S2Ep114: A Beginner's Guide to Starting a Real Estate Investment Portfolio

In today’s episode, Allan welcomes Luke Andrews. Luke is a real estate entrepreneur who sells, leads, and invests. He is a best-selling author who has purchased 40 rental properties before turning 40. Allan and Luke discuss why finding a real estate mentor is a great way to help you navigate the complexities that come with investing in real estate. Finding the right real estate mentor can do wonders for your success, it is important to find the right mentor to help you achieve your goals.

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Allan has started and grown several multimillion dollar businesses, his mission is to help you do the same. Welcome to the Business Growth Pod, building the future one entrepreneur at a time.

Hey, everyone, Welcome to The Business Growth Pod. I’m Allan Draper. Happy to be with you today. We’ve got a great guest. Before we get to him, make sure that you go to my website, www.allandraper.com. There’s a link up at the top where you can schedule a 15 minute conversation with me. And let’s just chat let’s chat about your goals in starting your business or where you’re at to scale your company. https://allandraper.com/scheduling/

Also, check me out on social Instagram, Allan Draper great place to find me. I’m sharing lots of content on Instagram about growing your business and tips and tricks of investing your money. Today I’d like to welcome the show Luke Andrews. Luke is a real estate entrepreneur, he sells leads and invests. He’s a best selling author who has purchased 40 rental properties before turning 40 And as a passion for trying to change lives through real estate. So I’m very excited to have you on the show. Welcome, Luke.

Hey, Allan, appreciate you having me. I’m excited to be here.

So you’re located in Kentucky, you purchased 40 rental properties before you turn 40? That’s very impressive. Let’s talk about your starting real estate. What was your first foray? How did you get interested? And how did you get involved in purchasing real estate?

Sure, I like to think of it I had kind of two starts in the real estate investment side. The first start was pretty simple, pretty easy. How a lot of people get into it. My wife and I, we built our first house in 2006, kind of right at the height of the market, everything started to crash within a couple of years. And that happened to be the time that our family was growing. So we were having kids, we needed a bigger place. And we were fortunate enough that we were able to handle two notes. And so we could upgrade when everything was on sale. And the market happened to be flooded with good quality renters who just got themselves into a bad mortgage, who couldn’t qualify. And so we kept our first property as a rental for several years. So that was kind of start number one. Fast forward. So that was in Denver. And we eventually moved to Kentucky. I was in a corporate nine to five. And somebody that I worked with there, we both kind of started talking about how real estate investing would be exciting, something fun to do. And we were talking about it all the time. We said, We need to get together, let’s just buy a property together. There was an area of town that was really up and coming we could tell it was getting ready to boom. But there were still a few good gyms out there. Like we could find an old shotgun house for about $20,000 We could pay cash for it would need quite a bit of work. But we could do the work ourselves. And then we could just gradually start growing a portfolio from that. And as we were searching every day, we were talking about the plan. We were excited about it. serendipitously, he’s having dinner with his girlfriend’s parents. They’ve got some friends over. And they’re like, Well, hey, what do you do for a living? And he talks about, you know, his typical nine to five, he said, but my real passion is real estate investing. And these people happen to own a decent sized portfolio of properties that they were looking to liquidate and retire. And so he was like, great, we’d love to buy one. And they said, Well, no, we can’t sell you one, you got to buy the whole thing. You have to buy all 13. And so we were just we were in this spot where we’re analyzing this deal in it is a phenomenal deal. But we didn’t know anything about how to acquire 13 properties. And we certainly didn’t have the cash, not only to be able to buy them outright, but we didn’t even have the cash for the downpayment. And so we just we really had to go through we started asking a lot of questions. We started talking to people that had done it in the past, learning from them. And we ultimately just thinking outside the box tried to figure out a way how do we make this happen? So we brought on a another partner who came in and we said okay, you can be a 50% partner will be a 50% partner in our LLC. The issue that we ran into is we still didn’t have 50% of the down payment required. So we were still coming up short. And it was like we were running And a roadblock after roadblock. And I finally came up with this idea. And I said, Well, we’re gonna have to manage these properties anyway, right? We’re gonna hire a property manager. Everybody agreed we would, and I said, Okay, so we went to this other partner and I said, you put up your half of the money plus anything that we’re short, will remain 50% partners that will manage the properties for free, will manage them for free on a schedule that says that will be paid back at a certain point in time. And so what this did for us is one, it allowed us to get in the game without having all the capital that we needed. But to managing those properties. We learned so much throughout that process. And we were able to pick up so much knowledge that we never would have gotten otherwise. So it was huge for us, we were able to make a lot of mistakes, essentially on somebody else’s dime. And it allowed us a 50% ownership stake in this portfolio. And then all of a sudden, by being connected with this person who’s entrenched in the rental game, another package falls into our lap. So our portfolio goes from 13 to 27. And about a year, and then from 27, it continued to grow. And we were buying, selling and trading using different tax strategies and things but eventually to continue to grow our portfolio. So it’s, like I said, we had two different starts into it. But the second start was really all about hitting roadblocks and finding creative solutions, when we knew the deal was right.

