What EVERY Rookie Must Learn Before Investing in Real Estate

Ashley:
Let’s get your questions answered on today’s rookie reply. My name is Ashley Care and I am here with Tony j Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now, today we’re going back into the BiggerPockets forums to get your questions answered. And again guys, the forums are the absolute best place to go for you to get quick answers to all of your real estate investing questions. So today we’re going to hit questions like how to furnish a rental and get credit card points. How do you find up and coming neighborhoods for your real estate investing, what you need to know before you start investing and when should Ricky’s hire a bookkeeper?

Ashley:
So Tony, let’s go first into the starting out discussions. Do you see a question in there that would be a good

Tony:
One? I do. I got one from Tyler and Tyler says I’m in my first house hack in Austin Tech. I have two 12 month room leases and a midterm rental in an A DU. Now I get my midterm rental leads from Airbnb and do bookings through the Airbnb platform and then I use apartments.com to manage my long-term tenants and collect rent. Now the question is what do I need to keep in mind for starting off on the right foot for bookkeeping? Any recommendations on software or recommendations on content to watch slash read to learn the essentials As a beginner, any feedback would be appreciated. Thanks. Alright, so first Tyler, I want to say congratulations, man. I mean you got two room rentals going on and you got an adu. So I got to imagine you’re probably getting a juicy return on this property in Texas.

Ashley:
A low cost of living,

Tony:
Low cost of living, right? I mean, hopefully you’re doing pretty good on at least breaking even, maybe even getting paid to live where you live right now. So I’ll go with the back half of that question. First, recommendations on content to read slash watch. And I love Amanda Hahn and Mac McFarland’s books on real estate tax strategy and they have two volumes. Volume one is a little bit more beginner focused. Volume two is a little bit more advanced, but I like to start with those because it’s beyond bookkeeping, it’s just more so tax strategy. But I think those things are good to lay that foundation from just a knowledge perspective of the accounting side of being a real estate investor.

Ashley:
And as far as the software, I think there’s a lot of great options out there. You can use the long-term property management software for the medium-term rental, and you could actually use it for short-term rentals. I’ve used Buildium before for your short-term rental, and you just have to link the Airbnb deposits into the account to show that when it shows up it’s a rental income because they have the nice bookkeeping databases integrated with the property management software. One other thing too is you can use ssa, which is assets spelled backward. It’s still blows Tony’s, mind me use that. But Tony, you used to use SSA for your bookkeeping on your short term rentals and then now you use QuickBooks, which is also what I use too. What was your experience with

Tony:
Sessa was great. I think it’s built specifically for real estate investing. So there’s a lot of built-in functionality that supports our business model. And like Ashley said, it’s free and it’s super easy to use. QuickBooks is way more complex and I personally don’t manage anything inside of QuickBooks now, it’s mostly our bookkeeper who’s doing all of that. But I think ESSA is a great starting spot if you are the solopreneur, kind of running this by yourself because it gives you the foundation without being too complicated.

Ashley:
And essa I think is great for starting out. If you are doing the bookkeeping and you have no knowledge really of what to do or very vague, it simplifies it as to as an investor, here’s the chart of accounts. If you don’t even know what that means, then go assess it or something similar because QuickBooks has so many options and sessa is a lot more affordable too than QuickBooks. So there’s definitely different options out there for you. One thing that is a huge factor to me is how visually appealing it is for me to look at is sometimes how I choose a software or a database because I want to look at the software and it not be confusing and I want to be able to read it as fast as possible to get the information that I need and then move on to the next thing too. So that’s always one thing I take into consideration when choosing software too. But you can use rent ready. Rent ready has a great bookkeeping software integrated in it too. That would work for all your rentals.

