38: Real Estate Investing 101 with Michael Del Prete

SaCola (00:00:00) - Welcome to Work it, Live it, Own it! a show that explores how to upgrade your lifestyle through life lessons, real estate and entrepreneurship. Here's your hostess soccer player. Hello everyone! This is an exciting episode of Work it Live It Own It, because this episode is specifically for my entrepreneurs who may want to delve into real estate investing but don't know the basics, don't know how to or for. Also, my realtor friends out there who have a buyer previous buyer and they may want to turn their home current home into an investment property. How can we help our clients navigate that? So I brought in an expert in real estate investing, Michael Del Prete. Now this guy, he is a seasoned expert in real estate investing. He is not just a full time investor, though. He's an all around problem solver, and he's renowned for giving top notch advice and strategies when it comes to real estate investors at every level. So it doesn't matter whether you don't have a clue about real estate investing. That's why Michael's here today and he believes in giving tangible, lucrative outcomes and strategies for real estate investors.

SaCola (00:01:20) - He's also the executive director of the Arizona Real Estate Investors Association. So Michael, welcome to the Work it Live it Own it  Community. I'm so happy to have you here today.

Michael (00:01:31) - I'm excited to be here. Thank you so much. Thanks. Great. Great introduction. I appreciate that.

SaCola (00:01:36) - Oh no problem. Hey, what really stood out to me about you is that a lot of people, when it comes to real estate investing, they you may hear it all the time. How real estate is the best way to go if you want to generate passive income or create generational wealth. So I wanted to bring you on because I think you said something before that it's not about the uncertainty of if someone will be able to retire, it's transferring that to the confidence of knowing they will retire. So I wanted to bring you on so we can all learn how to secure a worry free retirement.

Michael (00:02:21) - Awesome. Let's do it.

SaCola (00:02:23) - All right, so first, Michael, can you just give us a little background about what drew you into the world of real estate investing?

Michael (00:02:31) - Money.

SaCola (00:02:35) - Are money okay? Yeah. Right. Right, right. But.

Michael (00:02:40) - But you know why? Why did I want that money? Right. What was the intention behind it in the the motive behind it was, you know, my son was roughly two years old. Um, I was newly married, uh, young family. So, you know, you have dreams and aspirations and and, you know, I'm sure, like many of your listeners and yourself, you always have that, like, sometimes you have that feeling like, I want more, I want better, like that little gut feeling. And I feel that was always inside me. Um, so we'd watch HGTV all the time. You know, like you said, you always hear about real estate. It's, you know, how people most millionaires, most billionaires, all this good stuff. But it's just like for the average person like me. Didn't go to college, didn't have any support family wise. Say, you can do it.

Michael (00:03:27) - You know, it's just like, um. Wanted to figure it out, you know? So, uh, I had to figure you had to figure it out. And I was watching HGTV, and I got curious, and I started researching. So that's kind of. It's a long story. I don't know how much to sum it up, but.

SaCola (00:03:45) - Well, no, that's okay. Everyone has a story. Everyone has a beginning. And I think that's what connects us all is to that story. And I'm pretty sure someone in our community actually can resonate with that, because there are a lot of people who do watch HGTV, get inspired by it and want to know, well, how do I get into it? How can I be successful at this? So, Michael, can you tell me what is one of your favorite aspects or favorite things to invest in when it comes to real estate? Is there a certain strategy you use or you have you tried them all?

Michael (00:04:21) - So yes. So I started off by wholesaling real estate.

Michael (00:04:26) - So that's where you may hear no money, no credit, no license. Um, so you hear a lot of that. So it's really just buying and selling. So to even add that you're not even buying and you're not even selling, but what you're doing is going to the marketplace and you're looking for someone that wants, doesn't want their house. Okay, I know that might sound crazy, right? So even going into, um, my story part of going backwards a little bit, it was like the house, the American dream, the most expensive purchase of your life. Like it seems so far. Right? You're just like, I'm not that person, right? You know, um, then on the flip side of that, when I started wholesaling, it's like, who in their right mind would sell their house at $0.50 on the dollar? It's the American dream. It's the. You know what I mean? So why would they? However, uh, there is a percentage of people out there that the house is more of a headache than the quality of life that they're living, and they'd rather just get rid of the house and take the cash and run.

