What The FAQ? Your Real Estate Questions Answered: We debunk common FAQs and offer actionable advice for beginners and seasoned investors alike. Learn the best ways to start, areas ripe for investment, and common pitfalls to dodge. Our experts share insider tips on setting realistic goals, assessing financial readiness, and identifying the most lucrative investment types. Whether it’s understanding the nuances of market dynamics or getting a grasp on investment returns, this episode is a goldmine for anyone looking to build a solid real estate portfolio.
Brett
0:00:40 – In this episode of the 5 O’Clock Somewhere Real Estate Podcast, we’re going to talk about 25 interesting FAQs, not facts, F-A-C-T-S, but F-A-Q-S, that real estate investors ask, questions I guess they ask.
Richard
0:00:52 – And you think, what the FAQ?
Brett
0:01:13 – What the FAQ? Yeah, FAQ you, man.
Sponsorship
0:03:58 – We are sponsored by Title Assurance and Escrow, a title company here in Cordova that does all of our closings, title work, escrows, and we only use Title Assurance and Escrow. That relationship is very important because we can get things done for our investors quickly and easily. So to speak with Title Assurance and Escrow, call 901-737-3332 and ask for Chris or April.
Richard
0:01:40 – Well, let’s go with the first one. How do I start investing in real estate? What’s the best way to get educated about real estate and what should I avoid?
Brett
0:01:51 – Well, I can tell you easily. Joffrey just put it out there specifically in the episode we have with him. Before he came to Memphis, the first thing he did, he started researching. I think he said he Googled it, right? And Memphis came up as one of the top markets and explained why, talked about the amount of renters. So he educated himself on it. So that’s the first thing you’re going to do is identify, educate yourself, identify the area you want to invest in, especially if you’re going to be an out-of-state investor. Set your investment goals. That’s pretty common sense. I mean, what are your goals? Do you expect to be Donald Trump? If you do, please don’t call us. If you want to be a solid portfolio building investor, give us a call, 901-692-7401. Understand your goals and assess your financial situation. If you’re going to go in and buy a rental property and you’re going to spend 100% of every dime you have in the bank to get that property, you’re setting yourself up for failure. Because you know when the HVAC goes out? When you don’t have any money to fix it. You know when a plumbing line blows up, as soon as you don’t have the money to fix it. But when you have the money to take care of it, you’d be surprised at how few things go wrong. I don’t know why it works that way. What is that, Newton’s Law?
Richard
0:03:01 – Might as well be.
Brett
0:03:02 – Okay, Newton’s Law then. We’ll call it Newton’s Law. It always goes wrong when you can’t afford to fix it. So have some money set aside. Make sure your financial situation is stable.
Richard
0:03:12 – How would I go about setting realistic goals? What kind of parameters can you put on that so that I can think about it in the right way?
Jerry
0:03:20 – Also, what Joffrey said, you know, have a plan, have a strategy, and like Brett just said earlier, do some research and know where you want to be.
Brett
0:03:33 – Right. And with that, you’ve got to put parameters. That’s a big word for you. I’m surprised you came out of your mouth, Richard. Well I mean you’ve got to set your price point first of all. You just can’t come into a market and say, I’m going to buy $200,000 rental properties. I guess you would start off by getting with a lender, making sure you’re pre-approved. What can you buy? If you’ve got 50 grand set aside, what can you fraction that up and parlay it into? How many properties can you buy and what price range makes sense. I will tell you in Memphis, 90 to 110,000 range, C neighborhood is a sweet spot. So set your price point. Set your risk tolerance. We’ve got zip codes like 30106 that have some really bad areas that you can buy homes for $35,000. Those would be, I would consider, high risk investments. You’ve got homes in Cordova, you can buy for $190,000, low-risk investment, but it has a lower return. So understand where you want to be in your property. What kind of market you want to be in, what kind of cash flow you want to derive out of that investment.
Richard
0:04:39 – So that leans us towards the second question, which is what is my best type of real estate investment? You’ve talked about it a little bit there, but can we expand on that a bit?