So I bought my first property in 2007. And then I bought another one within six months. And then obviously the market crashed. And I remember prior to that point, thinking that and I read a lot about real estate. But I remember thinking like, okay, with real estate, you have to go their traditional route, you have to get a conventional mortgage, you have to have 20% down. And I think one thing that I’ve learned about real estate over the years is that I swear I and I’ve been investing ever since I don’t think I’ve done any two deals the same. And I think when somebody’s getting started, they have to have that open mind. Like when you were presented with these 13 properties. You didn’t think, Okay, this isn’t going to happen. You saw okay, how is it going to happen? So when when somebody is getting started in 2023, in real estate, somebody is wanting to do their very first deal. Where do they start?

I think you hit it right there when you talked about the how Rich Dad Poor Dad, it’s always been one of my staples. I read it about once a year. I personally think that it is a phenomenal book for anybody who’s looking to get started in entrepreneurship, real estate investing specifically. But probably the biggest lesson I took away from that book is something that he said, he said, I never say I can’t afford it. I always say how can I afford? And I’ve looked at that. And it’s not just a matter of making purchases. It’s not only a oh, I can’t do that. It’s how can I do that? Because to me, the two biggest keys to success in the industry, in any endeavor are effective communication, and the willingness to go out and try to solve problems. So if you can be a problem solver, if you can come through and look at these things as a puzzle. Like I’ve gotten to where the hard deals are the fun ones for me. I love the puzzle aspect to it of trying to figure this thing out. When everybody else feels like that it’s dead in the water. It’s no go. I’m always looking for how can I find a creative solution to get this thing done.

I remember listening to podcasts and stuff in my early investing days. And I’ve listened to people talk about strategy and being creative with deals and coming up with solutions. And I thought it was all just two people talking because it was so foreign to me. And I kind of wanted to go back to my question. If somebody they do not own real estate right now, let’s say that, you know, there’s somebody recent college graduate, maybe they have a nine to five, they’re making 4050 grand a year. Where do they start? Are you suggesting that people invest in short term rentals multifamily commercial, where it is somebody that they’ve been saying it for 568 years that they want invest in real estate? Where do they go now in 2023, with interest rates being where they are, I think the market in a lot of areas are starting to soften a little bit, but they’re still fairly high, especially considering interest rates. So what is somebody to do?

