Charged Up! podcast: How to invest in real estate

Episode 47 with Deep Nasta

Charged Up! with Jenny Hoff

 



One great reason to establish a stellar credit score is the opportunity to get into real estate investment. In this episode, we’re talking to a real estate investor, Deep Nasta, aka “Cheap Deep,” who by the age of 35 had enough passive income through rental properties to leave the working world and live the life he wanted.

Nasta, who lives in Austin, Texas, takes us through the ins and outs of real estate investment. We talk about everything from how much house you should buy, to tax breaks you should know about, to the perfect kind of investment for a hands-off investor.

Deep also helps others realize their real estate dreams. Check him out on @cheapdeep on Twitter.

So, let’s get Charged Up! about digging deep into real estate!

 

Jenny Hoff: Deep, thank you so much for joining me today.

Deep Nasta: Thanks for having me on. It’s an honor to be on your program.

Hoff: First, tell us how you got involved in real estate and how it’s affected your life as far as your retirement goals and income, et cetera?

Nasta: Well, I was 22 and out of college and dead broke living with my parents. And as far as retirement goals, 10 years later, I pretty much had enough passive income and enough in the bank that I didn’t really need to work. It was optional.

The first step, it really is the first house. I bought that when I was about 23. After scraping together about $10,000, I bought a house in the central part of town for $50,000, lived in it for two years, sold it for $100,000. So I went from being dead broke to having around 60 grand in the bank two years later and just escalating after that.

Hoff: It’s interesting. We hear these kinds of stories of people have made tons of money in real estate, and we see these tips for flipping houses and how real estate is the best way to make a ton of money. But it doesn’t seem that intuitive to me. There are a lot of considerations to take in, and there’s a decent amount of work involved. How easy or hard would you say it is to learn the real estate ropes, enough to actually be successful at it?

Nasta: Quite honestly, I think it’s really easy. I think it’s incredibly intuitive, much more so than stocks. We don’t know what’s happening with the stock market. We don’t know what corporations are doing behind the scenes that we can’t see. But with real estate, especially with the technology available these days, you can clearly tell if a house is underpriced relative to the rest of the market. Even when I was 23 years old, the house I was buying for $50,000, every other house in the neighborhood was $100,000. So it became fairly easy.

The tricky part is to make sure you don’t screw up during the remodel process. I’m sure we’ll get a chance to talk about that.

Hoff: Yes, talk a little about that because I’m interested. So you found a house for $50,000. That must have meant if it was in a neighborhood where everything else was $100,000, that it was pretty rundown. Did you have any experience in flipping houses or doing remodeling?

Nasta: None whatsoever. People are so driven when they’re young and hungry. I had a lot of motivation. It’s interesting. There’s so many houses you can buy at a good deal because there’s something trivial wrong with them that most people can’t look past. It might be the kitchen is closed off. The first 10 houses I think I bought, I bought because they smelled horrible.

This particular house had three dogs living in it that were never let out, so they were just peeing all over the carpet, and no one else wanted to deal with that. But once you ripped out the carpet, there is beautiful hardwood floors underneath that were actually in pretty good shape. It’s one of those situations where you have to look past what everyone else is scared of.

Hoff: That’s interesting. So it’s not necessarily something that’s totally falling apart that you’re going to invest tons of money in to get it even livable. It’s more psychologically thinking how people who are looking for houses want something that feels really good when you walk in. And if something feels slightly off, that might be a good chance to make a deal.

Nasta: Yes. That brings up another point. Especially lately, there seems to be a lot of people who felt entitled to get a house that’s absolutely perfect. So, you can charge a premium for those properties.

My goal when I’m remodeling the house is to make sure they don’t have to change a light bulb. They don’t have to put in that air filter. They don’t have to mow the lawn. They don’t have to put in mulch. Nothing. It has to be absolutely perfect when they’re moving in, and they’ll pay 5 to 10 percent over a fair market price for that house if you’d make it that easy for them.

Now on the flip side, if there’s some giant problem with the house, for every dollar you need to fix it, you usually get $3 off the house.

