Podcast #8: Common Mistakes for Denver Investors

In today’s show, I interview Charles Roberts about common issues that prevent Denver Investors from buying their first property. As I listened to the interview in preparation for publishing it as a podcast, I found myself taking notes. Well,  if I was taking notes, that means there’s a good chance others would want to as well.

I decided to have the interview transcribed to create comprehensive notes. Below is the modified transcription. Please excuse the grammatical errors. Enjoy!

Advice From An Experienced Denver Investor

Chris Lopez: Today in the studio I have Charles Roberts with me to talk about common issues that prevent investors from buying their first property. Now before we actually go into these issues, I want to spend a few minutes and drill down into Charles’ background. He’s got such an impressive bio, that it’s very easy to just scan across, not realize how much experience and success he’s had over the years.

Charles became an investor about 20 years ago and has bought or sold over 40 properties for his own personal portfolio. To become a better investor, he became an agent in October of 2004 and soon started building Your Castle Real Estate.

• He’s done 432 transactions with clients to date.
• 347 of those transactions have been with investor clients
• Charles is the president of Your Castle Real Estate, Live Urban Real Estate and Sherwood Real Estate and manages over 840 agents.
• He’s also mentored over 100 agents .
• He’s also assisted his mentees with thousands of transactions.

Click here to read Charles full bio. 

Don’t Forget About the Lending!

Chris Lopez: So let’s dive into this. So, no particular order, just, I mean, I just went through your impressive resume, like start off, what are some common issues you see preventing people from buying their property?

Charles Roberts: There’s a whole bunch of stuff. I love to work with newer investors. It’s just really really fun. It’s really gratifying and all I can say is I was there and I made all the mistakes and all I can try to do is to get people to not make the mistakes I made.

The first thing I would start with is the lending. What I see every new investor start with is the property. Buying the right property for them, getting a great deal, getting 30% off, etc. It’s all about the property. And while it is partly about the property, nothing happens without the lending.

If there’s one piece of advice I can leave you with, it’s the understanding that most investors spend the least amount of time on what they should be spending the most amount of time on, which is understanding the finances in their own lending. Meet with not one loan officer, not one bank, but with five, with eight, with ten. This will help you understand what you’re bringing to the table and getting the best rates, the best terms, the right service, etc. Because different loan officers, different banks, different programs are different and you’re going to be living with this for 10, 15, 20, 30 years, so that might be the first thing to surprise you, but I didn’t even want to talk about real estate to get started.

There’s No HGTV on Lending!

Charles Roberts: I want to talk about lending and make sure that my clients have themselves set up for success, not for failure by getting the wrong loan, because the lending is not the fun part, like there’s no HGTV on lending. I actually don’t have cable, but I hear about these things. Like is there any great stories about, “Let’s go talk to the loan officer,” No! Everybody wants to see the pretty pictures. Be different. Understand your financing. It’ll make you a better investor.

Chris Lopez: Now from conceptual, that makes sense to me, but, what do I ask? What am I looking for? Most beginners don’t even know what questions to ask. Do they go in and run their credit at each lender? What do they do?

Charles Roberts: Well, it depends on your situation. Let’s say you have a job, you’ve got a decent FICO, you think you’re good. My guess is that you want to start with relatively conventional loan officers, you want to get some recommendations and you probably want to work with loan officers who understand and are experienced in the lending world. You don’t want to work with your cousin who may be a good loan officer, but just does single family owner occupied.

So what you want to do is simply sit down and you’re going to talk to someone who’s experienced, who’s done this a thousand times. So they’re going to be able to lead the discussion and ask you for questions and elicit from you what they can do to give you a prequalification and in a bad scenario, it might be, “Hey, Chris, you can’t buy anything. What’s this on your credit?” And you might say, “That’s a mistake.” And then great, you go down that path of fixing problems on your credit or improving your credit, but you don’t want to spend six months looking for the right property and then find out you can’t get a loan and blame the world, no, don’t blame the world, blame yourself, you should’ve been figuring out the loan six months before so that maybe you could be improving and correcting and repairing your credit. That’s where it all comes together. It’s just conversations with experienced people.

Speak with a Realtor or Loan Officer First?

Chris Lopez: Now should someone talk with their realtor first? Kind of get a general idea of what prices there are for properties before they talk to a lender? In your dream world, is there a recommended order you would have people do?

