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Sept. 6, 2022

Ep 66: Why Real Estate Beats Stocks & Why Your Uncle Is a Bad Timing Tim

Ep 66: Why Real Estate Beats Stocks & Why Your Uncle Is a Bad Timing Tim

We cover the "chapter ones" of Brandon Turner and yours truly, the risk-adjusted advantages of real estate investing over stock investing and why the people in your ear are well-intentioned Bad Timing Tims when you instead need to be listening to...

We cover the "chapter ones" of Brandon Turner and yours truly, the risk-adjusted advantages of real estate investing over stock investing and why the people in your ear are well-intentioned Bad Timing Tims when you instead need to be listening to Detached Dougs.

Join the community and send your questions to Alan Corey at https://www.facebook.com/groups/realestatemaxi 

Learn more about leaving your 9-5 through real estate at www.realestatemaxi.com  

Read the transcript here:

Brandon Turner: “Alan was a huge inspiration in my life for real estate investing. I read one of his books early on and that really spurred me on toward financial independence. And in fact, the book was called "A Million Bucks by 30". 

Alan Corey: All right. Who out there recognizes that voice? If you listen to real estate podcasts, it's very, very familiar to you

I would imagine. That was Brandon Turner, former co-host of the Bigger Pockets podcast, a legend as a podcaster in the real estate space. He's also written multiple, multiple number one books on real estate investing, and that's him talking about the first book I wrote, A Million Bucks by 30, which he read back in 2009.

I remember meeting Brandon for the first time cuz he interviewed me for his website called "Real Estate in Your Twenties", which is what he was doing before he joined Bigger Pockets. So way, way back. And now what is so interesting is he inspires me, he motivates me. I look up to him for advice, and at one time he was that guy sitting at his day job saying, "I want something more."

And he went out and did it. And what was cool, I was that guy five years before him who was sitting in my day job and wanted something more. So I did it and wrote a book about it. This challenge for this episode is for you, who's sitting at your day job wants something more, I'm giving you permission. And what's pretty cool is that if you go after what you want, you're gonna start inspiring people who originally inspired you.

I'm gonna take this episode to specifically focus on listeners who are just needing that nudge to maybe buy their first property, or they feel overwhelmed with their first property and they just need that nudge to buy that second property. What's interesting is actually the more you buy, the easier it gets. And maybe you're that listener that says, Hey, I'm buying stocks.

I'm doing the right thing to prepare for retirement. Hey, I'm not saying you're doing the wrong thing. I'm just saying there's better alternatives out there. That's what we're gonna get to in this episode.

This is Real Estate Maximialist. I'm your host, Alan Corey, author of "A Million Bucks by 30" and the book "House FIRE". Both books endorsed by Bigger Pockets, Brandon Turner and ABC Shark Tanks Barbara Corcoran, who bought my first flip way back in 2005. I have bought $30,000 single family homes and $17,000,000 apartment complexes and everything in between.

I've done everything imaginable in the real estate space. I just find it easier to say I'm a real estate maximalist. Hey, let me be transparent here. The first time I bought a property, I was scared. I didn't know what I was doing. I had read over 30 books on personal finance, wealth building, how to buy a property.

I was 22 years old. I bought my $99,000 one bedroom apartment, almost site unseen. It was the only property that I could find that was under a hundred thousand dollars. Before I even looked at it, I said, I'm buying this place cuz there was nothing else that I could afford. This was in Brooklyn, New York in 2001.

I didn't have mentors, I didn't have podcasts. There wasn't social media or YouTube. All I had were books as my guide. I remember at that closing, there was just fees and then fees, and then "write this check to this person, write that check for that person". And I walked out that door with a key in my hand and $70 in my bank account, and I was like, What did I just do?

I just drained all the money I had for this key. I only have $70 to get me to my next paycheck, which was two weeks away. But I knew that real estate is a long term plan. And it is. I took that one bedroom and house hacked it. And interestingly enough, house hacking is a term that was actually coined by Brandon Turner, so wow,

there's a lot of connect the dots here, but I took that one bedroom condo, I took a super heavy curtain and hung it across the living room and I was like, I'm never gonna sit here in my living room and rented out the curtain room for 700 bucks a month. All of a sudden I had $770 in my checking account, and I started to fall in love with real estate.

I share that story to say, Hey, I didn't have my act together. I didn't know what I was doing. I mean, what 20 year old knows what they're doing? But even if you're 40 and you've never bought a property, no one expects you to know what you're doing. Brandon Turner didn't know what he was doing when he read my book, he wanted to be a millionaire by 30.