Hoff: OK, I want to go into this even more because I want to almost go step-by-step into buying a property, finding the right property, where to look for a property that is a good deal and how to find contractors. But first, I want to talk credit. Obviously, you need some sort of decent credit if you’re going to get any kind of a home loan. What should someone be focusing on credit-wise before going to a bank with a loan request?

Nasta: You’re going to get me on a rant here. I’m going to sound like a lunatic. It’s not credit. It’s debt that prevents most people from achieving their financial freedom. I have friends that make a lot of money and they say, “I work hard. I deserve it.” No, you don’t. You’re not out digging ditches in a third-world country. You’ve been given a lot of privileges just to be in the position you are.

Generally, if you are listening to this podcast, you’re in the top 5 percent of the world. You have to defer your gratification. A lot of people say that’s the greatest cause for success.

When I was 22-23, all my friends were using their first job to buy nice cars and live in nice apartments, and I was living with my parents, trying to save up just enough. But in the long run, that helped a lot.

So, it’s not necessarily credit as it is managing your debt and making sure you make good long-term decisions that allow you to have a long-term success and true wealth, which I define as how long you can go without making money while keeping your current lifestyle.

But as far as credit goes, I think really the main thing is just make the minimum payment. Make sure you don’t go in over your head and do more than you should do. Just make sure you’re responsible and control your debt.

Hoff: For you, controlling debt would be the No. 1 thing. It would be if you’re going to go there and start investing in properties, don’t have a bunch of loans that you need to be paying off in the meantime.

Nasta: Exactly. I was a lender for 15 years in addition to being a real estate broker. When people wanted to get into investment properties, most people start with getting your traditional loan for it. Most of the time, the problem wasn’t the amount of money they had coming in. It was the amount of money they had going out.

I think about credit card companies, they make a lot more money off someone like me who charges $100,000 a year on credit cards because I have financial freedom and I can fix these houses, than they do the poor guy who got to college, put $10,000 on his card and then spent a longer time paying that off.

Hoff: OK, so your big advice would be get out of debt before you start looking for loans to buy these properties. When we do want to buy a property, do we need to be putting 10 percent down or 20 percent down? I talked to Robert Kiyosaki who said, “Hey, you can even get some loans for almost nothing down.” What do you recommend if I want to get in to the property game, what minimum do I need to buy my first property?

Nasta: I think it depends on your financial situation, but if it’s a good enough deal, yes, go ahead and put the minimum down. But I think in most situations, you want to put at least 10 percent, if not 20 percent down, to avoid that mortgage insurance. And keep your payment low enough so that you’re actually cash-flowing on the property if you decide to rent.

I think a full-time investor can use a little more leverage and has a few more resources than someone who is working. If you are working and making a decent income, then you have the ability to get a loan at a lower down payment because you’re buying a property that’s within your range, then yes, go ahead and try putting  the minimum down. There are some crazy programs out there if you look.

Hoff: OK, but you say in general it’s good to put at least a decent down payment down so that your mortgage every month is less, so that you’re putting more money out than you’re getting in through the rent. Let’s go through the process a little bit here. So for instance, let’s say I’m looking for a rental property. I don’t have any experience fixing up houses. Frankly, I don’t have tons of time to fix up houses. Would you recommend that I go get a place that’s already move-in ready or a fixer-upper in a sense? And then if I do get a fixer-upper, how do I prepare so that I don’t end up spending way more on contractors than I should? 

Nasta: That’s a great question, and that’s something I’ve actually only learned recently. In the past, I would just buy anything if it was a good deal. Now as my time becomes more valuable, especially for rentals, I look for properties that are 10 to 20 years old in suburbs close to town because they have the best combination of good tenants, low repairs and high rent. You want to do a minimum of repairs.

These properties I’ve been buying recently, they require paint and flooring, basically. So you can knock that out. I think the last one, we literally did it in two days and the house was good to go. That’s the sweet spot, those 10-to-20-year-old properties for rental.

If you get something built in to ’70s or ’60s, you’re going to have some plumbing issues. You’re going to have electrical issues. The stuff built more recently, the codes have kept going up, so they’re going to be good solid houses for a very long time that aren’t going to cost you very much in the long run. 