Tony:
Just one last caveat for the short-term rental, midterm rental bookkeeping side of things, and this is actually feedback I got from my bookkeeper. You have to be careful when you’re using the bank deposits to build out your p and ls for your rentals or for your rentals or medium term rentals because those payouts do not include the actual gross booking value. The payout you’re getting is less any fees that Airbnb or VRBO have taken out. So if you really want an accurate number of the top line revenue for your properties, you can’t use the bank deposits. You actually have to use the data that’s inside of Airbnb to say, Hey, here was the top line revenue and you have to manually add in the fees that Airbnb took out and that’ll equal out to the actual deposits into your bank account. So that was one shift we had to make when we went from doing it ourselves inside Acessa to having a bookkeeper who was coaching us through these things. And it makes sense, right? Because if you’re almost short changing what the overall revenue is for your property, if you don’t do it the right way,

Ashley:
Hopefully finding the right software can be a good start for you as to what to do for bookkeeping. Reading the books on biggerpockets.com that Tony recommended, but also looking into hiring somebody to do your bookkeeping. It might not be as expensive as you think. Tony, what was the cost of your first bookkeeper? What is it at like $6 hour or something like that? It was

Tony:
Very inexpensive, somewhere between four to six bucks an hour. And she was great for that beginning phase of our business because all she really had to do was look at each transaction, apply with the right category, upload any receipts. So it was a very simple process. So we found her on I think Upwork and she had an accounting degree in the Philippines and she worked great. She actually still works with us today, but she just kind of supports our bookkeeper with some of the more administrative things, but super inexpensive way to get support there.

Ashley:
So actually in a few days we’re going to be releasing a little crash course on bookkeeping for rookie investors on the podcast. So make sure you guys stay tuned for that episode. We’re going to take a short break, but when we come back we’re going to learn how to find up and coming markets, how to furnish a rental and to get my favorite credit card reward points.

Tony:
Alright guys, so welcome back now Ashley, how about you? What questions from the BP forms are sticking out to you?

Ashley:
So right now I’m in the market trends and data discussions and here’s a good one. Okay, this one is asked by Claudia. How do you know if a neighborhood has the potential of going up in price? What should investors be looking for? Ooh, this is a good question. I recently bought a property that is supposedly in an area that is up and coming in an area of good appreciation where going to rent it out for the next three to five years and then hopefully sell it for a lot more money than I bought it for and put into it. So some of the things we kind of looked at was first we relied heavily on our real estate agent who sold a lot of homes in that area and helped people sell homes and buy them in that area. So going off of her knowledge of that area.

Ashley:
So first you have to have a good understanding of what that knowledge is that your real estate agent has that you’re working with. Because if they’ve never done a deal there or they have no experience in that market and they’re just guessing like, oh, I think this neighborhood will be great, things like that, make sure they actually have knowledge and where they’re getting their data from or their experience from where they’re suggesting this will be a good area of appreciation, but you always want to verify and you want to get into the numbers and the data. So in the real estate Rookie bootcamp, we actually do this for a whole week. We have a session that literally is just market analysis and this is where we’re diving into if this area has a good appreciation or not. So some of the things we’re looking at is growth.

Ashley:
Are there people moving into this area? And one thing to really remember when analyzing a market is defined down to the neighborhood, because if I looked at just the city of Buffalo, it’s going to be skewed numbers because there’s good parts, there’s bad parts, there’s parts that are depreciating, there’s parts depreciating. So you want to really define what your market is. And then there’s great websites where you can actually go and just pull all the information without having to go to all these city websites now. So one is Neighborhood Scout and the other one is Bright Investor. So you can go into these and you’ll be able to pull a lot of data about the neighborhoods. So once you pull the data, looking at the crime, what has the appreciation been in this neighborhood? What’s happening with the industries? What’s happening with retail? Is there more retail coming or retail closing?

Ashley:
Are more restaurants coming? Are restaurants closing along those lines? What’s going on in the neighborhood? Pick a couple neighborhoods comparable in that same city and see what they’re doing. So you have something to compare your data to because you could look at the data of a neighborhood and be like, I think this is good. I don’t know. What does it mean if the crime rate is seven, is that good? Is that bad? What does that mean? And you can compare to other neighborhoods. So maybe there is an area that you already know has already seen great appreciation, go back to the five years prior when it wasn’t such a wonderful and what happened in the next five years that they had the appreciation, growth. And then look at your neighborhood. Are those things happening in that neighborhood? And I think that’s a really great starting point as to figuring out is there going to be appreciation and growth by just comparing the data with other neighborhoods in that city that have seen that appreciation and that growth

