futuremoneytrends.com: Greetings and thank you for joining us here at futuremoneytrends.com. I’m here with Ross Nelson. We’re here to discuss, basically, how an investor should approach looking into buying a real estate investment. Real estate is something that I really strongly believe in, over 50% of my net worth is probably in real estate. It’s a hard, tangible asset, easy to understand, and something that’s very actionable. He’s with the Marshall Reddick network. They’ve been helping investors purchase properties. They do mostly free seminars, if you do pay it’s usually like twenty bucks or something, so nothing catastrophic. And there is really no up sell. It’s different from any group that I’ve ever met, because the up sell is for you to better your life and buy property. There is no special 20,000 dollar coaching package. It is about you buying a home, a rental property. Ross, thank you for joining me.
Ross Nelson: Yeah, thanks so much for having me. You guys are awesome. What you do, you know I just really enjoy watching all your videos. And yeah, it’s just a pleasure to be on the show.
futuremoneytrends.com: Thanks very much. Well, let’s talk about how to find motivated sellers. Everybody hears about that, you read about that. What is a motivated seller?
Ross Nelson: Absolutely. Well, you have your buyers looking to acquire property, and sometimes when it comes to selling properties you’ll get the seller that is either through a divorce, a sickness, a financial bind that needs to get rid of the property quickly. You may also find someone who’s very well off financially that’s looking to buy a second home. And they may or may not want to sell the home they’re in, and they’ll wait and acquire the next property, move into it, put the property on the market and see what happens. To me, it’s a lot more difficult to get a good deal from someone where it doesn’t really matter whether or not it sells, or whether they hold the property, or rent it and keep it for six months, or sell it two years from now. So it’s really hard to get a good deal out of someone that’s not really motivated or wanting to sell.
futuremoneytrends.com: When searching for homes online, is there a certain area that you suggest people go to, or criteria?
Ross Nelson: Yeah, you know, one thing about the internet is it’s been absolutely fabulous at how transparent it’s made the real estate process come along. But with that said, I kind of find it difficult to find the exact property to buy, and the CEO of Zillow really put it best as he said that we’re an avenue for people to understand markets and to understand the properties in those areas, but at the end of the day it takes the local professional to be finding that dream home for you. And I like that example. I like that analogy, and we kind of do it very similar to that. I know the comps in the area, I know the neighborhoods, I know what properties will buy and sell for, what they rent for, but in terms of looking for a specific address I really like to use local professionals to that area.
futuremoneytrends.com: Let’s talk about Zillow and comparables. How does somebody value a home?
Ross Nelson: Great question. So every time someone’s selling a property, in their minds the home’s always going to be 100% more than the market value, and the same thing with a buyer when the buyer comes to buy a property. They’re always thinking, “Oh I’ll put in an offer to buy 25% below the list price.” Which sometimes can be very accurate and sometimes can be very inaccurate, so you really need to understand and know the true market value of a property, rather than just going to the list price and saying, “I’m going to put an offer in at 10% less and see what the seller comes back with.” So a property that is priced very competitively, especially like today’s market, when you’re in some of the major metropolitan areas like Phoenix, or Vegas, or Austin. There’s a lot of buyers out there and there’s actually not nearly as much inventory as buyers. So in those markets, if a property’s priced properly we’re seeing even a lot of times that offers can be above list price. Not to say that every property in Phoenix you need to offer above list price, but you need to give a fair offer that represents market value.
futuremoneytrends.com: As far as the looking at an area from an aerial view. That’s kind of cool.
Ross Nelson: Yeah, definitely. I know for Marshall back in the 70s and 80s he’d walk around the neighborhoods taking Polaroids. Which is so different than today, where we can just have Google maps and just drop the little person walking down the street. I love aerials. Aerials are so important with houses located in communities. I want to know that the home isn’t necessarily at the front of the community. The first two or three homes on the left and right as you first pull into a community are going to take on the majority of the traffic for that community because every home that lives in there is coming in and out of the same entrance. So you can see those types of details as an investor when you’re buying a property maybe not necessarily in your backyard, and you want to understand the location of the property. Another thing is I like to be close to freeways, but not on freeways. I don’t want my backyard to be separating me and 405. It’s going to devalue it and limit the number of buyers when it comes time for me to sell that home for a profit. So I love Google maps and I think it’s extremely useful, especially looking for comps. When you’re looking for different comps and stuff, depending on the area, if you’re in a really dense city you’re going to want those comps to be .5 miles, maybe .75 max, where if you go to more rural areas the sales aren’t going to be as abundant, so maybe then you need to spread it out to 3, 4, 5 miles in the search. So if in the aerial view of the maps you can really get to know and understand the neighborhoods, how densely populated is to how far out in searching those comps.
