Stig Brodersen  6:40  

Wow! That sounds cool, Josh. I want to do that too.

Joshua Dorkin  6:44  

Yeah, man. Answering my own questions… no, I couldn’t. 

Preston Pysh  6:49  

I can totally empathize with this. When we started the Warren Buffett Forum, that’s what it was like. It was like, there’s five people on there, we’re like answering each other’s questions. We don’t even know what we’re talking about. And then it grows and it’s such an awesome experience, but go ahead. 

Joshua Dorkin  7:04  

Please come. Yeah, I beg you. Some audiences began to kind of build up this community. Little by little, people would drip in. I was doing these internet marketing techniques before the internet marketing was internet marketing. And sadly, we predate MySpace. It was MySpace that was getting hot at the time. 

So, I’m a dinosaur here, I guess. But little by little, people would come and would actually help out and answer questions. And I got value and suddenly, they got value because they would help somebody. It felt good to help out. There’s this level of kind of mentorship that comes with that, and it started to grow. It was organic and little by little [it grew]… And so, what was cool was one day, I realized that this was not just a place where I’m getting help for myself, but people are helping each other and it’s actually becoming a community. 

So, what was a selfish beginning became something that could help others. So my tragic misfortune and you know, tens of thousands of dollars in losses in real estate turned out to be a gold mine because today, we’ve got millions and millions of people who come to BiggerPockets across the various channels and our goal is to help people not make as many mistakes, to be successful, to connect with other people, to find partners, to find opportunities, and to learn. And so,  mistakes are okay. They’re going to happen. The key is to educate yourself up front to the point that you can mitigate those mistakes and know at least how to proceed if you do start making those mistakes. 

Preston Pysh  9:01  

A lot of people don’t even know this. But that’s how Stig and I met. It was on our Warren Buffett Forum. 

Joshua Dorkin  9:06  

So nice. 

Preston Pysh  9:07  

Yeah. So here we are, we got our own show together now, and it almost feels like I’ve known Stig my whole life. But it’s weird to think that that’s how we originally met. [It] was on the forum. 

Joshua Dorkin  9:14  

That’s so cool.

Stig Brodersen  9:17  

There were only two people on the forum. 

Joshua Dorkin  9:20  

Oh, you guys were the first two.

Preston Pysh  9:22  

Yeah, we were just talking back and forth with each other. Oh, my. That’s awesome. That’s great to hear the background and how you kind of got your start there, Josh. So okay, I’ll go to my question here. So this one, we’re really changing gears here compared to the first question. So, I bought a house and this is the first house that I bought a few years back. I bought it at [the] post 2008-2009 massive crash–real estate crash. 

I was able to lock in a very good interest rate at 3.5%. And at the time, I had the opinion that I would have taken out a 100-year loan if they would have given me a 100-year loan because the interest rate was so low. And I wanted to put down as little amount of money as possible on it, because I felt like with inflation that I anticipated to occur, I might actually even make money on the loan if inflation was higher than 3.5%. 

So, here I am owning this house. Now, as the market conditions continue to change, I’ve got a growing concern because I’m going to have to sell my house probably within the next five years. That’s the position that I’m in. So, my concern is that I have an increasing concern that these long term interest rates have been highly manipulated by the Federal Reserve. And I don’t think that there’s too many people out there that would dispute that fact. I may even have Ben Bernanke going on and talking about how his quantitative easing was specifically pointed towards the long year Treasury in order to manipulate the long term interest rates. So my concern is, if I’m looking to potentially sell this house in the next couple of years, and let’s say that there is a market downturn, I’m concerned that these long term interest rates cannot continue to persist at such low rates. And if the rates go up, do you see the housing prices kind of collapsing and going down? Is that a legitimate concern that I have?

