How to Avoid Rookie Mistakes as a New Real Estate Investor (Audio)

Real Wealth Show: Real Estate Investing Podcast

It’s easy to make mistakes when you’re buying your first income property. But there are plenty of things you can do to avoid those rookie moves that new investors often make. Educating yourself is a good place to start, which is what this podcast is all about. And listening to stories about other challenges that other investors have had to deal with.

In this episode, you’ll hear from Brandon Pritzl who works a full-time job in the aerospace industry, and just bought his first rental income property. He had his first big challenge right away, but he saw his way through that rough patch. He’s now planning on growing his portfolio to provide financial flexibility for his growing family, and he will share what he’s learned, so far, in this interview.

If you’d like to become job optional with rental property income, join RealWealth for free. As a member, you'll have access to the Investor Portal where you can view sample property pro formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. Go to realwealthshow.com to join.

Transcript

[00:00:00]

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Voiceover: You're listening to The Real Wealth Show with Kathy Fettke, the real estate investors' resource.

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Kathy Fettke: What are some rookie moves that new investors make that you could avoid by listening to The Real Wealth Show? I am Kathy Fettke, and thanks so much for joining me here. Our guest today, Brandon, just bought his first property and learned a lot of things along the way that I thought were really, really valuable to share with you here on today's show. Brandon, welcome to The Real Wealth Show.

Brandon Pritzl: Well, thanks for having me on the show. I'm happy to be here.

Kathy: Let me start by saying, what inspired you to choose real estate over the stock market? You may be also invested there, but what inspired you to choose real estate?

Brandon: I think a few people, I started reading that purple book, Rich Dad Poor Dad, a few years ago. My dad had been trying to get me to read that for a couple of years, and I finally got around to it and wish I would have done it a few years ago. That started my journey into self-education. I started listening to podcasts, including your show. I even read your book as well and a bunch of other books as well, as I was trying to start to build up the funds for an initial downpayment on my first property.

Kathy: Tell me the things that really stood out in that process of learning, with real estate versus investments.

Brandon: I think just the five ways that you can grow your wealth. It's not just dependent on people buying or selling or any whimsical changes in the stock market, you can actually be very planful and methodical, and real estate moves very slowly, comparatively. I liked the fact that [00:02:00] you could educate yourself, really hone in on what your strategy would be, which markets you want to target.

Me being on the younger side, I wanted a healthy mix of a cash-flowing market with appreciation potential, knowing that I want to buy and hold for the long-term. I think real estate provided that monthly cash flow. You've got your appreciation potential, you've got your inflation hedging, you've got your tax benefits. You can do cash-out refinances down the road, you can do 1031 exchanges to defer any tax. I just thought there's a lot more advantages, going this route than maybe some other investment vehicles.

Kathy: I agree. It is amazing that you can lock in these low interest rates for 30 years, while we're seeing rents go up and home prices go up. You got someone paying down your mortgage for you, you got tax benefits. That saves you even more money and then somebody else paying off your debt and creating that growth, the equity there. If you just look at fundamentals, you don't have to worry so much about markets going up or down.

You just pay down the loan, or I should let someone else pay down for you and pay less in April to the IRS. Okay, good. I know when I bought my first property, there felt like so many unknowns. It just felt like this overwhelming thing, how do you even get a loan and read all those documents and look at an inspection report and so forth? I know you said Leah, our Investment Counselor at Real Wealth Network, is really helpful. What did you learn from-- Let's just start with the loan application process.

Brandon: [00:04:00] I think throughout the whole process, I learned the incredible value about building a team around you. Leah being one part of that team, I found a lender that I really liked after speaking. I went and did my rounds and interviewed different vendors that I'd like to work with, and I know that you guys have your preferred list of vendors, I'm working with one of those.

On the tax side, working with CPA, making sure that your property management is solid since they're the boots on the ground in that area. I think just initially coming into it, it can be a little bit overwhelming, but I think you just got to get out there and start talking to people. I think the more property management companies you talked to, the more lenders you talk to, the more well-informed you become.

You can pick their brain about different questions to be asked, to be asking them. Then you start to develop different criteria that you'd be looking for as you become more exposed to it. My advice to any new person starting out would just be just to jump in and do it. Obviously, do your groundwork and some homework and a little bit of research.

Kathy: You did watch a lot of webinars and listened to podcasts. There was learning that happened before you started making those phone calls. [00:05:32] Were you surprised at all at what the mortgage broker came back with, as far as what you could qualify for and how many?

Brandon: Yes. I was surprised by the quantity and the rate I ended up getting. In all of my cash flow projections, I'd budgeted for a certain amount, and it came in well below, and I think that's the icing on the cake [00:06:00] for that particular deal. I think I definitely want to utilize-- I'm married as well, so utilize the 10 loans in my name and then in my wife's name so we get those 20 and then get and plan next steps after there, after that point.