Dream World: Meet With Both Together

Charles Roberts: In my dream world what I do with several of my lenders is we meet with the client together. That’s actually the best thing so then you’ve got two experienced people and the lender and the realtor advisor can be kind of playing off each other so that each is looking at the other, but short of that, I think it can go either way. I’m just saying don’t just do the real estate for the first three or six or nine months, get into the lending as well, so that you’re getting that going and your understanding what you can buy at the best rates, the best terms, with the right person representing you.

Lender Recommendations

Chris Lopez: That makes sense. Now if someone needs recommendations for lenders, where do they go to? Google? Should they reach out to you? What’s the best way?

Charles Roberts: You know, there are probably tons of places you could go to like Google and finding people with good hits and reputations. Send an email to me, I’ll send you three or four folks that I work with. I’d be happy to. I don’t get paid by anybody doing that, it’s nothing like that. I would just want to work with someone who’s working with a good lender.

Local Lender vs National Lender

Charles Roberts: You come to me and say, “Hey, I’m using Quicken Loans, I want to buy stuff 70 cents on the dollar,” I’m going to probably not spend a lot of time with you because I don’t actually think you’re a serious investor, but you come to me say, “Hey, I’ve met with these three people and here’s what I’ve got,” it all is a matter of educating yourself so that you can educate the people you’re working with to make a better thing.

So I would say you’re welcome to reach out to me. Send me an email. Reach out to your friends and colleagues and just do a little bit of research and spend a little bit of time having great conversations with lenders who can help you out.

Chris Lopez: Now you mentioned Quicken Loans and just as we were working with a client a little while ago, I heard you have this discussion about not working with some big nationwide company, but rather you recommend a local guy, why is that? What’s the thought process behind that?

Charles Roberts: I hope to not get sued for this, but I can just tell you I’ve had not good experience with large lenders like your Wells-Fargos, your Bank of Americas, your Chases, they’re good at what they do, which is 740 FICOs, residential properties, plain vanilla 45 to 60 days to close. You’re not helping yourself, in my opinion, being an investor working with a group like that when you can get same rates, same terms, but actual local service, and it gets even more explicit.

Let’s say I’m a listing agent and I have a property under contract, I have a listing for a $220,000 three bedroom town home or something and someone comes to me and I’ve got two buyers. They’re the same buyer, one at the asking price with a Wells-Fargo loan and one at the asking price with a local lender with a good reputation, and I’ll throw out City Wide’s great, Gill Mortgage, Castle and Cook, Calibur Home Loans, these are folks I’ve closed lots of deals with. I’m telling you an experienced listing agent is going to advise their seller to favor more the better lender, why? Because we have a better chance of closing on time. It’s that simple. We think we’re representing our sellers better by giving them the benefit of our experience of who to work with as a lender. It makes a big different.

Finding the ‘Perfect’ Investment Property

Chris Lopez: Okay. So that makes a lot of sense about the finance side, so moving forward, I often hear you talk about not finding the perfect property, but finding the perfect property for the investor. So, kind of give us the rundown on that. Explain that.

Charles Roberts: Sure, so everybody wants a property that’s 60 cents on the dollar. We all want a perfect property in a perfect neighborhood that’ll build a lot of money. The problem is, because everybody wants it, the fact is, almost nobody’s going to get it and this might sound like a harsh truth, I don’t want to sound too negative, but there are hundreds if not thousands of very experienced professional investors who have put months and years and tens of thousands of dollars into sourcing what we call the great deals and if you want to be that person, just understand that there may be a lot to get there. There may be years of work, not too negative, I’m just telling you it’s really really hard because it’s very competitive.

So when I say the right property, what I mean is in so many different ways, the right property for let’s say my cashflow perspective, from a how fixed up is it versus how much work you need to do perspective. From a what are the chances of my finding what I want to find versus finding a property that may have less cashflow, but that I actually have a realistic chance of purchasing one, as opposed to no chance of purchasing one, and that’s where having discussions with experienced people can help you and you should work with the right person for you. Both as the lender, as the real estate agent, etc in building your team.

If you want to find the greatest deal in the world, then go work with the best real estate agent that can maybe help you find that. What I’m going to say is at least understand it’s less likely you’re ever going to close on a property, versus something that may be more realistic, that may build you long term wealth if you actually buy properties.