Joshua Dorkin  11:22  

I think it’s legit. The market is I’d say there’s no doubt that it’s being manipulated. You know, my home, I refinance that three and a quarter, I think. You know, I’m sitting on a 30-year loan at three and a quarter, and like you said, I was like, Holy…let’s craze it out. This is crazy. We just bought a new house because we’ve outgrown our house, I’ve got three kids and we needed more space. 

And so, over the past couple months, I’ve been dealing with this equation of, you know, I’d be crazy to get rid of a house with a three and a quarter percent loan. Yet I’m going to get rid of that house. And the reason I’m going to get rid of the house is, I did the math. And what the math tells me is that my return on that home at three and a quarter percent is going to be somewhere under 2% per annum as a rental property. And so, is my cash better deployed in this home at 2% return or can I beat that? And I sure hope I could beat it. And if I can’t beat it, then I’m doing something wrong.

Preston Pysh  12:38  

Are you accounting for the house potentially appreciating or just basically holding the value that it has? 

Joshua Dorkin  12:43  

I don’t ever. You guys are a value investing show. I don’t ever, ever, ever account for appreciation, personally because you can’t predict appreciation. You cannot predict it, and so, It’s the icing on the cake. If you get appreciation, that’s great. And you get all these other value. with it. You get tax incentives and things like that with long-term holdings. 

But I think, if you’re savvy, you can find other ways to get better returns. I mean, I could be a private money lender at 8% on my cash and beating that 2% in this property. So, it’s hard. There’s this emotional attachment saying, “Hey, I can’t get rid of this house. This is crazy. This makes no sense that I should be able to own a home at three and a quarter percent. I’d be nuts. It’s going to be worth the X amount in 10-20 years, when I’ve paid the note off. But again, if it just kind of follows inflation, and I could probably beat it.”

 

So, to your question on, “What’s it going to do to the market long term, short term?” I certainly think that it affects housing prices to the negative. It’s going to make it harder for people to buy. So theoretically, that’s going to shrink that buyer pool, right? And I think, over the long term, that’s going to reduce prices. It’s going to increase ridership. 

Preston Pysh  14:26  

Yeah, you’re right about that.

Joshua Dorkin  14:28  

Now, that’s great from an investor’s standpoint. If I’m a buy and hold investor, I’ve now got a strong pool of renters. And so, is that good for me or bad for me? I think at the end of the day, from real estate, I probably can talk more intelligently about the investor market than just the traditional buy– Mom-and-Pop-buyer market. And I’d say from that perspective, yes, there are negatives, but there are also the positives. 

All real estate first of all is local, as they always say. And it’s true. I mean, during the bubble, you had places like Las Vegas that were going crazy in Phoenix. And yet other markets like, I don’t know, well, Baltimore and Milwaukee that we’re probably not. And so, real estate’s definitely local. You’re in good markets, you’re in a place where jobs are growing and the economy is strong, then the market’s going to be solid. 

So the key is, can I buy for cash flow now, not stress the appreciation? And if prices drop, then theoretically, cash flow probably is not going to shift that much, right? Rents could drop, But it’s not as likely because rents themselves aren’t tied to interest rates, right? So, what is the key? The key is, can I buy this piece of property at a price that makes sense? Can I buy it at a discount?

And so, the place where a lot of investors mess up is they buy retail. They pay retail, they don’t know how to account for all the numbers that go into an income property. They think, Hey, listen, well, if my mortgage is $1,000 on my taxes and insurance, and I make $1200 a month in rent, then I got $200 in positive cash flow. You laugh, but that’s where 99% of people screw up. 

That’s where they mess up. They don’t take into account vacancy rate. They didn’t take into account capital X. They don’t take into account management even if they’re managing their own properties. They don’t take into account all these expenses that suddenly make that property a loser.

Preston Pysh  17:16  

Yeah. And they’re looking at the top line, really. At the end of it, they’re really just looking at the top line and they’re not doing the hard risk analysis of, Okay, what are the 10 other things that are going to go wrong? And then accounting for those into the equation to get to the bottom line. 