Michael (00:05:28) - It's not. Not everybody. Um, but they're out there. So as a wholesaler, you find those people, you, uh, get the property under contract. So you're buying. They're selling no agents involved. Now that now that you control the property with a legal binding contract, you can now assign your interest in that contract for a profit to the real end buyer. So if you were a fixing flipper or a landlord, that's our main audience, our target market as a wholesaler. If the numbers all played out, perfect world scenario, I would basically if I told the homeowner, I'm giving you 100,000, they're content with that. And I know 110,000 is a good deal for you as a fixing flipper to go do the HGTV thing. Um, I would make that 10,000 spread by assigning my interest in the contract to the end buyer. So I never put money up. I never used a license, I never used credit. The cash buyer brings the 110, 100 goes to the owner, ten comes to me.

Michael (00:06:31) - That's how I started. And I did it 700 times.

SaCola (00:06:36) - Phenomenal. Cool. Because that. I think what? Wholesaling, we hear it all the time. We hear that term wholesaling, and then we think, okay, we've got to have a lot of money involved. So basically you're acting as an intermediary or a middleman. You found a seller who wants to sell their home, say, for example, they got to relocate real quick and or they just for tax purposes, whatever. They got to get rid of this property. And then you may have cash buyers, I guess, in the wings waiting and saying, hey, here's a property they're looking to sell real quick. You have a legal binding contract, which I assume you need a real estate attorney or to to draft up contracts. Correct. Because if you're not acting as a realtor in this instance, how do you come up with a contract?

Michael (00:07:25) - Well, depends how deep you want to go. So as this is not legal advice, accounting advice, all that stuff.

Michael (00:07:29) - Right. However, I downloaded my contract off the internet. So and and as you, uh, get, get into the business. Yes. You learn how to have a stronger contract. Um, and you actually add to it, take away from it or you get another real estate investing friends contract. Right. You just grow over time then. Yes, it's I highly recommend having someone review that right. And in whatever state you're in everyone has a little bit different regulations and laws. So always check that when wholesaling. But really you don't have a it's not um, an agent type contract. It's usually 1 to 2 pages max straight to the point because these, uh, the people in these situations, they want, they're, they're selling at a discount for the ease and the quickness. Your cash solves that problem. Um, when we say I'm talking like vacant houses, fire damaged houses, sometimes I get clients here in Arizona where, uh, unfortunately, you know, a family member, the mother father passed away.

Michael (00:08:38) - They live in the Midwest, and they got three kids, and they got a full time job. They can't fly, take a week off of work. The house is a hoarder house. You get what I'm saying? So it's like, right? It's just, hey, send me my money. Buy it as is. Where is? Don't bother me. That's what. Take it off my hands. Yeah, 100%. We all been there at some point with some type of thing in our house. Right? Or or life. So that's the feeling they have.

SaCola (00:09:05) - Okay. Thank you for clarifying that for us. So for those who are new to the real estate investing world, what's the essential first step they should take in building a successful investment portfolio?

Michael (00:09:22) - Education, right? You don't know what you don't know. Um, anything I've learned over the last 12 years in real estate investing, I was not I didn't learn in high school. Right. I and my wife has a marketing degree, uh, ASU and everything we've done.

Michael (00:09:38) - Entrepreneurial. She'd even learn in there. So it's like it's education in your network. It's the people around you. So, um, I like Arizona airs on a real estate investors association. So I'm under the umbrella of the national REIA. So there's a national organization that represents, um, that we were under. So there we're licensed to represent, uh, investors here in Arizona. So you can go to national reorg go find area. And there's one in every city. So start there. It's like it's a trade association for realtors or excuse excuse me investors. So that's where to start. Go or I don't really don't as long as just go get the information right. Right. Because what happens is for those that are like like the entrepreneurs listening, it's like you I get doctors, I get high income earners, engineers that come through here and they're smart, they're hands on, and they say, I want to fix and flip a house or I want to buy rentals. But then they're like, this is this is work.

