215: How to Successfully Invest in Real Estate

If you’re thinking about investing in real estate, you’ve come to the right place! In this episode, you’ll learn whether this type of investment fits your financial plan and how to take action. Josh and Austin talk through ways to invest in real estate that could potentially help you diversify your portfolio and maximize your finances.

Main Talking Points

[3:19] – Your Home Is a Real Estate Investment
[5:50] – Flipping Homes for Intent to Sell Higher
[10:12] – Dad Joke of the Week
[10:37] – Rental Properties & Airbnb Real Estate
[16:51] – Indirect Real Estate Investments & REITs
[25:31] – Final Thoughts on Real Estate Investing
 

Links & Resources

Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles to Investing

Full Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

We would love it if you’d subscribe if you’re not subscribed already, so hit that plus, “Follow.” Whatever the icon is on your player, hit it, and that really helps us get you what you need when new episodes drop. And it’d be great if you could leave us a review on Apple Podcasts or Spotify or wherever you’re listening. And always remember, you can reach out on our website or email us at hello@theinvesteddads.com. We would love to hear from you whether you have topic ideas or you just want to say, “Hey.” So, Josh.

Josh Robb:

Yes.

Austin Wilson:

Today, we’re going to be talking about investing in real estate, which is super popular, and apparently you can’t lose money. It’s just easy money, free money. You can become a millionaire overnight.

Josh Robb:

Yep. Pretty much what we’re going to do is just say, “Hey. Tune in to TikTok and you’ll be an expert in no time.” But actually, don’t do that because …

Austin Wilson:

Don’t take your financial advice from TikTok ever.

Josh Robb:

No. Don’t take much advice from TikTok in general. In there, I have learned some Blackstone grill stuff. So there are some things you can learn there, some recipes and things like that.

Austin Wilson:

Dance moves.

Josh Robb:

Dance moves. I got my own. I don’t need theirs.

Austin Wilson:

I don’t use TikTok anymore. I had it for a season. I don’t really have anything against it. I feel like Facebook/ Instagram/YouTube Shorts, the reels versus YouTube Shorts is just as good as TikTok.

Josh Robb:

I don’t even know what I would watch, whether it was Instagram or what, but it would be like a TikTok shared to that. So, I didn’t even watch the real one, but it was just like a comment on the one.

Austin Wilson:

Exactly.

Josh Robb:

I don’t know. Either way, I think in general, though, there’s a lot of people giving advice on real estate, especially recently. I feel like it’s been a popular trend. You see a lot on those home improvement channels. We’ll talk about that in a minute. But yeah, there’s been a lot of interest in real estate, partly because it’s a different way of investing money. It reacts differently than the stock market and bond markets do.

Austin Wilson:

True.

Josh Robb:

And we both believe it’s a diversifier. In a well-diversified portfolio, having some exposure to real estate is actually an important part of a diversified portfolio.

Austin Wilson:

Some people go all in. It’s all they do.

Josh Robb:

Yes.

Austin Wilson:

And in a lot of instances, that may work. In a lot of instances, that may also not work because you’re not well-diversified either and we would caution against that. Obviously, that’s not advice, but it depends on your situation. But it comes back to a point of balance, a point of, “A little bit of everything and not too much of one thing,” “Don’t put all your eggs in one basket.” All those old sayings really ring true when it comes to your investments. But yeah, real estate can certainly be one component of that. Yeah. So today, Josh, we have four.

Josh Robb:

Four.

Austin Wilson:

Four ways that a person can make money doing real estate.

 

[3:19] – Your Home Is a Real Estate Investment 

Josh Robb:

Yep. The first one is one that probably may not even come to people’s minds when they think about investing in real estate, but it’s actually your home.

Austin Wilson:

Right.

Josh Robb:

Your home is a real estate asset.

Austin Wilson:

It’s real.

