Email us at experiencematters@memphisinvest.com! We'd love to hear your questions and discuss the turnkey real estate topics you're interested in!
COMMON OBSTACLES
Early on, Chris brings up how back in 2008/9, real estate investing was ‘easy’ for those willing to take the risk. With inventory being so high, prices being so low, and many people not wanting to dive into the then uncertain world of real estate, brave investors were able to use a lot of this to their advantage. Now, in the current market, the biggest hurdle for new investors is pricing. The cost of properties, materials and labor are all much higher, so anyone who was not in on the ground floor could be left behind.
You can pre-order your copy of The Turnkey Revolution, the first book release from Memphis Invest chronicling the best advice on how to safely build a passive portfolio from real investor experiences!
Another obstacle for some newer investors is qualifying for a bank loan. Most people are not in the position to purchase properties with cash only, so finding the right lender and using your properties as leverage to expand your portfolio are also key components to successful real estate investing. This topic is also discussed in a video Chris did, Becoming a Bankable Investor.
PASSIVE VS ACTIVE
Some newer investors may find it frustrating and time consuming to invest in real estate, as it can take a lot of homework and investigating to make sure that you find the right property, can finance that property, get it under contract, and make necessary repairs all while trying to market the property for a lease. That’s when being a ‘passive’ investor can really be a better fit for some people. If being hands on and taking on ALL the risk is your style, then you are what we call an ‘active investor’.
Being passive vs. active can have it’s pros and cons. Some people get a lot of enjoyment from being the primary decision maker on all aspects of real estate investing. But to others, it can be daunting and overwhelming. Passive investors have the option to invest through REITS, hedge funds, or building their own team through turnkey real estate. They also have the control over their finances, without having to be overwhelmed with all the details.
Bottom line, Kent said it best when he says you’re only going to get as far as the people you’re working with. So whether you’re a passive investor or active investor, who you choose to be on your team will ultimately decide how successful you and your investments are.
Transcript available below the video.
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Experience Matters Podcast Transcript: Overcoming Challenges for New Real Estate Investors Part 1
Kent Clothier: Hello everyone. Welcome to the Experience Matters podcast. Kent Clothier Sr. Here, your host today. I got my two sons back on here today for another round. We did this a few episodes ago. Chris is on here and Brett's on here. We'll hear from them in just a second. Today we're going to talk about challenges for the new real estate investor in today's market. I'm going to be hearing from both Chris and Brett in just a second. I want to remind you that you can find us on the Memphisinvest.com website, both audio and video, as well as Stitcher, SoundCloud, and iTunes. We ask you to join us on any of those venues and today I think we're up to number 27, 27 episodes. This is the start of number 27 today. Let me jump in here with Chris and Brett. Welcome guys. Say hello to our audience, please.
Chris Clothier: I'm back. Happy to be here next to you Dad. What's happening, Bud?
Kent Clothier: Thank you, Chris, for being here. Brett?
Brett Clothier: I was on a couple weeks ago. I guess I am allowed back on now. It's been a while since I was on. I'm not on as often as Chris, but I guess Dad likes something in what he heard, maybe. Or maybe not.
Kent Clothier: We checked the SoundCloud numbers, and the Stitcher, and the iTunes, and your episode, so far, Brett is ranking as one of the top most download and listened to, one of the most getting to the very end episodes that we have, so we ...
Brett Clothier: Well, knowing myself like I do, I can't say I'm surprised so. I'm glad to be back.
Chris Clothier: Time to get you back on.
Kent Clothier: All I want to know is if anybody fast forwarded to the end, okay? But anyway, back on to here today. The only thing I miss is that we don't have Kent Jr on here with us, so maybe one day we can have all four of us on and doing a podcast where we have everybody on here.
Brett Clothier: We do have bobble head dolls of all of us in the corner over there if we want to bring Kent over, Dad, to sit on the ...
Kent Clothier: To sit on the corner.
Brett Clothier: ... next to you with the camera.
Chris Clothier: It's a hard to get a word in with you two if I add him to the equation, I'm not sure how easy it's going to be to get a word in so we'll see if that happens.