I taught him how to do that through real estate, and he said, hey, I could do that. Let me go try. Now as someone who's been coaching and consulting new home buyers, new real estate investors for over 20 years, I just wanna cover some of the common questions I get, some of the things that are keeping people in the position that they're in and sort of break down the barriers and demystify buying a piece of real estate to change your life.

I firmly believe buying real estate is less risky than buying stocks. But everyone I talk to who wants to buy real estate, they have stocks. They have no problem investing in stocks. They have no problem investing in 401k IRA because it's super easy. It just takes an email address and a bank account. But that's the thing.

It's super easy. Anything that's super, super easy, it's gonna have low rewards. Something that takes a little bit of sweat equity, a little bit of motivation, a lot of follow through, just do that. For a short time period over a three month time period, six month time period, one year time period. Just put up the work up front and then let it pay off later.

That's what real estate investing is, and this is why it's better than stocks if you're one of those people that invests in stocks but not real estate, let me answer some common questions this way. Alright, here's some common questions. Do you need a license to invest in stocks? No. Same with real estate. Do you need a LLC to invest in stocks?

No. Same with real estate. Do you need to be actively managing your stocks every day and constantly monitoring the peaks and valleys of the market? You can, but you don't have to. Same with real estate. When investing in stocks, can you pay for an advisor, coach, licensed agent, mentor, take a course or class if you learn faster and get better results?

Well, it's up to you. Same with real estate. I'm actually building out a hybrid model of that where I provide consulting, mentoring, training, online courses, accountability. If you're interested in that, join the Real Estate Maximalist Facebook group. Follow me @RealEstateMaxi on Social Media. I wanna be sharing this information as I complete this course.

I want you to join. I want you to get that mentoring, coaching, online course all in one place. That will all be coming out soon. But first let's go back to why real estate is a safer bet than buying stocks.

Because when you buy stocks, you don't need a stock broker anymore. You don't need an advisor saying, "hey, this is a good move", or, "don't buy this stock, it's a growth stock", or "this one's tanking". You just make a decision blindly, and a lot of times that decision is just your gut instinct. Maybe you read one article.

It's just super easy for you to invest in those stocks. You don't have someone looking over your shoulder saying, "hey, uh, I don't think your financial situation is good enough for you to buy those stocks right now". Or someone in your ear saying, "I'd like to review your last two tax returns before you make that decision to buy," because that's what a mortgage company would say.

And they would say, "hey, you're not ready to buy stocks right now", or "you're not ready to buy a house right now." And think about this, a mortgage company or a bank is the most conservative institution out there. So if they're going to say, "I'm gonna give you money to go buy an investment". That means that bank thinks it's a good investment.

That bank thinks it's super low risk, or else they wouldn't give you the money to buy it. You don't have a stock advisor telling you what stocks to buy, but you do have a real estate agent that's gonna guide you and say, this neighborhood's happening, or they're building this here, let me negotiate a better price for you.

Or be careful, or I recommend a home inspection, let's get home insurance. So you have all these people in your corner. You have a mortgage broker in your corner wanting to give you money only if they think it's a safe investment. You have a free real estate agent who's on the buying side, you don't have to pay them

real estate commissions helping guide you and find you properties and negotiate on your behalf. Imagine if all that existed in the stock world. Sure, you have to have a little bit more conversations. It wouldn't move as fast. You'd probably be a better investor. Now, here's the thing. Now let's talk about the risk of stocks compared to the risk of real estate.

Let's say you had $20,000 and you bought some stocks. That company just crumbled, burned to the ground, imploded, and your investment went to zero. It happens. It's okay. Now, let's say instead you took that $20,000, you used it as a down payment on a hundred thousand dollars house. This is a house where you had that real estate agent advising you.

You had a mortgage broker saying, Yeah, I'll give you money. This looks like a good deal. And then that house burns to the ground. Is it the same thing as losing $20,000 in stocks? Well, the thing is, your mortgage company, that conservative partner, makes you have home insurance cuz they don't want any risk giving you money.

And so now you've got home insurance to build back a better house. Imagine if you had insurance for stocks or if it goes to zero and it's like, hey, that's all right, we're gonna just give you money and invest in a better company. Let's maybe say you just listened to that part and said, "good idea Alan,

I'm gonna go burn down my own house". So then you go burn down your own house, you get caught. Insurance company says I'm not gonna give you any money. So you're out $20,000. Is that the same thing as losing $20,000 in the stock market? No, not at all. Because guess what? Typically when you purchase a property, 20% of the purchase price is actually the land value.