So I think it’s one of a couple of things. One, I think they really need to sit down and strategize and figure out what are they wanting to do in the real estate investment space? Is it more of a short term rental? Is it I want to own some commercial properties? Or is it I’m looking to get into the actual rental game, or is it fix and flips? So I think once you kind of make that strategy, determination and some of it you’re in aren’t going to know what you don’t know until you actually get in there, do it. But starting that strategic place of, hey, this is where I’m really interested, this is where I think I want to start. And then start just asking questions, finding a mentor who has done it before, to help lead you in that direction. You can read books, you can listen to podcasts, you can do all of those things, but finding an actual mentor to show you what to do. That’s part of building your team. To me, having a team in place is so key. And a big part of that team is having a mentor that can show you the way. So I think that you need to go out and you need to find someone who has done it before, they can start putting you on the inside to some deals that you wouldn’t normally see. Because I can tell you, all of the best deals, in my experience, never actually hit the open market. They’re all done on the backside. So once you’ve got that mentor in place, it is starting to lock down and say, Okay, well, I’ve got some cash here that I can do this or that. And then figuring out how much time do you have to actually dedicate to this, because it’s, there is some new stuff that’s popping up right now that are called syndications to where you can actually get some of the benefits of real estate investing, you can get some of the tax benefits. And you can get some of the growth appreciation and cash flow benefits without actually having to do the work. Because I can’t tell you how many new investors that I’ve had come to me and we start, we start looking at the process. And they’re like, Well, hey, I want to buy a few single family rentals. But I’m looking into be hands off, I just want the mailbox money. So I’m gonna hire a property manager, what I can tell you is if even hiring a property manager, it’s not completely hands off, you’re still going to be making decisions, you’re still going to be getting phone calls, you’re still going to have to approve expenses, repairs, improvements, all those things. If you’re looking for true hands off, the real estate, syndication might be something that you’re interested in looking into. I think it depends on how much time you have to dedicate, I always recommend to try and at least get your hands dirty on one of them try to manage one on your own, just a single family, just find something in an area where you know, rents are going to be pretty close to 1% of what the purchase price are going to be. So to make it simple. If it’s $100,000, try to find something that rents for around $1,000 a month. That’s kind of a good, easy rule of thumb. And then if you can find those, how do you go about getting those purchased? At least getting one or two to see how the business works on the backside? And then figure it out? Do you want to grow that route? Or do you truly want to be hands off and go look at a good qualified syndication?

I think one thing that I underestimated quite a bit in getting started in real estate was how much times is involved. And because people say that it’s passive and it’s tax passively. But it is not passive. And there are various levels. So I’m not involved in any syndications. I’ve been pitched quite a few promising ones before and I’ve my guess is eventually I’ll be doing my own or be involved in somebody else’s. But I have single family homes, long term rentals, I have single family homes, short term rentals. I have commercial that I leased to my companies I have commercial that I leased to other companies. And it’s like, first of all, Airbnb is like short term rentals are the fad, right at least over the last couple of years. They are the most time intense, in intensive type of real estate investing that you could possibly be involved with. And I have been involved in real estate for what So 17 years or something. And I got my first Airbnb about two years ago, I was shocked how much time they and I actually ended up hiring an in house property manager just for my stuff. So that’s a great point. If you’ve got a nine to five, and now I do respect the hustle, especially in the beginning, you’re gonna have to put some sweat equity into that. If you find something that’s rundown, you’re gonna be the one that’s doing a lot of that work. But I want the listener to take that into consideration that hey, this is people say it’s passive income. Rarely is my commercial stuff is fairly passive because they do the tenants do their own repairs and stuff. It’s basically renewing leases, making sure we’re paid on time. But I think that’s a significant part and something that people need to know. Now I do like what you said about managing something on your own in the beginning. And I have crazy stories over the years of stuff that has happened, like most people, and I think that’s such an important aspect. You talked about getting a mentor, where do people go where can somebody go that doesn’t have a mentor or somebody that they know that has some experience in Allstate.