futuremoneytrends.com: How about the mindset between someone who’s purchased for real estate, purchased their home. How does their mindset need to change when they’re going to buy an investment property?
Ross Nelson: Oh gosh, that’s very different. In dealing with a lot of investors, some of our first time investors, we really have to get them into the mindset that you’re not going to live in this home. You know, a lot of times we would buy investment properties that we may personally not live in ourselves. So I like to look at it as a very unemotional buy. So with your home, you’re looking at can I raise a family here, do my wife and kids feel protected, can I entertain my friends. And you’re wife’s looking straight at the kitchens and bathrooms, cause that’s where she’s going to be spending most of her time. So it’s a very emotional purchase to where if the seller’s not motivated you may be willing to spend 20, 30, 40 grand more than market value because you absolutely love this home, you love the garden, or love the layout of the backyard, or you love the flow of the living room into the kitchen into the dining room where you can see everything. And because of that you’ll make a very emotional decision that may not be the best financial decision. But if that’s what makes you happy, go for it. With an investment it’s very, very different. So we really want to look for those under market value deals. We really want to make sure the purchase price to rental ratios really make sense. You’re not going to buy a half million dollar rental property that will only rent for 2 grand because you think it looks beautiful. I like to see those that 1% mark. I’m okay to go a little bit lower than that if the neighborhood’s right and the appreciation is there. I don’t mind paying that 130, 140 price for a thousand dollars, right? But it has to be the right property. I like to buy the worst homes in the best neighborhoods. I like my homes as a rental to bring down the neighborhood rather than having my property lift up the rest of the neighborhood. Because it’s always cheaper to rehab and remodel your property than it is to rehab and remodel a whole neighborhood. So those are some of the things that I look for as an investor where, when it comes time for buying the owner occupied home, just a lot of different emotions involved. I would say remain logical. I would say make sure the financial numbers make sense and go more off of logic.
futuremoneytrends.com: Overall, in finding a good deal and structuring a good deal, what would somebody who’s new to real estate, or even a regular investor, what is something they should look for finally in making the deal?
Ross Nelson: Oh gosh. I think the first thing is your team. So for a first time investor — I’m to the point now where I’ve done enough transactions, I’ve bought enough rental properties, I’ve dealt with enough contractors and enough property managers, in my personal portfolio as well as with all of our investors, where I’m kind of quarter backing the transaction. Where with my first property I leaned so much on the people around me. I really didn’t understand that something as simple as picking your title company. No one ever thinks about that in a real estate transaction, you just use whichever realtor says, “Hey, this is a great title company, go for it.” And you just use it you don’t even think, “Oh, well, I have an option.” So I would say that the most important thing for first time investors is working with the right people. As an investor especially, don’t work with the owner occupant realtor, or the stay at home mom who does real estate on the side. Work with someone who is entrenched in rentals, that is entrenched in investments. I kinda say, like try to hunt real estate deals like a fox. So a fox, day in and day out, a fox is constantly looking for prey, or looking for that next meal. Just like a real estate investor should be constantly looking for that next deal. Whereas a lion, when they go out and hunt they’re going to kill something big, and they’re going to sleep for the next 30 days and just relax. They’re actually one of the laziest predators out there, and I kind of look at that as when you’re working with a good realtor and a good rental market and a good investment market, they’re constantly out there looking for deals day in and day out, and when they come across a good one they’ll come to you rather than you as a first time buyer trying to go through navigating Zillow, navigating Trulia trying to find that perfect property address. So I would say that the most important factor is probably the team you surround yourself with.
futuremoneytrends.com: Very good advice, and that seems to be a common theme among CEOs and executives in all industries. It really does come down to the people. Ross thank you so much for joining us.
Ross Nelson: Yeah, you’re very welcome