The Stages of Real Estate Investing (Where Do You Stand?)

0:00Real estate investing does not need to be complicated. If getting your first rental property sounds too complex or too intimidating, or you just can't figure out where to start, listen to this. Set realistic expectations. Write down a reasonable goal. Make the investment work for you. Just get in the game. Today, we're talking about how you can do just that.

0:27Hey, everyone. I'm Dave Meyer, head of real estate investing at BiggerPockets. I've been buying rental properties for 15 years, and I'm here to help you achieve financial freedom through real estate investing. Today, we're bringing Laika Devatha back on the show. If you haven't heard Laika's other great appearances on the podcast, she's an agent and investor in Seattle. During her career, she's tried almost every possible investment strategy and used every financing option out there. And I wanted to bring her on today to share some of her experiences so you can hear how she started with achievable, realistic goals and then adapted as she gained more experience and the market shifted around her.

1:09Today, even as she scales, Laika is still using the same mindset to make sure the properties she buys are aligned with her investing goals. This is a great conversation, so let's bring on Laika. Leica, welcome back to the BiggerPockets podcast. Thanks for being here. Thank you so much for having me back, Dave. It's always a pleasure. Yeah. I wanted to have you back to talk about the evolution that you go through as an investor, because what you do when you start is pretty different from what you're doing when you scale, from what you do after that. And so since you have so much experience as an investor, I thought you'd be the perfect person to come on and share this with us.

1:49So tell us about your experience, your mindset, or any advice that you have for newer investors and like what your expectations should be. How should you approach real estate investing when you're just getting started on your first deal? So starting out 11 years ago, I was brand new, not just new to investing, but even new to the country in a way. I had moved to the US like seven or eight years before that. So it was literally I was starting from scratch. So anyone out there that grew up in this country or that comes from a background in real estate, you already had a leg up on me. That's a really good point.

2:27I think the number one thing that I would say is if you want to start investing in real estate, especially now, the amount of resources, free resources you have, like podcasts like this, books, shows, meetups, like you should just immerse yourself. And the more educated you get, the better the foundation is for you to scale from there. That's excellent advice. There is so much free education on this podcast, on BiggerPockets, elsewhere as well. So you should absolutely be digging into that stuff. You obviously had some unique challenges when you went into your first deal. And I'm curious how you thought about it.

3:07I see so many people who want to get their first deal, who face a lot of mental hurdles. There are real financial hurdles too, but I think the mental hurdles are often bigger in my experience than the financial ones where people, maybe you have the money, but you are risk averse or you don't feel confident, which are totally normal things to happen in the course of your investing career. So how did you get over those things mentally and get that first deal when you were starting from a place with a very little knowledge and experience? No one's coming to save you. I think that is the biggest thing is there's no like special force behind this.

3:48It's all you. What you put into this is how you create wealth. Every paycheck, even to this day, I'm like, OK, if I do X, Y and Z, then I am going to get paid out on this in 2027, 2028. So it's really just building that up and then showing up to work every single day. Even after 11 years and doing hundreds of deals, you have to put out fires every day. Because every project brings with it its own unique challenges, own unique problems, new set of adventures that you have not seen in the last hundred deals. Because every house is different. Every block is different. Every city is different. Every roof, every sewer line is different.

4:31And so when you do this, you have to be able to show up for yourself. You can't trust the wholesaler. You can't trust that the contractor is going to show up. You can't trust someone else to bring you a contractor. Like these are things that you have to do. How are you finding your deals? How are you finding your next deal or your deal after that? So you have to be able to build that pipeline. Everything that you put out is what you get back in return. I think the thing about showing up for yourself is so important. right out of college, I started a tech company actually. And I was talking to this advisor I had and I was complaining about how all the people who I hired or contractors just like, weren't working as hard as me.

5:13And he was like, every degree you get away from you, the people care less and less and less. Like maybe your agent cares a little bit. And then the contractor cares a little bit. And then the subcontractor cares a little bit less. And like, it's your job as the business owner to make sure they're all doing it because they're doing their own thing. They have their own business. That contractor is their own business that they care about. Right. And so it's like totally on you. And I think that can be hard for new investors because you might not have the confidence to know exactly what to do, but ask other investors, like go to community, go to all these meetups, but like it is your job to sort of do that and to make sure that everything gets done.