Finding Properties 30% Below Market with Low Ball Offers

Chris Lopez: Now keep in mind as you talk about reading the book, 70 cents on the dollar, that Charles is giving advice as someone who’s been an investor and real estate in Denver for going on 20 years and he knows the Denver market, he’s talking about the current market conditions. Now is it realistic in the current condition the market is, is it realistic for someone to go out there and do a bunch of low ball offers at 70% of asking price?

Charles Roberts: That’s a good question. Well, they certainly can, so it’s realistic that they can. The question is ‘will they get something?’ I don’t think generally they will, although there are exceptions and the exceptions are the ones that you’re going to hear about at the next investor group meeting or that you’re going to read about when someone writes a book. Of course, it happens, but in a market that we’re in the middle of right now, which is a very strong seller’s market, generally, the answer is no.

So the reality is, you might work with an agent and the agent might be willing to throw those 70 cents on the dollar offers, but many agents are simply not willing to do it and you might say, “Well, agents are stupid.” Well, that’s fine, I think you’re stupid actually, I don’t think that’s the case. Agents are business people.

Some may want to pursue that 1 in 100 strategy. Many agents will say, “I don’t want to kill my reputation with my agent colleagues around town by sending them really time-wasting offers. And this is where it gets so interesting, it’s just not black and white. What you’ve got to do is figure out as an investor what you want to do and then work with the right person and if that’s the person who’s an agent who will put in the 70 cents on the dollar and do it forever, maybe that’s the right person for you and I can’t say it won’t work, I can just say it’s difficult to do and it’s unlikely it’ll happen any time soon.

Chris Lopez: So it sounds like the odds are against someone doing it that way in the current market.

Charles Roberts: Yeah, oh yeah, I can definitely say the odds are against, but I would never say it can’t work. I can just say understand the market. Who’s coming in at 70 cents on the dollar and how are they going to beat one that’s coming in 80, 90 and 105 cents on the dollar? It’s unlikely that you’re going to get one, but there are stories and it does happen, just a matter of what you want to do with your time.

Understanding Denver Cap Rates for Deal Analysis

Chris Lopez: Okay, so moving on from swing for the fences, trying to find the grand slam deal, 70 cents on the dollar, to “Hey, let’s find a good basic deal which are available on the MLS right now.” What are some criteria for people to look for those good basic deals for expectations?

Charles Roberts: I think part of it is going onto our website. We have a spreadsheet analysis discussion for about 25 minutes. Actually go through that. Have a basic basic simple understand of how to use spreadsheets, so you can compare properties. Apples to apples.

I would suggest using what we call the capitalization rate. The cap rate. So you know what a six-five cap is versus an eight cap. It’s worth knowing. You can educate yourself a little bit so that when you go and look at properties, you can understand what the monthly return is and then you can begin to size up properties and find out what’s right for you, because someone might be great with a six-eight cap, which will have less cashflow than a seven-six cap because the six-eight cap is in a part of town that they want to own properties and that’s where a little education just like you’re doing now by listening to this podcast can really help you make a better investor of yourself by understand what the right property is for you.

High Cap Rate vs Low Cap Rate

Chris Lopez: Okay, and again, what’s the general trade-off between a high cap rate and a low cap rate, nice area, not nice area, what’s the general guidelines on that?Chris Lopez: Okay, and again, what’s the general trade-off between a high cap rate and a low cap rate, nice area, not nice area, what’s the general guidelines on that?

Charles Roberts: Yeah, the general guideline, the rule of thumb that really does work is the worst property, in the worst condition, in the worst neighborhood is always going to cashflow the best. It’s just no exceptions to that really. Meaning-

Chris Lopez: And that means a higher cap rate too.

Charles Roberts: Meaning a higher cap rate, exactly. So, a relatively tough low-end part of town with beat up old property is going to have a higher cap rate than even Platt Park or Wash Park or Cherry Creek, every single time. So then the question is, okay, so which is the right investment? And the answer of course is, I don’t know, what are you looking for? Are you looking for a property in a nice part of town and you’re willing to have a lower cap rate, then that’s the right property for you and that’s the perspective you get by understanding a little more of the financials in what’s out there.