Brett
0:04:51 – The best type of investment is going to be single family C, C plus neighborhoods. Because you can buy a $100,000 house that rents for $1,050 to $1,100, maybe even $1,200 a month. Now you’re going to have a middle of the road tenant, right? You’re not going to have a banker, you’re not going to have a nurse or a dentist renting your house. You’re going to have a guy that works at FedEx and probably will work there the rest of his life. But those are the most hardest working people and tenants you’re going to get. They do have paycheck to paycheck, so your risk factor is a little higher if something were to go wrong in their life, but they work because during COVID, during bad economy, during whatever’s going on, guess what? FedEx is still running, Nike is still running, Amazon is still running, so these folks always have a job and they always go to work. So that helps mitigate your risk somewhat, but you always know what market you’re in. If you’re in a market where you’re dealing with tenants that work in distribution and they’re month-to-month type tenants, you know, they’re on a 12-month lease but they live paycheck-to-paycheck, there is your risk, right? Car could break down tomorrow and all of a sudden they call you and say, look, I can’t pay the rent until the 15th. Or you know, they get behind on their rent because something catastrophic goes wrong in their life and they don’t have the surplus funds in the bank to cover themselves. That is a risk.
Richard
0:06:07 – So how much money would a new investor typically need to get started in the neighborhoods you’re talking about?
Brett
0:06:12 – Well, I would say, well, if your first house can be $100,000 and you’re going to work with Andrew or Frank or one of our lenders 20% down, you need 20 grand just to buy the property. And you should have at least $3,500 set aside in a bank account that you don’t touch for those oh shit moments. It happened to Michael Gibson. We closed on a house, we got a hell of a deal on it, and literally two days after we closed, the front sewer line collapsed, and he had to dig out the entire sewer line out front and redo it for almost $4,000. That doesn’t happen often, but it happens. That’s why we call it the old shit moment. So have $3,500 set aside. So I would say to get started, if you’re going to buy a $100,000 house that rents for $11,000 or $12,000 a month and get good cash flow and good return, you need to have about 24 grand available for your down payment. Now you may can work a deal out with the lender and get a better lower down payment, but put your reserve funds in a separate account and do not touch them because as soon as you empty that account out, something is going to go wrong and you’re going to be busted. You’re not going to have any money to fix it. And guess what? No one is going to fix it for you. You’re the owner and you’re liable for that tenant’s responsibility so you’re going to have to fix it.
Richard
0:07:29 – So what’s a good return on real estate investment?
Brett
0:07:32 – The going rule is 1%. 1% monthly, 12% gross annually. And it’s called ROI, it’s called every name in the book, cap rate, whatever you want to call it. At the end of the day, your gross rate should be 12 percent starting out with four expenses. That’s one percent a month, so it’s simple. A $100,000 house needs to rent for $1,000 a month or more. A $120,000 house needs to rent for $1,200 a month or more. You start out the one percent rule, it only grows from there. So your investment will continue to grow from the 1% base forward. As Joffrey explained, he said all of his houses are performing well over the 1% now. He’s had them for two or three years and they’ve grown. Asset, rent’s grown, value’s grown, so it’s working well for him. He’s probably getting close to the 14 or 15 now.
Nick
0:08:20 – And that’s one of the reasons why Memphis is such a great market, because that can be found all day long here.
Brett
0:08:24 – I can get, we can get people 1% rentals in our sleep. Literally, I wish everybody just called and said, that’s what I want. I could just not even get out of bed, get my wife to bring me my coffee, get on the phone and just make deals happen. But unfortunately, we do have to check those neighborhoods because some of those 1%-ers are not going to be as good at 1% because if you get in a neighborhood that’s bad, where your typical tenants are being evicted and the houses are torn up, then you know, you can end up costing yourself money. So being in a stable market with 12% is a good return. Good starting point.
Richard
0:08:54 – Well, if you go to the website at the moment, I’m seeing multiple properties on there that are turnkey and making 1% or better.
Brett
0:09:01 – Yeah.
Richard
0:09:02 – So plenty out there to purchase right off the website.
Brett
0:09:04 – You can go to our website, which is mymemphisinvestmentproperties.com, and up in the right corner, there’s a little for sale button. You click on that, and it’ll pull up a whole list of properties we have and all of these properties with exception of one or two completely rehab turnkey with a tenant in place producing 1% or better. And we even have one new brand new construction that’s currently underway that’ll be done I believe end of April that’s going to be renting for $18.95 MHA. We do a lot of turnkey. If you want the best cash flow purchase with minimum headache is you buy a turnkey property with a tenant in place producing 1% or better. That’s the vanilla version, safest version of real estate investment. And then as you get your feet wet in that part of it, then venture out and pick up that house that needs 10 grand worth of work or pick up that house that needs a new roof or something you’ve got to put some money into and build some equity. But get your feet wet with a turnkey property with warrantied products in them with a tenant paying so that you can just get into the investment game without all of the the the alligators that are eventually going to come up on you.
