In this episode of “Ask Marco” we answer more listener questions including:
- Do you have any newspapers or real estate journals you read frequently?
- Any books you can recommend to someone with little capital?
- What benchmarks do you use when evaluating a property as it relates to the property’s age?
- Do old houses appreciate as well as newer houses?
- Does a remodel catch an old house up to new house profitability?
- What is the process like for a Canadian to invest in real estate?
- And more…
Here is my list of the Top 10 Real Estate Investing Books
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Ask Marco – Top 10 Real Estate Books, How Important is a Property’s Age, Investing as a Foreigner
On today’s show, we’re doing another Ask Marco episode. We have three questions here that were sent in just not too long ago from our website at PassiveRealEstateInvesting.com.
Our first email is from a guy named Josh. He says, “Hi, Marco. I recently started listening to your Passive Real Estate Investing podcast and love it. I just graduated from school. Despite not having the money to invest now, I am looking to educate myself in anticipation of the opportunity. Do you have any newspapers or real estate journals you read frequently or any books you can recommend to someone with little capital? I appreciate your willingness to answer questions and guide newcomers to the field. Keep putting out a great podcast.”
First of all, I don’t know why newspapers are still around. It’s just amazing that there are still around after all these years, especially with the explosion of the internet. Newspaper started dying off in the 1950s after the introduction of the television, at least when it went mainstream. Ever since the internet exploded, information at your fingertips, you can pull up almost anything instantly. There’s so much free information out there. I don’t know if you really need a newspaper. However, magazines are still around. I like magazines actually, I like holding them even though I have an iPad where I read everything from.
There are two magazines in the US where you can get good information on real estate investing. One is called Personal Real Estate Investor Magazine. It has a limited circulation, but you can find it or you can subscribe to it. I do have it. I rarely find the time to read it so it just sits on my credenza. But there are good articles in there. The other publication is called Realty411. You can actually see a copy of it on our website at NoradaRealEstate.com. In fact, it’s the issue that I’m on the cover. You can click on that and it’ll take you to their website. From there, you could probably figure out how to subscribe to it.
However, I’m not necessarily suggesting that you use newspapers and magazines to educate yourself. There is so much free content on the internet, on real estate forums, with podcasts and with all the books that are out there that you could find yourself swimming in information to the point where you may not even end up doing anything. It might be analysis paralysis.
I do agree that knowledge is the key. It is fundamental. It’s my first rule of successful real estate investing. You do need to educate yourself. I consider knowledge to be the new currency. If you don’t educate yourself and you don’t have that knowledge, then you’re really going to be stuck or doomed following other people’s advice. You don’t know if that advice is good or bad. Knowledge will help make you a good investor and actually it’ll take you beyond that. It’ll help you to become a great investor. The more you learn, the better off you’ll be.
In this industry, you never stop learning. Real estate is very fluid and dynamic, laws and regulations are changing all the time. Strategies don’t change, the way to invest is pretty straightforward. It’s been the same for decades, especially when it comes to the normal buy-and-hold investment real estate philosophy where you just buy good income producing real estate in good markets, in good neighborhoods that cash flow. You just sit and wait. Your wealth will create itself over time.
I applaud you for wanting to learn. There’s just a lot of free information out there. If you are looking for some books because you did ask about books, I do have a top ten real estate list on our website as far as books go, the Top 10 Real Estate Investing Books. If you go to our blog at NoradaRealEstate.com and just do a search for books, it’s the first result that comes up at the top of the list. I should update this list, I actually created it back in 2008. Although, it probably won’t change much today.
If you’re looking for books to set the stage or give you some fundamentals or you just need a mindset book, one of the first books I always recommend investors read is the Rich Dad Poor Dad from Robert Kiyosaki. The next book I would read after that is Rich Dad’s Guide to Investing. It’s one of his thickest books. It goes into a lot of different things, it’s not just about real estate. Those two books go hand in hand and it really lays a pretty solid foundation. It’s going to be well-rounded. It just talks about all kinds of investment vehicles.
One of my favorite books is The Millionaire Real Estate Investor by Gary Keller. It’s one of his trilogy books. He’s got one on flipping, one on holding. The first one that came out was The Millionaire Real Estate Investor. It zigzags a lot within the books. He goes from one topic to a much different topic with every chapter. But the book does come full circle by the time you get to the end of it. It talks about virtually everything you want to know. If you don’t know a lot about real estate, that’s a really good book to start with and the Rich Dad books, the Kiyosaki books.