When I first started 20 years ago, I didn’t have any money, so I was buying in the worst part of town and I’ve owned lots and lots of properties in the worst part of town and I can tell you what it’s like and it wasn’t too bad, although there were some exciting times that I guess I wish I hadn’t had, but I did have and that’s just part of it because I was going for cap rate. I was going for monthly cashflow.

What I find is my clients now tend to be of the type that don’t want the worst parts of town, ie. the best cap rates. They want a couple of steps above that, and they’re willing to take a slightly lower cap to be in an area that they feel more comfortable in, but they’re also not buying in Cherry Creek with a four cap.

50% Science and 50% Art

Chris Lopez: So it almost sounds like it’s a balancing act between looking at the numbers on a spreadsheet and saying, “Oh wow, this is amazing cap rate,” and actually going out and looking at the property and seeing if you’re comfortable with it. I’m assuming there’s a balance of numbers and what the person has a comfort with, is one right or wrong or better than the other?

Charles Roberts: No, that’s exactly the right way. I like to say it’s half science and half art. So the science is the spreadsheets, the science is the numbers. It is not 100%. So everybody wants to tell you, treat it like a business, and it’s all about the numbers. I don’t know who these people are, but I don’t know that they’re real investors.

Look at Properties ASAP

Charles Roberts: It is very much partly about the numbers and then it’s partly the art of what’s right for you, because I can promise you I’ll be in a room with ten people and everyone will have a slightly different version of an answer, and it doesn’t mean that some are right and wrong, it’s partly about what’s right for you. So until you actually go out and look at properties, you don’t really know anything about investing.

You can do cap rates and you can do Excel spreadsheets all day long. You’re wasting your time after a pretty short amount of time of learning the stuff, then you’ve got to go out and look at properties and figure out what might be right for you. By using and incorporating all the analytical abilities you now have from understanding the half-science part, which is the spreadsheets and the returns.

You’re Not Living In Your Rental

Chris Lopez: And speak on this, call it a mistake, I know I did it when I actually fixed up my first property. I completely fixed up way to much acting like I was going to be living in it myself and then renting it out, I’ve heard you talk about this a couple dozen times of like, “Hey, keep in mind you’re not living in the property, but you’re renting it out.” So talk about that.

Charles Roberts: Well, what’s really important to know is if you’re buying a property and fixing it up, you really really want to make sure you know whether you’re going to rent it at the end or sell it. Because if you’re going to sell it, you’re probably most likely going to fix it up more and you don’t want to do that, most likely, if you’re going to rent it.

You might spend 20,000 more and get 75 more a month and those numbers don’t work out, so part of everything we’re talking about is taking a step back, having a plan, understand you’re lending, spending a little bit of time on the science part, which is the spreadsheets and also in this case, understanding what you’re back end is and not making the mistake of putting $20,000 out of pocket of your money and then ending up renting it when you simply did not have to make that level in improvements.

Time Frame For Making Money

Chris Lopez: So let’s talk about the … I know you’re really big on using real estate to build wealth in the long term, so set people’s expectations for making money in real estate, if they want to invest in the long term, 6 months, 10 years, 20 years, what are some guidelines or advice you have for people?

Charles Roberts: It depends. It depends what you want. Some people want to do fix and flips and make money in the short term and there’s nothing wrong with that. I’ve done it. I did it for years. What I would say though, is if your goal is to make money in real estate in 6 months.

You have a very good chance of losing money. If your goal is to make money in real estate over 10 years. You have a very very good chance of making a lot of money and correcting a lot of mistakes that you’ll make at the beginning. So I have moved from a short term kind of guy, fix and flipper, to a long term kind of guy because that’s really where I’ve made all my money.

I actually didn’t make a lot of money at doing fix and flips and partly it’s because I probably sucked at it. It’s just the way it was. Where I made all my money was buying a property and paying it off, so that’s just what I think makes more sense for me. It doesn’t mean it has to make sense for you as the listener. You have to figure out what makes sense for you as the listener and then work with people who do what you want to do.

Almost Everybody Who Has Owned Property for a Long, is Basically Rich

Chris Lopez: So, talking about the 10, 20 year timeframe, the long term, what are some pieces of advice you have to help people set themselves up for success, because I’ve certainly seen it seems like the main reason people don’t have success is because they hit a rough time and run out of cash. Do you have some general guidelines for how much money to keep in reserves? Basic finance things? Anything like that would be extremely helpful.

