there are problems. If she’s got a property in a good market in a very desirable neighborhood that will stay desirable even through bad economic times. And there will always be tenant demand and people wanting to live there, then she’ll weather through the storm. So if we have a two-year recession, she’ll come out of it stronger and the cash flow will still be there and probably go up and the property values will bounce back. If they have gone down and will continue to grow. So cashflow is the glue that holds your deal together. So focus on cashflow. Yeah, it doesn’t necessarily have to be super high in the beginning. It will grow larger over time, but you want that cashflow as a foundation, think of that phrase. Cashflow is King. Maybe it’s not always King. Maybe it’s queen doesn’t matter. Cashflow is important that even if it’s low to start with, but you know, it can be and will become high. That may be a trade-off for that strong capital appreciation. But at the end of the day, focus on cash flow.
My fifth point is to adopt a business owner’s mindset. You want a business mentality because think of your real estate investing, not just as investing, but as a business, just like business, you have income and expenses. You have a profit and loss statement. You have a balance sheet, whether that’s your personal balance sheet or your company’s balance sheet. So real estate are assets that generate income. So you’re going to have properties listed on your balance sheet and much like a real business. Your real estate investing is a business and treat it like a business. And if you do that, you will think about it logically without emotion. And you will focus on building that business of real estate, investing, smart, proper, and well.
Last but not least this doesn’t apply to everybody. But in your case, just being as green as you are, if you know someone who is successful in real estate, or you can plug into a community or an organization or a network like ours, find yourself a mentor. And I say that in air quotes because it doesn’t have to be a guru that you pay a lot of money to mentor you by holding your hand and teaching you and showing you the ropes. Now, maybe that’s what you need and it could help. But the reality is in my experience, most people don’t need that kind of mentor. A mentor could be people you listen to on podcasts that have some of the experience that you need, that they’re just sharing with you. People who write about it in books, articles, real estate, investing magazines, successful real estate investors that you know that you can network and maybe feed off of, or take them for lunch and pick their brain or go to some real estate investment club meetings in your local area. That’s what I mean by a mentor. That’s kind of what I’m suggesting you focus on.
Okay, Lucy, I hope that answers your question. So these are some suggestions and tips for a new real estate investor and someone who is, I guess, loosely speaking, just getting started as a first-timer. I hope that helps.
And for everybody else, if you have any question about real estate or investing or finance that you’d like me to answer on the show, go to passiverealestateinvesting.com or AskMarco.com, click the Ask Marco button, submit your question. And I’m going to start doing a little more of this here by doing some three packs of Ask Marco’s. That’s about it. Help us share the show with your friends and family and other like-minded people and visit us on iTunes. If you can leave us a rating and review greatly appreciate that, so thank you in advance.
In closing, thank you for listening. I will see you on our next episode.
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