It is hard to make changes, but at the end of the day, it is all about moving forward, going backward, or staying the same. In this episode, Robert Orfino helps set us up with basic flow charts, routines, and checklists that can help us get through changes in the real estate space. He talks about the change of going from stock markets and mutual funds into being a landlord holding property. Listen to Robert as he shows us the ropes in making smart decisions in the middle of real estate changes.
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The Flow Of Change With Co-Host Robert Orfino
We’re going to talk about change and the merit of change. There are few people that like change. It’s not something that we are built to accept. We like feeling safe and that’s a good thing. However, once we want something better or different, then we have to change. I see this all the time and I hear from a whole bunch of people about change, “This is rough and I’m not motivated today,” and all this other stuff. In every self-help world, every twelve-step program out there, every guru, I’m what’s known as grounded. It’s binary for me. I have a few friends who are in some of these programs. When I tell them I don’t understand it, they say, “Rob, you’re just grounded. You’re one of those people that see it black and white.” There are a lot of gray areas in our world and we understand it, but for sure, at the end of the day, if you want to do real estate, you will do real estate. If you want to lose weight, you will lose weight. If you want a better relationship, you’ll have a better relationship or you choose not to.Change is something we are built in to accept. Click To Tweet
For many years, it’s been a struggle for me to understand and relate to those that do have those struggles. There are a lot of people on Facebook and Instagram that are out there every day talking about this difficulty to do the transition. To a certain extent, I get it, but for the most part, it comes down to a feedback loop and people throw that stuff out there. Some people throw it out there in a positive setting and some people throw it out there in a negative setting. I’m in one of these groups on Facebook and I’m quiet in there. I just follow along and there’s some funny stuff that goes on. There’s some inspirational stuff as well, but there are people that are out there on social media telling the world, “It was a rough day for me. I couldn’t get my goals done.” I can appreciate the honesty and openness, but at the end of the day, you’re either going to choose to do something or you’re not. The quicker we can get to that decision-making process, the better.
Here’s the one thing when we’re taking on these new ventures. Jason and I are looking at some commercial properties and, in my mind, I have a checklist of all the things that need to happen. That checklist is probably woefully incomplete. We go to experts and we say, “What am I missing?” They go through the process, “You’re missing this. You’ve got to think about that. This is commercial now, not residential.” “Got it. Good.” Now, I want to do syndication on it, so I go to an expert. She says, “Do this and do that. This is how you do it. Think about how you’re going to exit.” “Got it. Check.” Put a little checkbox together and start working on the checks. For me, I will keep going until there’s a valid reason to stop. Meaning, “Robert, you can’t buy a thirteen-storey tower because you’ve never owned a thirteen-storey tower. Your lack of experience will stop this process.” “How do I solve that?” “You can partner with someone who has experience.” “I will.”
Here’s the issue. For those of you that believe in the personality traits or if you don’t, I don’t care. I’m not a big fan of them. I don’t prescribe that every single aspect of your life is predefined by what the Chinese elemental symbol you are prescribed to, whether your earth, fire, wind, water, or spirit personality. I do believe that there are certain traits in people and they take on different traits during different points of communication. I studied DISC for communication but there are some people in that DISC world and I’m a DCI. DISC is Dominant, Insightful, Social and Conscientious. The other way I put it is the driver, idea person, mommy, and engineer. You’ve got a driver in the car, the idea guy, the mommy, and the engineer in the backseat. There are certain times when I take on the personality of the driver when leading. There are other times you take on the personality of the engineer when you have to calculate things. There are times when you take on the personality of the ideal person when you have a problem to solve.
I believe in that to a certain extent and you can identify people when they’re in a business mode and when we’re having a conversation. That helps you communicate better with them. That’s wrapped up in a little bow there. It’s powerful once you understand it for those business conversations. As a D, it’s binary. We look at it and say, “Yes or no.” Sometimes, people have got to get into that decision-making or the driver mode, “Where am I going?” We don’t want to drive around in circles. We want to get from point A to point B, so go. We can take the tunnel or the bridge. What are the benefits? They’re both the same. One is prettier, “I’m just going over here.” In order to get around change, you’re going to have to make decisions. You’re going to have to figure this stuff out. A checklist is helpful and having that checklist is going to make those decisions for you. Is it yes or no? Can you figure it out? Who needs to help me?
