Announcer: You’re listening to Real Estate Investing Talks, a SimplyDoIt podcast. Your journey to success in real estate investment starts right here, right now. Here’s Dani Beit-Or.
Dani Beit-Or: We are ready. Again, good evening. Good morning. Good afternoon. Really, depending where you are. This format is always hard to make because I know we have people joining us from Europe, from the east coast of the US, from the west coast of the US, so it’s always great to do that.
My name is Dani Beit-Or, as you probably know. I do this weekly session every Friday at 11:00. I go online on Facebook. The whole purpose is actually to provide an opportunity for you guys to ask questions. That’s kind of my main goal, my objective. Feel free to ask questions related to real estate investing, flipping, rentals. I’ve been doing it for many, many years.
I always bring a topic I want to cover, and I obviously have the topic for today about risk and about losing money, but really, the whole purpose is for you to generate questions so we can use this opportunity to help you with some concerns you have and let others also benefit from your questions.
I’m Dani Beit-Or. I’m doing this session right now from Orange County, California, Southern California. It’s a nice– not too warm weather outside, so it’s good for us and not so good for those of you who are maybe suffering from the cold weather on the east coast. I just spoke to one of my attorneys in Chicago, and he said, “It’s freezing out there. My friend lives not too far from you, so I really want to come and visit.” Obviously, I told him, “I don’t understand why you’re still in Chicago. It’s so freezing.” But that’s the way it is.
Today’s topic is actually something I decided to take from the intake that we have our investors complete before we set up the meeting. Every time we have a meeting with a new investor, someone who’s considering investing with us, we set up a strategy session before that. We ask that you complete two or three minutes of a few questions to get ready for the session properly for us and for you.
I look at those questions, and I see some repetition. One of the repetitions I’ve seen in the past several months was, in some of the comments, someone says, “My biggest concern or one of my concerns is how to make sure I don’t lose money.” I’ve looked through the recent ones, and that topic, literally those words “my concern is not to lose money” came again and again and again. I said, “Okay, this is great. This is an opportunity to address something, obviously, that a lot of people are asking about.”
A couple of things. From my experience, I’ve been investing in real estate since 2002. I’ve been helping others invest in real estate and guiding them since 2004. I’ve been involved in supporting about 3,000-ish, maybe a little bit more, purchases of rental properties, and I’ve done about 100 flips. Actively, at the moment, we have 20 flips going on at the same time, and we’ve done probably 80 or 90 that we’ve completed already.
The question is how do you avoid losing money? It’s a very good question. I don’t think there’s a very clear-cut answer, but I want to tackle this mostly on the rental side from a couple of aspects.
First of all, in my career, we’re talking about 16 years of investing, the only time I really saw people losing money is if they sold their house during the recession that we had about 10 years ago.
If someone purchased at the peak or not at the peak and a year/two/three/four later their house went from, let’s say, 200,000 all the way down to 85. Not only that, they, for one reason or another, decided they needed to bail out, sell, maybe do a foreclosure, and that’s when they lost money.
I’m not saying you shouldn’t do that, but if you really think about all the other situations– Did I see people losing money? Actually, not really. If you are buying a rental property properly, you have a proper plan, a proper formula how to use it– which we do, and that’s how we help others.
Especially, if you’re not doing anything kind of creative, adventurous, something more of an adventure such as buying a piece of land in the middle of nowhere or a house that cannot be rented or something which is really weird, non-conforming let’s just call it, if you just follow a very good formula that has proven itself and you’re just buying a nice house in a nice area, in a good market, in a growing market, not a declining market, then obviously, your chances of having issues or losing money are very small.
Sometimes, when we own real estate, we have events or situations that we can mitigate such as buying insurance, so if we have a fire, burglary, vandalism, all of those things, we can buy insurance.
If we buy a house, and we are going through some vacancy, yes, we will lose a little bit of money during the vacancy period. I would expect to have a vacancy in every house that I buy sooner or later, but if we buy properly, it doesn’t mean we’re going to have long vacancies.
I have not met a house that has been sitting there for months and months and months. In my world, a house that sits for three months or more, that’s a very, very rare occasion. It does happen once a year that we have a house that sits for three months, but typically, houses are anywhere from a month and a half to two. It can take three and more than two and three. Anything beyond three months maybe happens to us once, maybe twice a year, very, very rarely.
Usually, there is a really good reason, other reasons besides the market, why it’s not being rented such as, for example, an owner who goes out and says, “I don’t want to have pets in my house because they’re going to ruin the house.”
The type of renters we work with or who we have in our properties, 60 percent of them have pets. If you are saying no to pets, then you’ve obviously just cut off about 60 percent of the market. Obviously, that will result with a longer vacancy period.
Buying properly, buying the correct way, especially in rentals, if you buy for the long term, then you are definitely hedging against losses. By the way, even if you have to sell the property sooner than expected in not a perfect timing, you may lose a little bit of money, but that doesn’t mean you lose all your money.
Let me give you an example. One of my investors about, I want to say, two years ago purchased a really nice house in a really nice community in the Tampa area. We don’t know exactly when. Two days before or two days after he purchased the property, the HOA made unlawful changes to the association documents or rules and regulations, what’s called CC&R.
We found out later, it was done in a way that it was not supposed to be done, but it was still done, that said, “You cannot rent the house in the community,” under some special stipulations or circumstances that you need to apply and then rent the house.
He purchased a rental in a community. When he purchased it, there wasn’t any problem putting it as a rental, and somewhere around the closing, that has changed. Rightfully, wrongfully, correctly, incorrectly, it was still changed. He ended up with a vacancy.
