**Last week, non-subscribers missed out on my Paycheck Breakdown via my weekly email digest. This week, the email digest will include my complete Spending Breakdown. Sorry, I’m just not ready to post that info on the interwebs.
I finished listening to the audio version of The Book on Real Estate Investing With No (and Low) Money Down on Audible, so I thought I’d give you a quick re-cap of the book in case you were interested in learning the basics of real estate investing and didn’t know which books were solid starting points.
About the Author
The Book on Real Estate Investing With No (and Low) Money Down was clearly narrated and a super quick/easy listen. The author, Brandon Turner, is somewhat of an online celebrity in real estate investing. He got into real estate at age 21, with very little money in his bank account. He started on the Biggerpockets.com forums and jumped right into investing.
Brandon is now 32 years old, easily a millionaire, and is financially independent thanks to his rental income. He writes a ton of the published content for BiggerPockets.com and also is the co-host of the Bigger Pockets Podcast. Something I love most about Brandon is that he slows down the experts they bring onto the podcast, and he forces them to explain all the fancy terms they use for newbie listeners like me.
This real estate investing book focuses on many of the major areas, but with a tilt in favor of being creative, frugal, and using as little of your own money as possible. Here’s how the chapters are laid out:
- Types of Financing
- 1Owner-occupied investment properties, AKA “House Hacking”
- 2FHA loans, including 203k, USDA loans, VA loans
- Pitfalls to Creative Investing
- 3Home Equity Loans and Lines of Credit
- Strategies for Using Hard Money
- Raising Private Money to Fund Your Deals
- How to talk to potential lenders, elevator pitch etc
- Lease Options
- 4Seller Financing
- Real Estate Wholesaling
- Creative Combinations
1House Hacking is where you buy a home using an FHA (or VA) loan to get the 3.5% down payment (or 0% down if it’s VA). You live in the home, but rent out part of the house to other people with hopes that you can cover your mortgage costs and live for free. In a lot of cases, it’s a multi-plex (multi-family home) with completely separate living areas or apartments. It’s real, and people do it every day. Ask Guy On FIRE, it’s worked out pretty well for him.
2203k loans are FHA loans used to cover the cost of purchasing the property AND the repairs/rehab costs as well. This is probably one of the best products available because typical loans will not cover rehab costs. But it comes with extra red tape and due diligence, and all of the rehab work must be completed within six months, after the closing.
3Home Equity Lines of Credit (HELOC) can be used to create a revolving line of credit based on the equity you already have in your current home. This HELOC can be tapped anytime you need cash for a flip or rental. The idea is that you don’t have to go out and deal with the hassle of finding an investor to fund rehab costs. The ultimate goal is to force enough appreciation in the property to cover your rehab costs “and then some” so that you can re-finance the current loan on the home, pull your cash back out of the property, and then pay the HELOC balance off. You don’t want to keep a balance on the HELOC long-term. Ideally, you should use it just for borrowing cash over a period of 6-12 months.
4Seller Financing is a concept that I had no clue existed, but it’s something I’ll definitely keep open as an option. If a seller has a bunch of equity in a property, and they are older, they may be interested in a steady stream of cash flow rather than having a lump sum to figure out what to do with.
As mentioned in the bullets above, wholesaling is discussed. I thought it worth noting that Brandon spends a significant amount of time talking about wholesaling so if that’s something you’ve been interested in reading more about, this book would be a good one to check out.
An Outstanding Second or Third Book
The Book on Real Estate Investing With No (and Low) Money Down is a fantastic book for investors looking to get started with little cash.
If you have never read about real estate before, I wouldn’t recommend you getting this book as your first, though. If you are looking for your very first real estate book, I would suggest that you click here to check out HOLD: How to Find, Buy, and Rent Houses for Wealth. Finish HOLD, then move onto this book as your second read (or listen). You can read more about my review of HOLD (and others) here:
I’m not saying that the book is second-rate. I just don’t think it does as good a job as other books on covering the basics and helping investors understand the return potential of real estate investing. I also don’t believe the book was written for that purpose. I think it’s more to focus on investing for people who don’t have a lot of cash, on which i think it does a wonderful job.
Why Real Estate?
Fantastical, regular readers know that I’m 100% debt free and building wealth, looking for a way out of my day job. If you are new to the site, catch up QUICKLY by reading these posts:
In my search for a way to avoid rotting away in my office for another 30 years, I discovered the FIRE (financially independent, retire early) community. I love it.
Since then, I’ve learned about creating multiple income streams, and the best method I’ve seen is real estate investing (REI). Specifically, buy and hold investing for the purposes of creating rental income. More average joes become millionaires in a short amount of time thanks to REI, as compared to any other investment.
Sure, if I keep working and saving for the next 10 years, I’ll be a millionaire on paper, and I’ll be able to sell off some of my investments each year using the 4% safe withdrawal rate. But that’s just not my style.
Components of Real Estate Awesome-sauce
Don’t get me wrong, I’ll keep investing my butt off into mutual funds, but I think I can get a better overall return by taking advantage of these neat components of real estate investing:
- Appreciation of the property (just like owning a stock that goes up in value)
- Debt pay down by renters
- Tax deductions through property depreciation expense
- Positive monthly cash flow
So I believe I’ve discovered a quicker route, and that’s where I’m headed. Please keep checking back with me to see how I’m doing!
Why Low or No Money Down?
Yes, this means having debt. I’ve done a lot of thinking about this topic, and I have ended up on the side of “I’m fine with taking debt on money-generating assets.”
If you want to invest in real estate, and you want to do the 100% cash approach, fine. I worked those numbers out, and it equates to me buying maybe 4-5 properties over my entire lifetime. No. Not for me. I’m interested in having 20-30 properties within the next 10 years.
If the asset is generating income, I’m just fine with taking on the debt, but it’s a business decision. And it must be done based on strict criteria. I’m operating on this model:
- 10% annual Cash on Cash Return
- $150/month in positive cash flow, per Unit (2 units in a duplex, etc.)
- Priced at 30% Below After-Repair Value (ARV) – this one I’m still working on, any experienced investors feel free to comment.
- All calculations account for setting aside money from rent collected per property:
- 8% for potential vacancy, helps to cover mortgage with no renters
- 5% for repairs
- 5% for capital expenditures (long-term savings for HVAC, roof, etc)
- 10% for property management (I don’t intend to use PM to start, but some day I will, so it must cash-flow with this included in the calculation)
I’ve had this discussion on twitter, and I know there are some folks who are die-hard on no debt and zero risk. Here’s my final thought: Every investment involves risk. It’s a matter of understanding and managing that risk properly. If you don’t play, you can’t win. And I respect that your risk management approach is different than mine.
Audible – Check It Out!
You might have noticed that I churn through books pretty quickly, especially for a full-time worker with two kids, a wife and a blog. I’ll be publishing a short post on how much I love Audible, later this week, but if you want to go ahead and check it out, follow the link below.
We happily pay $15 per month for our subscription, but it’s currently available for $8.95/month for the first six months.
If you don’t like the idea of having all of your books in a cloud-based audio library, this is probably not useful for you, but I use the hell out of it.
That’s All Folks
I love to share my thoughts on recent books I’ve read that I find helpful. Some of them are not so helpful, and I don’t share those on my site. Great thing about using Audible, is that I can return them if they end up being duds. In my next post, I’ll share screenshots of me returning a book so you can see how easy it is.
Do you have any books you’d recommend me reading? If you’ve read this one, feel free to share your thoughts below. Also, please subscribe below if to get a weekly digest of my new content.