Hoff: Right. So you’d say the things built immediately now, you’re not going to a great deal on those. But places built in the last 10 or 20 years, that’s still a sturdy house. It’s a great house. You just need to do some superficial changes to it and that’s a few thousand dollars or less than $10,000 in investment.

Nasta: Yes, that’s correct. And, also, the stuff built now, you’re going to have to go pretty far away from town. There’s just a lot more land out there, a lot more competition from new builders. If you’re a renter and wanting to live that far away, there’s less appreciation.

There’s two things when you’re buying a property. There’s either appreciation or rental income. I used to call it the Chicago model. Years ago, you’d buy a property in Chicago for $500,000 and rent it for $2,000. When I ask people why they did that because that doesn’t make sense, they would say, “Well, it’s appreciating at 10 percent a year.”

Well, that worked for a little while, until it didn’t. The safer approach is rental income. We’ll talk a little more about that as we progress, but I’ll give you some specific numbers you should be shooting for.

Hoff: Actually, let’s get into that, because I’ve personally looked at places and I’ve done the numbers and I say, “OK, well, once I have to figure in my mortgage, my property taxes, my homeowner’s insurance, it feels like it’s really hard to charge a rent that’s going to cover all of that.” So how do you crunch the numbers so you know that the rent that you’ll be getting will cover all of those costs?

Nasta: The simplest rule is something I call the 1 percent rule. So, if the house costs you $100,000 to buy and repair and get ready for rent, you should be getting $1,000 a month in rent for it. That’s for the working investor. For the full-time investor, I buy properties that I have a $100,000 in that I’ll get $1,500-$2,000 a month in rent. But it just takes a lot more work on my part.

But for the person who has a full-time job and has a lot of other stuff going on, the 1 percent rule really does apply. You’ll find that most of the time, especially if you put 20 percent down, that covers your taxes, your insurance, your repairs, your leasing fees, and everything else and it still leaves you with a healthy profit margin at the end of the day.

Hoff: So, there are different ways to own real estate. You can invest in commercial buildings, residences that you rent out and even buy properties when they’re still in the planning phase and then sell them when they’re finished, making a tidy profit without ever doing anything to the house. Which area do you think is easiest for people with no flipping experience to get into?

Nasta: I tell my friends that if you can’t make money in residential real estate, you’re doing something horribly wrong. I mean, an idiot can do this job, but they really can. It’s really not rocket science. The hardest part is finding the property. We’ll talk about some options for that, but residential real estate is the easiest entry level you can get into for most people. Commercial properties are going to be too hard to do for a lot of people. They have a lot of tax advantages.

The primary residence tax exemption is my favorite, in which $250,000-500,000 profit is tax-free on your primary residence if you live in it for two out of the last five years. When I was younger especially, I’ve made the majority of my money with this. I moved every two years. You also have the advantage of 1031 exchanges. I mean, very few investments allow you to take the profit and reinvest in something completely different without having to pay any taxes on it.

Also, you can get rental income while enjoying the appreciation if you get the right properties. I think residential real estate, especially if I had to do it all over again, especially if you do buy-and-hold, is the best way to gain long-term financial independence.

Hoff: Buy-and-hold, as in you buy the property, you live in it for a while, and then instead of selling it if you decided to move, you just rent it out to somebody else and you just never let go of that property?

Nasta: Well, on the primary residences, I do like selling those because of the tax-free gain. But sometimes with primary residences as well as rental properties, I look back on the properties I’ve owned and they’re all over the central part of town. And if I had just held on to them – I mean the house I’ve bought for $50,000, the lot sold for $500,000 recently.

So, especially if you get the right rentals, if you sell, you are going to recapture your depreciation and pay capital gains. So, especially if you get the right rental, you buy it. You hold on to it. You let the renter pay for the house. I have a friend who buys a house every year, puts it on a 15-year mortgage. She’s been doing this for 25 years. She has a whole bunch of paid-off houses because of this. If you do that with good rental properties, it’s just very easy to achieve financial independence because of the appreciation and the rent.

Hoff: Let’s talk about doing repairs. If you don’t have a lot of electrical knowledge, plumbing knowledge, knowledge about really how to fix up a house, how do you make sure, because I’ve never met a person who hired a contractor who ended up paying what they were told they were going to pay to fix a place. So how do you make sure that you’re getting the right kind of deal, you’re finding the right contractors?