5:51I really appreciate that. Because if you start that way early in your investing career, you're going to be very successful. I see a lot of people like blaming the contractor for why they didn't succeed. And it might have been a bad contractor, but like it is your job as the business owner to make sure that goes well. I'm so glad you said that. Like people blame other people a lot in this industry because it's easy to do that and not look inward. But I'll tell you this, even a deal that I'm closing this week, if I didn't do the due diligence, like no one else is going to do that for me. The blame ultimately lies with you.

6:24And that doesn't mean you can't ask for help. It just means that you have to, at the end of the day, like you're the last line of defense and, and, you know, you always have to make sure everything gets done. And in real estate, that's a lot of logistics. You know, it is juggling a lot of stuff. You know, it's like, it's not like managing one person. You're usually, you're handling a bunch of things and I don't want to make it sound more difficult that it is. Real estate has its ups and downs, but these are manageable problems. These are not things that you can't do. Exactly. It's not rocket science.

6:57And the best thing about real estate is that you have incredible people that have been in their jobs a very long time, like escrow officers and lenders and insurance brokers. You can leverage these people to grow your business and to build momentum. And that's the beauty of real estate. You don't have to have a huge team and you can 1099 everybody and still just have a robust group of people helping you succeed. Absolutely. I have one more question for you on the early stage investing before we move on to more advanced topics and how your mindset kind of shifts in this kind of things you're looking for and expecting shift when you go into that growth stage.

7:34So let me just ask you this. How would you describe a good first deal? Like what does that look like to you and what would you advise our audience to look for on their first deal? Okay, your first deal has to be easy in many ways. I like that. And I'm not talking about easy to find, easy to fund. I'm talking about easy to execute because everything comes down to execution. You can turn around a really bad deal and still make a ton of money if it's executed well. So if you buy a deal that's already good to execute, then you're winning. The second is don't go for the deals with the minimal spread just because you want to get into real estate because that can crush you.

8:17Still look for deals with a good amount of profit spread. Like I educate my new investors to not go for a deal unless it has at least a hundred K profit spread. Wow. And that's not a flip, right? That's just for a flip. And for a long-term buy and hold, you have to make some amount of positive cashflow, like maybe$100,$200, it's not a lot, but you have to start with a positive. Yes. Because that first deal sets up the rest of your investing career and your portfolio. And I just think that it's not about making the money. It's about having that spread to fail. Yeah, just don't f*** up. Yeah, you have to be able to say, okay, I have 100K spread, right?

8:59If the economy turns for some reason or if you don't get the offers in the first 60 days or something happens with just flipping this house or something happens with a bad tenant or whatever it is, you have enough of a spread to fail. Oh, that's such good advice. Yes, I totally agree. So that's my only thing is easy to execute and have enough margin to fail. And that means being patient sometimes, right? Like if you have to wait another month and make more offers, go make more offers. I completely agree. Just you want to lay up, right? Like you don't want a complicated thing. You just want to make an easy one.

9:36There's one other thing that I think is so important too. You've probably heard this. You know, people say you make money on the buy in real estate. Yes. Maybe that's true more for flipping than buy and hold investing. I think for buy and hold investing, you make money on operations, on execution. It's not like all like finding some perfect deal. But like if you can make the appropriate upgrades and you can keep your tenants in place and you can control your costs over a 10 year period, that's probably going to actually mean more to you than whether you got it for five grand more or less. Yeah.

10:06Like for a flip, it's probably different. But for buy and hold, I love what you're saying about execution being equally, if not more important than some of these other things people focus on early. I'm really glad you brought that up because I'm writing a book. It's coming out soon. I heard you were writing a book. What's it called? Oh, it's called Return on Real Estate. And it's actually all about making money on the exit. Oh, interesting. I like that. So, you know, you can buy anything, but it's about how you turn that around to your point with great execution to actually make money on the exit.