I think it’s involved with asking a lot of questions. And just talking to people about your passions, talking to people about your hobbies, you know, very similar to how my business partner was just talking about it and happen to come across this deal. I think more people are involved in real estate investing than you think are, especially if you’ve got friends, family, acquaintances that are very wealthy. I mean, there’s some stat that 80 to 85% of multimillionaires, you know, not just like, hey, we’ve got 1,000,002, and total assets, people who have 510 20 $30 million in net worth, a large chunk of that is generally involved in some version of real estate holdings. And so finding these people, even though they may not seem like they’re real estate on the front side, they probably have some version of knowledge in the background, and then going to them and just asking questions, because you never know who this conversation, you’ll get a little nugget of information. But it’s not necessarily about that connection. It’s about who can they connect you to? And then who can they connect you to? It’s about building those connections. And I think by asking a lot of questions, by talking about the things that you’re passionate about, it’s going to open up so many doors, there’s this old quote that the eyes only see, and the ears only hear what you’re looking for. And so when real estate investing is top of mind, and that’s what you’re thinking about what you’re talking about, you’re gonna see more people who are interested in talking about real estate investing. Yeah, for

sure. I think along those lines, and the group that listens to this podcast, most of them are entrepreneurs, and some of them are real estate related entrepreneurs. But if you have time, and you’re wanting to get involved in the real estate industry, at whatever level, you have to find how you’re going to going to add value to somebody, especially if it’s somebody that you want them to mentor you, you need their money, or their expertise or whatever, if you want something from them, you have to give them something first, the difficult part is, with most high value people, it’s going to be difficult to find out what you can give them but right off the top. If they’re a high value individual, they’re business savvy or invest. And this by the way, this advice goes for any type of industry that you’re looking to get a mentor in. But if the one thing that that individual 100% will be running short on, it’s time. So you find a way. And we talked about kind of some of the pain points in real estate investing, we talked about kind of the management, there’s a bunch of just time consuming tasks that go into something, that’s a great way to start a conversation. So if there’s a mentor, that you’re aware of a real estate investor in your area, and you want to approach them, you approach them with your value proposition first. Because trust me, they already have 100 people that have asked them to just be their mentor, they already have that. So you need to go and as opposed to saying, hey, what can this guy do for me or this guy will do for me, you say, Hey, this is what I can do for you. I just graduated from college, I saw my class, I can learn anything, I can do your grunt work, and you’re still going to get denied in most cases. So find out what value you add. And even if you have to learn some stuff, like hey, you know what, I’m gonna go get my real estate license, I’m going to do these things and prepare, so that when a relationship like that possibility comes along, I’m going to be in a position where I can add value back to that mentor.

So I’ll tell you, Alan, it’s interesting that you say that. And one thing that I have found, especially even for young people who are like I don’t really have any skill sets, I don’t have any knowledge, I don’t have anything to bring to the table. I lead 21 agents on my team 21 Real estate agents. And a lot of them are wanting to work with more real estate investors, especially with the way the market is shifted. And so they asked me, they’re like, how do you find investor clients? And I said, Well, you know what, the easiest way to find investor clients is to find investments. I was like, if you can go out and you can find the deal, the investors are easy to find. And anybody I think can go out and find the deals, it’s very easy to start to determine what does a decent real estate investment look like? What does a decent deal look like? And there’s a lot of ways that you can go through even just knocking on doors. I know a couple of wholesalers that will hire college kids to just walk through neighborhoods and find places that maybe have bad roofs, overgrown landscaping, something where they think they might be in distress, just to go knock on the door to see if they’re willing to sell. So if you’re willing to put in a little bit of that equity, and you know, a mentor is working in real estate investing, go out and bird dog them a deal and bring it to them and say, Hey, I know you’re in real estate investing. I saw this deal that come up. I don’t know that anybody else is aware of this deal at the moment but I wanted to bring it to you. It’s a value that you can bring to them, where you don’t necessarily have to have any skill other than some sweat equity on the floor. Inside

100% And by the way, I mean, that’s such a great idea. Anybody that’s listening, I will mentor you if you do that for me, if you go bring me deals like that. And you mentioned wholesaling. I hear this tossed around quite a bit that people get started with wholesaling. What do you think about getting started in real estate investing through wholesaling?