We’re going to go through a simple checklist to figure out if you’re ready to be a landlord or not. We’re going to talk about the merits of doing these things. I know change is rough but once you start making decisions, you’re going to be on that path to change. It’s hard to make changes. I get it. Trust me. At the end of the day, you’re going to either choose to go forward or go backward or stay the same. You’ve got three choices. Let me help you set up some basic flowchart and routines to help you get through this. In my world, we do things until there’s a valid reason to stop and we’ve yet to find any valid reasons. We’ve gotten burnt a few times and we learned our lessons there. I’d rather move forward and learn on the job than I would to just sit there and try and answer every single scenario before it comes up.
Becoming A Landlord
The first thing you’re going to do is get a sheet of paper out. We’re going to talk about being a landlord. We have a mastermind and we’re talking about this because this stuff is always on topic for us. It’s top of our minds. The criteria for a mastermind are the same criteria we’re going to talk about.
Do you have a 700 FICO? That’s the credit score you need to get good credit and good loans. You need 720 but we tell people to start at 700 because there are a couple of things you can do to bump your credit up quickly, but we can’t do it starting at 550. You’re going to need a six-figure salary and preferably that salary is W-2. Lenders like to lend to people who have steady jobs. I’ve taken a W-2 from my businesses for a couple of years. “Rob, you’re getting double taxed.” Yes, it’s okay. It’s important for me to show that W-2 income because I want to keep acquiring properties. Number three, you need cash, $40,000 to $50,000. There’s your first three. Do you have those three? If no, then you’ve got to work on it. The frustration that you will have if you are woefully deficient like, “I have no job and I have a 550 credit score. Is there a path for you to be a landlord?” Yes, but that’s nothing that we talk about or even promote. I would never teach it.
The problem is you’re always going to be looking for the loan. Even if you get a great owner finance deal and all this other stuff, on paper, you’re going to be a millionaire, but you’re still going to be cash poor. You’re going to be chasing down repairs, maintenance, new tenants, people leaving, vacancies, and all that stuff, and you don’t have a good position. You certainly don’t have the reserves. If you had the reserves, you might qualify for a loan. There are people in this town and all over the country that do owner financing, lease options and get people to do sub-to deals and all that stuff. That’s a tool, but I don’t think that’s a massive business strategy. We don’t prescribe to that. We want to have a good loan and to have a good loan, you need 700 FICO, six-figure salary, and a good chunk of change, usually about 28% of the deal. If you have that, then you get ready to go to the next stage. How much time do you have?In order to get around change, you're going to have to make decisions. Click To Tweet
We did this thing when we talked about goals. Most people have about nineteen hours a week that they could commit. That’s 80 hours a month, so a good chunk of change is two full-time jobs. Two weeks of full-time work, 80 hours. Are you willing to commit that 80 hours? If not, then we’re not moving forward. If you say, “I’m willing to commit 50 hours of it.” That’s fair. Fifty hours means go. We haven’t come up with a reason to say no. If you say no, I’m not going to give up that twenty hours. I’d enjoy spending time. I like soccer practice with my kids, Facebook timing, watching movies, and Disney Plus. I get all that stuff. That’s fine. You’ve made the choice. It’s not that you’re weak when you choose to binge-watch something. If you’ve got 50 hours of the 80 in a month and you choose to put that into real estate, it’s great. You’ve got the three criteria and now you have the time. The next thing you do is going to be doing your research. Fill up that 50 hours of research and spend about 90 days googling and reading books.
The Millionaire Investor by Gary Keller is a great book and a great place to start. Keep going, but after 90 days, we’re going to start making offers. You can condense that down to 30 days. A lot of people do it on mastermind, but if you’re out there alone, 90 days or 150 hours of education is a good amount of time. In our business, there’s a bunch of acronyms and there’s math. In any industry, there are acronyms, French words, and math. You have to know our French words, acronyms, and math for real estate. You’ll pick that up with about 100 hours of education. I don’t recommend anyone go out and spend any money on education in the first 90 days. There’s nothing more like a $97 1-day class or 2-day class. Watch out when you go to that class, two claps come to $25,000 pitch. Ninety days is a fair amount of time. Put in 150 hours and you’re ready to go. The next step is you’re going to find a real estate agent. We don’t need to do wholesaling. We don’t need to do all this wholesaling off-market stuff. Just find an agent. You’ve already looked over the deals and you want to work with an agent that works with landlords, not flippers.