The minute I realized what was going on, we immediately started taking some actions towards selling the house because I knew it was going to be a long litigious process of months or years, not to mention that this house will sit vacant, and because there are other rental properties in the area that will sit vacant, people will want to sell it, and the community will go down. The values will go down. That’s actually what happened.
But within a month or two that we were researching that, I told him, “Let’s sell this house.” He ended up with a small loss because he purchased the property and he put some money into it in terms of renovating it a little bit or prepping it for rental, so he did lose a little bit of money, not a lot, maybe $3,000 or so which he can also deduct from his taxes.
But obviously, in this case, we saved up or we prevented a greater loss because about six months later, the house- we looked into it- it was worth $25,000 less than what he sold it for which is about $7,000 or $8,000 less from what he paid for it.
That did happen. It’s a very rare occasion. If you are someone who buys a rental property and you want to sell it exactly, and your plan is to hold it for 10 years. After 10 years, you get to the point where you want to sell it. Exactly that point of time, the economy is not doing well, and you sell it. You may end up with a loss.
But if you’re saying, “My plan is to sell it in 10 years, but if the economy is not doing well at that time, I might as well just hang on to it for five more years, maybe even 10 more years. It will probably do fine.”
Over the history of the last 40 years that real estate data has been tracked, over time, real estate does go up in most markets except in a declining market, declining population-wise and job-wise, markets that have increased in population and jobs keep going up. Some of them are doing more cyclical movements. Some of them are doing more of a straight line.
Of course, during that time, you’re always going to have dips. Part of choosing where to purchase is going with markets that are showing strong growth patterns and steady and projected to continue growing. That will prevent that situation.
Some risk you can mitigate like insurance. Let’s say, for a fee, you have someone else assume that risk. One of the biggest risks that I think we have is ourselves because if we make bad decisions purchasing the property like the area, the location, the whole purchase. Sometimes, I do see that. I do see investors that are just buying weird stuff which I don’t understand why they do that, but that works for them.
You are probably your biggest risk. If you are in a period of time– I can tell you. I have a property in Florida that I purchased in 95 for $190,000. During the downturn, the bottom, that property of $200,000 went from 190,000 all the way to 85.
When you have something like this, this is not fun. This is not great, but I didn’t really care because it was rented. It was rented well. Actually, it’s one of my best rentals. It’s barely sat vacant all those years that I’ve owned that since 95. It barely sat vacant, altogether. Rent just kept going up, not going down. So I have zero vacancy, rent is going up, the property is producing, and value is very lowered. When I looked at it, I don’t remember, probably 2019-ish.
It’s not fun, but since 2009 and 2010, I could see from the bottom where it reached the 84,000 kept creeping up. Now, it exceeded, just a tiny bit, what I paid for it, but I don’t care. I’ve owned it for so many years. This is a well-producing property, zero vacancy, very minimal repairs. It’s just out there producing.
If you are very afraid about losing money, try to specify what is a loss of money, how does a loss of money look like and what you can do. What are the risks, and how can you mitigate?
For example, vacancy. How do you mitigate against vacancy if you can? How do you mitigate against the market going down in terms of continuously going down? How do you mitigate about situations with crook property managers? There are all answers out there. It’s not perfect.
Don’t think for a second you’re going to eliminate the risk. It’s all about risk management and reducing the risk and shifting the risk to someone else such as insurance. Those things will help you in minimizing the chance of any losses altogether, if at all.
It’s all about proper planning and proper executing and doing good decisions to maximize your success.
That’s what I wanted to say about losing money that came up multiple times and how to mitigate against that and what you can do, how to mitigate about risk. Don’t look at it as just binary “it’s losing money or not”. Define your risk. Define your concerns. Literally, put a list down and see how you can mitigate every one of those points such as vacancy, property management, values, economy, and all of those things. That will lead you to go in the right direction or a better direction or a higher chances of succeeding direction with your investment property.
That’s everything I have to cover today. Let me just see my notes. I want to make sure I didn’t miss anything . If you have specific questions related to this topic or other topics related to real estate investing, by all means, use the comment section. I’ll be happy to take them. I’ll wait for maybe half a minute/a minute to see if there are any questions coming in.
In the meanwhile, I’m going to put a link here. [simplydoit.net/ebook] I have put together a small eBook, maybe 20 pages or so, easy read. It talks about different aspects of real estate investing. It’s free. You’re most welcome to download the eBook and go through it. It really outlines everything in a simple way, structured, very easy to follow, very easy read.
I also want to mention that I’m setting up the venues as we speak. Yesterday, today, and probably Monday, but I’ll be speaking live, not through Facebook- maybe we’ll do streaming as well- in San Francisco at the beginning of March and also in Sunnyvale at the beginning of March. I’ll be up there. I’ll be in Orange County in LA probably within a month, somewhere about a meet. February.
If you want to get notifications about those events, you can send us an email to meet. You can send us an email, or you can just post your email here or send me a direct message, and then we will put you in our database, our mailing list so you can get notifications on any of these events directly. I’m sure they’re going to be posted to Facebook as well.
I see no questions are coming up. With that said, I’m going to wrap up this session that we talked about risk mitigation and the fear of losing money and how to avoid it. I want to thank you for taking the time. Have a great rest of your day, and actually, have a great weekend.
If you have any specific questions and you want to talk to me and not in a public format, more private, just get in touch with me in any of those ways: email [firstname.lastname@example.org], Facebook, whatever works for you, phone [650-440-5544]. Thank you very much. Have a terrific rest of your day. Bye-bye, everyone.
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