Nasta: That’s really, really hard to do. That might be the biggest single challenge in real estate. But the beauty is we have resources now. We can type on our computer and access a world of information that was not available. It does take a certain type or personality to know who is being honest with you and who’s lying with you. You have to make the effort to at least try to understand.

A lot of people get intimidated when it comes to repairing things, and they just trust the person giving them the advice. You have to have a little bit of cynicism and make the effort to understand the problem on your own so you don’t get ripped off. It’s really about finding the right team to work with.

I just bought a property outside of town, and I was getting bids. I picked this up at auction for $50,000. I’ll rent for probably $1,300 to $1,400 a month. Every bid I got was $25,000, $30,000 to fix it, and I knew it could be done for about $6,000 or $7,000. So I talked to all of the contractors I’ve worked with and one of them was like, “Yeah, I’ll do it. It’s just that I can’t get to it for three months.”

So, I let it sit there for three months waiting for him to show up. And sure enough, he knocked it out in a month for about $6,000 and now the house is rented out and cash-flowing great.

Hoff: So, it was more worth it for you to let it sit empty for a few months and lose out on that $3,500 or so than it would have been to spend $20,000 extra to get it fixed?

Nasta: Definitely. And it was more important for me to wait for the right guy that I could trust and that I’d worked with before to do the job. Because like you said, the guys were asking $25,000. They would have been at $30,000-35,000 by the time they finished. I had enough experience to know it was a simple remodel.

Hoff: Right. So, it’s trusting your instincts a little bit but doing some research online, getting some quotes, getting some recommendations from people, making sure you do a little due diligence in that area, because I will say, and I will stress again, I’ve met so many people who thought flipping their houses would be easy and it ended up just taking so much money. It was incredible.

Let’s start from the beginning now. I want to rent a place. This is going to be my first rental property. Where do I look to find that good deal? What kind of resources online do I look for? Do I go to an auction? What’s the best way to get this first property?

Nasta: Auctions, sexy as they sound and people love watching the TV shows, they’re not for the average investor. They’re incredibly risky. You’re buying properties without title insurance. Most of the time, you don’t get to see them. There’s people living inside, and you don’t know who they are. You’ve never met them. You don’t know what condition they’re going to keep the house in or leave the house in. You don’t know if there are federal liens. So, for the average investor who’s beginning, that is definitely not the way to go.

Finding the deal by far is the hardest part. The short answer is to look a lot. Learn the market, so you can make a good decision. Look through all the neighborhoods. Don’t be very specific. Don’t go in thinking I need a place downtown that is 2,000 square feet. Your best deal might be a place in the east part of town that’s 2,500 square feet that’s going to cash flow like crazy because it’s still big and has a great lot in that part of town.

Don’t get specific. Learn every little area of town, and look for a property that stands out. For example,  why is this house $200,000 when everything around it is $300,000. It will jump out at you eventually, but you have to just constantly look until you’re so familiar with the market you understand everything about it.

Hoff: If you don’t have access to MLS listings, would you recommend basically using Trulia, Redfin or whatever to be able to go look at these houses on your own time without having to deal with agents at the moment?

Nasta: I have access to MLS and I still use Trulia, Zillow and Redfin more than I use MLS. There’s just such a good variety of information out there. Tax records are even a great place to start. Every county has its tax records online. That’s a great place to access the information to learn more about and try to figure out why they are selling it so cheap.

Hoff: What do you think is more important to pay attention to, the price of the house or the taxes that you’ll be paying on it? Because tax is something that never goes away.

Nasta: I think people put way, way, way too much emphasis on expenses such as taxes and insurance and everything. If you’re getting a good deal, if it’s a good investment by definition, it’s going to cover all your expenses. So pay attention to the deal. Make sure you’re getting a property that is under market and in most cases, for most investors, going to generate enough cash flow when you rent it after you get your mortgage. Taxes is way down there for me.

Hoff: When you’re looking now for renters, I’ve heard horror stories of renters that leave a place totally trashed or don’t pay the rent on time. So how do feel comfortable that you’ve got a responsible renter in there?