Michael (00:10:38) - There's a lot to learn here. And I have a career, right? So you have to look, you got to get educated. I don't want to. I can go so many ways. Like if I was new, I would start with a turnkey rental property, right? I wouldn't even dive into looking for a junker, paying cash, quick clothes. Unless you have a team. Right. So there's a lot to think about. And that boils down to creating your investor identity. Who are you? You need to know who you are as an investor so you know what neighborhoods to look in. You're going to save a lot of time. You once you know the neighborhoods, you know, who do you serve? Who's that person? Whether it's a flip or a rental. Who are you serving? Someone that lives in an A-Class high income area versus a lower class, lower income area. They have different finishes, different products, different appliances, different needs in the house. So until you know who you are as an investor, the neighborhoods, houses, condos, mobile homes, apartments, what is it? Right.

Michael (00:11:38) - You got to narrow that whole criteria down. Educate yourself on that criteria. Then based on that criteria, going to find the right team, right. The contractors that work in that area, they give you the right pricing, the real estate agents, the property managers, they all work in different areas. So now you could build your team and then now you know what a good deal is, because you know the neighborhood like the back of your hand, you know, the zip codes. You know what the potential rents are. You know, who's going to be the type of person to be living in there. So you see where I'm going with it. Like that's where education starts. You could you got to build that. Otherwise I see new people. What about this house and what about this house? Is this a good neighborhood? And they're like. It's so different. Like you're just going to get confused and messed up.

SaCola (00:12:27) - So the key takeaway from that is to find a local Ria real estate investment association in your state, in your city.

SaCola (00:12:37) - Start attending those meetings. A lot of times they're free. You don't have to sign up for them because I know there's some in my area. They meet once a month and it puts me in a room as a realtor with other lenders, with other investors who have these resources, who are able to share their stories. And that kind of leads me to the next part about common pitfalls, because if you don't show up in these areas, you don't hear other people's stories and and get those good takeaways. In your experience, though. What has been a common mistake or pitfall that beginners often encounter? Because I know you were saying, having a niche so far out, you need to get super focused, but other than that. Are there any other common mistakes or pitfalls for a beginner? And what? What can they do to avoid it if they can at all possible avoid those mistakes?

Michael (00:13:29) - I, you know, I'm always going to go back to education, right? Um, I another thing I see as a pitfall for new people is, uh, analysis paralysis.

Michael (00:13:39) - Right? Confidence. I think being around when you have, that's where it goes. When you have, you're getting the education and you're you're in the community, uh, of people doing it right. It's like, don't take one thing. People take advice from their friends and family that don't own houses, right? So you got to take advice from people with the houses or, or that person that's doing what you want to do, because everyone's scared to make the offer. It's a it's a big thing. This is your hard earned money, your credit, your you know, you're putting a lot on the line in a new area. So it's very uncomfortable. So, um, having the right people to right education around you and, uh, which will and build the confidence to get out there and start doing it, because once you do it, it's like riding a bike, you know, when you're scared of something, you're like, wow, I was scared for two weeks to do this.

Michael (00:14:29) - You know, I really that's how it is.

SaCola (00:14:32) - Right? Okay. Good to know. Now startup cost. What would you say? Say, for example, you were saying start off with a rental property if you wanted to get your feet wet diving into it. But how much would you say someone would need to have as far as cash flow to invest in a rental property?

Michael (00:14:54) - Got it. So I'm going to go with the assumption, right? The listener is wanting a rental property, right? Because you're entrepreneurs and you got you made some money and now you want to park your money and maybe, uh, save on taxes and depreciation and all that good stuff. So if you're going for a rental property, so it if you want to go traditional, if you leveraged your credit and you went to the bank and you're like, hey, I want to buy an investment property, they're going to, um, have you come up with, well, it depends on the there's so many loans out there.

Michael (00:15:24) - So anywhere from 3.5% to 25% down, depending on the loan product and what you're buying. They just like if you went and what we call house hacking, you bought a fourplex and you lived in one unit, you can since you're living there, it's your primary. You can get 3.5% down and buy a three, four, five, $600,000 asset. Uh, now they just rolled them out for commercial and multifamily so you can get 5% down. Or if it's just like, hey, I have my family, I have my house. I just want to go get buy a property in another neighborhood. You're going to be at that 20 to 25%, just so many. You got to shop around. That's key.