Joshua Dorkin  17:31  

Absolutely. Which then makes opportunities for the sophisticated investors who are going in.  Listen, some people are going to say, these guys are predators. They’re actually saving these guys as backsides who are losing all this money on bad properties. But they’re getting it at a great rate, at a great price because they’ve lost so much. They got to get out tired landlords, people who just didn’t do it right, who didn’t evaluate it right, and want to get out.

It’s a really good body of people to get discounted properties from because they did it for X amount of time. They have just been bleeding for so long, and they just want somebody to take the property away from them. [They say,] “You’re going to save my backside. I’m bleeding here. Take it away, please.” And then, I get it, and I’m good.

Preston Pysh  18:24  

And so, what you’re really getting at is patience and doing your homework. 

Joshua Dorkin  18:27  

Oh, yeah. 

Preston Pysh  18:29  

If you’re doing your homework and you actually know all those different things, and there’s a book that I read, I cannot remember the name of it, it talks specifically about coming up with valuation for investing or real estate. But we’ll put that in the show notes, when I find out what it is. I can’t remember the name of it. I read it a long time ago. But that’s what it talks about. It talks about all these other critical variables that you got to account for. 

And then, you’ve got to be patient and you got to wait for the right opportunity in order to pounce on it. Just because you make an offer on a place that you really like, if the person is not willing to come to that price point that you think it’s worth after all that analysis, you got to pass. Yep.

Joshua Dorkin  19:06  

Yeah. So I think, one of the big mistakes that new investors make is they don’t establish a criteria. Well, first off, do the analysis. Secondly, establish some set of criteria: that I’m only looking at these kinds of properties that have these issues, three twos, blue collar neighborhoods where there’s got to be at least a grocery store, and this and that. You kind of create your own criteria, right? 

Everybody builds their own box. When they don’t do that, what happens is they find a deal that’s awesome. They say, “Oh, my God, this thing’s amazing.” And then, they chase it, and they set their cap prices [at] X amount of dollars. 

Also, they say, “Alright, you know what, if I bid this to, one might say, the price was 120, and I couldn’t go above 120, but I could get this for 125. I’m emotionally in this.” Well man, you just want $5,000 on your offer. You just destroyed your own criteria. And now, you’re damaging your cash flow. So, you can’t do that.

Stig Brodersen  20:16  

Every time I have a chance to talk about stocks, actually Preston knows this, it doesn’t matter what we’re talking about. Every time I have a chance to talk about stocks I’m thinking, “Yes, I want to share this with the world.” So, I really think that you’re completely right about the criteria thing, Josh. And one of the other things that you said a few minutes ago was that, well, you might hope that your house will appreciate in value but you don’t count on it. 

And I think that’s kind of like the same way Preston and I [are] with investing. We’re looking at the earnings of a company. We hope that it will increase, but even though it was just stable, that’s a good business deal for us; if we can just sustain the earnings, and you can still buy it at a good price. I guess it’s the same thing with what you’re saying about investing. If it increases in value, that’s amazing. But that is not what you are basing your investment decision on. 

Preston Pysh  21:08  

And I think very few people do that. I think most people do try to account for, well, it’s going to grow at 3% a year, and the house will be worth 100,000 more within 5 years, and they actually build that into their model. I think that that’s a very bad thing. I’m very impressed that you said that you did not do that because I think very few people do.

Joshua Dorkin  21:26  

I agree. I think you can go and become an appreciation investor. So you can… take my market, I’m in Denver, right? Denver, and then you’ve got the city of Boulder which is about a half hour away. Denver and Boulder are on the path of growth, right? 

This market’s crazy. Job growth is fantastic here. And what you’re seeing is the Denver-Boulder corridor billing in. So, you got one city here. You got one city here, and before it was just emptiness and a few scattered ranches and things like that. And over the past decade, you’ve seen that entire thing fill in. 