10:40Let's just talk about a simple fix and flip that I bought. I bought it from the wholesaler for 835k. My exit value was 1.35 million. Yes, like that. Yeah. Right off the bat, though, I went through hurdle after hurdle after hurdle. And instead of spending 200k, like the wholesaler suggested, I ended up spending 450k. Wow. But guess what? My ARV went from 1.35 million to 1.925 million. We just closed last month and I made a killer profit on it. And so, you know, it doesn't matter what you buy or how much you buy it for, if there's enough margin to grow and do something out of it that no one else can see and execute it well, there's a lot of money on the sale.

11:29Wow. I love that. Very cool. Well, I'm excited to read your book. We do it to take a quick break, but right after this, we'll move on to how your strategy and your mindset need to evolve as you go from your first deal into scaling mode. Stick with us. We'll be right back. America's senior housing crisis isn't coming. It's already here. Millions of boomers are aging into care and there simply aren't enough facilities. Worthy Wealth is seizing this moment by buying and upgrading undervalued senior living properties to meet demand and deliver investors a targeted 15 % annualized return. Quarterly dividends now.

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15:59Welcome back to the BiggerPockets podcast. I'm here with investor Leika Devatha, and we're talking about how both your strategy, your tactics, but also your mindset and your expectations need to shift as you go from that first deal into scaling mode. So like tell us, what do you think about scaling mode? What is the sort of like the mental unlock that you need to go through to get from that first deal into more of that growth wealth building mode? Yeah. So when I started doing this, the first year I flipped homes, I flipped one home. The second year I flipped three homes. And then the third year I flipped 12 homes.

16:36And so I scaled quickly. So what I would say is the most important thing that you need to scale is obviously capital. You have to be okay with capital raising both from lenders like hard money lenders, banks, other financial institutions, and also from private money lenders. Not just that, like finding creative ways to finance deals was really important to me. So just, you know, finding strategic partnerships, seller finance deals, like all of these things really play so much into how you scale your portfolio and scale your business. Another important thing that I always tell people is find one path.

17:18Either fix and flip homes or be a broker or be a buy and hold investor, but just do one thing till you figure it out. Once you figure that out, it's super easy to scale. Once you know the process, it's easy to scale and then keep adding more income streams. So for me, that first path was fix and flip. And so I just got really good at flipping homes. So building the systems, building a deal flow pipeline, having amazing contractors that you can put your trust in, amazing wholesalers that have your back, that are not minimizing the rehab budget when selling you a deal, you know, things like this.

17:58And then most importantly is building a network. I think very early on, I viewed that as something that was going to really propel my career in real estate. And so I started building a network and I started a meetup group. And then the more value I added to others, the more value I added to my own portfolio. These are a few things that are well within your control that you can get started on to avoid getting burnout, you know, avoid taking on big risks and expectations and then keeping your time intact. Okay. So let's break some of these things down because financing was the first thing that you mentioned and capital raising because this one I think is a big hurdle.

18:37Yes. Because I mean, if you want to just save up your money and buy a deal every couple of years, that's totally fine. Especially if you have a high income, like you might be able to do that. But I think for people who are either have a lower salaried income or want to scale faster, this is just an inevitable thing that comes up. So, you know, let's break it down because hard money lending is for flipping. So let's talk a little bit about that. But then can you also share with us, like, if you wanted to be a rental investor, how you would think about just like the mindset of it? Because it is kind of hard to think about taking other people's money and being responsible for that is a big step.

19:12It's a it's a different business at that point. Yeah, I had never imagined that I could raise money from other people to fund my own business. But then when I first raised capital, that's when I realized like, wow, this is as much of a win for me as it is for the person that I'm raising money from. And that was like such an aha moment for me because the person that I raised money from, he just had money sitting in a bank account that wasn't growing. And so he said, OK, I'm going to fund your deal for you. and in doing so he earned 12 % return on his money plus a point. And he was like, wow, that was like the safest investment I ever made.