Charles Roberts: The way I would put it is, no one has ever said, “I wish I hadn’t bought that property 20 years ago.” Right, chuckle, chuckle. Everybody who’s owned property for a long period of time, basically is rich. That’s just kind of where you want to get. What I would say is, don’t worry about a six-nine cap versus a seven-two, don’t worry about what quality of windows so much or exactly which flooring, the big worry is to buy property and own it for the long term, because you are going to make a a lot of money if you do that.

Where I’m going with this is, then maybe be a little more conservative. Maybe wait another six months until you have enough money in the bank. Maybe it’s get a 30 year loan versus a 15 year loan. Who knows. The whole goal to me with people I work with is that they own property for the long term and everything takes care of itself, and over the long term we have every expectation that our market will continue to go up five or six percent in terms of prices because Denver is a desirable place to live and people want to live here.

Make Money: Slow and Methodical

Charles Roberts: What you don’t want to do is mess up in month 9 and say, “Oh, real estate is dumb and I’m going to sell this property and people who do real estate is stupid.” That’s how you make no money. The way you make money is going a little bit slower, being a little more methodical, and being a little more conservative, I think, and holding the property for the long term.

So maybe you’re a little more conservative and you’ll have 17 million dollars instead of 19 million dollars in 20 years, who care, you just want to get there and own property for the long term. That’s about the simplest advice I can give and I really really mean it.

Building Your Real Estate Team

Chris Lopez: Good advice. So I know another thing I hear about investors hear about and read about all the time is the importance of building their real estate team. So how do people go about building it and is it really that important actually?

Charles Roberts: You know I actually do think it’s important. When I was an investor for 7 years before I got my license, I always worked with a real estate agent, I never did for sale by owners and stuff, it just made sense to me. I got my license 7 years into my investing just to be a better investor, I ended up being an agent as well, but having a team’s really really important.

So some of my advice to you is the reality of life and hopefully this sounds familiar. When you’re really good at something, let’s say a lender, you have lots of people you can work with, you don’t need to work with someone who’s brand new and pushes you around and pisses you off. That is just the reality of life.

Brand New? Be Nice!

Charles Roberts: My best advice to people who are new is to just work with people, ideally who are experienced, but just be honest with them and don’t be overbearing because you’ve got to understand, if people are good at something whether they’re an appraiser or an insurance person or a real estate agent or a loan officer, they have a choice of who they want to work with.

Be a good person. Show them the value you bring. Show them you want to learn. Show them that you can actually help them build their business and they’ll help you build your business. We’re in a great part of the world. Denver has so many great people. There are so many great agents. Great loan officers, etc. Just be a nice person. Show people what you can do for them. Ask them what they can do for you.

You can build a great team even if you’re just brand new at this. Go to some of the investor groups. Go to the iCorps and the IIROCS and the Pine Financial happy hours and the John Fischer breakfasts, come to Your Castle Trainings, go to our website the DenverInvestmentRealEstate.com. You know and get to know people. It is a wonderful wonderful thing when you can build a team and trust them and help them build their wealth by their helping you build your wealth.

Who Do You Need On Your Team?

Chris Lopez: So what people do they need on their team? And do they need them all in place before they buy their property?

Charles Roberts: I would say really the two important first ones are the lender and the real estate agent, I think clearly that those are the first two. Having an attorney potentially, but I gotta tell ya, never been sued, I really have never gone to an attorney in my investing world and I have 2500 tenant months of managing my own properties over the last 20 years.

Except for a couple of evictions and I just used a local eviction group that they’re great, you spend 300 bucks, they take care of it. Haven’t done that much. You want to have referrals for an insurance person as well, but I’m really coming down to the two basic people are the lender and the real estate agent I think.

Chris Lopez: Okay. So we start off with those two are by far the most important.

Charles Roberts: I think so, yeah.

Ditch The Seminar Phone Scripts!

Chris Lopez: Okay. Now I’ve heard you and a couple other people around town talk about how when a seminar comes into town or a guru comes into town you get a phone call come Monday morning and they have their script, you can almost pinpoint it back to a certain guru. Share some of the discussions I’ve heard, it’s very interesting.