Tony:
As you hit on so many good points. And I think one I really do love listening to on the market to get information about these different things, Dave Meyer, who’s the host of that podcast, does a phenomenal job of breaking down the different data points to look at real estate by the numbers. Another book that Dave Meyer and Jay Scott put together, it’s a thick book. There’s a lot of information there, but those are two of the smartest people I’ve ever met in the world of real estate investing. But BP actually just released a tool and it’s the market finder tool. So if you go to biggerpockets.com/find a market, okay, biggerpockets.com/find a market and BP has put together this incredibly useful tool where there’s a map of the United States with different cities and areas, and you can look at things like appreciation, affordability, the population growth, the rent to price ratio, and if they give these write-ups of these different cities in these different locations to help you identify which cities maybe match with what it is that you’re looking for.

Tony:
So if you want a high appreciation market, there is a tool that can kind of help you dig into that. So I always think going back to the data is the best way to know if a city’s going to increase in value. Now there’s also the maybe less hard facts that you can look at if you know that maybe a certain big employer is coming to town. Well typically when a big employer opens up, especially if it’s like a white collar place where there’s going to be a lot of high earning individuals coming into town, okay, well cool, that’s probably going to prop up the median household income in that area. So there’s both cold hard facts you can look at about the historical data, but there’s also that somewhat forward looking information you can use to make some assumptions or some bets on what property values might do in the future.

Ashley:
Yeah, one recommendation is checking out episode 429 where we actually go into how you can use AI to actually analyze your market and to find data

Tony:
Too. Alright, so guys, we love talking about real estate and we love answering questions just like this with our Ricky audience and we would absolutely love it and appreciate it if you could hit that follow button on your favorite podcast app or wherever it is you’re listening. The more folks we get following the podcast, more folks we can reach and we can reach people, good things tend happen.

Ashley:
So Tony, let’s go to your favorite section, the forums, and let’s go to the short-term rental discussions. Is there a good one you see there? You want to answer?

Tony:
Yeah, so I’m in the short-term rental discussions and there’s a question from Chad. So here’s what he’s saying. Any suggestions on which method is a better way to furnish a rental property? I’m debating whether to use a dedicated business account that is funded to ensure proper tax records versus using a personal credit card so I can accumulate points if I maintain proper records. I can’t see why the personal credit card is a bad option. Any opinions? So the first thing I’ll say is that you’re saying, should I use a dedicated business account or should I use a personal credit card? I think maybe a happy middle point, Chad, is just to use a business credit card. So if you already have this LLC established, go to Chase or American Express or wherever and get that business credit card and set that up so it is under your business account and you get those points as well.

Tony:
Now I can say we use both personal and business credit cards in our business, but the personal credit cards that we use, they’re only for business use. So we try not to mix expenses on those cards. So I love the Chase Sapphire card, but we’re able to spend a lot of money on that card through our business from all the different things that we do. So I keep that card even though it’s in my personal name, I use it for business expenses and we’re able to get a lot of points through that card. But then I also have the Chase Business Inc card, which I use for that business as well. So you can use a personal credit card, but the advice that I got is just make sure that if you’re going to use a personal card for business expenses only, run business expenses through it and don’t

Ashley:
See, I wonder if there’s some way that the corporate val could be pierced because it has your personal name on the credit card. And I don’t know the answer to that. I know that I’ve been given the same advice to never mix business purchases and personal purchases in a bank account or a credit card, but I’m about if you are using, even if you had a personal account and you were using that for your LLC, even if it didn’t have personal expenses, it was still in your individual name or for the credit card or how that would work. But I think there’s still great rewards for business credit cards too that you can honestly, I think the signup bonus right now for the Chase business card is actually higher than the Chase Sapphire personal card. And so you can still use those for still, and with the LLCs you can set up multiple cards, whereas in your personal name, it’s reported on your personal credit.