Not even the house, it's just the ground, the lot underneath the house. So you can actually just sell your burned down house for $20,000. That's the cost of the lot in the land. If you look at it this way, contemplating, how am I gonna get outta my nine to five? I'm just gonna keep investing in 401ks and IRAs, and that's gonna be my ticket out.

To me, that's super risky. I can't imagine more risk than that. And here's the biggest risk. If you keep doing that, it might take you 10, 15 years to leave your day job. However, if you reallocate those funds into real estate, it might take you two, three, five years to leave your day job. So it's just framing real estate as not a scary thing.

I'm gonna tell you why real estate is a scary thing for you. It's a scary thing for you because everyone in your life has a real estate story, but they don't have a real estate investing story. Their story is this, "do not buy a house right now because house prices are skyrocketing." now, those are true statements and they're being well attentioned.

They love you, they want what's best for you. But as a real estate investor, I don't care what the price is and I don't care what the interest rate is. All I care is does this property make me money? I could buy a property with a 25% interest rate, but if I get it at the right price and I know what rents it can get and it cash flows positively, I'm gonna buy the property.

To me, purchase price and interest rates are just inputs on a spreadsheet and you look at the spreadsheet and say, hey, does it profit? Yes, I'm gonna buy it. And that's why I'm always buying in up markets and down markets. Now back to your well-intentioned friend or family member, their stories are not real estate investing.

They say, Oh man, I bought a property for $200,000 and when I got a job transfer, I had to sell it for $175,000. And then I had to pay real estate fees and moving cost. And man, I lost all sorts of money. But here's the thing that well-intentioned friend or family member was not real estate investing. They were not purchasing an investment property.

They were buying a primary residence that was completely dictated by lifestyle. They bought that property because it had a short commute to work. It was in a safe neighborhood, good schools, walkable to restaurants and bars, whatever their priority was. They were willing to pay a premium for a property to live the lifestyle that they wanted to live.

Their timeframe was also probably dictated by a lifestyle event. Maybe they moved, got married, had a kid, got divorced, had a death in the family. So they had a time decision based on a lifestyle. I'm not saying there's anything wrong with making lifestyle decisions. That is just what you do on primary residence buying, not real estate investing buying, right?

Real estate investors don't make lifestyle decisions. They make spreadsheet decisions. Now, when your family member has to sell that property, it's also dictated by lifestyle. They've lost their job, they transferred their job, they had another kid. They've outgrown it. Or their kids moved out and now when they wanna downsize, there's a million reasons why someone sells a primary residence and it's always a lifestyle event that dictates when they have to sell.

So all those people's stories are completely stories of random luck, sometimes random good luck and sometimes random bad luck because primary residence buying is not real estate investing. They bought on a whim in a certain market based on lifestyle decisions. They sold on a constrained timeline because of lifestyle decisions.

The money they made or lost was a complete gamble, and they take that experience and say, oh, that's everyone's experience in real estate investing, or that's gonna be your experience in real estate investing. Let me walk you through a quick scenario. You've got a buddy, bad timing Tim. He purchases a house for $300,000.

It's a dream house next to his office. He wanted to bike to work and not own a car. He also wanted two acres of land to grow his own food. He's created the perfect lifestyle and he's found the property to match. Over the next 12 months, though, the house drops in value 15% because two countries on a different continent go to war or there's a crazy interest rates or an oversupply of housing or rapid unemployment happening.

All things bad timing Tim cannot control whatsoever. However, bad timing Tim does have some things looking up. He just got a job offer outta state that he's gonna take because it comes with a big raise and it's at a dream company. So overall, life's great and his house dropped in value 15% that he just bought.

But he sees a better lifestyle in this new state with his new job and that job wants him to start in 30 days. Bad timing Tim has no choice to sell, so he sells it for $255,000. The 15% drop in value plus pays 6%

realtor commissions, all of a sudden his bottom line is $240,000 on a house that he bought for $300,000 a year earlier. That's a $60,000 hit. That's painful for everyone. Right? So Tim has two choices. Sell his house, take that $60,000 hit, stay in his house, say no to his dream job. He feels like he's trapped both ways now.

Yeah, the people listening here might say "rent out the house", but of course that's an option. But I wanna tell you that bad timing Tim are the people who are most likely in your ear though. They don't know that renting out their house is an option. So does bad timing Tim take the dream job, or does he take the $60,000 hit?

Let's say he takes a $60,000 hit, moves to the new state. Now he's wiped out all of his savings, and now he's gonna be a renter, and maybe he'll be a renter for life because he made a lifestyle decision and he made his timelines based on lifestyle. And that's not real estate investing, but maybe you have a detached Doug in your life.