Kent Clothier: Alright, so let's get into it Chris, this is a really, really good subject for a lot of our listeners that are getting started in the real estate businesses, looking for what the challenges are gonna be and maybe how we can help them work through this minefield.
Chris Clothier: Yeah well speaking of looking at your numbers and looking at each of the downloads and everything. We noticed that your episodes are being shared a lot, lot of people are sharing them, we don't know if they're necessarily sharing them with friends or family or colleagues or if they're being shared through social media. We just know that they're being downloaded, they're being shared, you've got a lot of listeners that, you know, the first time they listen they're not registered or they're not downloading the episodes, so they're being invited in and that to us tell us they could be new investors, they could be new to the space trying figure out, you know, what's going on.
Chris Clothier: They obviously are investors that did not get in when the market was at the bottom, you know when investing was, you know you didn't have to do a lot to find a good deal, you didn't have to do a lot to make things cash flow, there was just deals all over the place. And that's a different story today, you know, so I thought this would be a great topic since your podcast is being shared so much and people are sharing it with other investors and we assume a lot of them are new, this would be a good topic for them to hear about, right?
Chris Clothier: So we thought we would go into what some of the challenges are you know, for those new investors and one of the, I think one of the biggest things that we as an experienced investor can all agree on, the biggest challenge is pricing. Like the pricing for everything and this is almost universal around the country even though each real estate market is different. Pricing for everything, from the price of the housing, the price of materials, the price of labor, it's all higher. Right?
Brett Clothier: Yeah, I mean all around when you look strictly at the real estate market, whether it's the hundred to a hundred and fifty thousand dollar price point in Memphis that we concentrate in, whether it's the, you know, the three hundred thousand dollar price point and up we see in Dallas, all of it is more expensive. Then as you drill it down as you mentioned a minute ago Chris, you know we build houses also the price is there, lumber, steel, it's all going up. I know one of the things I concentrate on personally is houses in this area that are in the two-fifty to four hundred range, the prices on those are going up, the competition's higher. So, the pricing of everything, is definitely a big, a big, if not the biggest hurdle that we're facing right now in this market.
Chris Clothier: You're gonna hate me for saying this Dad, hang on, I know you wanna jump in real quick, but I wanna share a quick little story. Right now I looked at a house, what year was it that we looked at that house, that we just happened to see earlier...
Brett Clothier: I really don't wanna bring this up it's gonna get me mad again.
Chris Clothier: Look it's...
Brett Clothier: It was 2012, so six years ago.
Chris Clothier: Six years ago, and you and I, in our infinite wisdom as real estate experts, we passed on it because it was too, what at the time?
Brett Clothier: It was too expensive and it was about half of what we could buy it for today, unfortunately.
Chris Clothier: So we passed on a house at a hundred and thirty-five thousand, because we thought it was too expensive and that house just sold recently for...
Brett Clothier: Almost three hundred, just under three hundred.
Chris Clothier: So in six years...
Brett Clothier: And it needed a lot of work but that same house today, if I could buy that house at two hundred thousand today in that same condition that I turned it down at one thirty-eight, or whatever it was, I probably would...so
Kent Clothier: So we didn't pull the trigger back then huh?
Brett Clothier: Nope. And we could probably tell that story several hundred times about several hundred examples over the past five years.
Kent Clothier: Well those of you that are just joining us, and maybe new to our, haven't listened to some of the other ones, we have purchased over five thousand houses in Dallas and Memphis and Houston, Little Rock, and Oklahoma City, so maybe we can give you a few little things today so Chris, what would a couple of things be besides, maybe the number one thing for new real estate investors as they jump in as in qualifying for a bank loan and that's one of the first things, of course outside of finding the property, but you're gonna have to figure out how you have the money you have to put down and have the money that to procure the loan you're gonna get, and all these no money down things that are out there, buy real estate without any money and no cash upfront. I'd be very, very wary as a new real estate investor of any of those type of situations. What do you guys think?
Chris Clothier: Well yeah, I mean it's, for us we've always talked about Dad and you've, I know you've shared through your podcasts many times that get rich quick, doesn't work. That's not what we talk about, that's certainly not anything that we all have invested in, we've all invested in long term, buy and hold, fundamentals, let someone else pay your note off for you, make a little money at the end of the month, use that money to pay off your debt, you know, we don't advocate buying fancy watches and fancy cars and flying on fancy airplanes, that's not what we talk about, and if you find yourself as an investor, being attracted to that message and that's the message that's being used to sell you on something, that's not, in our opinion, that's not a good investment.