Josh Robb:

It’s real estate. It’s a property. But most people buy their home to live in and they purchase it based on their needs, bedrooms and location and all that fun stuff, but it’s probably one of the longest-holding real estate assets you’re going to have in your life. And maybe you sell and buy a new one, but in general, your home when it comes to real estate is going to be one of your longest-held ones.

Austin Wilson:

Yeah.

Josh Robb:

And as a result of that, you’re going to see, over the long run, appreciation, and you’ll have equity in the home. And when we talk about equity, it’s the difference between what you paid or owe and what it’s worth. So if I owe $100,000 dollars and it’s a $300,000 home, my equity is the difference: $200,000.

Austin Wilson:

And when you pay off that home, you have 100% equity because you own the whole thing.

Josh Robb:

TYs.

Austin Wilson:

Whatever it’s worth is your ownership.

Josh Robb:

Yep. And unlike stocks or other investments, you can’t just sell a portion of your home if you need a little bit of that equity, there are ways to access it so you can get equity lines of credit where, in a sense, you take a loan against that appreciated value of your property. So you can’t access it, but in general, though, when you think about investing in real estate, most people exclude that big asset from there. But I always say that is probably most people’s first experience in buying real estate. When you sit down and you buy your first home and you’re signing all that paperwork, it’s a learning experience. You learn a lot. And maybe if you buy a home or two along the way, you sell and buy a new home, you get better at it because that first time, you just don’t know, right? “Oh, man. I should have asked them to leave X,” or, “I should have negotiated this,” or, “You know what? I should have got this inspection done.” You learn a lot.

Austin Wilson:

Yep.

Josh Robb:

So your home can help you along the way. Even if you don’t see it as a real estate investment, it can help you be a better investor in real estate. So that’s the first one. And for a lot of people, that may be their only experience in real estate directly. But it’s definitely one that you want to make sure you do a good job on because you’re going to be the one living in there.

Austin Wilson:

And usually, if not your only, it’s often your first. So a lot of people start with owning their home and then they decide to look into other ways to access real estate.

Josh Robb:

Right. Yep.

Austin Wilson:

Because maybe they’ve seen how the real estate market works, they understand it a little bit. They’ve seen, “Hey, maybe my home price went up a little bit. I should do this other thing,” or whatever. So Josh, what’s another way to invest in real estate?

 

[5:50] – Flipping Homes for Intent to Sell Higher 

Josh Robb:

Yeah. So if you’re buying property, another thing is … There’s two ways of buying property. We’re going to talk about one. You get a dad joke, and we’ll come back and talk about another way. So the first one is flipping homes, flipping real estate.

Austin Wilson:

Putting it on its roof.

Josh Robb:

Like upside down and seeing if the other side grows better. No, flipping is just the idea of purchasing property with the intent to sell it in a short period of time. And they call it flipping because you do something to turn it around and then put it back on the market.

Austin Wilson:

Right.

Josh Robb:

And so the whole point of this is you buy it at a price with the intent to sell it at a higher price.

Austin Wilson:

Yep.

Josh Robb:

Pretty straightforward. When I say it that way, it sounds real easy.

Austin Wilson:

You can’t lose money.

Josh Robb:

And then sell it for more. But here’s some things to think about. The first one is market trends. And so when you’re buying in an area, understand what are the prices doing? Are there a lot of homes for sale? The more homes for sale, the harder it is to sell yours because there’s a lot of options out there. What has happened? What have the last handful of homes sold for? More or less of what they asked for? How long did they take to sell? Understand the trends. And then along with those trends of the market, understand what’s going on with interest rates. Because although your intent is to sell it, there will be a time period you own it and you’re going to have to pay on it. So understand what that cost will be.

Location and the condition of the property. So not just, “Is this home good?” Because there may be things that you need to improve, and that may be why it’s on sale. There are sheriff’s sales, there are people who are in foreclosure, and you can get a property very cheap. Sometimes, they’re not in the best shape. That’s not a bad thing if you understand going into it what the shape is and what you’re getting. But location is important too because if you’re looking to resell this, will the next person want to buy it? “Am I in a good school district? Am I close to transportation? Do I have amenities that somebody would want to own this property with?” And so making sure you understand what’s going on around is important.