Kathy: I was going to ask you. Was that your ultimate goals, to get 10 each?

Brandon: I think so. I'm relying on this property to be my proof of concept for my wife to get her to buy in. I think she's trusted me thus far, knowing that I've done my due diligence and research along the way. I think showing her the monthly mailbox money in the account, I've been including her on any updates from property management or any repairs that might be needed, talking through different things. She has some good gut instincts on different questions to be asking folks that I didn't even think of, so she's definitely been a great partner, in that regard.

Kathy: Wonderful. It sounded like maybe now that you're having a family and starting a family of one child, do you intend to have one of you stop working at some point with the help of the cash flow?

Brandon: Yes. I think that's the ultimate goal there to use real estate as a vehicle for one of us first to be job-optional and then hopefully down the road, we can both be job-optional and maybe do some passion project work. The main thing is just to be able to have flexibility to be able to set up a comfortable life for my little baby girl and any more that might follow. I think [00:08:00] that's the goal for now as I see it, that might grow and evolve and change, but right now, definitely, just to give us a little bit of flexibility.

Kathy: When you look at the tax benefits you'd get from owning these 20 properties, you would just save, right off the bat, enough money that the second person wouldn't even have to work because the tax savings would cover it. The question is who quits their job first, right?

Brandon: Exactly.

Kathy: What did you learn? What surprised you about the kind of tax benefits you can get?

Brandon: I think the more I learned about both the cash-out refinance options, being able to basically use your home as an ATM to pull cash out and redistribute that equity for other properties that will be income-producing, that and also learning about different tax exchange, two different vehicles to grow your portfolio. I think initially, what might make sense for me is probably first looking at cash-out refis, depending on how the market goes over the next few years.

I probably only want to put my own money into a down payment and into one more investment and then hopefully be able to use the income generated from those income properties and any appreciation games there to get the snowball rolling, making other people's money work for me. I think those were the two standout things on the tech side that are like, "Oh, that's an aha moment."

Kathy: Now, you said when you actually went to [00:10:00] acquire your first property, there were some challenges. You were working with another group and you felt like just a number. It wasn't going the way you wanted to, so you found RealWealth and started working with Leah, who was able to really look at the whole picture, and you're more than a number. She really wants to see you succeed. When you came into some issues with the inspection report on that property, what did you notice? Inspection reports never come back perfect, but what was on that report that had you walk away?

Brandon: I think it was just the volume of things that were wrong. Then when going back to the seller with my list of everything that I wanted to get repaired and have them cover and deal with, I did a re-inspection after they said that they had done the work, and still, issues came back. I just had that gut feeling that this probably wasn't a team that was up to the standards of what I'm looking for.

I would have hoped that I wouldn't have to do different rounds of re-inspection and that they would make the fixes to everything the first go-round. Ultimately, I just didn't feel comfortable having to go through multiple rounds and a little bit of lapses in communication there, and lack of transparencies.

Kathy: Oh, I love, love, love that you're saying this. I don't know which team this is, and we didn't have to bad-mouth anybody here.

Brandon: No, of course.

Kathy: It is the investor's job to do their job. We can't just go and just [00:12:00] hope that something comes back. This is real estate, it has issues. The inspection report will tell you what those issues are. First and foremost, so many people skip that step. Never ever skip the step of getting a third-party expert to look, from roof to basement, what's going on in that property? Now, if you're buying a renovated property, a turnkey property, there are so many definitions for turnkey.

There's probably 50 different companies who call themselves turnkey, but they all have different standards. One might think, "Oh, I just changed the carpet, now it's turnkey." Another might say, "I have completely rebuilt it with all new electrical, all new plumbing, all new everything, HVAC, and so forth." At RealWealth, we have standards that any teams that we refer people to, they're supposed to meet our real income property standards, but it's really hard for them to find those properties.

Sometimes they just resell. They're called rental resells. They just resell a rental that hasn't been updated, or they provide brand new homes. There's this whole spectrum of brand new to renovated to not renovated at all. It's the investor's job to find out the condition of the property because, at the end of the day, you're the one buying it and owning it. Now it's yours, you got to deal with it.

Never skip the inspection. Then what I love that you did is you went back to the seller and said, "Hey, these are issues. Which ones will you fix?" A lot of times they'll come back and say, "Oh, I'll do all of them," or some of them, or none of them. It's up to the seller. At the end of the day, it's their company. They said they fixed them and then you got a second inspection report. Did you have the inspector just go back, or did you have to pay for a full, completely new inspection?

Brandon: Yes, I had to pay for a re-inspection, which was a lower price for him to go out and look at those [00:14:00] repaired items specifically. He still had findings, and stuff looked like it hadn't been fixed. If I were to go one other round, I would have asked the seller to pay for the third inspection, but I think at that point, I had just had a little bit of a bad taste in my mouth, so I ended up walking away.