Nasta: One word – credit. I don’t rent to anyone without a credit score of 600 and 650 if the market is really competitive. I’ve never had a problem, believe it or not. The only times I had problems were in the past before I instituted that rule.

Also, I have a whole spiel on my listings about I’m only accepting clients with good credit, rental history, and employment history, and they should only call me if they meet those requirements. It just simplifies things, and it’s a unilateral standard you can apply to everyone fairly. Credit is the biggest single factor I found in making sure tenants are responsible and they’re going to take care of the place.

Hoff: How does that work? If you don’t have a business on your own, you just bought a property and now you want to rent it out. How do you check their credit history, check their employment history? What kind of process do you need to go through, due diligence when you are choosing a renter?

Nasta: Once again, we live in this beautiful world where all the information is available to us at the touch of a finger. There is a bunch of great websites out there that not only run credit but background checks for any landlord. In the past, the problem was that the landlord had to get permission from the tenant and documents, but now the one I’m currently using is Cozy, it sends the tenant the link to pay for the report and give permission to release just the numbers and the parts that matter to the landlord.

With the click of a button, they do that. You find out their background, their credit, their rental history, their address history. And then with another click of a button, it sends them an invoice to pay the deposit and the rent. Then that rent is automatically transferred to my bank account. That’s taken what used to take a week of management and eliminated it completely.

Hoff: What about management? If somebody is a working person who just has rental properties on the side, do you hire a management company to take of all that rent? Or as you said, can you now just automate almost everything, whereas, only if there’s something that needs to be fixed do you need to then take care of it?

Nasta: I think that especially for your first few investments, you need to manage it so you can understand it and learn how everything works. With apps such as Cozy and e-rent pays and others, it takes away the payment. It takes away the credit. It takes away the application. So all you have left is repairs. The key to that is finding one really good handyman who can do plumbing, electrical, change out the stove, fix the faucet, whatever. If you can get that one guy, it’ll save you a fortune. Because a management company takes 10 percent. Now, on most properties, that’s going to be your profit margin.

Most of us if you told us what the interest is currently, you’re going to have 10 percent profit on the property would be thrilled with that. But if that’s taken away, then you’re just risking too much. It’s hard initially, but it’s the learning curve. Once you get it down, it becomes a lot easier in the long run.

Hoff: So it’s finding that one trustworthy person who can fix basically any problem that’s going to happen with the house, someone you can always call on. How much do you need to have set aside for expected repairs, et cetera?

Nasta: The first year on a house, I try to make the house absolutely perfect when I’m done so I don’t get calls in the middle of the night. But without fail, the first year of owning most rentals, I’ll spend $3,000. In the second year, I’ll spend $2,000. And then from then on, I end up spending about $1,000 a year to maintain it. It declines the longer you own the property.

But that first year, you’re going to get the call for the garbage disposal that you thought was new but broke or there’s a weird leak outside. They can’t figure out where it’s coming from. As many properties as I own right now, I get a call a day which gets a little exhausting, but you just learn to manage it and most of the time it only takes a quick call. What I tell myself is if I spend 15 minutes on the phone, that saves me a 10 percent management fee. So I’m getting paid a heck of a lot for that one phone call. That’s a good way of looking at it.

Hoff: What are the things that you make sure when you buy a place are relatively new? Do you make sure that the roof is new and under warranty, the air conditioning is new? What are the things that you say, OK, these are the things that have to already be done to the house because they’re too expensive for me to replace?

Nasta: Nothing. It’s determined on the price. I recently bought a property that needed a new air conditioner and it was half-priced. So I didn’t care that it needed a new air conditioner. It was $5,000 to put that in. That added another $5,000 of value to the house, and that’s one less call that I get from the renter. They’re never going to call me saying that their AC is not working.

I don’t care what’s wrong with it. Big-ticket items like the roof and AC are much easier to do, believe it or not, than simple stuff like paint sometimes. There’s a million AC contractors out there competing for business. It takes a day to switch out an AC unit. But with paint, they have to paint it, and they have to touch it up,, and then they miss something. It ends up taking a week. I don’t mind the big-ticket items if I’m getting the property at the right price. It’s nothing specific that I look for.

