With Terry Story, a 30-year veteran with Keller Williams located in Boca Raton, FL
Steve spoke with Terry Story, a 30-year veteran at Keller Williams. During this week’s Real Estate Roundup. Terry and Steve finished up a conversation about Jason Rector, a young man who ended up making millions from a simple beginning investment in real estate. They discussed how you can make money off relatively small real estate investments.
A Review And Continuation Of Jason Rector’s Story
Last week, there was a discussion of an article about a young man who decided he no longer wanted to pay rent as he drained his bank account, paying his way through college. He saved up his money and purchased a small home, made renovations, and rented out three of the four rooms. This made it possible for him to live rent-free and have his expenses covered while he finished college.
After several years, he married a top seller from Keller Williams and, with her help in finding properties, was able to begin making real estate investments that have since earned him a sizeable fortune. This wasn’t a “get rich quick” scheme. Jason began investing in foreclosures at 10% to 20% below market value, with his real estate holdings gradually growing larger and larger. He now owns around 100 properties from which he collects monthly rent. Out of his courageous decision to move from renting to owning, Jason was able to develop a successful real estate business as well as to go on to a fulfilling career as a firefighter.
Making Money In Real Estate
When it comes to making money in real estate investments, location is a big factor. Properties that are in good neighborhoods with things such as good schools, shopping, etc., make the properties more desirable. That usually means long-term price appreciation. Median home prices have climbed 54% since 2012. If you had the good sense to invest back then, your properties may have substantially increased in desirability and value.
Keep in mind that the real estate market is cyclical. It goes up and then swings down. Run the numbers based on the location of the properties and determine if the value is good and if it’s likely to increase.
Run The Numbers
Run your cash-flow numbers. You’re likely going to be collecting rent. That is the case with pretty much all of Jason’s properties. So, you’re essentially raking in monthly rents, minus expenses. Maintenance is a big factor for rental properties. All other expenses tend to be paid off in a fairly short period of time, depending on the size and monthly rent price for each property.
You also need to budget for things like vacancies and unexpected property issues (for example, a major plumbing problem). Be prepared to establish a budget with a reserve of cash to take care of the regular upkeep and management of each property.
Learn The Business
In order to make money from real estate investments, you really need to learn the business. One key part of this is using other people’s money—a loan from a bank/financial institution. If you have a good credit score, you can borrow money and use that to make investments. You can also get investors to give you money if you can get them on board with what you’re trying to do. The primary goal is to not use your own money. Being able to leverage your investments so that they don’t require huge cash outlays up front is important. That’s exactly the commitment that Jason made to himself: after the first purchase, he wouldn’t use his own money to buy any more homes/properties or make any real estate investments.
The biggest issue is that it can’t be just a hobby. You have to look at it like a business. You have to invest a lot of time and energy into hunting down resources that you can use and properties that are worth the investment. It’s not easy, but it can be done. Sometimes, it requires hiring professionals to help you. If so, that’s just part of the investment. You have to have the financial resources to be able to pursue real estate investing.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry is a 30-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Last week, we talked about a young investor, a young real estate investor, and we were both really impressed with him. His name is Jason Rector. And the story—we’ll tell quickly because we want to kind of get to the end of it, which we weren’t able to finish. The story was when he was in college, he got sick of paying rent, so he decided he was going to buy a house. Where he was living, houses were very affordable. And so he bought a house with a little bit of money down. He finished the basement, turned it into two more bedrooms and a bathroom, rented it out to three of his college buddies or whatever, and then he was living rent-free. Smart kid, right?
Terry Story: Absolutely.
Steve Pomeranz: Well, then he bought a second house not too long after, spent a little bit more money. Then his brothers went to the same school, so they lived there, and he lived rent-free. And now he had this equity already paid for by other people. He’s building his career. He became a firefighter, but he caught the real estate bug. And then he married someone who is one of the top agents at Keller Williams, which is your firm.
Terry Story: Yes. Yay.
Steve Pomeranz: Okay. Surprise, surprise. She’s out there looking for properties like short sales and foreclosures and buying things that are 10% to 20% undervalued, and so the bottom line is he has built up now 90, 100 different properties that he owns. They are worth eight figures. You guys can do the math on what that means. And now he’s got this great business. He’s employing 20 people, and he’s kind of living la vida loca. The part I want to get to today is how to make money in real estate. This is not your get rich quick scheme. Right?
Terry Story: Right. Definitely not.
Steve Pomeranz: All right. The first thing is location, location. Look for properties in economically stable neighborhoods where you can expect long-term price appreciation. What does that actually mean?
Terry Story: Just to give you an example, Steve, since the market switched over since 2012, the median price home rose 53%. If you had the foresight back in 2012 to purchase-
Steve Pomeranz: And the money.