Austin Wilson:

People always say, “Buy the worst home in the best neighborhood that you can afford,” right?

Josh Robb:

Yep.

Austin Wilson:

So if you think about if you’re trying to make money on something, whether that be your actual, primary home or an investment property, you should want to buy a home with more expensive homes around it because then they’re bringing up your property value and you have a lower cost. So that’s kind of the golden rule when you’re buying a home.

Josh Robb:

Yep. Budget. So again, you’re going into this knowing you’re spending money, one, for the purchase of the home, probably for repairs, updates, those types of things. And with the intention then to sell at a higher price, you got to make some reason that somebody will want to pay more than what you paid for it. And so understand how much that’ll cost, how long you think it’s going to last because that’s the next one, number five is timeframe. So those two go together, cost and time. The longer the time, the more the costs are going to be.

Austin Wilson:

Right.

Josh Robb:

So you got to balance that out. “Well, what repairs am I doing? Are these big structural repairs? Is it going to take a while?”

Austin Wilson:

“Am I going to do it myself or am I going to hire someone to do it?”

Josh Robb:

“Am I doing it myself?” Yes. Yep.

Austin Wilson:

Sweat equity is cheaper in the dollar term.

Josh Robb:

Yes. That’s where the budget comes in.

Austin Wilson:

Exactly.

Josh Robb:

You could pay somebody to do everything, but if I do this, this, and this, that cuts the cost down. And so budgeting is very important. And then on the back end, selling costs. You may have to have a realtor, there’s going to be closing costs, things like that. Make sure all that’s accounted for so how much you need to sell the home for. Then you go back to your market trend and say, “If all is set in and this is what it’s going to cost me, can I make a profit on that?”

Austin Wilson:

Yep.

Josh Robb:

So you got to really factor that in.

Austin Wilson:

And in your timeframe, you need to factor in different tax situations. If you hold it less than a year, then obviously you’re going to be paying its normal income tax, right?

Josh Robb:

Well, for property, it’s …

Austin Wilson:

One property.

Josh Robb:

Yeah.

Austin Wilson:

I think it’s long-term every year.

Josh Robb:

It’s a little different. Yeah. But in general, most home flippers, it’s all short-term because they’re not trying to hold it much longer than they have to. And then the last one is legal and regulatory requirements. Hey, let’s say you’re doing some repairs. What’s the zoning permits? What’s the rules of that area? You may want to put an addition onto the home. Come to find out that that neighborhood has rules. So make sure you understand what you can and can’t do prior to building it. And then also, when it comes to the actual laws of that area, it’s, “What is my final intent of this property? Am I going from a single family home to a multifamily home? Maybe they don’t allow that.” So just understand the rules for that.

 

[10:12] – Dad Joke of the Week 

Austin Wilson:

All right, so we’re two down two to go. Let’s take a break. Dad joke, more of a thought. More of a story, Josh.

Josh Robb:

All right, I’m ready.

Austin Wilson:

So I was in my room. I saw a group of 10 ants running frantically. They were going crazy. So I felt bad. I made a small house out of a cardboard box. This technically makes me their landlord and they are my tenants.

Josh Robb:

Tenants. That goes well with what we’re talking about.

Austin Wilson:

It goes well with what we’re talking about next.

 

[10:37] – Rental Properties & Airbnb Real Estate 

Josh Robb:

In fact.

Austin Wilson:

Which is rental property.

Josh Robb:

Rental.

Austin Wilson:

Because this is how everyone on TikTok wants you to make money.

Josh Robb:

Yes.

Austin Wilson:

It’s like Airbnb arbitrage and being the landlord.

Josh Robb:

Yes. Instead of buying a home with the intent to sell it in a short period of time, this one is you’re buying a home with the intent to have somebody pay you ongoing rent, whether that’s long-term rentals where you have somebody living there, like a vacation home…

Austin Wilson:

Right.