Hoff: That’s good to know that if the price is low enough, you can spend on those big-ticket items and actually have peace of mind, knowing for the next several years that’s not going to have to be a worry of yours that you have to deal with.

Nasta: Take, for instance, roofs. With the wild weather in Texas, you canjust wait a while and get one for free from your insurance company. It was crazy, but last year, I think I replaced five roofs that were paid for by the insurance company.

Hoff: That’s another thing I want to talk to you about. What about home warranties? What about insurance? What are the things that maybe people don’t realize that they can get done through insurance if they think they have to pay for themselves?

Nasta: The only thing I really had done through insurance is roofs. There are home warranty companies, which is a secondary form of insurance. That really just depends on the contractor that shows up and how much the company is dealing with that day. I‘ve had clients that have gotten $2,000 stoves replaced, and I’ve had clients that can’t get a switch on their AC replaced.

If you check the reviews online, it doesn’t matter which home warranty company you go with. They all have the greatest thing since sliced bread and I would never deal with these people again on their reviews. Generally, I don’t get the warranties or the home warranty, because often I can just get it done quickly. When you’re doing the whole project, you just throw it in the mix and it’s just more efficient.

Hoff: Let’s talk about taxes. You mentioned that if it’s a primary residence and you’ve lived there two out of five years, that you then can deduct that from taxes. Talk a little about the best tax schemes to pay attention to when it comes to buying and selling properties.

Nasta: I’m glad you touched on that. If you walk away from this interview with only one piece of information, I want it to be that the best thing you can do for your financial future is to make sure your primary residence is a good investment. That’s the biggest tax break in the world. I mean $250,000 tax-free, think about that. That’s basically the government giving you 30 percent to live in the house for two years.

I know the government doesn’t want you to think of it like that, but it’s legal and it’s perfectly fine to do. When people ask me, “Hey, I want to invest in real estate,” I always say, OK, let’s start first with where you’re living. Is where you’re living a good appreciating asset? Would you consider moving if you could pull out the cash tax-free, and then use that money to buy your other house as well as the investment property? That gives you so much freedom, especially in an appreciating market like we’ve had for so long.

Hoff: Let’s say I just bought a house. I’ve lived in it for a year. I have to live here for another year and then what, I start renting it out? And then when I end up selling the house, the money I pull out is tax-free? How does that work?

Nasta: It just depends on how much the property has appreciated. Let’s just use simple numbers. You bought the house for $100,000. You’ve lived in it for two years. It’s worth $150,000. You could sell it now and pull out that $50,000 tax-free, but the rule is two out of the last five years. So you could rent it out for three more years and get that rental income.

And let’s say by the end of those three years, your home is worth $200,000. You obviously have to talk to your accountant about all of this, but at the end of those five years, the house is worth $200,000. You can pull out that $100,000 tax-free, sell the house, and use that to buy more investment properties.

Hoff: So that $100,000 tax-free is only if you then invest it in another property? How does --

Nasta: No, I mean, they only have to live in the house two of the last five years. So you don’t have to invest in anything. You can just go to Puerto Vallarta with that if you wanted to. It’s just mind-blowing. That $50,000 I made on that first house was tax-free. Then I put it into another house, made $150,000 on that tax-free. I didn’t have to reinvest it in anything.

Hoff: What about secondary properties? Let’s say I’m living in my house. I’m not interested in moving anywhere else or selling it at the moment. I want to now invest in a secondary property. Are there any tax breaks that come with that?

Nasta: The biggest one I can think of is a 1031 exchange. Same scenario. You buy a rental for $100,000 and have  it for three years. That’s worth $150,000. When you sell it, normally you would pay a capital gains tax on it. But if you do a 1031 exchange and exchange it to another property, you don’t have to pay any taxes until you sell that next property.

Hoff: So, you could basically keep doing that if you wanted to?

Nasta: Yes. I’ve seen people do it all the way up to large commercial offices and even hotels.

Hoff: So, the main thing is if you do end up selling a secondary residence, make sure you take whatever you made from that and immediately invest it in another one so that you’re not just paying taxes but you can just keep generating cash flow through renters.

