Giving advice is extremely frustrating.
Usually, the seeker is not looking for real advice but instead wants comfort. But nobody will freely admit to just seeking comfort, so they couch their request in terms of advice when in reality they have already made up their mind. For a long time, I was notoriously bad at reading the difference, which didn’t work out well for either party.
This is particularly bad for investment advice.
Recently, many friends and acquaintances have asked me for advice regarding investing in real estate because I had bought a condo. This is particularly annoying because there are many different ways to invest in real estate, and it’s certainly not for everyone. Often, they’ll often toss out this question at the tail end of a conversation, as if it can be answered in 5 minutes or over a simple internet chat.
So either they don’t really care about my opinion, and I’m some circus monkey (“Hey, do a trick!”, “Hey tell us a tip!”) or they really, really don’t understand what real estate investing is all about. If it’s the first, I don’t want to respond. And if it’s the second, they don’t value my time. If you don’t understand what real estate investing is about, use Google. In reality, they haven’t used it simply because they didn’t take the time, and thus they value my time less than theirs. In which case, I also don’t want to speak with them.
So from now on, this blog post will be my standard response to all requests for real estate advice. If after reading this you still need advice, I will gladly give it, with the understanding that you have read and understood all the material linked in this post.
I find that in general, there are two broad categories of people who ask me for advice - and these are lessons I find that can be broadly applied to other areas, too.
Jon Snow’s Incredibly Annoying Reincarnation
These are people who have literally no idea what to do.
1) Save for a downpayment. 2) Sign up for Amitree. They will provide you an exact timeline of what you need to do - when you get prequalified, when to make an offer, etc etc. You don’t have to think about it at all.
These people almost always should get a realtor.
In many ways, these conversations are irritating because they haven’t done even the barest minimum of research to come with intelligent questions. Often, these are family friends who I’ve known for a long time who say - “Lemme take you out do lunch, and you can just tell me all about it then!” Usually they’ll come somewhere between 30-45 minutes late (they’ll laugh about “Indian Standard Time” and smile as if nothing happened), and the actual lunch involves very little eating and mostly me talking at them for 90 minutes… After which four days later, they’ll send me an email asking me to summarize everything I said.
The general theme is simple: I value the 30 seconds it would take me to Google something more than any amount of your time.
I can’t even blame them, honestly. If I found some schmuck who would teach me everything I needed to know for an $8 burrito, heck I’d probably do that too! I have a ‘say yes to anything problem’, which I’ve had to work on aggressively over the past couple years.
I now say no to these people firmly but immediately. Don’t let them down softly - ‘oh, maybe next week’ and hope they get the hint. Make it clear you don’t have time for this and put it past you (but nicely). It’s just not worth your time.
The Condescending Know-It-All
The problem with real estate is that so much of whether it’s a good investment just depends on the maths behind it. What’s the estimated vacancy rate? How old is the property, and have you factored in repairs? What about bad tenants? Property tax? These are nitty gritty details that every investor knows to factor in. Sure, we may disagree on what percentages we should use, but rarely can we afford to just shrug them off like they’re nothing.
This second group of people do exactly that.
“Why are you investing in real estate? What are your goals?”
Rather than a traditional answer, like cash flow, or flipping houses, or a primary residence, they’ll usually respond with something like “Real estate is just such a great investment, and I want to put my money here for the future, you know?”
Usually this is when my left eye begins to twitch.
It’s incredibly difficult at this point in the conversation to disagree with this premise because the person has already made up their mind. They want to invest in real estate and are going to regardless. They just don’t know why - or if they do, they’re not being honest with themselves (or with me). Usually it’s a status symbol or maybe pressure from parents. (“My son owns a house.”)
Which makes it impossible for me to give good advice. If you want to buy in a place you want to live - and at the same time find a place that’s rapidly appreciating - and find a place that you want to rent out - and beat the stock market?
What am I, a genie? Fuck, why wouldn’t I just buy that place myself.
“Okay… Where do you want to invest?”
“I’m thinking Palo Alto, or maybe Mountain View - somewhere close to work, you know.”
“Palo Alto’s median listing price is 2.4 million. Do you think you can rent it out for $24k per month?”
Of course not. These people don’t know about the 1% rule, the 2% rule, the 50% rule, how to calculate cap rates or cash on cash formulae. They just ‘know’ that real estate is the place to be. They’re not ready to have a discussion about the nitty gritty - because let’s face it, if they were, then they’d just do the calculations themselves.
You don’t need advice. You need to do research.
So go and do it.
Real Estate investing is not some easy win. You’ll have to deal with bad tenants, property managers, the government, and so many more things. I’m on Zillow for more hours than I can count each day. Finding a good deal is not easy.
Go sign up for Bigger Pockets so you get used to evaluating deals on a regular basis.
Get on Zillow/Trulia/Redfin every night and take a look at your surrounding areas. (Hint: If you live in a nice area, it’s not a great investment opportunity.) I had google spreadsheets tab open so I could quickly put in the property’s details and have the spreadsheet spit out a quick yes/no.
Or, if you’re lazy, check out Investability. They have properties designed mostly for cash flow, but it’ll get you in the habit of looking at properties from an actual investment perspective.
Of course, use a dedicated email - or at least get a filter, and resist giving out your phone number as long as possible. Wherever possible, give a fake phone number or use a google voice account. Minimize spam. Once word gets out that you’re looking to buy, people are going to be all over you.
And once you’re ready to invest, don’t use a realtor. That’s just eating away at your savings. Unless you’re really really not confident and it’s your first house ever (which I still wouldn’t use a realtor for - again, see Amitree).
It all depends on what you want. If you want cash flow or property appreciation or what. You can find a property that does more than one thing, but you have to look real hard. Harder than most people are willing to admit. It’s much easier to fudge your excel spreadsheet and say ‘good enough’ than to find a property that actually meets all of those guidelines.
Just don’t be surprised when your returns are sub-stock market in that case.