Josh Robb:

Weekend rentals, short-term rentals.

Austin Wilson:

Yeah.

Josh Robb:

And so two different approaches. You’re not necessarily looking to get the most value out of the home from a sale price, but to get an ongoing income stream from this property. So the first thing to think about here is the same as before, location, right? That’s very important.

Austin Wilson:

Location, location.

Josh Robb:

And not only is location important, but the type of rental you’re looking to do, location matters even more. So some examples of that would be a single-family home, which would be for one family, multi-family home, townhouse, apartment, condominiums, commercial property. So you could own a business building, right? And so what type of property you’re going to manage, location is very important. I don’t want to be in the middle of Downtown and put a single-family home there.

Austin Wilson:

No.

Josh Robb:

Not ideal.

Austin Wilson:

Not ideal.

Josh Robb:

But maybe I would want an apartment complex right by Downtown where everybody wants to get close to all the amenities. So you got to think through what it is and think through the location. Let’s say a vacation rental. Out in the middle of nowhere, probably not a good idea.

Austin Wilson:

Probably not great.

Josh Robb:

By the beach, perfect. I want a rental property there. So think about location and then the type of property you’re trying to do. Do a whole financial analysis. This is back to kind of what I talked about. It’s like the budget thing. Maybe you need to do repairs to get it up and ready for the rental. But in general, the bigger question is, “What is my ongoing cost? How much can I rent it for? What’s the rental cost for the area? And what’s my return on my investment?” Because the idea is let’s say I can charge $1,000 dollars a week to rent this thing out, whatever it is. But what if my all-in costs end up being $1,500 a week? I’m not going to make any money on this thing.

Austin Wilson:

Nope.

Josh Robb:

So you got to run this analysis and say, “Okay. How much do I think, roughly, I’ll be able to get from here?” and then, “How much is it going to cost me to have?” Some of the things to think about too is, “Are there other people doing this in the area?”

Austin Wilson:

Yeah.

Josh Robb:

“Do I have any way of getting this data?” So let’s say you’re in a town, like where we are here in Findlay, Ohio, and you can look around and say, “Okay, what is the number of people renting out and what’s their occupancy rates? How often are they unrented?” And if, let’s say, half of the places aren’t rented at any given time, that could give you kind of an analysis to say, “Okay, I need to factor in that six out of every 12 months, I don’t have a renter,” and you can kind of work through that. It’s always important to break those costs down because in general when it comes to renting, you’re going to have a lot of wear and tear on that property, and so it’s not that you can quickly turn around and sell it. Whereas the flipping, the goal is to make it look great and ready to go so somebody can scoop it up.

So if you lose your renter, it’s not like you can just turn around and throw it on the market. You’re going to have to probably do some repairs and get it ready to be sold, so keep that in mind. And coming to that, property management. The more you do yourself, the more likely you’re going to make money off of these types of properties because fixing things, “If I don’t own this, I’m not going to take the time to fix it. I’m going to ask whoever owns this to take care of this,” right? If I’m the renter and something breaks, I’m just calling my landlord, “Hey, such and such is not working. Come on down here. Get this fixed. That’s your job,” right?

Austin Wilson:

Oh, yeah.

Josh Robb:

And so, “Can I do that? Am I handy?” or, “Do I have to have somebody on call that I’m going to pay to take care of all those problems?”

Austin Wilson:

That’s why when you’re budgeting for all of this, you need to have a slush fund. Suppose that furnace breaks. You know how expensive furnaces can be? That can be $5,000 out-of-pocket in a night. So say you’re bringing in $2,000 a month in rent for this house or whatever and your mortgage that you’re trying to pay off is $1,200. Well, you think you’re at a positive $800 cash flow a month, right? But you’ve got to factor in all the other costs and then putting money aside. So that’s why it is way harder to make a lot of money in the real estate business in the rental side than you think.