Richard
0:10:06 – So what would you say the greatest risks of real estate investing?
Brett
0:10:12 – Not being prepared. We have a number of investors that I’ve worked with young investors that have come to me after failure because they bought a property Didn’t work with the right agent ended up buying a property in the wrong neighborhood, had a horrible experience with a tenant who trashed the house and they spent five or six grand trying to get it rent ready again, then they have the same problem again with the next tenant. There was just a series of issues. That’s the biggest risk. Listen, anybody can go buy a house and anybody can put it on Facebook Marketplace and rent it at market rent. Anybody can call a contractor and put a roof on a house. But I can take one of Joffrey’s homes and move it five blocks a different direction, its value goes down 15 grand and more than likely he’ll evict three tenants in the next five years. Understanding what you’re doing and getting a good team, getting people that put boots on the ground and look at the property, evaluate the neighborhood, evaluate the rents and evaluate the work it needs. Evaluate any issues that may be a problem for you down the road and that’s something we do.
Nick
0:11:14 – The whole team thing is huge. There’s a lot of people out there that will tell investors what they want to hear, not necessarily what the truth is. We probably lose out on some deals because of that because we’re brutally honest with people.
Brett
0:11:26 – I’ve been fired by investors before because I didn’t tell them what they wanted to hear, I told them what they needed to hear. That’s the biggest risk is picking the right investment team. Yeah, and you know, there’s a lot of agents out there that do what we do or try to do what we do. There’s very few of them that manage the process from the first phone call all the way to management. Like everything from finding the house, negotiating, getting the title work set up with the title company, getting it closed, dealing with inspections, dealing with bids, dealing with contractors, and even dealing with the management company after the fact whenever the investor feels that the management company is not billing them right or there’s a problem with maintenance that they don’t understand, getting involved and staying involved, which builds loyalty.
Richard
0:12:09 – How do you help investors find profitable real estate deals?
Brett
0:12:13 – Well, I get drunk, get in my truck, drive around Memphis with my gun, shoot a shot in the air. If nobody runs, I’m like, this is a bad neighborhood, go somewhere else. Just kidding.
Richard
0:12:26 – I’ve been to your neighborhood.
Brett
0:12:28 – No, look, it’s not that hard. Memphis is street by street. A lot of markets are street by street. So my initial look at every property is does it meet the 1% rule? Before I look at anything else, does it meet the 1% rule? If it does, then I check number one off my list and then I go, okay, well, let’s check out the zip code. But look at the zip code and zip code is something that has some palatable and good investment markets in them, I check that off. Then I go and do a Google map run and just kind of look at the location and determine what area Memphis is in, and then I go and actually do the street buy and check out the neighborhood in the street. And if all that checks out, I go run a full CMA and send it to my investor and say, look, here is a skinny on this house. Here’s what you should pay for it, here’s what it rents for, here’s your rate of return, here’s 10 sales in that neighborhood in the last six months that validate that this house is worth this number all day long and should rent for this. If they choose that they want to make a run at it, then I’m going to get in the truck and drive that neighborhood and actually drive by the house physically, go look at the street physically, go look at the house physically.
Nick
0:13:34 – That’s a huge, huge asset right there. I know I’ve got an investor that was looking at a house that thought was going to be a market rent, top of the market house, and drove by it, looked at all of the houses next door to it, all the cars parked all over the front yards, trash everywhere on the street. You’re just not going to get top of the market rent in something like that.
Brett
0:13:52 – So we’re real estate agents. I can make anything look fantastic in a picture because I can just cut everything else out. When you drive the neighborhood, that’s, for me, that’s the make or break moment because I’ve called investors saying, hey man, this looked good on paper, it looked good on a map but I’m here and I’m telling you no. You don’t want to put your money in this house. Bad streets aren’t always a bad investment. If you see activity, that’s the key. If you see a construction dumpster in front of one of the houses on the block or a couple of homes with brand new roofs on them, a couple of homes that have been painted recently, that’s good news. I mean, someone is investing money in that street, which why couldn’t you just jump on that bandwagon and ride it? Because it’s only going up. If you get on that street and you see nothing but boarded up houses and tall grass and every roof needs to be replaced and the whole street is just a mess and no activity, you can be the first investor on a street. I’ve seen Terry Brown has turned complete five block sections of Frayser into a wonderful street because he threw up three brand new construction homes and caused all this investment to hit that street. So you could set your own comparables and set your own equity in that way, but typically I don’t want new investors to be the first guy on the block.