Look for an agent that works with buy and hold investors. That’s the language you’re going to use. That might take a week or two. You’ll find a bunch and you tell them to bring you properties. Seven hundred FICO, six-figure salary, $50,000, 50 hours a month to dedicate, 90 days of education, and you found your real estate agent. If there’s anything along with those ways that told you to stop, keep going. We’re good financially. We’ve done a little bit of research and we’re going to talk to an agent. We’re going to tell that agent, “I’m looking for buy and hold investments.” You may have your criteria. For the Houston market, the market has come back a little bit. You’re looking for 12% to 15% cash-on-cash. Meaning, if I buy $100,000 property and I have to bring $20,000 to the table, I need to have cashflow of about $3,000 a year and $3,000 is 15% of $20,000. That’s $20,000 to put out close to the deal and 15% of that $20,000 is $3,000, so you need to make $250 a month. The reality is you need that cashflow because the maintenance on the house is going to eat into that cashflow, but that’s okay.
In this market, depending on what neighborhood you’re in, you might be getting 6%, 7%, 8% appreciation. The cash-on-cash, which we project to be 15%, may in reality, be a net 6% or 7%, you’ll make it up on appreciation. That’s the benefit of being a landlord. Go out and buy your first property. You have to choose whether you’re going to be your own property manager or you’re going to hire a property manager. If you have the right tools and software, it’s not that difficult. If you self-manage 1 or 2 properties, it’s not a bad thing. If you get frustrated, then you’ll appreciate the value that a property manager brings versus going right into a property manager and thinking, “This guy is taking 6%. He’s getting into my number.”
Fine Tuning Points
That’s what it comes down to. I know I’m going to get a whole bunch of texts and stuff, “Robert, what about this?” “Robert, what about finding this? What about my taxes? What LLC structure? Do I use my self-directed Roth?” All are good questions. However, none of those questions means stop. They just mean fine-tune.
The big problem when you start making these decisions is, we take these fine-tuning points and make that a yes or no, a break or game-changer like, “This is a deal-breaker. If I can’t use my self-directed Roth, this is it. I’m not doing it.” You do it another way. “If it’s not a three-bedroom, two-bath, brick with a two-car garage, I’m not buying it.” That’s crazy because here’s a wooden house on piers that are cashflowing 16% or 17%. Why would you not do this deal? All of a sudden, these little fine-tuning points become these excuses or in our own head, are imaginary roadblocks. I’m going to go through it again. Do you have a good job? Do you have good credit? Do you have the cash to deploy? Do you have time to research? Can you find a real estate agent that does buy and hold properties for investors? Find a property, execute, and choose to manage or have a management company. That’s it. What you learn from that process of buying one will help you fine-tune. Too many people want to fine-tune before they even go out and buy a house.
In music, there’s a saying called close enough for jazz. It means, “If it’s not tuned 100%, don’t worry. Just get up there and play. They’re here to feel good. They want to see you play.” That first house, if you have a good job, have the capital to deploy, and have good credit, it’s close enough for jazz. You’ve got to get it. I listen all the time to all the concerns and all the worries and in the back of my mind, I’m like, “This is not a deal-breaker.” We’re talking about fine-tuning and people pay for my time or if I have opportunities to help people, I listen. In our own lives with Jason and I, Jason pops his head out of the office and says, “We’re going to do this.” I’m like, “What about this, this and this?” “We got the agent and we have the capital. We’re probably going to have to hire a manager for that.” “Let’s go.” Will your first deal be your best deal? Certainly not, but you’re going to get better. The merit of doing something far outweighs not doing it.
Here’s the reality. Depending on who you read and when you read the study, anywhere between 86% to 88% of the population of the United States are not entrepreneurs. About 8 or 9 out of 10 simply are not entrepreneurs. It’s not within them. If we start talking about people who want to be investors, we know right away that 90% of the people in Houston are not interested in what we’re talking about in the least. After they can’t make decisions, not that they can’t analyze or can’t take action. It’s simply not something they’re interested in doing. We know ahead of that that I will call 10%. Of that 10%, how many meet that standard? How many are ready to go? We know our market shrinks even more. Being an entrepreneur and an investor, taking a risk is terrifying to people. I’ll give you one last checkbox. This is the big one. This is the guiding principle in our growth. What’s the worst that could happen? For us, most of the time, the answer is we lose our EMD. We lose 20, 5, or 3.
If you can answer that question and recognize that the worst that’s going to happen is to lose a little money, then that’s the reality of it. You’ve conquered a whole bunch of made-up problems. Ask yourself when you’re going to these deals, what’s the worst thing that can happen? If you need to get ahold of us, go ahead and text us at (281) 401-9008. You can also go to our website, MrTxRE.com. Becoming a landlord, I gave it a little checklist. “Rob, it can’t be that simple.” It is that simple. “Rob, you don’t understand.” I do understand.Today, being an entrepreneur or an investor and taking risks are terrifying to people. Click To Tweet
The Michael Bernoff Event
There is an event I’ve gotten to twice. It’s with a guy named Michael Bernoff down in Arizona. As a grounded guy, it’s a rough event for me. There are moments where we’re supposed to walk around the room, make silly noises and faces. I am not interested in clucking like a chicken to make my business successful, but you go through it. He committed, “I’m here. I’m going to do it. I’m going to do silly voices. I’m going to do silly motions. I’m going to figure this stuff out.”