Ashley:
So as you add cards, they show up on your credit report and also Chase does a limit. You can only have five Chase cards in your name or something like that, but with the business ones you can go and open ’em up and they don’t show up on your credit at all that you have all of this debt because part of your credit report is that if you have a huge credit line, you want to see that your credit utilization is actually, I think it’s around 20%. You don’t want your credit utilization to be 30% because that affects your credit and actually decreases your credit. So I know we’re just talking about a little bit of points, a little bit of dip, but if you are actually trying to rebuild your credit, making these decisions of how it will affect your credit can actually make a difference trying to build your credit back up.

Ashley:
So that’s something else to look into too. Then we’re on the business side, the only credit card that if you get it in a business name, it will report on your personal credit, is Capital One. I don’t know if maybe they changed it, but at least three or four years ago that was the way that it was, it would still show up on your credit report. So that’s something else to look into too. And then also if you have different LLCs, you can set up a business card for each LLC and right now with the, I think Inc business is like 80,000 bonus points when you sign up each LLC now and now those points you can actually call Chase and they will combine those points for you. If you own multiple LLCs and have multiple cards, as long as it’s your name that’s attached to the businesses. So I could do a whole episode on kindergarten place and I’m not even an expert. I haven’t flew to Europe yet in first class with things, but one day I will get a reward that will fly me that way, not pay for it. So

Tony:
I think one thing that I see, and we don’t do this in our business because I’m too lazy from a bookkeeping perspective, but I know some people who will run all of their property related expenses against their business credit cards and then use their debit cards or their checking accounts to pay back those cards. And obviously the benefit of that is that these are things you’re going to be spending on anyway. So if you can get points for those, you’re going to rack up the points pretty quickly and we’ve got 30 properties in our portfolio, we’ve got the boutique hotel, we could probably run a lot of points, a lot of charges to the credit card. But the reason I don’t do that is because then someone’s got to go back and be able to say, okay, well this charge was for this property, so let me make a payment from this account on this card, and this charge was for this property, so lemme make a payment on this account from that card. And there’s just so much more admin work that goes into trying to separate those. But the way that we do it is we run all of our actual property transactions against the actual checking account and each checking account is set up separately for each property. So I never have to question was this charged for property A or property B? Because we know that that account is just for that property. So Ashley, what do you think? Am I crazy for not getting all those credit card points?

Ashley:
No, I agree because you would literally be printing out a statement every month and having to mark which one it was or someone in your business would have to go through. You would have to have a folder of here’s all of the charges on the credit card, and when you went and made that purchase, you would have to be marking every single one. This is for X property, this is for X, Y, Z. And that is so time consuming. So there are a lot of things too that I won’t put on a credit card, especially if an LLC doesn’t have a credit card that we really use, but if there is an LLC that has a designated credit card, then I will put the wifi on there, the utilities on there if I can, to be on autopay just to get those little extra points, even though it’s not that much, those little things.

Ashley:
But when we are trying to hit a bonus on a credit card to get the signup bonus, I will. Property taxes, sometimes you can pick property taxes online and they charge a fee, but if you look at it, I just paid property taxes yesterday for a couple properties, I paid ’em online and you could either pay with a credit card or pay a CH, there was a fee for both of them. And the fee to use a credit card was not that much more than the fee was to just have it automatically withdrawn. And at that point it was like, okay, I’m just going to use a credit card, I’ll get the points because it’s not that much big difference in a fee and I’ll get that much back in reward points by putting this, I think it was like $6,000 onto the credit card. But when I do that, I’m super diligent and I literally go and pay the credit card like that same right away so that I’m not having to go back and to actually figure out, okay, what was that expense for? Or whatever. Yeah, so I will do that sometimes.

Tony:
Yeah, more like work, right? But you get more points at the end of the day. So

Ashley:
Yeah, I’m taking the kids onto, we’re going on a cruise with another investor family, Kyle Wilson from Drunk Real Estate and Ashley Wilson who we may have seen around BiggerPockets before, and it’s all paid for with Points Big win. Okay, so we’re going to take a short break and when we come back we’re going to talk about what every rookie needs to know before they start investing. First word from our show sponsor.

Tony:
Alright, Ashley, so welcome back. Now I’m looking at the starting out discussions within the forum and one of our rookies says I’m still building my Sunny Day reserves and just starting my education on real estate investing. What books do you recommend? I start with for my education? I’ve never heard of my Sunny Day Reserves. I’ve heard of Rainy Day, but never Sunny Day. So I like the optimism here. So books to start out with.