Detached Doug's a Real Estate Maximalist. He also bought a $300,000 single family house in the same neighborhood as bad timing Tim. Same time, same price. He bought it because he could rent it out for $3,200. His mortgage expenses, property taxes were gonna be $2,700. It's a $500 monthly cash flow play for him.

Detached Doug scoops it up. Doesn't have a worry. Detached Doug doesn't even notice. He doesn't even, he's not even following the housing market. He's not even following the interest rates. He's following his $500 a month trickling in, and guess what? Detached Doug says, Oh my goodness, there's a house in my neighborhood that I can buy for 255.

That's exactly like the house I bought for 300. Let me go buy another one. Because now he knows he can rent it out for 3,200. He's getting it at a lower price. He's probably gonna make 750 now off this new one. He doesn't run screaming and say, Oh my gosh, I bought a $300,000 house and now it's 255.

There's no way I'm buying another house in this neighborhood. He's detached from all that. He looks at the spreadsheet. I can make $500. That's good enough for me. Let me buy it. Oh wow, I can buy another one in the same neighborhood, that makes my life easier. It can make me 750? Ooh, okay, I'm gonna buy it. This downturns actually create more renters.

People like bad timing Tim, who sell their house because of a lifestyle timeline, lifestyle decision, and they become renters. Where the economy's down and they can't find work so they are renters. They lose their house because of a lifestyle. A divorce, something like that happens. They have to sell their house and they become renters.

So down markets create more renters. Detached Doug gets that. He scoops them up more and more in the down market. He obviously bought at the top of the market and was completely happy cuz he bought it the exact same time as bad timing Tim. So these are two people that you can have in your life who bought the same property, exact same time.

One- bad timing Tim is gonna be in your ear saying, don't buy real estate, this is my sad story. And then you also have Detached Doug, who bought the exact same house at the exact same time and says, I can't wait to buy another one. So I'm just looking to reframe, reset your viewpoints on real estate. Now you have to differentiate that your primary residence is not a real estate investment.

Now, last episode we talked about how to make your primary residence a real estate investment. You can house hack, you can short shift, you can use some third party vendors that will rent your space or parts of your space for hours or months at a time. So let's assume I've got you in a head space now where you're saying, Hey, real estate makes sense, Alan.

Good looking out for me. Well, you're welcome. You'll get more of that on the Real Estate Maximalist Facebook group. I just created it today, already have 120 members join it. I'm gonna be talking real estate in there every single day. I wanna keep you motivated, keep you engaged. I wanna hear your questions.

I wanna build a community of people helping each other realize the benefits of real estate. Pushing each other to buy some real estate. Understanding there's very, very low risk in buying real estate because after the real estate crash of 2008, 2009, mortgage lenders are not allowed to just willy-nilly give anyone mortgages now.

You have to be vetted inside and out to get a mortgage approved and that benefits you. If someone like that says, Hey, I'm willing to give you money, take that money and keep taking that money. Buy another property and remember this phrase, "always be buying". Go take their money till they tell you why they're not gonna give you money.

They might say, Hey, we need you to have more experience. We need you to have higher income. We need you to pay off some debts. We need your credit score to go up. But keep trying until someone says, I'm not giving you money anymore. But I promise you they'll have a completely valid reason why they won't give you money and they'll give you a game plan so they can give you money

because banks are in the business of giving you money. They want to give you money. So just listen to their game plan. They're free advisors and they're free partners, very conservative partners, and then they stay out of the way. I don't know anyone who gives you money and then never ask about it again. So, uh, take advantage of that.

All right, there's my case on why real estate is not as risky as you probably seem, and why you've probably been scared or conditioned to avoid real estate. To me, the real risk is not investing in real estate. The biggest wins are asymmetrical bet where the upside is unlimited and the risk is really, really low.

That is real estate to a T. Hopefully, I've given that nudge to you to overcome the rejections, to overcome the stories of bad timing Tims in your life. Hopefully I've given you the confidence that you can do it. I started with nothing and knowing nothing.

Brandon Turner: So I'm gonna say a book. Uh, you know, obviously Rich Dad Poor Dad was huge. Uh, but there's another book called "A Million Bucks by 30" by Alan Corey was amazing. 

Alan: Brandon Turner started with nothing and knowing nothing, and he owns over a thousand units right now. We all have to start our journey somewhere. Don't compare your chapter one with someone else's chapter 10. We all started our own story on chapter one. So go out there and get it.

And that brings us to the end of Real Estate Maximalist. I will see you on the Real Estate Maximalist Facebook group. Until next time, I'm your host, Alan Corey.