Josh Robb:

Yep. And then again, coming back to the regulatory, understand the rules. “Am I even allowed to rent this?” If I buy a home in the middle of a subdivision, they actually may have a rule, an H-way rule or something that says, “No rentals. You cannot sublet this out.” And then also think through, “What are the rules in my state about tenant laws?” There’s been issues about squatting and people staying so long that they have the right to stay and it’s a lot of headache to get them out. Understand kind of where it comes to eviction procedures, lease agreements. Make sure you have an attorney help you draft that so you’re covered, but you’re also doing what’s best for the whole party, that there’s nothing left open or any kind of hazards legally.

Also, think through tenant screening. “How am I going to find a good person to rent this?” If it’s a long-term rental, you want to make sure you get somebody in there that will respect the property and take care of it and manage it. If it’s a weekly rental, you’re going to have to have rules in there that says, “Okay, what type of groups do I want using this? Is this a big party house?”

Austin Wilson:

No parties.

Josh Robb:

“That they’re going to trash it? Or is it more of a family rental?” Those type of things. And then the last one is insurance. You say, “Well, I’m not living there. I don’t need to have it.” You’re going to want to cover some liability there. And so just property insurance, there’s things like that. But there are rental insurance for protecting you and the loss of income, and so you can, in a sense, cover yourself for a lot of different things. But just taking the bare minimum and hoping it works out is not a good idea because that’s a big asset and a lot of money tied up into one thing.

Austin Wilson:

So Josh, we’ve been through three.

Josh Robb:

Yes.

Austin Wilson:

I would say number one being my personal favorite type of real estate investing, owning my home. We’re getting to my second favorite. Let’s talk about indirect real estate investment.

 

[16:51] – Indirect Real Estate Investments & REITs 

Josh Robb:

Yes. So up to this point, everything was involving you buying physical property, whether it was to rent, to flip, to have yourself, any of the things. It’s yours. You have the deed to it. There’s another way of investing in real estate and, like you said, it’s indirectly. Many different ways. These are the four primary. I left out the more obscure, more complex ways out of this. But in general, here’s kind of the four main ones.

Austin Wilson:

You don’t want to get into mortgage, debt …

Josh Robb:

Derivatives? Yeah. No, thank you.

Austin Wilson:

Direct…

Josh Robb:

And if someone is super interested in that, they can go down those rabbit trails. But in general, these are the four main ones that most people will at least have the ability to access or get involved in. The first one are what are called REITs. It’s a abbreviation.

Austin Wilson:

Real Estate Investment Trust.

Josh Robb:

Real Estate Investment Trust, REIT. All right? So a REIT is ownership in a company, and this company’s job is to manage properties. And there are two different types. There’s publicly traded and non-publicly traded REITs. They’re both the same thing in that what the actual company is doing is the same. They’re a company who owns properties and all the investors pool their money to help them buy more properties. And then as they collect rent, they kick out what we call a dividend. Like any other stock or investment, they kick out earnings to all the shareholders. The biggest difference between these two, a publicly traded trades like a stock.

Austin Wilson:

Yep.

Josh Robb:

Throughout the day, price moves up and down based on demand and supply, and you can liquidate or sell that at any point in time. A non-publicly traded REIT is an investment that is not on the stock exchange, is not daily traded. It is, in a sense, only available during certain time periods when they’re either looking to build up a fund, initiate it, or looking to liquidate out. They’ll have these periods of time. The biggest difference is, again, your flexibility of your in and out. And so a lot of times, non-publicly traded REITs are going to offer a higher yield to entice people because you lose that liquidity.

Austin Wilson:

One thing to keep in mind is that most REITs pay out, like you said, a nice dividend, right.

Josh Robb:

Yep.

Austin Wilson:

Why? And the answer is because of the way that they’re favorably treated from a tax standpoint, from being organized as a legal real estate investment trust, it’s that they have to pay out … I think it’s 90% …

Josh Robb:

90%

Austin Wilson:

Of their funds from operations to the shareholders.

Josh Robb:

Yep. Yes.