Terry Story: And the money, of course, there’s 53%.
Steve Pomeranz: Yeah.
Terry Story: We are in a cycle. The market’s going to go down. It’s going to come back up. And it’s really hard to time the market. It’s really not about trying to, okay, the market is down, I’m going to buy it all now. It’s kind of like with stock.
Steve Pomeranz: It is.
Terry Story: It’s that averaging. You just buy one a year, two a year, whatever the game plan is. But what’s really key is location, location, run the numbers. Do the numbers make sense?
Steve Pomeranz: Yeah. That’s number two. You must run the cash-flow numbers. This is a rent you’re receiving minus all expenses. And don’t be pie in the sky here because owning property has expenses.
Terry Story: That’s right.
Steve Pomeranz: Things are going wrong all the time.
Terry Story: You have to budget for vacancy, budget for roof, plumbing, you name it.
Steve Pomeranz: I have to have a reserve fund. And as you said, in the case of vacancies, you have to-
Terry Story: Evictions, cost to evict a tenant.
Steve Pomeranz: Okay. Yeah. Location is number one. Make sure that you’re in a stable neighborhood that because of the growing economy, the aging population, the demographics, that there are more people, the population of the United States is growing. You want to find an area that is plugged into that dynamic.
Terry Story: It’s really important to be very well educated on all of this. You might even want to consider hiring a property manager.
Steve Pomeranz: If you don’t have the time or the inclination to actually be there managing the property, one of the smart things to do is to hire a property manager.
Terry Story: Right. Now it’s going to dip into your profits, but you’ve got to weigh it out.
Steve Pomeranz: Yes.
Terry Story: Is your time more valuable managing property or doing whatever work it is that you do?
Steve Pomeranz: It’s not only time, but it’s the element of expertise. If you’re going to make mistakes because you’re trying to do it yourself, I can tell you how many personal remodeling projects I can attest to. Sometimes it’s just better to hire the expert.
Terry Story: A professional.
Steve Pomeranz: A professional. You really save money in the long run. Another characteristic of making money in real estate is this idea of using other people’s money. It’s one of the few investment areas where you can actually go to a bank and get a loan based upon the value of the property.
Terry Story: Right. Get a home equity line of credit against your own home.
Steve Pomeranz: Yeah, yeah. It’s not easy if you’re starting a new business or something like that to just go to a bank and get money.
Terry Story: Right. Like, “Hello. I’m here. Give me the money.” It doesn’t work that way.
Steve Pomeranz: But in the real estate market, it is unique because of that. If you have a good credit score and you’ve got some equity somewhere, you can use that equity. Obviously, it’s a business decision. You’ve got to be smart about it. But using other people’s money ideally is the best way.
Terry Story: Right. If you can find some investors that are willing to bet on it.
Steve Pomeranz: That’s another thing. You give them a piece of the equity.
Terry Story: Yep.
Steve Pomeranz: Absolutely. And finally, and I think this is the most important part, but the part that is overlooked by so many, and that is you must learn the business, underline the word business, this is a business. It’s not a hobby. It’s not something that you wake up in the morning and because you lived in a house that you can automatically do. I used to say this years ago, that people, they think they can invest in stocks because they knew a company that did well, so I can do that. Well, believe me, it’s not that easy.
Terry Story: It’s not that easy. No, it’s not.
Steve Pomeranz: You have to learn the business or you have to hire professionals, the same idea, so learning the business. When Jason Rector, the hero of our story, started out, he said he read like crazy about real estate investing. He went to conferences. He took a lot of successful people to lunch. And so he was really smart about it. He learned. And I’m sure he made-
Terry Story: Not a … What is it? A quick rich crash course.
Steve Pomeranz: No, exactly right. I’ve been to one of those, by the way, years and years ago. I forget the guy’s name, but it was famous. A friend of mine and I went. We wanted to check this out. We knew what it was all about going in. We wanted to actually see it in real time. And it was the same thing. All the guy did, who was giving the talk, was he opened this book, had a picture of the house. And it had the check next to it, like a copy of the check. He didn’t really talk about anything, except he kept showing that book.
Terry Story: Buy my book.
Steve Pomeranz: I felt sorry because the people there, there was kind of an air of desperation. They were looking for a way to improve their lot. And all the hype pointed to this easy money dynamic.
Terry Story: There’s nothing easy about it, really is not.
Steve Pomeranz: And that was in the early 2000s, so guess what happened. Prices did go up, but then they crashed. And these poor people, who knows what happened to them? So you must be very, very careful. All right. Well, we are out of time. Terry Story, a 30-year veteran with Keller Williams, located in Boca Raton, Florida. And she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.