I’ve got other books on there as well on the list. I might add some more to that list. Just do a search for books on our blog and it’ll be the first result that comes up.
I think I answered all your questions there. Just keep going. If you don’t have a lot of capital right now, just save up. Do whatever you can to build up that investment capital. You don’t need a whole lot. You can get by with $10,000 to $15,000. That’s enough to get you into a $50,000, $55,000, $60,000 property in some of our markets, be it Memphis or Birmingham, sometimes in Kansas City. You do have enough to get into a good market, good neighborhood. These will be B, B- type neighborhoods, but the cash flow will be strong and you can get yourself started. I hope that helps. If you have more questions, be sure to email us.
The next question comes from Kyle. He’s asking about a property’s age. He says, “Hi, Marco. I’m a loyal listener to your podcast. I’ve learned a lot from it. Thanks for the valuable free content. Quick question, what benchmarks do you use when evaluating a property as it relates to the property’s age? Do old houses appreciate as well as newer houses? Does a remodel catch an old house up to new house profitability? I know the obvious answer will be it depends on each individual house. But if you can give me something a little more concrete, I would appreciate it. Thanks and keep up the good work.”
You’re right, it does depend. But it doesn’t necessarily depend on the individual house as much as it does on the condition of that property and the neighborhood that it’s in. I don’t put a lot of emphasis or weight on the property’s age. It doesn’t matter to me if it’s new construction, it was built this year, if it’s 10 years old or 50 years old. I’ve purchased all of those. What I do look at is the property’s condition, the neighborhood and the market.
For me, it’s a top-down approach. It’s my sixth rule of successful real estate investing, is to take a top-down approach. You always start off by selecting the best markets that align with your investment goals. Most investors make a mistake by analyzing properties and they don’t pay attention to the neighborhood or the market that it’s in. You can find a beautiful newly renovated property that has had $30,000 to $40,000 of renovations done to it. It’s virtually like new, but it could be in the middle of a dilapidated neighborhood, in a war zone, in a bad market where jobs are sparse and people are moving out. That’s not where you want to be even though you have a great property and it could be a newer property.
Always take a top-down approach. Start with the market then you look at the neighborhoods, make sure those neighborhoods align with your goals. If you’re looking for premium type neighborhoods, premium type properties, what I’ll call your Nordstrom tenant client, then that’s what you focus on. If you’re looking for more of the Walmart type tenant, that’s your demographic, that’s what you’re going to look for.
The age of the property doesn’t play into that all that much. What plays into that is the condition of the property and the neighborhood that you’re in. What I look for, if it’s not new construction, I look for newly renovated properties, in like new condition that have had extensive work done to the property. The first thing we always look at is the condition of the mechanical. Obviously, the HVAC system, the hot water tank, the roof, plumbing and electric. Those are the key things you want to make sure are either replaced or like new, really it’s just like new or new.
Once you have that out of the way, everything else is pretty much cosmetic. Flooring, paint, the cabinets, the light fixtures, landscaping, all that stuff is important. But if those are all safe, clean, functional items and you have a clean inspection, if you get an inspection done by a third party, then you’ve got a good property candidate, at least as it relates to condition.
If you’re in the right market, in the right neighborhood with a property that makes sense, the numbers meet your investment criteria in terms of the cash on cash return or cash flow, the condition is like new, the age now becomes quite irrelevant.
That’s the starting point for me. In terms of appreciation, again, it doesn’t really play into the age of the property as much as it does the market, the neighborhood and what is driving that market. If you’ve got jobs, you’ve got lots of employment in the area, you’ve got an area that is stable or maybe there’s some gentrification going on and it’s an up and coming area, you have people moving in, it’s got strong desirability, you have good schools, lower crime, that property will appreciate over time. It should appreciate at the same pace as the other properties surrounding it. All property values are determined by comparables sales. If like properties in the area are appreciating, yours is going to appreciate with it. That’s just the way it works with residential properties, which are one to four unit properties.
It’s different in the commercial world. If you’re dealing with properties that are over four units, you’re talking about properties that are defined as commercial properties. Those values are defined by its income, more specifically, its cap or capitalization rate.
