82: How to Buy Real Estate Like a Pro

0:28The Burlington Coat Event is back. you do listen to? Is it get optioning those options? Or let's do a little research. Learn more at finra.org slash trade smart. Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz and I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur in his 50s with lifetime revenue of$300 million and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world.

1:09As the show name might suggest, every single episode, we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, this episode is one I'm really excited for, so why don't we break it down? In this episode of the Rich Habits Podcast, we're going to share our real estate buying blueprints so you know how to buy real estate like a pro. A little known secret when it comes to real estate is that you don't make the money when you sell the property, you make the money when you buy the property.

1:46By buying the property in a rising market for a fair price, you're setting yourself up for success later on in life, no matter if this is a primary residence or an investment property. And the best investor of our generation, Warren Buffett, has a quote that despite not being about real estate makes a lot of sense. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Buying a wonderful piece of property at a fair price is far more advantageous than buying a crappy piece of property at a wonderful price. Keep that in mind throughout this episode. It's very important.

2:21Robert, I'm not going to pretend that I'm a veteran real estate investor. I've only purchased two properties throughout my lifetime, but you certainly do know what you're talking about. You definitely have purchased dozens of pieces of real estate throughout your life, and you know what to look out for when it comes to buying real estate, if that's investment property or even a primary residence. So in this episode of the Rich Habits Podcast, we'll walk you through our most important considerations, how to approach the search process, how to think about the borrowing process, but most importantly, what pitfalls to look out for.

2:50So Robert, let's dive in. Let's dive into point number one. Ask yourself this question. Am I ready to buy? Rightfully so, a lot of people jump the gun when it comes to buying real estate. Either they see the mortgage rates are beginning to come down, or they want to act quick before real estate prices rise as a result, or their friend just bought some real estate and they want to get in the game and get excited about it and all that. But I want everyone to take a moment of pause, just ooza for a little moment, and understand, are you ready? Is it the right time? And what is the right kind of real estate for you to buy?

3:25So no matter the reason why you want to buy real estate, you need to actually be ready. So how do you do that? How do you know when you're ready? Here are a few thought starters for you to consider. And please, everyone, make sure you save this episode. Take some notes because as you get into the real estate game, these gems are gonna be so helpful to make sure you don't miss an important step. And trust me, from someone that's been buying real estate for 35 years, it is easy to do. And later on in the episode, we're going to share a few mistakes and things that I missed along the way and I've learned from.

3:58So it's very important. So number one, do you have a solid down payment save? This can be 10, 20 % of the purchase price. And of course, the more money you put down, the less money you have to borrow, lowering your monthly payment. Number two, have you lived in the area long enough to know this is somewhere you want to stay put for at least five years? Jumping in and out of real estate can be very costly, especially when you consider buying and selling and closing fees. That is why even for me, when I moved to St. Petersburg a year ago, I could have bought something right away. But I rented an apartment because I really wanted to understand the lay of the land, the area, the restaurants, make sure it's the right place for me.

4:37That is why I always recommend when you get to a new area, if you're not sure, rent first, because it'll give you a better idea to get your feet wet and make sure it's the right place for you. And the next consideration, is your family expected to grow? And if so, are you taking this into consideration with your buying strategies? Now, I'm not saying you should buy your first property as your forever home to where if you have one kid now or no kids, but you think you're going to have three and you're going to jump the gun and buy this massive house that might not really be fully used for a few years, but definitely keep it into consideration of what your two, three, four year family plan is in your purchase consideration.

5:17And then our next step is what is your job situation? You'll need at least two years of stable income to qualify for the mortgage. So you want to make sure you have all of your ducks in a row. So by asking yourself these questions, you'll be getting a jumpstart on identifying where you might be lacking, allowing you to be fully prepared to buy real estate when the time comes and you've got all your ducks in a row. I also think, Robert, that during this sort of are you ready to buy thought process that we're going through, doing market research is incredibly important. Of course, real estate prices trend higher over a long period of time, but some pockets of the market might not trend as high as others.

