real estate as a non-real estate entrepreneur

Summary

if your business is not yet throwing off real cash, real estate is not your problem. it is a distraction wearing a smart hat.

the better return is almost always in the business. one new client at a high-margin company can pay you back in a month what a rental will take a year to clear. so the question is not whether real estate is good. it is whether you have any business looking at real estate right now.

my strategy, the boring version:

1. single family homes only. no commercial. no syndications. no creative finance. a mentor laid this out for me years ago and I never deviated.

2. at least 30 percent equity in every property. that buffer is what keeps the portfolio alive when the market drops or a tenant disappears. anyone who tells you zero down is the smart play is selling you a course.

3. long game. these are not cash flow machines while you still have a primary business to feed. they are a decade-out wealth bucket. expect to barely break even in year one.

the simplest entry point is the house you already live in. improve it while you’re there. when you upgrade, rent the old one. that’s it. that’s the whole playbook for a non-real estate entrepreneur.

Transcript

introduction to real estate investing for non-real estate focused entrepreneurs

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. Today let’s talk about real estate investing for the entrepreneur who’s not in real estate. So all the better human business entrepreneurs out there who aren’t focused day in, day out on, anything that has to do with real estate.

What do you do? Is it worth it? Should you be focusing on putting extra cash from your business into real estate investments? These are questions I get all the time. So let’s dive into it. This is the Better Human Business Podcast. I’m Jerred Moon, and yes, when people find out that I coach or consult with, they find out that I have several single family homes.

overview of my real estate investment strategy and mentorship experiences

They want to know what I do, how I do it. They want to know really what books I’ve read, which podcasts have I listened to. And I’ll get into some of those things in today’s podcast episode, but I really just want to talk about how I got into it. So I have not read a ton of books or podcasts. I don’t obsess about these things, and I don’t really care about it.

And that’s how I feel about investing. You should just know my investing strategy is like I don’t want to think about it that much, okay? I don’t want to be that involved. I want to put cash from my passion, my business, somewhere else where it’s going to grow or at least keep value and not think about it.

And so I think sometimes people in a similar situation to me, you’re a better human business or you start to obsess over it and you want to learn all the stuff. And I get it, you don’t want to get hosed, but don’t let it overtake what you’re doing. So the reason I haven’t read a lot of podcasts or books is because I had a mentor that I traveled with and worked for a number of years who was a very successful real estate entrepreneur.

advice on financial readiness for real estate investing

And she specifically invested in single family homes. And so that is why I mimicked that strategy specifically. That’s why I don’t go for commercial buildings or do all these other kind of crazy things. I work specifically with single family homes. But here’s the deal. When I would follow them around the country, people would always ask, when’s the right time to invest?

And when you should do this, when you should do that? And they had all these questions. And one of their answers to that was, if I don’t have a ton of money, what should I do? And that was always the question because that’s what a lot of people hear in real estate, right? Let’s find these no money down loans or like all this crap.

No, I don’t do any of those things. And their response was always, you should go get really good at your job. Then after you get really good at your job, you should start real estate investing. And that was their nicest way of saying, if you’re not making a lot of money, you shouldn’t be worried about investing, like period.

details on investment strategies and the importance of significant equity

And I 100%, especially the more I’ve got into it, agree with that. If your business isn’t growing and just putting out so much cash, you honestly don’t really know what to do with it. So we’re not talking about, hey, I got an extra 500 bucks a month that I don’t really know what to do with. Maybe I should start real estate investing.

You don’t have enough to start investing. Okay? You just don’t. And so you need to focus more on your business. And I’m going to foot stomp this right here at the beginning before I get into anything else because that’s what I’m hearing most of the time are people who shouldn’t be investing anywhere really, because here’s the truth.

If you’re decent, I’m just talking about decent at business, you’re going to get so much more of an ROI on your business. Meaning if I put in a thousand bucks, I make $10,000. Those are the kinds of ROIs you will legitimately see if you’re a business owner. You will not see that in real estate. We’re talking a couple of percentage points in appreciation each year, maybe a couple hundred bucks a month in cashflow, nothing compared to what you can do in business.

comparison of roi in business vs. real estate

So if you’re not just crushing it in business yet, go focus more on business. Go make more money. And then when you have a lot of money, then go get into real estate because real estate investing can absolutely eat you alive if you’re tight on cash, especially with how I’ve done it. You know, if you have a house that you barely like, you emptied your savings account to buy to put a down payment on, and then, you know, you’re cash flowing like 400 bucks a month and you think it’s awesome because you got an extra 400 bucks a month, and then boom, the air conditioner goes out and you’re in the whole seven grand.