Austin Wilson:

So they’re not retaining a lot of excess cash, and that’s how they get favorable tax treatment in the way they’re doing this. But what that does mean is you typically get a pretty good yield for your holding of your REIT. So a couple thoughts on this. Number one is real estate investment trust, They’re publicly traded specifically because they’re traded daily. Those ones, very interest rate-sensitive. So when you’re looking at how bond prices and interest rates move in opposite directions, you often see a similar sort of thinking when you’re looking at real estate investment trusts where when interest rates go up, real estate investment trust prices go down because there’s two components of that. Number one, REITs often borrow tons of money to be funding how they’re operating because, again, they’re giving you their money so they have to borrow more to do that. Number two, it’s all about valuation, right? So when you’re looking at these companies that are often viewed as really good because they pay a nice yield, well, when bond yields go up, bonds are more attractive so you’d sell the real estate.

So very interest rate-sensitive part of the market just to keep in mind. And another thing I wanted to point out is that most people already own some of this. They may not know it, but if you’re holding a passive broad index fund of large-cap or small or mid-cap US stocks, chances are you hold potentially around 3% or so, depending on what you’re holding, of real estate in that portfolio already.

Josh Robb:

Yeah, because it’s a sector of the S&P 500.

Austin Wilson:

It is.

Josh Robb:

Yeah. Real estate is its own sector.

Austin Wilson:

It’s a very small sector.

Josh Robb:

But it’s its own separate sector or category within the S&P 500.

Austin Wilson:

I think it’s around 3% or so of the index.

Josh Robb:

All right, so speaking of that … So those are individual traded securities, whether they’re publicly or privately traded. The other option is using a mutual fund, or ETF, that is specifically focused on real estate.

Austin Wilson:

Yeah. And this is just a wrapper, right?

Josh Robb:

Yes.

Austin Wilson:

So it’s a group. It could hold all of the available given real estate investment trusts in that they are publicly traded or a portion of them, or whatever. But yeah, you can buy actively-managed or passively-managed ETFs or mutual funds for real estate where you are getting indirect exposure to real estate through holding a group of these Because it’s a wrapper, right? So an ETF is a lot like a mutual fund, but it’s traded daily. Mutual funds are traded only once per day at the end of the day, but essentially they’re kind of doing the same thing.

Josh Robb:

Yep. And the reason why those matter between individual REITs and a mutual fund or ETF is an individual REIT may specialize in a certain area. So you may have a REIT that says, “We only buy health buildings,” so hospitals and doctor offices, things like that. Great well, that’s your exposure if you own that REIT. You could buy a mutual fund, though, that says, “We have that, but we also have commercial buildings, and we have some multifamily homes.” And so depending on how diverse you want to be in real estate, a mutual fund or ETF may broaden that for you instead of you having to find an individually-traded one for each of the different sectors.

Austin Wilson:

Yep.

Josh Robb:

Again, like mutual funds and ETFs in general, it gives you one holding with a broader exposure, depending on what that mutual fund or ETF is focusing on. All right, number three, and this is one a little bit newer. It’s something that’s happened for a long time, but with technology it’s become, I would say, a little more popular and a little more accessible, which is crowdfunding platforms.

Austin Wilson:

Yep.

Josh Robb:

And the idea there is it is just a way for a group of people to pool money together for a purpose. And so a company or real estate investing group says, “Hey, we’re going to fundraise to do X,” whether it’s buy this new building or, “Hey, we have this area and we want to develop it.” I saw one and it was kind of the concept of, “Hey, we buy old shopping malls and then convert them into usable space. That’s our group. Our company does it. We just need funds to carry that out.” So a crowdfunding platform just allows people to put funds in and allow an expert or company or somebody to do something with that.

Austin Wilson:

Two thoughts on these.

Josh Robb:

Yes.

Austin Wilson:

Number one, consider how any income you get is taxed because it can look very funny depending on how it’s organized. And number two, look at fees. Because obviously, there’s no free lunch and you are participating hopefully in the growth of the principal value of the real estate and the income over time, but you’re just passive, right?

