I’ve got a guest blog post for you today…
It’s by a friend of mine named Brian Ellwood. You’ll see pretty quickly why I’ve asked him to share his expertise with us. For now, let’s just say that considering what he teaches, it’s more like he’s… me!
So, I’ll let Brian take it from here…
How Virtual Real Estate Investing is Destroying Barriers for Would-Be Investors
“It’s my belief that you should live where you want, and invest where you should.” – Brian Ellwood
If you’re reading this, then I probably don’t need to convince you that real estate is the most predictable, controllable, and lucrative asset class you could ever invest in.
You know that real estate has made more millionaires than any other category. You understand that real estate cash flows predictably where other assets only rise (and fall) in value. You grasp the fact that regular, monthly, passive income is what gives you freedom, not a large net worth that you have to liquidate in order to spend.
You believe all of that. But believing is not enough.
Most potential RE investors have read the classics like Rich Dad, Poor Dad. They would LOVE to have enough passive income coming in to cover their expenses so they could spend their days as they please.
That’s the true definition of both financial and personal freedom. It’s one of the sweetest dreams imaginable.
But for most, it’s just not reality.
My name is Brian Ellwood. I’m a real estate investor and educator. I’ve been buying houses for the last 7 years and have created a foundation of financial freedom that I can fall back on. Now, whatever I do – I get to decide the answers to: when, where, what, and with whom. It’s awesome.
But, I did it the hard way and I made a LOT of mistakes. I’m here today to save you time and plenty of headaches.
Looking in the rear view mirror, I can honestly sit here and tell you that all of the resources you need (the money, the deal, the management team, etc.) are already out there for the taking, no matter who you are or where you are in life.
It’s on you to get the courage to put the pieces together.
The #1 Obstacle Would-Be Investors Face
As a coach, the #1 obstacle that most of my clients face is mindset. The thoughts between their ears. The objections they allow to just sit there, unexamined.
Let’s destroy a couple of the most common objections right here and now. Two of the most common objections I hear are:
1) There are no affordable houses in my market!
2) Who will I get to manage it?
Let’s be honest with each other. We know that these objections are B.S. They have no basis in reality. Other people have found the answers to these questions decades ago, and used them to create success over and over. Today, the answers are all over the internet, for free!
But, as long as these objections go unexamined and unanswered, they will express themselves as fear. Fear doesn’t feel good and it paralyzes you from taking action. So the questions remain just that…questions. Vague and unanswered, they float between the ears of the would-be investor, causing paralysis.
If this is striking a chord with you, let me speak to you directly:
It’s on YOU to examine and eliminate all of YOUR objections towards becoming a real estate investor and creating your freedom.
It’s seriously worth listing them out on paper and going through them one-by-one. By the way, no one else is going to do this for you. (It’s the hard part)
Real estate works. Hands down. It worked for me, and it’s worked for millions of other people. There’s a reason why the guy who buys up all the spaces on the Monopoly board wins the game every time. It’s because every damn time you land on a space, he owns it, and you gotta pay him. Winning for him is easy.
If you buy up a bunch of little houses, you’ll win easily too – at your own game of financial freedom. It’s really not that difficult. In fact, it’s pretty hard to screw up, especially if you find a good mentor.
Let’s tackle the two objections above so you can get on the way to creating your freedom.
Objection #1 – There are No Affordable Houses in My Market!
This is a valid objection. If you live somewhere where the prices are too high, you shouldn’t buy investment properties in that city. I don’t care how comfortable it makes you feel to “be able to drive by” (I’ll talk more about this in Objection #2).
First, let’s make sure prices are really too high in your subject market. As a rough starting point, I use the 1-2% rule to determine if the rent-to-price ratio in any market is acceptable for investing.
The 1-2% rule states that:
One month’s rent should be equal to 1-2% of the purchase price. It can be higher than 2%, but NOT lower than 1%.
So all you have to do is divide monthly rent/purchase price and you can roughly see if the investment will be a good one or not.
$70,000 house that rents for $700 $700/$70,000 = .01 (or 1%) Barely meets minimum requirement – possibly buy
$70,000 house that rents for $500 $500/$70,000 = .007 (or .07%) Doesn’t meet minimum requirement – don’t buy
$70,000 house that rents for $900 $900/$70,000 = .012 (or 1.2%) Above minimum requirement – buy!
So, as a starting point, the available deals in your market of choice need to fit the 1-2% rule. If they don’t, it’s time to find another market.
The benefit of investing virtually is that, instead of being blinded by the city you live in, you can objectively research all of the available markets and choose the one with the best rent-to-price ratio. Literally every market in the entire country is available to you, as soon as you open your mind to it.
(Notice I said objectively . Remember, the actions of an intelligent investor are based on logic, not emotion. They are disciplined.)
Once you find a market that fits the above criteria, you can move onto the second indicator of a good real estate market to invest in…
Economy is really important. It only makes sense to buy homes in cities where the population is growing, not declining. That means you actually need to look up this data, and compare it to other markets.