Speaker 3 (00:16:08) - Right?

SaCola (00:16:08) - And you gotta know what's going to work best for you okay.

Michael (00:16:11) - Yep. And and so now you're that's like a kind of an idea of a down payment. Now earlier I mentioned, hey, maybe you want to look into turnkey for your very first property, right. Because, um, buying a distressed property banks won't lend on distressed properties that need major renovations.

Michael (00:16:29) - Like there's a hole in the roof. There's no AC. So that's a different conversation with different types of loans. Uh, so you going turnkey or something that's livable, then you're going to have to look during your inspection. Always get an inspection period when you buy off the MLS or um, whatever you do. And if it's your first property, get an inspection period. And during that time that's your time to check for problems. You get a home inspector. It's gonna cost 5 or 600 bucks, but it's well worth every penny. They're going to go in there with a fine tooth comb and say, hey, even if it's a little tear on the carpet, they're going to let you know about it. If there's a foundation issue, there's I'll let you know about it. So, um, highly recommend that in that inspection period. That's where you're going to come up with your potential renovations. Like, hey, do we need the paint carpet cabinet? What is it you might need to fix? So I can't really give you an exact number on that, but you'll find that out during the, um, inspection period, which is plenty of times, usually ten days.

Michael (00:17:30) - And you can go out and get bids. You could have a general contractor come out. Also recommend using licensed contractors when you first start to. Yes, you're going to pay a little bit of premium, but you got someone that is uh. Well, I'm not saying you never know who's who, but they got a license. You'd think they are reputable. They want to protect their license. They're going to make everything right, even if they mess up. So, uh, then you're going to get three bids from everything you're looking to fix or change. So now you're learning. While you're going through this process, you're learning about buying a house, uh, what to look for, for repairs. How much repairs cost, how long, how long they usually take. And then in that time, you're going to learn a lot and you're going to determine what you want to fix or what you don't, but you're going to create a budget, right? Or you might say, hey, based on what this house needs, I don't have that money.

Michael (00:18:22) - So you might now you can back out of that deal during the inspection and move on and try to look for another house. So there's a lot. Happens in that moment, but that goes back to the investor criteria. Hey, I want to buy houses in this area that only need paint and carpet. Then that's what you stick to. Right? Anything outside that move on? Unless it's a smoking deal, you know? It depends.

SaCola (00:18:47) - Right, right. Thank you so much for that. Because we don't know what we don't know. And education is one of those best things. And a lot of the education that we're talking about today is not going to be found in the classroom. Or necessarily a textbook. You got to get out there. You got to show up, shake hands with other investors, hear their stories, find out who they use as general contractors as well, because a lot of times investors are the best ones to say this is a good general contractor to work with because they may have worked with them several times over.

SaCola (00:19:20) - So go out there, get educated guys. That's the most important thing. And like you said, it can depend on what type of investment property you're looking for and what situation you're looking for. And I have seen that where people will get a duplex. Like you said, a quadriplegics live in one of the units and reap income from it from other tenants, which is actually pretty smart. I think it reminds me of a HGTV show that used to air, a lot of times, income property. I think it was where someone would buy a house and it would have a basement in it, and the guy would fix up the basement so well, the owners would decide, hey, you know what? We can get more money by renting the top part or the main part of the house, and we'll live in the basement for a few years to get more money. And so there's so many different ways to do this to get into real estate investing. So thank you. Thank you so much for tuning in to part one of my conversation with Michael Del Prete in Real Estate Investing 101.

SaCola (00:20:24) - Unfortunately, we had a technical glitch during this episode, so that's why it's going to be a two parter. But in part two of my conversation with him, we're going to be transitioning our conversation over to more real estate agents and how they can advise their clients on real estate investing, even becoming real estate investors themselves or working with real estate investors. So stay tuned to part two of my conversation with Michael Del Prete next week.