5:55Miami experienced a massive explosion during the pandemic, for example, and now that's beginning to come back down to reality. I would look at Redfin's price data for your specific region. I would look at trends on Zillow as well. But more importantly, look at population trends. Look at job growth. Look and see if large companies are opening new headquarters in an area or surrounding area of where you want to buy. For example, Oracle just opened a headquarters in Nashville, where I live, right? That would be a positive factor to add when doing research. Most importantly, get your feet on the ground and look around for yourself.

6:29Don't just trust the opinions of these expert reports or even a real estate agent. Put in the work yourself to understand the area and what's happening in this community. Are people moving here? Are jobs coming? How do we feel about this region of the country in general before you buy? It's incredible what you can learn by just driving these different areas that are up and coming. You hear the term gentrification all the time. That is one of the best ways to learn what is happening. And just really getting out there and immersing yourself in these areas because then you're going to have a better idea of what's next.

7:01100%. Now you've asked yourself these questions. You've gone through this sort of thought starter process. It's time to set a realistic buying budget and actually stick to it throughout the buying process. Robert, I want to kick this one off because I actually have a really funny story I want to share when it comes to this. So when I was in the market to buy my first property in Nashville here back in 2019, my lender told me that I could borrow up to$350 ,000 on a property. I was like, okay, that's cool. But like, what is the actual monthly payment? For perspective, I was making$65 ,000 a year at the time.

7:32And after taxes, 401k, benefits, and whatever else came out of my paycheck, I was taking home about$4 ,000 a month. Well, if I had borrowed and said yes to that$350 ,000 sort of budget my lender gave me, my monthly payment would have been$2 ,100, more than 50 % of my take-home pay. I just simply could not afford that, which is why I ended up only borrowing$270 ,000, not 350. So the takeaway here is that what you can borrow, no matter what type of property you're looking to buy, isn't always what you should borrow. What you should borrow is what you can personally afford. It shouldn't be what a lender is trying to push down your throat so they can get a bigger commission.

8:12100 correct austin it's so easy to fall in love with a property and it seems exciting when a lender tells you you can borrow that up to 350k but if that monthly payment doesn't align with your honest budget that we talk about all the time meaning it's more than that 30 or 35 percent of your take-home pay you can't afford to borrow that much money full stop at the end of the day you have to do what's right for you long term because as we're always talking about we just don't want to see people house broke for years and decades and it happens a lot and by going over your budget you find yourself in that situation of being house poor and this results in having little to no money to invest every month considering the bulk of your monthly budget is going towards your mortgage payment so you have to figure out how much you can afford to spend every month on a mortgage no matter what type of real estate and work backwards from there we like to reverse engineer to make sure you're staying within the numbers of your debt to income ratio that makes sense.

9:11And we'll link out a calculator tool in the show notes that we found on Google that can help you figure out how much you should actually borrow considering the monthly payment and your net income amount per month. So always get pre-approved for a mortgage that's in your monthly budget before you begin shopping. And that will force you to shop with parameters and discipline. Let me say that again, parameters and discipline. So many people set a budget of that 350K and then they talk themselves into the$425 ,000 house because it's only just a little bit higher. And guess what? That's going to put you in that zone of danger of being house broke.

9:49And it's very important to stay away from that because you also don't want to forget about the maintenance and other monthly costs. There's lawn care, HOA, upkeep, and other expenses that come with home ownership that will inflate the monthly costs beyond your mortgage amount. And don't forget the pesky PMI. This is such a cool episode, Robert. I feel like we're just laying it all out for our listeners and I'm so excited about it. So let's move on to our next point. Working with a qualified professional. You've gone through everything we've talked about. You asked yourself the right questions.