Just do the quick map on how long it takes, $400 a month cashflow to make back seven grand. Okay? So it’s not the greatest investment. And if you don’t have an extra seven grand laying around, that can be incredibly stressful. I’ve been in these situations. So anyway, all that to say, if you actually want to get involved in it, make sure that you are making a lot of money in your business first and then get into it.

Otherwise, you’re kind of wasting your time because you’re talking about, hey, what books can I read? What podcast can I listen to? It’s, well, have you listened to all the books and podcasts that you should have to grow your business? And if the answer is yes, now let’s talk about some real estate investing real quick.

discussion on the realities of real estate cash flow and long-term strategy

So my strategy for real estate investing is to own at least 30% of a property. Okay? So that means I’m putting down maybe 20% or maybe 30% or more, or I’m putting down 20% and I’m doing a rehab that’s going to give me 10% more equity. Okay? So this is not what you’re going to hear on other real estate investment things.

You’re going to hear people talk about buy, rehab, refinance, take the cash out. I’m not into any of that. I don’t do any of those strategies. Call me stupid or call me smart. The reason I don’t want to do them, again, it wastes time. It takes me away from my business. So what do I do? I want to own 30%.

That means I need to put 30% down on a property. So if I’m going to buy something that is, let’s just say, I don’t know, $400,000 in today’s market, to be honest, and I’m going to need $120,000 down on this house. And with current interest rates, it honestly is not making a ton of sense from a cashflow perspective, but I’ll just tell you what I’ve kind of done.

closing thoughts on when real estate investing makes sense for entrepreneurs

I want to own 30%. 30% puts me in a comfortable position to where if the market shifts and things go down, I’m still going to have equity to where I could back out of this deal. I could sell it at least break even easily and get out of it if I just needed to offload the debt. I could get out. That’s why I want to own 30%.

I’m not looking for any kind of tricky way where I can have 5% down all this crap that people are looking for. There’s no reason to pursue things like that. So if you don’t have the money to put 30% down or at least 20% and do a rehab, then I wouldn’t do it. And so when I own that much of the property, one, it cashflows better, two, it protects the downside because I can sell it faster, and that’s basically it.

Now the cashflow to me is I’ve never once in my entire, what did I say, six, seven years of doing this, never once taken the cashflow from any property and been like, yeah, I’m going to use this for paying my bills this month. What pays my bills every single month are my businesses, my job. That’s what pays my bills.

And so these are very long-term strategies for me. I’ve lost money on a lot of properties in a given year. Like I said, an air conditioner goes out. Something happens with the foundation, the roof. These bigger things that can happen, they happen, water damage, all these kinds of things. Maybe the insurance covers it, doesn’t.

All these kinds of things can happen. And when they do happen, it eats up all your cashflow. And I’m okay with that because I’m thinking long-term. And because I’ve been thinking long-term, and the market says some crazy stuff, I have a lot of equity built up in the properties that I do own. So hopefully I’m getting the message across to you that I don’t have a secret.

The biggest secret I could tell you is to buy the house, live in it for a little while or a couple years, and then move out, make it better, move out, and then buy a new house. That’s the easiest way. That’s how I did my first property. That’s the easiest way to get into real estate investing because you buy it, you own it, you find out everything that’s wrong with it, you try and make it perfect while you live there, and then you rent it out.

And then you move on. Because then also given that time, you’re going to have a little bit more equity into it. But then you have to ask yourself, is it even worth it? Should you be doing it? Because again, if you haven’t mastered getting better at your business and making money there, it’s not going to be worth your time.

And I don’t actually recommend it for most business owners. In fact, I’ve highly considered when it’s been, like I have the months where it’s taking up a lot of my bandwidth, either from a decision-making standpoint or whatever from these real estate properties, I’ve considered just selling them all.

Hey, I’m just going to sell them and put the money in index funds because I just want to focus on my business. I don’t want to worry about real estate investing and whether or not this thing’s going to cash flow 300 bucks. Now, I have some that cash flow really well, but there aren’t necessarily podcasts I recommend.

There aren’t books. Like everything I’ve learned is I learned by doing. And so what you need to do is go out there, see if you can make the numbers work with cash flowing a property, putting enough money down. Like I said, with today’s interest rates, it’s going to be very hard. But I think a bigger picture, people are asking the wrong questions when they think about real estate investing because if you do scrounge together your life savings and you have one rental property, that is not going to change your life.

It really won’t. But what might change your life is your business doubling over the next three years, tripling over the next three years. That could change your life and that’s something that you need to focus on. And if you want to focus on that, you’re going to have to try harder.