Nasta: Immediately invest it, but make sure you make a good decision because sometimes it’s worth paying taxes on it. Let’s say that you can’t find a great property and you would rather free up that money for a stock or something which I’m not always fan of. But paying the 20 percent capital gains tax is a small price to pay to have the freedom to do anything you want with that money. You might buy another property in six months if you find the right property, because you have to reinvest that money in a certain amount of time. I think it’s three months after you close.

Hoff: Now, Robert Kiyosaki is a big fan of low-income housing and buying that. He said there’s a lot of tax breaks that come with that. Have you had any experience with that? If so, what is your advice?

Nasta: Yes and no. There’s low-income housing where the government pays the rent and I haven’t done that. I guess the opportunity has never really been present because it is true that the less expensive the property, the higher your rate of return but also the higher the management cost. So, if you’re doing low income, there’s often going to be more repairs and management issues than there would be for the working investor scenario I gave earlier, where you buy a 10-to-20-year-old house in a nice suburb around town and rent it to a well-qualified tenant.

Hoff: So, if you want minimal work, go for the plan in which you get somebody in there you can just trust that the money is going to come in on time. It’s not going to require a lot of management on your part. You’re still going to get cash flow. You might not get all the government benefits, but you also don’t get all the headaches.

Nasta: I think so. Robert has a whole team that can help him with that. For the average person, they just don’t have the resources, especially if they’re working with families.

Hoff: What are three things someone can do starting out to get into the real estate game but not get in over their heads? What are three things that I could do right now if I’m like, OK, I’m ready to go get an investment property and I’m going to start renting it out?

Nasta: Learn the market. Just learn the market, know the price of that house relative to every other house in that neighborhood.

No. 2, if you’re just starting out, start off small. I mean that first house I bought, yes, I was only 22-23, but it was $50,000. It was funny because the next house I bought for $50,000 also, and then the third one I bought for $60,000 was a three-bedroom. I thought that was just out of control.

But after I sold that house, the next one I bought was $140,000, and I just couldn’t believe it. I was 24 years old buying a $140,000 house. It was stressing me out. So start off small. Learn the market and find the right team. Find the right people to work with. Find the right realtors. Find the right lenders. Find the right contractors to help you.

I always say, with realtors, you either want someone who’s young and hungry, because when I was about 23, 24, 25 years old, I was finding deal after deal after deal, but I couldn’t afford them. I didn’t have the network at the time to say, “Hey, you should buy this.” So, I was young and hungry.

So, you either find that guy or the guy that’s old and experienced, who’s me now, who’s like, “OK, you want a rental property? I look at the market every day, this is the best deal you’re going to find in Austin. Go buy it.”

Hoff: Finally, what gets you charged up about the potential in real estate? Do you think it’s an opportunity that many miss out on?

Nasta: It’s definitely an opportunity that most people miss out on. I think it’s the easiest way to develop financial freedom. What gets me charged up right now, we’ve had a boom market for nine years. A correction is due.

You might be thinking that’s horrible. I don’t want to buy a property during a correction. Yes, you don’t want to buy right now, but I’ve made more money in the bust than I ever do in the boom. In the boom, I’m competing with thousands of people who have no idea what they’re doing. But when the market goes south, everyone’s terrified to get in. That’s when you get in.

I could tell you stories that you wouldn’t believe. Just five years ago, I’m buying properties in Austin for $50,000 because no one else wanted to risk getting into real estate at that time. So that’s what gets me excited, just waiting for the right opportunity. I think that’s going to be coming up fairly soon.

Hoff: Perfect. Well, we’ll wait then and we won’t be afraid when something seems like it’s going south and you have enough financial security that you can get in. That might be the time to snatch up a great deal. Deep, thank you so much for joining me today. This was great information, very helpful. I hope people who are interested in getting into real estate take your advice very seriously and be smart about it so they can make the money that you got to make.

Nasta: Thank you. That was a lot of fun. You had some great questions.

See related: Charged Up! podcast: How to start building wealth now, Charged Up! podcast: Unexpected tools for success


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Updated: 12-15-2017