10:21The answer was an astounding, yes, I'm ready to buy. You've made your budget. you've done the research, and now it's time to get a real professional involved. Working with a real estate professional local to your area who's not a fresh college grad or someone extremely young is a great next step. Now, this is no offense to the budding real estate agents out there, but working with someone who has lived in the area for 20 years and transacted thousands of pieces of real estate has leaps and bounds more to offer to you than someone who just started a few months ago. Again, not trying to knock any new real estate professionals out there.

10:56Don't earn your stripes. I'm just saying if I was going to spend three, four, five,$600 ,000, I want to work with someone who knows what they're talking about, has been doing this for 20 years, not someone who just got their license three months ago. And don't forget, it's just not the real estate agent that needs to be experienced. You should also make sure that you have an experienced lender in your corner. You want to make sure that you're getting different quotes, two or three different lenders to make sure you're getting the right mortgage for the right property at the right time for you, as well as an inspector.

11:26This is a killer, killer, killer thing that many people forget about. Don't trust the homeowner and don't just trust the inspector that sent your way. Do your research, ask around, ask friends that own properties who they've used because you want to make sure you flush out all of these items to ensure you're in good hands when buying your properties. So that leads us into the next portion, conduct a thorough property inspection. A mistake a lot of new real estate buyers make is they completely skip the home inspection or they try to skimp on the home inspection, thinking they're gonna save themselves a couple hundred dollars and they think they can simply trust the seller and they take them for their word.

12:08Well, guess what? Not everyone in the world is honest, especially when it comes to real estate. And I can think of many times that I've been lied to in my own real estate journey. So shop around for your inspector. Don't just go with the one that's recommended to you by the real estate agent or anyone else that's making money in this deal. You need to have full autonomy over your choice. And sometimes it's even a good idea to have the property inspected by two different inspectors and I can't wait to dig into why. Always make sure that you get every point inspected. Above ground, below ground, in the attic, outside the house, the roof, the plumbing, the electric, every single piece needs to be inspected and don't be afraid to pay for it.

12:49It's always better to spend that few extra hundred dollars in the beginning than rather finding out later on because you also have to think, did you check environmental? Did you check for asbestos issues? Did you check a full title search prior to the title work during your due diligence period to make sure there's no mechanics liens or other things that are lingering out there that can really hurt your cost basis later on. So it's very important to be very thorough in your due diligence period when you're buying any type of property. It's okay to spend five,$750,$1 ,000,$1 ,500,$2 ,000 making sure you have all your ducks in a row, all the boxes are checked, and every part about this house that you were told is correct is actually correct.

13:33So let's get into our next section. Consider the specific location and long-term value of owning in this region. The small things people forget about when buying real estate are the school districts, the crime rates, the access to public transportation and other taxpayer-funded amenities. All of these things compounded over 5, 10, 15, 20 years over time can greatly impact the long-term value of the property you're purchasing. But it's very important for you to look to the future Because when you're buying a property that could be your dream home, your primary home, long-term investment property, you want to understand what is the future outlook for this area.

14:16Is it an area that is gentrifying and growing or it is on the dissension and it's going backwards, it's going down in values, people are moving out, crime rates are higher. You want to make sure you do your research. And here are a few things I like to look for. I like to look for planned infrastructure improvements. Think dog parks, bike paths, and other mini communities. I know there was a Tanger Outlets just built three miles from Austin's house, so that is a great example of this. Also, look at proximity to public transportation. Now, this might not be applicable depending on where you live, but if you're close to a metro area, having access to that transportation is definitely a plus long-term.

14:57And then also look at neighborhood growth. If you're somewhere in a newer neighborhood, are they building new ones around you? I know Austin is experiencing that like crazy right now. The goal here is to really understand the desired market's growth potential and what the yearly capital appreciation could look like. I like to drive around, look at the rate of development, and don't forget to look up. The more cranes you see, the better. I know it sounds funny, but when you're driving in a downtown area or a new area and you see developments in cranes everywhere, this is just an awesome thing to look for.