Josh Robb:

Yes.

Austin Wilson:

So the management company is going to be taking a good chunk of profit from this as they go, so fees can be pretty pricey.

Josh Robb:

Yes. And sometimes, you’ll see a local one that maybe they’re trying to improve your community, and so you have some buy-in to that as well. So that’s kind of populator with some of these is you can see where that impact is coming from. But yes, be very aware because there’s different regulations on here versus some of the other ones because REITs, real estate investment trusts, and mutual funds are all regulated by the SEC. So this crowdfunding platform is a little bit different, still has some regulations to it, but a little bit different in how it’s organized.

Austin Wilson:

Right.

Josh Robb:

And then the final one is using partnerships. The idea here is there will be a master partner, which would be the company or whoever’s really doing this work, but then they’ll bring on partners which are called limited partners, and that job for them is to provide the funding for that. And so the reason why this is different than some of the other ones is it’s actually its own entity. You have this limited partnership where you are a passive partner in this corporation. I’m going to use that word. It’s not really like a C Corp, but it’s a corporation, it’s its own entity, and you get income from this and you pay taxed on. You have to file a tax return because you are an actual partner in this organization. While you’re not an active one, you don’t get decision-making abilities. You don’t get to sit at a table during a board meeting and say, “Here’s what I think we should do.”

Austin Wilson:

Exactly.

Josh Robb:

You’re a limited partner, but a limited partner does get to participate in the profits and distributions. So this is a little bit more direct than some of the other ones, but not as direct as you actually owning the property. So this is kind of the in-between is you’re part of a group that’s doing something, but of the group, there’s these people up top making the decisions and then some other people providing some funding to it.

 

[25:31] – Final Thoughts on Real Estate Investing

Austin Wilson:

Right. I have some thoughts.

Josh Robb:

Yes.

Austin Wilson:

I think that as an American, we live in a unique situation where owning a home … Even though interest rates have gone up and house prices have gone up, the American dream involves owning your own home, right?

Josh Robb:

Right. Yes.

Austin Wilson:

That’s very common. Most people want to own their own home. We live in a unique place where we have the opportunity to have 15 or 30 or whatever-year fixed rate mortgages.

Josh Robb:

Yep.

Austin Wilson:

Around the world, that is not normal.

Josh Robb:

Nope.

Austin Wilson:

First of all, interest rates are usually a lot higher in a lot of areas and they’re floating typically in reset X, Y, Z periods, so we live in a super unique situation here in the States where that’s possible. So I think that it’s a great way to build wealth over time. You know what you’re going to be paying over time and you know that, historically speaking, yes, there are down years and down periods, but real estate values appreciate. It’s a supply and demand thing.

Josh Robb:

Yep.

Austin Wilson:

We’ve been under building for 20-some years on what people actually need for housing.

Josh Robb:

Yeah. Since ’09, we haven’t kept up with the growth of population with new builds.

Austin Wilson:

Yep. So there’s going to be demand for housing going forward. And people think, “Hey, I’m going to try and time this market and wait for mortgage rates to pull back because that’s going to give me a better, affordable time to enter the market.” Well, that’s probably going to mean more people are demanding to buy houses when interest rates are lower, so prices aren’t going to come down.

Josh Robb:

Right.

Austin Wilson:

So buy a house if you want to buy a house. We would just really recommend don’t overextend yourself. Don’t be house poor, right?

Josh Robb:

Right.

Austin Wilson:

There was an old saying, “Buy more house than you can afford,” because you’re going to make more money in the future.

Josh Robb:

Because it’s going to grow over time.

Austin Wilson:

And I would caution against too much of that because you can run into some issues there. There’s different guidelines that people use on what that should be. The Ramsey side of things would say, “25% of your take home pay.” That’s not often feasible.

Josh Robb:

25-30% is kind of that rule of thumb.

Austin Wilson:

Yeah.