Ashley:
Well, maybe it’s not for rainy day stuff, maybe it’s for Sunny Day, like it’s a sunny day, I’m going to hit the boat, and I need my Sunny Day money to

Tony:
Pay for gas for the politic that my Sunny day. So there’s so many good books out there. And then we could probably do an entire episode just on books that we’ve read that we’ve enjoyed. I do think just from a mindset perspective, rich Dad, poor Dad is probably required reading. I feel like that one gives you a lot of the foundational just ideas of what it means to be not only a real estate investor but an entrepreneur. I really do enjoy Cashflow Quadrant. I think that’s another really good book that kind of pushes your mindset thinking to the next level. There’s a few other books that aren’t necessarily real estate investing, but they’re really focused on building a business. I love the book Traction by Gino Wickman, that book itself. I think it can be a little tough to translate down to smaller businesses like ours, but again, I think the framework and the methodologies with things that translate pretty well, but Clockwork by Mike Mitz and a phenomenal book that’s really built for the small business solopreneurs, the people who are buying their first real estate deals. And again, none of what I’ve just mentioned are specific to real estate investing, but I think they do a really good job of laying that foundation of approaching your real estate, investing like a true entrepreneur and not someone who’s just putting down a couple 10,000, 30,000, however many thousands of dollars into a property.

Ashley:
Is anyone else listening upset that Tony didn’t mention any of our own books?

Tony:
I wanted to start with the foundational entrepreneurship books and then we’ll get into all the good BP stuff.

Ashley:
First of all, real Estate Rookie 90 Days to Your First Investment by Ashley Care. And then also if you want to partner with someone, you can find Real Estate partnerships by Tony and myself. So those are two highly recommended books that you could check out. But also one of the beginner books that I really love that I think had great foundations and wasn’t overwhelming with information, it was very cut to the point was Retire Early With Real Estate with Chad Carson. That’s also a BiggerPockets book too. You can find it on the BiggerPockets Bookstore, but that was one of my favorite ones. Then of course, all Brandon Turner’s books are great for getting started.

Tony:
Brandon’s got a lot of great books, David Green, so I’ve read his first, actually it was Long Distance Real Estate Investing and the Burr book, two great books, and obviously one of the most popular real estate books on the Amazon podcast. But guys, if you want to see all the BiggerPockets books that are available, there are lots and lots depending on where you’re at, head over to biggerpockets.com/bookstore and you guys can pick up or at least browse all of the different options that are out there for you.

Ashley:
Yeah, another one that I really love, if you’re going to rehab any kind of property or even just for maintenance on your rental, just having an understanding of what maintenance will cost on your rental is estimating Rehabs by j Scott. I think it’s a great foundational book to have an understanding of the workings of a property and the malfunctions it can have. That’s a great one too.

Tony:
I actually reread that book, or at least portions of it before we did our first big rehab on the short-term rental side. So I browsed through that one and I did the book on flipping houses that j Scott also wrote. And yeah, like I said, I think we mentioned earlier in this episode, but Jay Scott is one of the smartest people that I’ve met when it comes to real estate investing and a phenomenal author. So both of those books are great options.

Ashley:
So Tony, kind of along those lines of books to get started, what do you think is what the most important skill that somebody needs to have or to learn before they actually jump into real estate?

Tony:
It’s a great question, Ashley, and I don’t want to get too philosophical here, but I think it depends on the person because you have to identify where your natural skillset lies, what are you just naturally good at? And then you have to identify what will I actually enjoy doing within this business? Everything else outside of that tight circle delegate to someone else. So for example, say that you are really, really good at the numbers. You can project the income for a flip, for multifamily, for a wholesale deal, whatever it may be, but you are just really skilled in the Excel sheets and coming up with these different projections, but maybe you hate talking to people. So then maybe door knocking and trying to source your own deals isn’t the right path for each for acquisition. And you’ve got to really try and network with wholesalers or agents to help you find your properties right.