You asked about remodeling. A remodel will catch up, in a way of speaking, to the value of surrounding houses if you’re buying a distressed property that needs work because you’re going to be buying it at a deep discount or hopefully, you would be buying it at a deep discount. If you buy a distressed property that requires work and you get it at a deep enough discount, you can or should be able to remodel that property, refurbish it and bring it up to a like new condition in the area. That property will comp out at what other retail properties are selling for in the area.
This is known as forced appreciation or an equity play. You’re buying a property that is undervalued. You’re fixing it up and you’re building in that equity, that value in that new property. This is what rehabbers do all the time, they buy distressed properties or properties from distressed sellers that they can get it at deep discount. They fix them up, they bring value to it and hopefully, they’ll have 10%, 15%, 20% or more in equity in that property by the time they’re done, or at least that’s what they can pull out of it. The goal is to probably get closer to 70% loan to value or cost to value so you have up to 30% equity in that property.
Those are comments about a property’s age. If I missed anything, let me know and I can talk to you offline. Last is a question from Alex who is up in Canada. He’s saying, “Hello. I recently posted a review on iTunes. Beyond the mug though, I do want to thank you. I’m looking at properties on your website now and had no idea how possible this was, even though I have now listened to all your podcasts as well as others since starting with yours earlier this week. I do have questions though if I may, and perhaps they could be answered in the podcast, if you choose. The question is what is the process like for a Canadian to invest in your real estate, meaning US real estate? I am not eligible for mortgages yet as I have been running a business for only eight months and need to have run it for two years to be approved in Canada. Do you have any possible ways that we could work around that by next year? My wife and I should be able to invest in a property or two next summer. Thank you very much, Marco.”
Alex, the good news for you is that there are lenders available today in the US for foreign nationals, meaning investors that are outside the US, that are not US citizens or don’t have US credit. In fact, there’s more than one of them. There’s about three of them that we work with right now quite actively. They will finance investors for up to 70% of the purchase price. That’s 70% loan to value. They will do that without having a US credit score. They will do that with minimal documentation. They’re really looking primarily at the property and then they’re looking to see that you have some cash reserves so that you’re not just investing with no financial foundation.
If you got some income, you can provide a couple of months of bank statements. You’ve got some cash reserves and a good prospective property, then you’re 80% of the way there. We have foreign investors today using these lenders to acquire investment property here in the US. Granted, the interest rates are a little higher than what you’ll find in terms of conventional financing, but the numbers still make sense. You still have good positive cash flow, you have a good cash on cash return. It allows you to get into the market, but more importantly, it allows you to leverage your existing investment capital. Instead of being an all-cash buyer and taking, whatever it is, your $50,000, $100,000, whatever investment capital you have and buying a property all-cash with no leverage, you can take that investment capital and leverage it across two or three or maybe more income producing properties here in the US as opposed to just having the one property.
To go back to your question, the process is essentially the same. We go through the exact same purchase process and checklist that any other investor would do from identifying the market, shortlisting various properties in neighborhood combinations and then going into escrow under a contract, doing your due diligence, having the property inspected, having appraisal done if you’re financing it.
We provide you a lot of this information, we provide you all of these contacts, property managers that you can choose from. It’s completely turnkey. It’s a solution from front to back. Nothing changes if you’re out of the country. Whether it’s across town or 3000 miles away, the process is identical. The main difference with being a foreign national investor is the financing. That is the primary difference. Of course, there may be some different tax implications being in another country. Again, that depends on your local tax laws and what treaties might be in place between the United States and your country.
If you think you can’t qualify or you can’t invest, that is definitely not true. Give one of our investment counselors a call and talk to them about the possibilities. We have investors all the time buying from out of the country. I hope that helps. If I missed anything, again, let me know.
If you have questions, just submit those at PassiveRealEstateInvesting.com, just click the Ask Marco link. Submit those questions and I’d be happy to cover whatever you want in future episodes. Download our free report while you’re there, The Ultimate Guide to Passive Real Estate Investing. It’s a free 35, 40 page document full of information. It’s just a great starting place. Even if you’re a seasoned investor, I think it’s a great document to have on hand.
That’s about it. I appreciate you being here. Thanks for the reviews. Thanks for being a loyal listener. If you haven’t subscribed yet, please do so. We’ll see you on the next episode.