So, if you could have looked at the market and said, “Hey, job growth is booming. Everything is going the right way for Denver and the same for Boulder,” you’re going to make an extrapolation and say, “Hey, this quarter it’s going to kind of come together.” 

As that quarter comes together and there’s going to be some kind of pathway to growth. And so with that, you’re going to see property values go up in that pathway. And so, it is one way to go. Is it predictable? No, but nothing’s really predictable.

Preston Pysh  22:38  

But that’s something that’s very… there’s a lot of people at play there. That’s a lot of area. And you could see a trend line. You could see it. You could look back at the last 5-10 years and see something that’s what I would expect to be a fairly steady and stable trend line that could show you some type of predictive analysis of something in that area.

Joshua Dorkin  22:59  

Right. For sure. Now, let’s go back to cash flow. The guys who are buying five units and more, so a duplex, a triplex, and a fourplex, those are all considered small multi families. The small multi families are typically valued the same way that a house is valued. It’s valued on comps. The nice thing about 5 units plus in the multifamily space is that it’s valued based upon cap rates, and it’s valued based upon multiples of income. And so, the growth, as the market goes up, that’s not necessarily going to affect the value of a small multi, midsize, or large multi. That’s going to be determined based upon rents and other income that you can bring in. 

If you’re somebody who’s a value guy who says, “I don’t care about appreciation from the market,” you can actually drive appreciation with the small multi’s by making improvements, by reducing expenses, and suddenly, your multiples are going to drive the value of your property. 

So, you can take a property that’s springing in $1000 a month. If you can cut your expenses, your multiple is going to be maybe the same, but the value at the end of the day on the property is going to be worth more.

Preston Pysh  24:21  

Hey, real fast. I mentioned a book that I was originally talking about. The name of the book was the Small Business Valuation Book. I also want to highlight. Josh, I want you to be able to talk about the book that you wrote about investing in real estate, if you want to throw that out to our audience, because I didn’t say that in the intro.

Joshua Dorkin  24:36  

It’s okay. I wasn’t going to give you grief about it. I was just waiting for it to come at some point. We wrote a book myself and Brandon Turner, who’s the co-host of the BiggerPockets Podcast called The Ultimate Beginner’s Guide to Real Estate Investing. You can find it on Amazon, you can find it on our site. 

And the idea behind the book is there are all these people that many of whom are listening, and many of whom are not, who are interested in real estate, but are scared. They don’t understand it. They don’t know what to do [with] that. All they know is, “Hey, there [are] these guys selling courses that talk about getting rich,” or whatever it is, right? 

And so, we wanted to build, to put together this kind of beginners manual, if you would call it that in real estate investing, and it’s the basics. What are the niches that are out there? What are the strategies that are out there? What is flipping houses, how does it work? What is being a landlord? What is renting? What is a rental property? How do you evaluate? How do you do the math? Lots of basics. 

We don’t hold anyone’s hand and say, “This is how to do a deal.” Our platform helps with that. Our podcast talks about that, but this book is designed to give you the fundamentals, so that you can actually speak the language, [and] so that you have the vocabulary and understanding to move forward and start planning out your path because everyone’s going to have their own path, and this thing is designed for that.

Stig Brodersen  26:04  

I actually have a question about that. Funny enough, that’s about stock investing. But I’m also sure that is a question that you answered in your book because when I think of stock investing for instance. 

It’s fairly easy for me, and I think for a lot of the listeners to have an understanding of how many stocks you need to buy, to be diversified, and perhaps also, international exposure, and which sectors, but how is it in real estate? I mean, if you buy a home in Denver, you’re really exposed to Denver. I guess, how do you diversify in real estate investing? What are your thoughts about that?

Joshua Dorkin  26:39  

Sure. And if you want to talk about the stock market Stig, we can do that. Yeah. It’s your show, man. This is your world baby.