Tony:
Now, on the flip side, say that you love talking to people. Say that you could sell ice to an Eskimo, right? You’re just really gifted with the words and you love talking to people, then maybe you can focus all of your time on maybe raising private capital and getting deals directly from sellers. But maybe you suck at managing projects, right? Maybe you can’t hold a budget to save your life. Well now you’ve got to delegate that responsibility to someone else. So a lot of people say that finding good deals and being able to raise capital, which of the most important skills in real estate investing, but I truly do believe that you’ve got to lean into what you’re uniquely qualified and gifted at, and then find ways to support yourself with other folks who can fill in those gaps for you.

Ashley:
Yeah, I think that the thing I would add to that is problem solving and not giving up because I think there’s so many curve balls that are thrown at you in real estate investing. And they could be good, they could be bad, they could be not as bad as you think they are at the moment, but having the skillset to actually, not even the skillset really, but having the motivation to want to solve the problem and not to give up. Making a phone call can change the outcome of a problem. Doing some research, talking to someone, doing whatever you can to figure out what’s a good solution, even if that solution ends up not being the right thing, but you still have the courage to take action and to try to resolve it instead of just being, you know what? I’m giving up. I’m done.

Ashley:
I’m not going to do this anymore. And I think that if you keep trucking on that, it’s going to be worth it for you. But being able to problem solve, I think is a really, really great skill to have when it comes to real estate investing, because you’re not going to know everything day one, and there are going to be mistakes that are going to be made, but what are you going to do about those mistakes? How are you going to learn from those lessons that were created? And next time you’ll know how to solve that one problem. But that would be my biggest thing, is having the understanding. It’s not going to go 100% your way. There will be problems, there will be bumps in the road, but as long as you are determined and motivated, and that goes back to having your why, you should be able to overcome it in some way. And you know what? Maybe it’s not the best case scenario that you have wanted, and it actually is detrimental to you of what happened in that scenario. But you do everything to get yourself out of it. And even if you haven’t made yourself whole, you lost a ton of money, you’re making sure that your family’s still fed, all these things are happening because you’re pushing through. So determination, not giving up and also problem solving

Tony:
Couldn’t have said it better myself, Ashley. And they say that you don’t really fail at something until you give up. And I think so many people don’t give themself enough opportunities to fail in order to find that elusive success. So yeah, I think sticking with it, the persistence is an incredible skillset, and I love that you added that piece.

Ashley:
And I want to add that there are ways that are perceived as failure and giving up, but they are actually solving the problem. So if you’re in the middle of remodeling and you realize this was more than you got into making the decision to sell the property as is, that’s not, in a sense, it sounds like giving up, but you’re solving the problem, you’re getting yourself out of that property becomes before it comes worse for you. So I don’t want to make the statement that, oh, just you got to keep going on the property. You got to keep digging yourself in that hole. If the best solution is to sell that property, make yourself whole and then start over again. That’s problem solving, that’s not giving up, and that’s not failure at all.

Tony:
Well, what a great way to end the episode, Ashley, on such a motivational note. I’m going to start calling you Tony Robbins. Is that

Ashley:
The only time I’ve ever gave anything motivational,

Tony:
I guess? No, it was good. The most

Ashley:
Serious I’ve ever gotten. Usually Tony’s always a good one with the mindset, things like that. I was actually reading off a blog post you had written five

Tony:
Years ago. She had a chat, GPT prompts.

Ashley:
Well, thank you guys so much for joining us for today’s rookie reply episode. If you have questions, head into the Bicker Pockets forums, and you may even get a quicker response than ending up on this episode. But we do love having you guys submit your questions and getting to answer them for you. It helps tons of rookies learn and even helps us learn some things. So thank you so much for those that do submit your questions. If you haven’t already, check out the biggerpockets.com/bookstore. We gave a lot of great book recommendations for you to check out if you are looking for a new read. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode.

Tony:
This BiggerPockets podcast is produced by Daniel ti, edited by Exodus Media Copywriting by Calico Content.

Ashley:
I’m Ashley. He’s Tony, and you have been listening to Real Estate Rookie.

Tony:
And if you want your questions answered on the show, go to biggerpockets.com/reply.