You know, I think it can be done, I think you need to do it the right way. I think you need to do a lot of research. I don’t think you can watch three or four tick tock videos and all of a sudden be a wholesaler. I think there’s a lot more that goes into it. It’s been made to seem very simple and very easy. Just the same way that people have made real estate investing just seem like this passive mailbox money that you don’t have to do anything but cash checks. It’s just not like that. I think that there is absolutely a market for it. I think it can absolutely get done. But I also think that it’s been kind of a fad the last few years. And so it’s a little oversaturated at the moment. So you have to find kind of what is your only statement? What is it that only you can do that you do better than anybody else to really set yourself apart in a in a crowded

market. Yeah, for sure. And wholesaling is such a, it’s a tough game. It’s such a hustle game. It’s a lot of work. I feel like people learn the industry. It’s not where I started, but you learn how to work hard for sure you learn how to have really tough conversations, how to sell on both ends. So you’re selling both ends, right. So it’s basically for those that don’t know, wholesaler, they just get a deal tied up where they have the exclusive right to it. And then they sell that deal to somebody else. And they make a margin on it. And that’s a lot of work. What’s going to happen in 2023, what are we looking at, especially with like single family homes, I think rates are going up to I heard again, inflation is not being curbed, like the Fed thought it would be what’s 2023 And maybe a year beyond that going to look like

so I think that real estate investors are really going to start coming out of the woodwork with the market softening just a little bit. I think the traditional homebuyer market is still going extremely strong, but I think it is slowing just enough that is allowing investors who have been sitting on the sidelines in 2020 2021, in the first half of 22. I think they’re starting to see a little blood in the water, and they’re starting to come out after it. I also see an influx of like these institutional buyers, you know, like a main street renewal that’s coming in and buying up a lot of single family homes. Now, we saw a lot of those in late 21 and early 22. They overpaid for him on the front side, they did some minor improvements. And then now they’re putting them back on the market because they’re not being able to rent them as high as they thought. They’re willing to take some losses on those. And so I think there’s some good opportunities for investors to come and scoop those up. But it’s a matter of can you identify the right deals, do you have that right team in place to identify the deals, so that you can go out because in real estate investing, you make your money when you buy not when you sell exactly, because you can always sell at a higher price, you can always let the market appreciate, you can never change what you purchased for. So you have to make sure that you are dead set on that number that it meets your criteria within your strategy on the front side. But once you’ve got that in place, I think that there are going to be some great opportunities over the next 12 to 24 months.

Yeah, for sure. I think interest rates scare people. Sometimes I heard it said once that you marry the sales price, but you date the interest rate, something like that, because you can always refinance. I think a lot of the problem is that people look at a real estate deal, especially on the residential side. And they’re like, hey, what can I afford? And it’s just I don’t really like that approach when they look at it and are like what type of payment can I afford? Because a lot of times they’ll bite off more than they can chew. But the rates, they don’t scare me because of the option to refinance. And I honestly think that interest rates, they’re going to get to a plateau, and then they’re going to drop and I think they’re going to drop quite a bit. In the next year or two quite a bit. I purchased an investment property in Naples, Florida, and very expensive, multimillion dollar home, most Mart in Naples at a very high interest rate. And I almost pulled the plug. And luckily I was convinced that there’s going to be those opportunities. So in my mind, you correct me if I’m wrong, but what I see happening and you know, as we’re wrapping up here is rates are going to continue to increase until they plateau. Prices are going to dip until they Valley and then it’s going to swap right and the idea is for an investor to find that sweet spot and when none of us have a crystal ball so we kind of got to fill it out. But we try to find where that interest rate is kind of high, but that price is kind of low. And then wait a year, two years and refinance? What do you think about that strategy?

I think that’s great, you know, and I think you have to make sure that it cash flows at a number that makes sense on the front side, because if it cash flows at that higher rate, even if they stick around for a little while, you’re still okay. And you’re still gonna see that appreciation over time and those tax benefits over time. And the thing is, is if it cash flows at 8%, if the rates drop to four, man, it’s gonna it’s gonna cashflow like crazy. And so as long as you can get a number that you’re comfortable with, at that top side, to me, there’s very, very minimal risk, very minimal downside at that point, buy up as many of those as you can, because especially as those rates start to climb, you’re not competing as much with the traditional homebuyers. And the only thing that affects price is their supply and demand. Now, there are some pressures and triggers on supply and demand. But it’s supply and demand. That affects prices. And that’s it. And if that demand is lower, because rates are high, obviously, prices are going to be impacted by that. And this gives you an opportunity to be able to get in, and then secure that lower price, because you make your money when you buy not when you sell.