Charles Roberts: Yeah, this is, so me and my compatriots, my lender friends and my realtor friends, we’ll sort of have a beer and laugh over this, but there are gurus who drive around the country or fly or whatever and they teach stuff and some of it’s good and some of it’s bad.

But the stuff we find annoying is the script that goes something like, “Hello, my name’s John Doe, I am a real estate investor, I am looking to build my team, I would like to consider you and see why you would be the right person if you impress me.”

Let me tell you, that’s a very short phone call for an experienced loan officer, an experienced real estate agent, because we just kind of know what’s going on, you have nothing and you’re trying to bully your way into the business and we have no interest in working with you.

Just be a nice person. “Hi, my name’s John, heard some nice things about you. Don’t know much, but I got some stuff going on. Would love to learn more. Looking to buy some property. Looking to invest. Can we have a cup of coffee?” And we go and talk about this and you’ll get an answer every single time. It’s really simple.

Warrantable vs Non-Warrantable Deeds

Chris Lopez: That’s great advice. So something else I’ve heard you talk about a few times with clients are the few issues of non-warrantable deeds coming up when people are purchasing condos. First, what is a deed? What’s a warrantable deed? The background on that, the importance, the pros and the cons.

Charles Roberts: You’ll hear the term warrantable versus non-warrantable. And you see these in condo complexes. So you’ve got condo complex A and condo complex B. A is non-warrantable and B is warrantable, there’s a bunch of different things it can mean, but basically the highest level, a non-warrantable complex means they can’t get an agency Fanny-May Freddy-Mack loan. You can’t go to Chase or Wells-Fargo. You can’t get a 30 year fixed loan, which is going to be the best cheapest term loan. So a non-warrantable is a problem in a sense versus a warrantable, which means you can just go and get a great loan.

There are lots of different flavors of non-warrantable and there are lots of different reasons that a complex may be non-warrantable. Some of the basic ones are there might be more than 50% of the residents are tenants. Agency loans, can’t do them. More than, I actually have this right now, I have a property under contract in a complex that more than 10% of the units are owned by one investor, non-warrantable and this thing’s like a seven-eight cap. We love it. We got it, but it’s non-warrantable. There may be not enough money in their HOA reserves.

So there is a standard kind of test of warrantability and if the HOA does not meet that test, then you can’t get a conventional Fanny-May Freddy-Mack backed loan. That would be non-warrantable, where you’ll have to go to a local lender. Your First Banks and Millennium Banks and Vectra Banks, lots of great local lenders who use what’s called portfolio loans, which is basically, they’re rich, they have all this money, and they say, “Yeah, we’ve got no problem with this. No, no problem, I mean it’s non-warrantable, but we think you put 20% down and we feel strong about this,” they’ll lend you their own money.

What you won’t get are 30 year and 15 year products. You’ll get 5 one-arms, 7 one-arms, although you’ll get unbelievable rates. I mean the rates are actually as good or better on these products. It’s not that they’re more expensive, it’s not that they have bad rates, you’re just not going to get long term loans.

(Remember the Lending Component)

So I think I started this by talking about understanding the lending part. It’s a really important part of this whole thing to understand the warrantability versus the non-warrantability and most importantly, decide how you feel about it.

It’s way too simple to say, “I am a good investor. I will never buy in a non-warrantable complex.” That’s just ignorant. That doesn’t make any sense. What makes sense is to make a decision what’s right for you, you might say, “I now understand this and I don’t want to buy in non-warrantable complexes.” Great, that’s good for you, but understand that the non-warrantable complexes by definition have fewer buyers because they can’t get conventional loans and guess what that means? You’re buying them cheaper and you’re getting the same rents which means you’re getting better cashflow. That’s why it’s worth your time to understand what’s right for you.

Chris Lopez: And so this sounds like this discussion of non-warrantable versus warrantable can open up a can of worms, but just to help a new investor understand is more is it something that they should look at before they put an offer in on a property, before they ever go view it or where in the process does it even matter? Or that just depends on the person and the situation?

Charles Roberts: It partly depends, I would say the earlier the better. I mean, hey, you’re listening to this podcast, good for you, hopefully, this tells you maybe I’m going to call my loan officer, understand this a little more, maybe I’ll go meet with two or three local banks so that I have a non-warrantable option if I choose to. I would say the earlier the better, but there’s also diminishing marginal returns, you don’t have to write your PhD paper on non-warrantability.