15:31And also one of my favorite real estate hacks a friend of mine's company does is they follow the regional development newsletters. And their tactic, and they have built a billion dollar company around it, is whenever a company announces a major development like an Amazon or a FedEx hub, as soon as they see the foundation and the rebar is poured and it's being built, that's where they start buying properties around there because they know there's going to be massive job growth. So I love this section and it's something everyone needs to consider when they're looking at buying, whether it's a primary home or they're building a portfolio of investment properties.

16:09I couldn't agree more. And I think, though, that people should be weary of, I know, Robert, you've shared this example in the past of, you know, downtown Toledo, Ohio, or like these specific areas, it's going to get gentrified. And there's this new investor with half a billion dollars or 2 billion that's going to come in and do it all. But then like it takes 10 times longer than what people actually expected. You know, there's a new development around the Nashville area that is a new Tennessee Titans football stadium. And it's being built right now. It's a whole thing. It's massive. It's going to be one of these planned new developments that Robert's alluding to.

16:42And there's a lot of people that are buying and selling real estate around that so that they could hopefully make a return on their investment in a five or 10 year period. But just want to make sure that you don't bet the farm on that, right? That is one component to this larger theme that Robert kind of laid out to us, which was not just understanding what sort of those planned developments are, but also the crime rates, the school districts. Is there job growth? What's the population trends? Is there other neighborhood growth, right? it's one component of a larger equation that you need to run for yourself and figure out.

17:10Wow. You really brought up something by mentioning Toledo, Ohio. Here is a great example that happened to me. I started buying properties around a couple of our legacy businesses in the east side of Toledo. And at one point I owned one and a half city blocks of every commercial property on this two block radius. And the goal was to keep building out the infrastructure, get it gentrified further. And for years, we were told that one of the largest healthcare providers was going to build a campus there. So my thought was, cool, they're going to buy me out, I'm going to make millions of dollars, and it's going to be great.

17:48And I was buying a lot of these properties in an area that was not growing from a gentrification standpoint, but I still felt it was a sound decision. So over time, it did not happen. So for years and years, I waited, I kept buying and buying and buying. Nothing happened. So four years ago, I sold all the buildings except for the two buildings in the warehouse that my businesses reside in. And I sold them to a developer who also felt that was going to happen. And now four years have passed and they have gotten zero money, zero help, zero development. And the worst part is they made that two block radius and opportunity zone, but they ended it on the south side of the street.

18:28and all of my old buildings were on the opposite side of the street, one street away from the opportunity zone. So that guy is in bad financial shape, the development company that bought them from me. So it's crazy out there. And you just need to make sure, like Austin said, you do not fall into that hype. We're just breaking down strategies from experience I've had over decades of being in the real estate business to help you make sound decisions in your real estate journey. So let's get into our last point, total ownership cost of real estate. This one is my favorite and probably the most overlooked by so many people.

19:03Far too many simply consider the mortgage payment, the insurance, the HOA, the utilities, and just that's it. That's what they believe is their total ownership cost. And they simply overlook driveway maintenance, roof replacements, landscape maintenance, HOA increases, and general maintenance and repairs. And this can be really, really bad sometimes. And you just really have to be careful on this instance and really think through what can happen because people don't think of underwater sprinkler systems that are decaying or maybe broken. They don't think of pool leaks that could occur for these in-ground pools that are on these properties.

19:41There are so many different pesky but high expenses that can occur when owning these properties. So make sure you're budgeting for them because it's very important to understand your total ownership cost. You always hear us talk about the honest budget. The same thing has to apply when you're buying a house or an investment property. And that is be honest with yourself of what the total ownership cost is going to be so you can make sound real estate investment decisions. Yeah, I learned this lesson the hard way. I've already had to replace a dishwasher, a microwave, an oven, and countless other small things around the first property actually that I bought.