Once you confirm that the population is growing, you then need to make sure there are multiple economic sectors in your city of choice.
In other words, if the entire economy of a city is supported by the existence of a coal mine, it’s not a good place to buy real estate. If the entire economy is governed by the existence of a Chrysler factory, it’s not a good place to buy real estate. If the coal mine dries up or Chrysler moves or shuts down, the economy in that city will tank.
Guess what else will tank? Real estate prices and real estate demand (meaning it will be harder to find tenants).
Again, the beauty of virtual real estate investing is that, instead of being limited by the economics of your local market, you get to scour the entire country to find the markets with the best indicators, and place your money there.
Are you starting to see how local investing is limited, and virtual investing is limitless?
Objection #2 – Who Will I Get to Manage It?
Why do entrepreneurial parents always encourage their kids to “take over the family business”?
It’s because they feel like their kids are the only people they can trust to truly care about and run the business they way they would. As you’ve seen, this often leads to disaster, because the kids either have no idea how to run a business or no interest in doing it.
If you still have that “family business” mentality, where you’ve got to do everything yourself, then you won’t be able to scale your investing business. You’ll be too busy entering numbers from crinkled up receipts into your Quickbooks or taking phone calls from the tenant at 2am about the busted pipe in the kitchen. You will never be able to do any high-level activity (like putting more deals together!).
The ceiling on what one person can do is pretty low. It’s also the most difficult and unenjoyable path to victory.
To be successful as a real estate investor, you need to build a team of people you can trust who can do the little things for you.
I’ve got good news for you. There’s plenty of trustworthy people out there. If you can’t find them, you’re either not looking, or you’re closed off to the idea that you can trust people.
I personally haven’t seen the majority of the properties I own. I have no idea who the tenant is. But I do understand the statements I receive each month. Even more important, I trust the person who is managing the property for me. That’s what matters most.
So again, we’re going back to mindset here. You know you need a good team. Are you building it?
Here’s the key people you need on your team before you begin investing in any market:
Realtor – to find you deals and give you advice
Wholesalers – to find you deals
Property Manager – to manage your properties
Contractor – to give you repair estimates and perform repairs
Inspector – to do home inspections before purchasing
Title Company – to handle the paperwork of buying and selling and creating notes
Lender(s) – to give you the money (banks and private money lenders)
That’s a lot of people, I know. Building a good team doesn’t happen overnight. But the good news is that you can swap out existing team members for better ones as you discover them.
For example, you might find an OK contractor who serves his purpose for the first couple houses, only later to discover a much better one. You replace the first contractor with the new one and your team has now been upgraded. Building a great team is basically a series of upgrades over time. In the beginning, it’s OK to have a few average players on the team.
(The property manager and contractor are the most important. Don’t skimp on those if at all possible.)
Finding a Turn-Key Operation
If you are a more hands-off investor (you just want your cashflow), turn key real estate is the perfect solution for you. You can get on board with someone like Ron Phillips and you will be well taken care of.
The beauty of turn key companies is that they not only have the DEAL, but the house has already been renovated to rent-ready condition. They also usually have most of the other team members that you need as well. They have already vetted people in the market (and weeded out the bad ones) so they will refer you directly to people you can trust.
You’re essentially extending your trusting relationship with them out to the people THEY trust. Trust by extension.
Leveraging the resources of a turn key company is one of the fastest ways to achieve financial freedom. What’s even better about turn-key outfits is that they only suggest investing in markets where the price + economics make sense. That’s, in essence, what they are all about. Helping investors make good decisions to secure their financial future.
It’s my belief that you should live where you want, and invest where you should. I don’t think they two have to overlap, nor should they, unless it’s a rare coincidence.
Even if you live somewhere that the numbers make sense, it’s not likely that you live in the one of the best markets for real estate investing. Open yourself up to the idea of buying in virtual markets, and you’ve just opened yourself up to receiving a much higher ROI on your investments, and greater chance for appreciation and long-term stability.
The only thing holding you back is identifying your market and building your team. Once you have those things in place, it’s so much easier to add new properties to your portfolio. The whole process is repeatable.
I hope this article has removed some of your objections to becoming a real estate investor, and to investing virtually.
…now, go fill your Monopoly board with those little green houses 🙂 Brian
Brian Ellwood spent most of his childhood growing up near Nashville, Tennessee. After graduating from the University of Tennessee and spending a total of 15 years in dead end jobs, Brian turned to real estate. He started his real estate investing business in 2010. Brian’s company now does over 70 fix n’ flips per year in Middle Tennessee and owns a portfolio of rental properties. Brian lives in Denver and manages his team and his projects virtually. Brian is also a real estate investing coach, teaching others how to build virtual real estate businesses in any market and create a portfolio of low-risk rental properties that generate passive income.
To learn more about Brian, check out his new book at fireyourself.net and attend one of his weekly LIVE trainings for free at virtualinvestingclass.com