Richard
0:15:08 – So one of the questions we get a lot is, can I invest in real estate with no money down? And I suppose this goes back to the financing options and what creative financing you can come up with.
Brett
0:15:19 – I mean, there are ways to do it, but whatever this guy in California or Vegas is telling you about invest with zero money down, if you’re going to buy that and you’re going to believe that, I guarantee you, you’re 99% on your way to failure. You’ve already failed out of pocket Why is this clown selling you his genius billion-dollar idea? Why is he not out doing it himself because it doesn’t work Nobody in their right mind is gonna own or finance a deal for you with no money down Then let you take that property and put God knows what kind of tenant in it that they have nothing to do with, who then trashes the house, and then you get financially strapped and you bail on the property, and he’s not gonna sue you because you have no money to go after anyway, because you didn’t have money to begin with, and now you’ve left him with a trashed house with a tenant in place that he now has to evict, it’s gonna cost him $1,000. Why would anybody in their right mind do that? I’m dealing with a girl right now who’s texting me while we’re here, while we’re on our podcast, about an owner finance deal. I don’t know what to tell her. I just want to call her a moron, but I can’t. Apparently that’s politically incorrect. But anyway, you cannot buy homes with no money out of pocket. Stop listening to these idiots that are telling you that.
Richard
0:16:41 – It is a bit like asking, will you give me this house?
Brett
0:16:44 – Pretty much. Or, you know, wholesalers do this, and I’m not knocking wholesalers, because we buy a lot of properties from wholesalers. But that is one way you could do it. You can go up to Nick Gibson and say, Nick, I see your house has been on the market for 60 days and you haven’t sold it. You want $200,000 for it. I’ll give you $175,000 today. Cash. Closing 45 days. And we’re going to be like, all right, hell yeah, I’ll take it. And you sign that contract. Well, guess what? They don’t have any money, nor do they have any money invested in the deal, nor do they have any earnest money up. What they’re going to do is take that contract, go to me as an agent, say, hey, Brett, I need you to list this house for sale for me for $200,000 in hopes that I sell it and they get to make that 20 grand in the middle with no money. Now wholesalers do that and God bless them because we get some good deals from wholesalers, but that’s all a wholesaler is doing. That is the one way you can do it with no money out of pocket, but it’s a risky venture. I don’t take contracts on any of my listings from wholesalers. If that contract says so and so and assignees, I’m like, toilet paper, see ya. Because we’re not doing that. Unless you’re willing to give me a $5,000 non-refundable earnest money, or at least refundable up until the 10th day of inspection, just go on about your business. Because all you’re going to do is tie your property up for 30 days. You’re going to end up in the same boat you were in when he approached you. You’ve still got your house on the market for $200,000. You’re no closer to getting it sold as you were when you signed the contract with him. So that is one way you do zero out of pocket.
Richard
0:18:09 – Well, I think a few episodes back we were talking with one of your finance guys that suggested you can take out a loan for the house, have some construction portion built in, have it reevaluated for sales, and then pull that money back out.
Nick
0:18:27 – But you’re still going to have to have the money up front for the down payment.
Brett
0:18:29 – You have to have the money you put into it.
Richard
0:18:30 – No, absolutely. So you can have a cash reserve, but you don’t need to lock it up in the property.
Brett
0:18:36 – Well, no, you’ll have to put a… So Daniel and Amish and I forgot who else we were talking about that do this. The concept is this. The lender will loan them 80% of ARV, right, after remodel value, which means when I remodel this house, it’s worth $100,000. The bank’s going to loan me $80,000. Okay, well my rehab business is $20,000, so that means I can pay $60,000 for the house. Let’s say you get lucky and the clown sells it to you for $60,000 and you put your $20,000 in it. It’s now worth $100,000. The bank loans you $80,000. Well, now you literally have zero money invested in that property. Other than your bank loan and your payments, and we’ll go back to what I previous, why would an investor do that? Because the bank loan that they borrowed and the money they’re paying back, they don’t calculate as part of their return.
Nick
0:19:24 – And most of the time, there’s also going to be a seasoning period along with that before you can actually pull that money back out of it too.