And I think that if you have a long term perspective, real estate is so cool. Because if you have a long term perspective, I’m talking 10 plus years, 1020 30 years, you basically can’t lose, you really can’t. I bought two properties at one of the worst times in the history of the United States real estate market. And fast forward, it was probably eight years or nine years, I already had positive equity. And so if I’m looking at a deal, and I’m analyzing the risk, and the shorter the timeline of any type of real estate deal, the more risk I’m going to attribute to it. And therefore the more reward I’m going to expect to see. But if I go into something on like a single family home, that’s my first deal, I’m going to cashflow it, margins are going to be real thin and maybe some years I lose 1000 bucks. That’s okay. Because tax advantages, definitely cover that $1,000 By the way, but I have a long term perspective, do the deal. Because you’ll be able to hold it and it will fix everything will be resolved. Equity only matters when you liquidate because I had people that asked me when I had the big portfolio, they’re like, Well, what if 2008 happens again?

It’s like well, actually, I mean, I hate it for the economy and the homeowners that are out there. But that’s actually a big benefit for me. Yeah, because you know what, when people can’t afford to buy homes, there are more renters that are out there. And supply and demand works with rental prices as well, which means that I’m collecting more, yeah, the value of the homes goes down. But as long as I’m not over leveraged, and I made smart decisions on the front side, I only have losses on paper. As far as that’s concerned from an equity and a value standpoint, my cash flow is going up and up and up. And oh, by the way, everything else is on sale. So if I put myself in a decent position, and I’m sitting on some cash powder, now I get to go shopping while everything’s on sale. And so it’s a I can grow my portfolio significantly cheaper. Because equity, it only matters when you liquidate

exactly right. Not only that, your house is depreciating a little bit, I love to see that because then my taxes go down, my taxes go down. And then I have that cash flow goes up. I had somebody right before I bought that property, I was talking about Naples. And they’re like, Well, what if the market crashes? I’m like if the market crashes and heaven forbid, right? I don’t like to take one that for anybody Exactly. But I’m like if the market crashes, I’m gonna buy 20 of them. Right? I think this is a great place to stop on. And it’s just a great mentality of a real estate investor in any sort. But an entrepreneur also put yourself in a position where, you know, tells you win, heads, you win, right? Regardless of the outcome, I’m going to put myself in this situation, and I’m going to control what I control. I don’t control the economy. I don’t control what the Feds going to do with the rate. I don’t control inflation doesn’t look like anybody does. Right? So let’s let’s put ourselves in a position where we’re going to react, and we’re going to react by having a plan right? And we’re gonna put ourselves in a position where we’re going to make money regardless, and we’re gonna have this mentality of you talked earlier about what becomes your reality is what you focus on. Right? Whatever you see, that becomes your reality. And I think that’s true. Like you hear so many people, so many naysayers out there. I have people close to me and my family. They won’t invest in anything. They’re basically putting their money in the mattress. It’s just the wrong mentality. So set yourself up to win and be prepared for a curveball. So Well, this has been awesome Luke, I appreciate your expertise. It’s clear you know your business where can people reach you if they have questions or they want to reach out and learn more about what you’re doing?

Sure. My website is a great spot. www.Lukeandrews.us

I love just talking real estate. Anybody wants to email me Luke at Luke andrews.us. I answer all my own emails. I don’t I don’t have a VA or an assistant doing that. You can go out and find me on social Luke Andrews. Love to hear from any of you.

Awesome. Well, thanks so much for joining us today, Luke. Best of luck, man. Hey, appreciate you. Thank you.

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Transcribed by https://otter.ai

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