19:49I got to see your project from start to finish and I actually really enjoyed investing. And so he's an investor for life. And you know, the other thing about capital raising, it's easy. A lot of people have a lot of money in stocks or sitting in a bank account that they would not know how to grow because they have a pretty solid W-2 income. So it all comes down to you as the operator. If you do what you say you're going to do, it's actually super easy to raise money. Money is everywhere. If the deal is right, the money will come. So, you know, raising money from private lenders is something easy if you have a track record and experience, and then you just, again, show up and do what you are going to do.

20:31That's a really good point about finding the deal first. I think a lot of people miss this. Actually, we were at a meetup together the other week in Seattle at my first passive flip. I was talking to a young guy who's wanting to raise capital because the premise of this meetup is I was talking about how I invest passively a lot in other people's deals. I like doing that. And he was asking me, like, what do you recommend? He's like, would you lend me money? And I was like, for what? Like, in a nice way. But it's like, I'm not lending it to you as an individual just like for fun. Like, what is the deal?

21:07And I don't know why a lot of people assume it's like you have to present yourself as the like entity to lend to, which is part of it. I do very carefully evaluate the person. But like, I'm not going to evaluate a person until I see the deal that they're presenting me because there's no point in evaluating the person if the deal stinks, you know? And so I think that's a super important mindset shift. This is true in any industry, right? Like if you have a good business plan, people will fund it. If you don't, no one will fund it. And like if you can't get a good deal together that is appealing to an investor, then there's no point in even approaching them because you're going to lose credibility if you go to them without a deal or with a bad deal.

21:50And so I really encourage people to think about that first. And then secondly, put yourself in the mind of the passive investor because passive investors think about this a little bit differently. I don't know if you see this, but I think a lot of operators focus on the like home run deal. They're like, we can make a, you know, a 50 % IRR or, you know, this huge thing. Great. As a passive investor, my whole objective is to minimize risk. I'm like, great. Like, I just want to make sure you're not going to run away with my money. And like, what happens if you're really bad at your job? And so I really recommend people sort look at these kinds of things and think about how do I mitigate risk?

22:29How do I control risk and put the passive investor, the hard money lender, whoever it is, the partner that you want to raise, how do you make them at ease working with you instead of just focusing on the best possible outcome? Because no passive investor who's credible is going to believe you and they're going to haircut whatever you think you're going to get in half and then go from there. So I think that's a super good point that you brought up. Yeah. And then I think to your point, the way I structure these on a flip is either through debt or equity. And if it's debt, then the investor just gets a straight up interest rate.

23:06Like I pay my investors anywhere from 9%, 10 % or 11%. That's great. And then maybe a point. It's a one-year loan term typically with the option to extend by a couple more months, say my deal's going over, whatever it is. And if it's equity, then they get like 15 % of the profit that I make on the deal. And a lot of my investors, you know, are low risk. And so they just prefer going the debt route more than the equity route. And then the way that I structure the long term buy and holds is I typically only do one investor. I have done syndications in the past. I don't like them. But on the buy and holds, I just do one investor per deal.

23:45And so the investor brings all the capital. I bring all the deal, the execution, if it's, you know, working with a property manager. And then again, they get 15, 20 % equity in the deal, like through the deal, whatever money we make on rent, they get. And then at the time of sale, whatever the exit value is, we get a profit split each. Okay. This is a great example of finding mutual benefit when you're raising money. And that is really sort of the name of the game when you're sort of going out beyond your own capital, beyond your own network. Yeah. It's just figure out ways that you can both benefit.

24:22And that comes with giving something up as the operator, but you're also gaining a lot of ability to scale. And just finding the right balance for you is really important. Like you also mentioned before about in scale mode, sort of adapting your mindset to preserve your time. That's a hard one. So how do you approach that? If you can hire the right people and then pay them, what do you get back in return? Your time. And with that time, you get to scale, you get to learn new things, put yourself in front of learning curves, and you can do bigger s**t. You know? And so I'm all about like, okay, why do I have to go direct to seller and find these deals when I can get some of the best wholesalers in my city to send me amazing deals?