Chris Clothier: Especially not with a house itself, you know, we're talking about owning the piece of real estate, if you're attracted to the fact that owning that piece of real estate will help you get that big fancy watch, you're probably going about it for the wrong reasons, wouldn't you think?
Kent Clothier: I agree wholeheartedly and but going into it you're still have to figure out how you're going to be able to buy the house, whether you're paying cash, which obviously is the easiest way up front but not very many people today can do that. Borrow money from a private lender, some type of lease with option to buy, of course people do that today, but you're going to have to, in the end, as you become a real estate investor, you're going to have to be bankable.
Chris Clothier: Yeah, I couldn't agree more, if you can't, and that goes with, I know that we're talking about the challenges that goes with today's investor, I don't know Brett, what do you think? Is it easier or harder for somebody to get qualified for bank money today? It's gotta be easier than it was in '09 right?
Brett Clothier: Yeah, it's definitely easier than '09 and going back to what you said Dad, definitely if you want to be able to scale it to any type of volume, if you just wanna buy a couple of houses then there's people out there who definitely can do that, but to me the ability to leverage real estate and be able to scale it from, you know, whatever your goals might be, whether it's five properties, ten properties. For me, I'm at forty-five right now and continuing to grow, and obviously I didn't pay cash for every single one of those, so leverage has been able to help me get to the point that I'm at now. You know, yeah when we first started buying, or when I started buying, back in the mid 2000's it was obviously east to get money, then it definitely tightened up around 2008, 2009, as we went through the recession.
And now we've seen it loosen back up a little bit, to be able to do any type of volume that you wanna do, obviously that's something you need on your side, is the ability to lever.
Chris Clothier: Good word, lever.
Kent Clothier: Again one of the things, the next part, after becoming bankable and obviously having the money to put down to be bankable, is that the time consuming process of finding the property, what's really, really, it's really tough today as a new investor because you're out there doing all of the things that you've been told to do and inspect the house and walk in and check everything and crawl under the sink and crawl in the attic and open every door and look behind every, everything, and here comes a seasoned investor that walks through the door and walks through the house in three minutes and walks out and tells the person, the seller, that I'll take it. And you're still in there with your flashlight looking underneath the sink and he's already bought the house.
So there's a lot of frustrations, it's a time consuming process, to locate the house, to check the house out, to find it, and then to finally get it to contract. Chris you got a comment on that?
Chris Clothier: Well, and what you're talking about is a very, I mean you're talking about active investing, you're talking about if, you know for those of your listeners out there that want to, you know, they may be attracted to, they may already be in the process of I like looking for houses, I like looking at the deals, I like walking the, you know as you said, I like walking the deal, and figuring out what it's gonna cost to make it new or bright or cheery or redoing it, you know whatever it is, and being those, that's an active investor. But there's other ways to invest in real estate so you know, you can, a challenge today one that's really kind of been answered a lot, but it brings it's own challenges is how do you invest in real estate if you don't want to be active.
So if you wanna be passive and you want to own it without having to do all of the things that you just said, if really what you wanna do is put your money to work but not have to do all the things, you know, required of an investor, you don't have to walk the house, you don't have to fight with someone else, you don't have to, you know, know every in and out about each particular property, you just have to know those that can help you with it. You know I think the, there's a lot of different ways that people can invest passively today from REITs to hedge funds, building your own team, and even what we do with turnkey, right?
Kent Clothier: That's exactly right and that's why, you know, part of your, when you get into this is as a new real estate investor you gotta know what your strategy is, what your exit strategy, what's your front end back end strategy is, and what you intend to do with the property, how long you're going to, how long your money is going to be tied up or maybe another strategy that you have. Brett what are you thinking on, either the passive or the active strategy?