Brett
0:19:30 – Well, people will use hard money lending for that purpose, right? Hard money lenders hit you hard. That’s why they’re called hard money lenders. They might hit you in the head with a hard brick, a hard stack of money. They charge you big fees. But if you can buy the home, if they’ll loan you 80 grand out of the gate, you can buy it, rehab it, and then as soon as it’s done, go to the bank, refinance it conventionally, they do an appraisal and loan you 80% of that appraised value, and it comes in at 100, well bingo. Every dollar you put into that house out of your own pocket is now back in your pocket, and you can do it again. That is a, on paper, is a very simplistic and easy process to do, but finding that property that works is very complicated, very complicated. Amish has been doing this for three months now. We’re just now about to close today his very first property. We’ve put out hundreds of offers and they just get shot out because his numbers have to be X on the purchase price to make it work. And all the sellers just feel like we’re low-balling them, so they just counter it back to asking and we fall apart and we move on. So while it looks good on paper and I could do a seminar and get everybody excited and charge them $1,500 a person to teach them this great process and then I can go get on my boat and leave and screw all you guys. I’m out of here.
Richard
0:20:47 – So to round up, why don’t we just go back to what is your most frustrating question that you get asked time and time again?
Brett
0:20:55 – I want to be in this house and I want all my money back. It frustrates the hell out of me because, or do you think they would owner finance? I’ve spent a lot of time in the last two weeks with so-called investors calling me, sending me offers with owner financing terms in them. To me, you’re not an investor. To me, you’re just trying to take advantage of someone else’s hard-earned equity for your own profit without taking any risk, right? The term investor means you’re taking a risk. You can’t go to the stock market and I’m going to go talk to Nick and say, hey, Nick, I know you got a thousand shares of whatever stock. Give me half of that for nothing. I won’t put money into it. And when it goes up to $40 a share, I’ll split the $10 a share with you. How’s that? That’s basically what they’re asking these people to do. It’s the most ludicrous way to approach business. There are people that fall for it though. So I would say that’s the most frustrating part is these seminar guys, I swear I’m going to fly out to California and I’m just going to just go ape shit on them. Just get a bat and go in there and start trashing the place.
Nick
0:22:07 – How is it that every week we always end up back at the seminars?
Brett
0:22:11 – I need to go to rehab for this, man.
Richard
0:22:12 – Well, you see, Jeff’s not here today so we had to get him started on seminars, didn’t we?
Nick
0:22:18 – You need a sponsor.
Brett
0:22:19 – Look, I’m all about people selling whatever. If you want to sell snake oil to somebody and that person is dumb enough to pay for that snake oil, God bless it, it’s the American way, it’s capitalism, go for it. But not when it’s my problem to untangle when they come to me wanting to buy a property based on your ridiculous scenario that you taught them. It just doesn’t work. Now, it may work in California where people are desperate to sell their home that’s $500,000, right? It may work in a scenario where the market shifts in Nevada and that guy’s $800,000 house is only worth $600,000. Now he’s freaking out wanting to sell it, and the kid goes, I’ll give you a half a million dollars for it, great, I’ll take it. Not knowing that he just tied his house up and that this kid can’t sell it, he’s gonna get nothing at the end of the day. But it just doesn’t work in Memphis. You don’t have to do that in Memphis. When you have 340,000 renters, guess what’s hot in Memphis? Rental property. No one needs to give their property away. So if you want to use that scenario, go to California, go to Vegas, go to the places where they’re teaching you this system and use it there and see if it works there because it doesn’t work here. If you want to hit us up with a question, and we’ll respond to you directly and we’ll also address it on our next podcast, you can go to our website at mymemphisinvestmentproperties.com.
Richard
0:23:36 – Just hit the contact button and go straight to the contact page and they can fill out the form there.
Brett
0:23:39 – And just let us know. We’ll be glad to answer whatever question you have. If we can’t answer, we’ll have an expert available to do so to you directly.
Richard
0:23:58 – What’s an expert?
Brett
0:24:02 – An expert. People that don’t know what they’re talking about. I shouldn’t have used that term. We will not have an expert. We’ll have an anti-expert answer your question. Someone that actually knows what they’re talking about.
Richard
0:24:25 – A real dummy.
Brett
0:24:37 – Yeah, a real dummy. So, we would love for you to go to our website, MyMemphisInvestmentProperties.com, hit us with a question. We’ll be glad to respond to you directly. If we use it on the podcast and use it as a topic of discussion, I promise you we won’t use your name unless you give us the authority to do so. But we would love to hear from you. Or you can give me a call directly. Give us a call directly at 901-692-7401.