Josh Robb:

Yes. But with the way prices have moved, it’s hard.

Austin Wilson:

It’s hard.

Josh Robb:

I always look at it from, “What is my monthly, ongoing cost going to be for this property and how does that affect my overall budget?” And you’re right. Thinking through property tax, mortgage, insurance, and utilities, those are kind of the big, big ones. And then you got improvements and things like that, but those are the big ones that are reoccurring and ongoing, and just putting that all together and saying, “What does this look like? What am I trading off for that?” Some people may say, “I’ll take a bigger home because that’s where we’re going to spend most of our time,” and, “It’s okay. I’m willing to trade X for that.” And others say, “You know what? I don’t want that because X is better or more important to me. I want to spend my money on something else.”

Austin Wilson:

I would also say that, as we talked about throughout, the real estate investment game when you’re specifically flipping properties or renting properties is not easy money.

Josh Robb:

No.

Austin Wilson:

It’s either easy, but you don’t make any money because you’re hiring someone else to do it for you. That can make it easy, but you have very little profit. Or it’s hard, but you make more money.

Josh Robb:

Yep.

Austin Wilson:

There’s no easy money here. So don’t listen to TikTok or whatever. It is really hard to make money in real estate, and some people do it very well and some people make millions and billions of dollars doing it. But the average person, especially if you have a 9:00 to 5:00 job and you have a family and all this stuff, isn’t going to be able to do it easily to make a bunch of money at it.

Josh Robb:

Right. And between the rental and the flipping, some of it is you don’t realize it until the backend, and so you got to make sure you can afford the cashflow crunch along the way. Even with renting, getting it up and running before the first renter shows up may be a stretch for you because you got to start making payments even before rent comes in.

Austin Wilson:

Oh, yeah.

Josh Robb:

Or you may have a prolonged period of no renter. “Can I continue to afford making those payments?” So you just have to be careful. We’re both big fans of real estate. I know we’ve both talked through that, you and I, together time and time again. I think it’s an awesome diversification of your assets and it’s a great use for funds, but you got to do the research and know what it is going in. And a great way to do that is talk to a financial advisor.

Austin Wilson:

Right.

Josh Robb:

Make sure that it fits in your overall plan. Is this the right time to be doing these type of things?

Austin Wilson:

It’s also not for everyone. You don’t need to buy a house and you don’t need to buy investment property.

Josh Robb:

Right.

Austin Wilson:

But even when it comes to your own home, renting is not a bad thing.

Josh Robb:

Nope.

Austin Wilson:

You can rent for your entire life and do just fine, and a lot of people do.

Josh Robb:

That’s right.

Austin Wilson:

And you know what you’re not on the hook of? Big, major expenses when that’s the case.

Josh Robb:

That’s right.

Austin Wilson:

Now you’re not also benefiting on building wealth through the appreciating value of the property, but there’s pros and cons.

Josh Robb:

There is.

Austin Wilson:

So don’t feel the pressure to be like, “I have to go buy a home.”

Josh Robb:

It’s a decision. Yeah. There’s very successful people, financially successful, who are very satisfied with their life that have never owned a home or property and never intend to, and that’s great. It fits well within their plan.

Austin Wilson:

Yeah.

Josh Robb:

Right. But when it comes to real estate in general, just make sure you think it through. It should not be a rash or rushed decision. But other than that, I think it’s a great way to diversify if it fits there.

Austin Wilson:

Absolutely. Well, thank you for listening. Remember, if you had someone asking, “Hey, I’m curious about investing in real estate,” send them this episode. You can always do that. Email us any ideas at hello@theinvesteddads.com. Yeah, maybe you’re curious about talking about your financial situation. Well, you can click on the “Invest with Us” tab and get ahold of us, and maybe we could be a good fit to help you out. So give us a call or contact us through that. And until next episode, thanks for being here. Have a good one.

Josh Robb:

Talk to you later.

Austin Wilson:

Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to TheInvestedDads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click “Subscribe” and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.