Brett Clothier: Yeah, I mean either one, what we say all the time Dad, I think you say it all the time, is that it all comes down to people and whether you're on the active side and whether it's you're working with contractors, realtors, inspectors, whoever it is, or whether you're on the passive side working with a turnkey company or working with a read. It's all about the people that you surround yourself with and building out your team and whatever capacity you're working with a team. It's, real estate investing is definitely not a solo sport it's, and no matter what way you look at it, it's all a team. And so getting involved with the right people, again whether they're, you're on the active side and it's the contractors and the painters and your insurance agents or whether it's just, you know, someone like us, a turnkey real estate company who you have one contact and who's kind of built out a team, it's all about the people you surround yourself with, you're only gonna go as far as the people that you're with.
Kent Clothier: And just to piggy back a little bit on that, then we'll hear from Chris, is that you have to, if you decide to go, and again it's really two different paths here, the active or the passive, of course Memphis Invest, we're on the passive side of it, with thousands of investors and do all the heavy lifting for the investors, but we still go through same things that we're, we're in the trenches everyday with eight or nine people trying to buy houses and run, do everything we just talked to you about and of course we have to line up the money, and we have to be able to inspect the property and we have to be able to move quickly and close quickly and then of course we have the property management side of it, so and again when we first started in the business we didn't have that side of it.
Of course today with forty-seven hundred properties that we manage, that's a really good business to be in for those of you that want to think about that, put that in your vision or one of your goals, that's, as you build your business, that's certainly an area that you might wanna think about being in. So, Chris, what do you, jump in here?
Chris Clothier: Yeah, I think that one of the things, you know because we're talking about challenges, so when an investor decides that they wanna be passive, instead of active, and for me I think that's an easy decision to make, because I don't, five kids, running a company, trying to be involved in their sports, trying to be involved, you know, date night with wife, all of those things, you really have to put on the side if you're gonna be an active investor and have that full time job and have, you know you, something has to give somewhere, you can't, you cannot be dedicated to everything and be good at everything if you're trying to spread yourself to thin, I guess is what I'm saying so, I'm one of those that says look you, I'm all for the passive side, now the problem with the passive side and Brett, you and I have seen this a lot here lately is, you know we talk so much Dad on your podcast about who do you trust.
We did how to buy turnkey a couple weeks ago, what's a good turnkey investment, a good turnkey company, and it, it goes back to what I was telling you a few minutes ago about slick marketing, we've been getting inundated as Brett and I are buying more houses, we're getting inundated from other companies that are trying to get our business. There's from mailing us nonstop to interruption market by sending us emails to even calling us on the phone, same thing's happening to a lot of our clients, where they're just getting inundated with these you know, turnkey companies that want to sell them houses once they've gotten into the market. I think it's a, it's a big deal, and we should talk a little bit about it, about how do they, you know, how do you go about knowing who you can trust? Especially when everybody out there sounds the same because that's a big thing for investors today, is how, you know, a challenge for them getting started is, you know, every damn company sounds exactly like Memphis Invest, they all said the same thing. Right?
Kent Clothier: Well and we've seen, again as we've been doing this now for about fifteen years, we've seen some of our ideas that are duplicated and replicated on other, in other forms of media and marketing, and again all we can do is encourage you if you're going the passive route to certainly go visit, we have, I think just this week we have three to five visitors visiting our Memphis office and our Dallas office, investors are smart, they want to just want to come, they want see the team, they want to meet the people, they want to see that it's all real and that you guys are doing exactly what they say you're doing.
So you really, really, have to inspect what you expect as an investor, if you're thinking about getting into the passive side.
Chris Clothier: Well I want to ask you a question about that real quick. So if somebody's gonna go inspect what they expect, they're gonna go meet a company, and the company talks about customer service and they talk about how much they care about you and how much communication is very, very important to them and how they do top level renovations and they 98% occupancies rates and they collect 100% of rents every month and you know, on and on and on. All these things that, of course we spent years trying to reach, and you got this new company that somebody's gonna go see, what's the number one way that, or the number one thing, somebody can look at to know, is the story I'm being told, actually possible? You know what I mean? Somebody talks about all this customer service and all this stuff. What's the number one thing they can look at and just do a quick little count of to see if the story they're being told is real?
