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"But I don't have any money, so I can't invest in real estate." That's a sentiment I hear a lot. And while I do believe you need some money, it's not a lot. A great deal will bring lenders or equity partners along. So the big key is to find the great deal. On this episode of The Good Stewards Podcast, we discuss the details:
Episode 21: A Guide to Partnerships
Episode 22: Property Insurance Episode 23: Myths of Real Estate Episode 24: What the Pandemic Means Episode 25: Investing in a Pandemic Episode 26: How Covid-19 is Similar and Different to 2008 Episode 27: Building a Business Episode 28: Are Real Estate Values Changing? Episode 29: How we Got April Rents to Match February Episode 30: How Has the Mortgage Industry Been Impacted By Covid-19 Episode 31: Are Airbnb's a Good Opportunity Now?
Comments
 If there's one thing I repeat over and over again to new real estate investors, it's that rehab will always take more time and cost more money than they think it will. This common error even has a name; the optimism bias. One example from Thinking Fast and Slow by Daniel Kahnemann is quite illustrative; A survey of American homeowners who had remodeled their kitchens found that the average person expected to spend a bit over $18,000, but ended up paying over $38,000! My favorite (least favorite?) example is the Sydney Opera House, which was originally estimated to cost $7 million and came in at just over $100 million and a full 10 years behind schedule! I have never heard a single real estate investor, contractor or developer complain about "budgeting too much" for rehabs. Yes, it does happen. We've come in under budget plenty of times. But it's much more common to go over budget, especially in the early going. And I've seen investors go over budget by 100 percent or 200 percent or even more. I have never seen someone come in wildly under-budget on a consistent basis. The errors for budgeting are not normally distributed as you would see on a bell curve. Instead, these errors are slanted heavily toward the error of budgeting too little. So the more you can do to learn how to estimate rehab costs the better. And the best place to start is The Book on Estimating Rehab Costs by J. Scott. The book is, of course, no panacea. As Scott himself says, “Learning how to put together a realistic SOW [Scope of Work] and create an accurate budget takes preparation, practice and experience -- there are no shortcuts.” (Pg. 9) Instead, the "book will provide a framework for thinking about the tasks associated with renovation projects and the range of costs associated with each of those tasks." (Pg. 8) Scott breaks a property down into 25 key components. I actually took that list and used it build my 1-page analysis sheet I fill out when looking at a property for the first time. (I added a couple of categories; splitting flooring into two and separating the foundation and the basement.) Here is my sheet based on Scott's book:  For anyone who's interested, I would be happy to send the Excel document of this.
Far too many investors go into a project and wing the scope of work (or don't even make one) instead of having a template prepared to fill out. Just like an injection mold makes it far easier to mass produce widgets, having a template with which to create a scope of work makes putting together a scope of work much easier and more accurate. This is why a book like Scott's is so helpful. Scott works his way through each major component of the house (i.e. plumbing, electrical, framing, HVAC, etc.) and discusses what to look for, the common items that need to be done and the typical costs of those items. It's an especially handy guide to new investors, but useful to more seasoned investors as well. Obviously the prices in the original are outdated, but a second edition was released in 2019 and is more or less current with today's market. If you plan on rehabbing houses, I highly recommend getting a copy of this book! For those interested, you can find it here. Also see my review of Matt Faircloth's Raising Private Capital here.
Real estate investors who bought properties with the intention of using them as Airbnb short-term rentals have had a hard time with the Covid-19 induced lockdown. Some have called it a "bargain with the devil" as the bill has come due. On this episode of The Good Stewards Podcast, we ask whether Airbnb is a good opportunity now and how to approach this lucrative but risky niche.
Episode 21: A Guide to Partnerships
Episode 22: Property Insurance Episode 23: Myths of Real Estate Episode 24: What the Pandemic Means Episode 25: Investing in a Pandemic Episode 26: How Covid-19 is Similar and Different to 2008 Episode 27: Building a Business Episode 28: Are Real Estate Values Changing? Episode 29: How we Got April Rents to Match February Episode 30: How Has the Mortgage Industry Been Impacted By Covid-19
Sometimes a single tweet encapsulates and entire epoch.
Well played Mr. Schaefer. Well played.
And damn I need to see a barber right now... My newest article for BiggerPockets is up. This one looks into the dangers of switching niches. Way too many entrepreneurs (and real estate investors in particular) are overly optimistic and get stuck with the "shiny object syndrome." As I note, The big lesson here is that there are substantial costs in switching niches. You shouldn’t assume much, but one thing you should assume is that if you switch niches there will be a cost to it. Your first few deals are unlikely to be home runs and no matter how well you’ve studied the niche, you are going to make some costly mistakes in the process of learning it and should expect up front to pay for those. Of course, it's not that you shouldn't ever switch niches. You just need to do so carefully and make sure you're getting a really good deal. (Most of the time, that "really good" deal won't be nearly as good as you think when switching to a new niche.)
Check it out!  We have, without question, taken unprecedented action to stop the Coronavirus. This certainly differs to the reaction for the Spanish Flu in 1918, which the Federal level, basically did nothing. It's good they did something this time, but at this point, it's pretty clear that barring a major mutation, this will not be the Spanish Flu Part Deux. The death rate doesn't even compare. And the economic effects of the lock down and massive spending spree could be enormous. Just this week, for example, 3.8 million Americans filed for unemployment benefits. And remember, something like 40,000 more Americans die for every percentage point the unemployment rate goes up. So this is not about money versus lives. It's a trade off for both. Indeed, evidence seems to be accumulating that Covid-19 is substantially less deadly and far more people have had it than previous expected. For example, a study from New York City found that: Blood samples collected from about 3,000 people indicated that nearly 14% had developed antibodies to fight a coronavirus infection, Gov. Andrew Cuomo said at his daily news briefing. 14 percent of New York City would be almost 1.2 million people. Yet Worldometer says the entire state of New York has only 315,000 cases. Another study from Santa Clara found even more startling results (especially since California hasn't been hit nearly as hard as New York): Large-scale antibody tests are expected to give researchers an idea of just how widespread the outbreak is, and preliminary results from the first such test in Santa Clara County suggest we are underreporting cases by at least a factor of 50. By a factor of 50! Of course, there have been problems with Coronavirus tests so these studies need to be looked at with a large grain of salt. Indeed, despite early reports that the mortality rate was over 2 percent, it seems pretty widely accepted now that we just don't know because we don't know how many are infected. Yet Denmark has reopened its economy and seen no a spike in cases of Coronavirus. Sweden, for its part, never closed its economy and is doing relatively well. Dr. Scott Atlas for The Hill makes a very compelling case that this quarantine has gone way too far. He lists five key facts (or, at least, well-founded opinions): Fact 1: The overwhelming majority of people do not have any significant risk of dying from COVID-19. It's becoming more and more difficult for me to argue with against this position, especially as some states descend into police states. There were other ways we could have dealt with the pandemic without such extreme measures. (And, of course, they would have been easier had Trump not downplayed the virus early on.)
These measures would include quarantining at-risk populations, distributing PPE and recommending everyone wear masks in public (instead of saying they were useless) and keep their distance at stores and restaurants. Large events should have been canceled and maybe schools for one month and obviously New York and New Jersey needed larger efforts. But the full-scale shut downs appears to have been a mistake.
Honestly, his meme/clips make this quarantine tolerable... although perhaps not for his neighbors...
Hat tip to Matt Walsh.
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Andrew Syrios"Every day is a new life to the wise man." Archives
November 2022
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