Spend a little bit of time understanding it at a basic level, deciding is it sort of a go, no go, are you okay with non-warrantable if everything else is okay and then move on to something else. So it’s a balance, you don’t want to know nothing about it, but if you spend all your time looking at non-warrantability then you haven’t done the other 18 things you need to do as an investor. So just begin to work with people who can guide you to understand what you need to know so you can make a decision and take the next step.

Most People Shouldn’t Buy Investment Property

Chris Lopez: Now what advice do you have for people out there, I know purchasing investment properties, especially the first one, it’s a big deal, why is it some people are able to pull the trigger and get a good deal and some people never pull the trigger, like advice or tips on helping people get to the point so they can say, “You know what? I’m going to write an offer on that property, let’s do it.”

Charles Roberts: So I’m pausing for a second because it’s an interesting question. So this might sound really weird, but I think most people probably shouldn’t buy an investment property, I think when it’s scary and when it’s bad and when you have a bad tenant, I don’t know that most people actually want to have that life.

So by no means do I feel, have I ever said, “Everybody should own investment property.” I actually think most people are nice good people who want to watch football over the weekend and not have to deal with stuff. So I’m a little stumped by that because I want to be careful when I say that it is kind of a self-selected group of people who want to do the extra work, have the extra sometimes fun and sometimes, many time, unfun excitement to make a huge amount of money. That’s part of where I’m going to go with this.

From there, if someone does want to dip their toes and give it a try, it’s a personal decision. It’s a family decision on what they think they want to do and the best thing they can do in my opinion especially early on, this is going to sound weird, is being conservative. Don’t be a hero, don’t listen to a podcast or read a Zillow article or go to a guru and think that you’ve got it all and you could make a billion dollars because most people who really really stretch themselves fail. You just never hear about them. You just hear about the one guy or girl who travels the country saying here’s what I did.

I’m a big big advocate of taking methodical steps. Doing it like a business. Making sure you’re the right person to deal with the tough times when they happen. Be very conservative, but if you buy some property and you own a half a dozen properties outright in 15 years, you are rich. You’re a hero. You’re that 1% person that everybody makes fun of. Well too bad, you’re that person, you just need to get there.

Investing Rules Are Great For The First 3 Minutes

Chris Lopez: Now I’ve seen a lot of rules on the internet and I’ve read different investing books over the years, all with different rules of thumbs, the 2% rule, the 1% rule, the 50% rule, don’t buy anything unless it’s $500 a month cashflow. What are your thoughts on those, I’ll say black and white rules of thumb?

Charles Roberts: Well, they’re very very locale specific. So if I’m in Detroit, I’m using a 2% rule. Okay, great, you can buy a property for 50,000 and gross 1000 a month in rent. In Denver, I use what’s called a gross rent multiplier, which is the inverse of the 1%, so a 1% rule would be you spend $100,000 on a property and you get 1000 a month, here it’s going to be more like a 130 gross rent multiplier, you spend $130,000, you’ll get 1000 a month.

The rules are I guess a good place to start for maybe your first three minutes in real estate investing, and then you really get past them because they’re not helpful. There’s so much more to learn about your locale, your neighborhood, what’s going to make you happy, that don’t spend more than a couple of minutes looking at silly rules like that. There is much much better ways to analyze data and find out what sort of property may be right for you and wrong for you.

Chris Lopez: Great. I’m looking through my notes here, I think I touched on all the talking points that I wanted to ask you about Charles, but any other thoughts or tips as we wrap up?

Charles Roberts: You know, we’re 35 minutes into this podcast, that’s a good start. Hopefully this just helps you a little bit. Next step will be educating yourself and meeting the right people to help you out. Maybe it’s us, maybe it’s someone else, reach out to us if we can’t help, these are the discussions we have, but just find someone that is going to work in the way you want to work. You want to be a cowboy, find

You want to be a cowboy, find an agent and a lender who are cowboys, that’s great. You want to be more methodical, how we suggest you do it, then find folks like us or us who can help you work in the style and the management that you want to do. It’s real estate. It’s long term stuff. Just be yourself and you can make a lot of money in this business.

Chris Lopez: Great. Well, thank you Charles.