Kent Clothier: Well when you go to any office whether it's a large passive company or a small one, you wanna go in and you wanna meet the people. You wanna ask what their responsibility is, what their job is, if the company has two hundred properties that they're managing and they have three people working for them, you have to look at that. We have forty-seven hundred properties and ninety people working for us, in our offices plus rental agents that are in addition to that ninety. So you have to go looking for the people that are going to manage your property and not only talk to them, get intro to them, get a tour of their building see what's going on, and to me that's the whole thing, is that where you were going with that?
Chris Clothier: Well yeah, I mean, we, hell we have nine people up there that work in our customer service department and you know, being the guy that does a lot of the marketing, I just I chuckle sometimes when I see companies that they say they're doing two hundred, three hundred, four hundred houses in a year and managing whatever a thousand properties and they're, they use all the same marketing, you know for an investor out there hearing it, they might like, really like, what they're hearing because they're hearing all these big numbers, they're hearing all this performance, they're hearing all these stats and data, and then you go, go meet em, you go peak behind the scenes and you see seven people working for the company.
And you realize, that's my point, hell we have seven people that or nine people that work in customer service so, you cannot do all the things, you know it reminds me of the story Dad that of the Memphis company that, we're wide open we're an open book, and they came over to meet us, the owner of the company came over to meet us and he had been marketing himself for years as a guy that did customer service and called every client every month and you know a few other little things, and when he came over here to visit us he walked out and he said that he was shocked that we were as big as we were, and he was shocked at all the stuff that we showed him, and that we met about and I looked at him and said, "What are you talking about?" I was like you, you know, you do the same thing, he went and met our customer service department and he's like, "I didn't realize you'd have all these people working here." And I said, "What do you mean? You tell people you call every month." He said, "I just tell em that."
He's like, "I just assumed you were full of crap, you all were just telling using that as a marketing gimmick and so I did the same thing." And you know, on a side like bigger pockets Dad, I see it all the time where somebody will be asked a question and they'll say their answer for what they do and why they do it is, well everybody else says they do, so I say I do. And it's, so for a new investor, I liked what you said Dad because people, you can't do this without hiring, training, taking on the risk, like you just said, ninety people, that's a hell of a, that's a hell of a payroll to meet every two weeks.
Kent Clothier: That's what you have to do if you're going to scale it, Brett do you agree with the people side of it?
Brett Clothier: I do and you know there's one way to do that, and that's get on the ground and meet them. That's the number one thing, number two thing that I always pay attention to and to me it's, it can be in whatever business, it can be in the house business, the car business, it can be in something you buy online, it can be anything, is, to me, it's how long it takes people to respond to you and it's such a minor detail but to me it just tells so much. Perfect example, you know, is if one of our customers has to send our customer service representative an email and it takes them longer than a few hours to respond then I don't like that, I don't think that's good service and when you go to one of these companies and you see, like Chris you said a minute ago, only seven people that work there and you hear complaints well yeah they don't ever get back to me, that would be a big red flag. And to me that's one thing that I always pay attention to is, if somebody, if I send them an email and they immediately respond, then I know then that they're going to be good in terms of anything else that I might need from them, so that's always one thing I pay attention to.
And you can capture on that real quick whether you go meet them, whether you talk to them, whether you're exchanging emails asking them about their company, you can get a quick indication of what somebody might be like.
Kent Clothier: Alright, so I think that's a good stopping point right now. Chris what I want to do and Brett, I wanna to come back and I want to make this challenges for the new real estate investor Episode One, and then we're going to come back with a couple of more that stay on this same topic right here, as we walk a new investor through a path to being successful. And I think we've covered a little bit of it today and about whether they're active or passive investor and we'll continue this on our next episode. Is that good with both of you guys?
Chris Clothier: Yep
Brett Clothier: Yes sir.
Kent Clothier: Thank you for both being on here, that gives us a topic for the next one as we move through this two or three part series. So again I want to remind our listeners, thank you for being with us, you can find our company at memphisinvest.com, you can find the podcast Experience Matters there also, and also on Stitcher, and iTunes, and SoundCloud, and again we thank you very much for being with us today and following us. We looked this week, we're just over, we have twenty thousand followers on our podcast and we thank you very much and hopefully we're bringing you some good content, some good education, and we appreciate the following that we have and we'll see you on the next episode. Thank you very much.