There are definitely epiphanies that come out of that event. I highly recommend it. I know people who go to Tony Robbins and other stuff, but I go to Michael Bernoff. You should check him out. He’s a Jersey guy. Here’s the deal. You’re sitting in an auditorium for three days, whether it’s Tony Robbins or someone else, or you’re on a Facebook group and you’re in these business coaching groups, but it all breaks down to, “My children hate me. I’m a bad dad. I’m a bad mom. I’m a bad son.” You’re like, “I’m here for business.” At the end of it all, what you realize is, “We all are going through our own reality TV show. Most of us have the same problems. You either choose to do it or you don’t. Fear is powerful.” Let me tell you about this event and one of the things that absolutely blew my mind. I’m trying to think of a good thing I can tell. There’s a lot of craziness going on and I promise not to. It was a safe place. At some point, people are getting up and going to the bathroom or putting a coat on or taking our coat off.
Michael stands up in front of the room and he says, “I’m going to explain this to you right now. Do you need to go to the bathroom? Go to the bathroom. That’s fine. Do you need to have a piece of fruit? Go to the bathroom and get a piece of fruit. Are you cold? Put a jacket on and take your jacket off. How many people have thought the room was cold?” Half of the room, people raise their hands. “How many people have thought the room was hot?” Half of the room, people raise their hands. He’s like, “How many people have thought the room temperature has gone up and down?” Almost everyone raises their hand and he’s like, “You’re all wrong. We have been at a steady 68 degrees from day one. What’s happening is subconscious. When we start getting to material that we’re covering that makes you feel uncomfortable, your body is looking for a way out. If we start talking about stuff that makes you feel uncomfortable or hits home hard, all of a sudden, we’ve got to go to the bathroom and we’ve got to put our jackets on. We’re talking about things that we’re confident in and we’re cruising on. We have no problem.
That part you’re talking about there, Michael, I’ve got that down. We’re good. I take my jacket off. I’m relaxing. The fact that the room was consistently the same temperature and we were all reacting not to the temperature, but to the conversation and our body was finding a reason to lose attention. Our body was trying to distract us. It happens all the time. When people say, “Robert, you don’t understand. I’ve got three kids. You don’t have kids.” I totally get it because, at the end of the day, it’s going to be yes or no. “Robert, I told you I have three kids.” You have three kids, so you’re going to have to figure out a way to do this with three kids. That problem is not my problem but I know at the end of the day, you’re either going to say yes or no. That’s what I get. We have people come to us to sit down and I’m like, “I’ll listen. This is you and you’re afraid. Is that correct? Is that what you’re telling me?” They’re like, “No, that’s not what I’m telling.” I was like, “This is you and you’re afraid. Is that what you’re telling me?” “Yes. That’s what I’m telling you.”
If we can recognize that we have fear and it’s not the room temperature, it’s not that we’re hungry, it’s not that we have to go to the bathroom, it’s just fear. There it is. Put it in the checkbox and figure it out. Identifying these problems, challenges or fears and being able to put it onto a piece of paper and little checkbox, “I can do this. I can get beyond that.” The easiest way not to do something is to allow yourself to be distracted with the fine-tuning and all these other things that have nothing to do with yes or no. You’ve got to do it. On the other side of that is amazing. When you get to your 4th, 5th, or 6th door, you’re coming up against these problems, you have a good network, good people around your resources, and you start conquering these problems, it feels good. You start realizing how silly it is.
Sometimes, we have that wholesale event and I go, I sit there and I’m like, “Fear. No money.” That’s what the problems are in the room. Not that there are no deals. Not that their yellow letters need a different color of ink. Maybe we’re going to do a wedding invitation or a postcard. That’s fear. The quicker you can identify that it is, it quickly gets around it. “I totally get it. I’m being a mental patient. I’m crazy. It’s not the deal. It’s me.” I’m talking about just being outdoors and getting deals. There are real problems that people have in their lives, traumatic injuries, and traumatizing events in the past. I don’t know anything about that. Seek professional help and God bless you. I pray for you. Going out there and buying a house, piece of dirt, or condo to rent, it’s not a big deal. You’ve just got to move.