20:19So just make sure that you have that emergency fund beefed up as a homeowner, because there's definitely going to be things that you will be replacing or changing or doing because you can't go to your landlord or you can't go to the apartment complex and say, hey, the dishwasher doesn't work. Come replace it. It's on you now. And also something I started doing, Robert, is making a little list of the things that I have been replacing so that if I ever do sell this property, I can kind of bake that in to the selling price that I want to ask for it, hoping that I can get my money back over time. Yeah, one of my favorite real estate hacks, and it's not just for buying investment properties.

20:52It can be if you're opening a small business and you need a brick and mortar location. It can be if you're buying a plaza. I go buy a$1.99 black binder with all of the little clear inserts inside of it. And every project I do, I put the receipts. I put all of the appliance booklets in there. I put all the color swatches. I put all the business cards for each individual project. I make a binder for every one of them because even though I might have it on a computer or in emails, I like a reference point that I can go to for every project and know exactly, hey, where did I buy that floor tile? Hey, who did the tile work in that property?

21:30Because it might've been five years ago. It has been one of the smartest things I've done and I probably started doing it about 16 years ago. Holy moly, it makes life so easy to know exactly where something came from because after the fact, when you're going to renovate it or you need to make repairs, you want to know where you bought the things and who did the work. Hopefully everyone now feels a sense of confidence, a sense of understanding. I mean, that's the whole deal of this podcast. We want people to have and be able to make educated decisions with their money, with their real estate, with their portfolios, everything in between, right?

22:03Rich habits is what we're focused on. So now I think our listeners know how to buy real estate like a pro. They've asked themselves the questions, am I ready to buy? They've sort of laid out that realistic budget for themselves. They've worked with qualified professionals. They got the property inspected. They consider that specific location for long-term value growth. And of course, the total cost of ownership. There's so much that goes into real estate, but lucky for you, you know how to buy real estate like a pro. That's right. And after you watch this episode, if you're part of the Rich Habits Network, fire away in the Q &A.

22:36If you're looking to buy that next property or that primary home, if you have any questions and you need any help, We will be there to give you the answers. All right, Robert. Now, before we jump into our Q &A section of this episode, let's do a quick update on an investment we made on FREC. What they're building is an automated way to tax loss harvest while you direct index your investments. Wow. These are big buzzwords. What's going on? So just like we invest into the S &P 500 with VOO, you can invest into the S &P 500 on FREC. But instead of buying a share of an ETF that represents a basket of stocks, with FREC, you're actually buying the stocks.

23:13You're actually buying Apple and Microsoft and Amazon and Meta. You're actually buying all the names, the 500 names inside of the S &P 500. Now what's cool about Freck is they automate the tax loss harvesting process, which essentially means if any of these stocks experience a decline in value from where you originally bought it, they will sell it, harvest that loss, and allow you to use that loss as an offset against a potential capital gain you might have in the future. We originally invested$20 ,000, I think it was June 6th, June 7th of 2024 here. And we've harvested now$810 of losses since then, while our$20 ,000 investment is now worth$20 ,750.

23:56So we made 750 bucks, Robert, and we harvested $810 of losses, but we didn't lose any money. Now, what's so cool about that is our cost basis on this$20 ,000 investment is now about$19 ,050. So Freck is a really cool platform. We love it. Again, we invested$20 ,000 of our own money. We'll continue to give you guys monthly updates on not just the performance of the investment, but also how much money we've harvested and losses. So hopefully when Robert and I have a big gain in the future, we can offset those profits. Yeah, definitely. I love Freck and like everything we do, it just shows that there are more ways to invest even just in the S &P 500.

24:33You know, we talk about FRAC, so we've got that tax loss harvesting. Then you can invest just directly into the S &P 500 with the VOOs of the world. So it's just really cool to find additional ways to make income and just really grow your portfolio. So I love it. If you guys want to get a free$250 whenever you deposit your initial investment into FRAC, use the link in the show notes below. This episode of the Rich Habits Podcast is brought to you by Monarch Money. Speaking from personal experience, I know exactly how stressful and time-consuming managing my finances can be. Between building a budget and keeping tabs on expenses across different credit cards, no wonder people are too afraid to start.