Kathy: Yes, that's the third point I wanted to make, is that you've already lost trust. You said there was problems with communication. They said they fixed things, they didn't. Why on earth would you go through and purchase that property? I'm going to tell you, we see, out of the thousands of people who invest, there are people who would still move forward.

The reason is, "Oh," they think, "I don't want to go through that all again. I have to find a new property and get a new inspection. I already spent all this money on the inspection report. Maybe these people will get better." They go through with it, even though in their gut, they know they shouldn't. I really want to say I admire you for moving on. Was that hard for you to do?

Brandon: Yes, because I was ready to pull the trigger, ready to get going, ready to get the monthly rent checks. I think it was frustrating but ultimately a great learning experience for me in sticking to my guns and what I'm looking for and my standards and ensuring that I'm working with teams that I'm comfortable with, that I trust, teams that have good communication, that follow through on what they say they're going to do because that's the kind of service that I would deliver to someone if I were in their position, so that's what I expect. I would want to only surround myself with a team that is able to follow through on that.

Kathy: 100%. It's a long-term relationship. You would not want to pursue [00:16:00] a personal relationship if, at the very outset, someone is letting you down and breaking trust. Then you tried again. Where did you end up? Which city did you end up buying in?

Brandon: In Cleveland, I found a great deal right in the price point, I reserved it as quickly as I could. I did my due diligence quickly and proceeded with getting it under contract. The clause was a little bit drawn out only because of delays with COVID, difficulty in getting technicians out in the middle of winter. I had identified this property in late November, and I think that was right during the height of all the bad outbreaks during COVID, so they're a little bit apprehensive letting people into the property for inspections and repairs and then having to deal with snow on the roof and all those things that the California boy doesn't really know firsthand how to deal with,

I think, ultimately, it was a very good process. The team over there and the property management in place is solid. It's been a good experience for me thus far and a good market as well, meeting the needs of what I was targeting, like the mix of that cash flow and appreciation. Yes, I think, for now, I have my eye on that Cleveland market and the Cincinnati market. I know you have a great team based in Cincinnati Dayton.

Kathy: We do. The problem is it's just been so hard for them to find inventory, the prices.

Brandon: I know.

Kathy: Cincinnati was one of the areas where prices went up the most, I think 17% since last year. It's really hard for our team to find those [00:18:00] deals, but if they can, then grab them while you can because I think with those tertiary markets, those outlying markets, national builders weren't flocking to them. There wasn't a whole lot of new inventory being brought in, yet demand is so strong.

We're seeing areas that are typically flat, just skyrocketing price and making the whole narrative of cash-flow market go away right now. I'm glad you were able to find something. What was the price point in Cleveland?

Brandon: Around $120,000, I think just slightly over.

Kathy: Oh, that's amazing. It's amazing you can still get that today. [crosstalk] Wonderful. What's some final advice you would give to our listeners who are new to investing or just thinking that it's just a horrible, terrible headache and they don't want to do it?

Brandon: I'd say, do your research, read, listen to podcasts, watch videos. I would say it's very helpful to work with an investment counselor like you have on your team. They'll really help you be able to narrow in and zero in on markets that fit your goals because no two investors' goals are the same. What might work for me might not be the best fit for someone else.

Doing your research, identifying what's important to you, what your goals are, and then talking with the investment counselor to zero in on those markets that meet those needs. I think now it's just a waiting game and got to act fast once some inventory becomes available. I'm hoping later this year, as things start to open up, we start to see a little bit more inventory become available. [00:20:00] I think those would be my pieces of advice and also just sticking to your guns in what your standards are and not really compromising on that because it's a long-term game, it's a marathon, not a sprint. You want to have good partnerships and team members in place that will have your back for the long haul.

Kathy: Oh, I love that. You want to be in a good-- You need to be well-prepared for a marathon, and you need to be well-prepared for building your portfolio in real estate, absolutely. All right. It's been such a pleasure to have you here on The Real Wealth Show, and thank you so much for sharing the ups and the downs in the whole process of investing and getting started. I really appreciate it.

Brandon: Of course. I appreciate you taking the time. Thank you.

Kathy: Well, we hope to have you back when you're up to 10.

Brandon: I'd love to. All right, thank you.

Kathy: All right, take care. Thank you for joining me here on The Real Wealth Show. You can get access to hundreds of educational webinars for free at our website at realwealthshow.com. You'll also get access to different property teams across the country, really highly recommended by our members, who can help you buy an investment property that's been already renovated or is brand new with property management in place and sometimes tenants already in the properties for a kind of done-for-you investment property.

You can get access to that information again at realwealthshow.com. All you have to do is join, and it's free to join. All right, have a wonderful rest of your day. Lets's see you next time, bye-bye.

Voiceover: The views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com.

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