So diversification from a real estate portfolio perspective is just like your first property. It’s going to really depend on who you are and what you want. What are your goals? So, I just mentioned niches and strategies. We have kind of defined niches as things like land, and single family houses, and duplexes, and multis, and small apartments, and commercial reads, and mobile homes, and so on and so forth. 

The strategies are things like: buy and hold, flipping, wholesaling. And so, you can have strategies in different niches and things like that so you can diversify by just doing different niches in similar markets and have different strategies. 

At the end of the day, what’s the best way to diversify? I guess, it depends on what your goal is. So, if you want a job, then you should flip houses. Flipping Houses is not a passive activity. It’s a fairly active activity. Buy and hold is far more passive, particularly, if you’ve got a property manager. You still have to do some work, you got to manage the manager, and things like that, but there’s a pretty high level of passivity… Is that a word, passiveness? 

Stig Brodersen  28:04  

It is now. 

Joshua Dorkin  28:04  

…In managing these rental properties, so I would tell somebody who’s looking to diversify, first, you have to figure out what niche you’re going to start in. What’s your goal? I think what we’ve seen over the years and talking to countless investors is, what people will do for their own diversification. They’ll start with one, say, they’ll start with single family houses. I’m going to build a little portfolio of single family houses in a market that I know. 

Typically, we always tell people to invest in a market that’s no more than two hours away. The reason we say that is because you want to be able to, especially as you’re starting out, be able to very easily get out of that property. If you do like I do and buy a property that’s 2000 miles away that you have to get on a plane to go visit, you’re going to have a hell of a hard time or a really expensive bill every time you want to go out and check it out. 

So, if you can start to pick up houses, it’s like the Monopoly game, right? You buy little green houses and suddenly you’re confident and comfortable that you have a solid understanding of that. Maybe you move up to the small multi and you buy a duplex, or a triplex, or fourplex–you get some experience there. 

And then, they move up to the mid-size multis, fiveplex units. And now, they’re managing apartments. Maybe they have in-house managers, things like that. So, you kind of build up. And this is, again, just based upon what I’ve seen from countless people. This is the typical, if there is one path. 

From there, maybe they say, “Oh, okay. Well, cool. Now we’ve got all this cash going. We’ve got cash flow. It’s predictable. I want to play around in development and see if I can kind of get that big pop and go from there.” But you know what, that’s a guy who’s going full time into real estate. That’s not the guy who’s working a full time job and just trying to build wealth for his family who may just want one or two properties. 

So, diversification is going to be diversified based upon who you are, right? So, there are a lot of ways to do it. You can diversify by buying turnkey rentals–properties at a distance managed by these turnkey companies. You can buy houses in different markets.  

Preston Pysh  30:30  

Josh, the turnkey. So, what you’re saying is, there are companies out there that you could hand over, let’s say you bought a foreclosed property. This turnkey company would come in and basically turn it around for you at a price that you knew, a fixed price up front, that maybe they would come out and give you an estimate beforehand, before you even purchase it? Is that what you’re referring to? 

Joshua Dorkin  30:49  

No. So there’s this niche within the investing space of companies that they call themselves turnkey companies. What they do is they go. They find the discounted properties. They fix them up. They put renters in, and they say, “Hey, Josh! Come buy this turnkey property.” So, I go. I buy it. And it’s already been fixed up. It’s already got a renter in there and they’re going to manage it. 

Now, for anyone who hears this and says, “Oh, that’s great. I’m going to just go jump out and buy the next property from a turnkey company.” Just be careful. Just like anything else, there are shady operators in every space. There tend to be a few more in the real estate space. 

There are definitely some good ones, but do your homework. Get reviews. Find out who these people are. Get your track records and things like that. And that goes with everything in real estate whether you’re dealing with contractors, the bane of the investors life, or any company that’s offering services; management companies. You name it.

Preston Pysh  31:58  

It’s funny you bring up the contractor because that leads right into my next question. So, my wife loves these shows on TV where these people, I don’t know the names of any of these shows, but these people come in and they find this house that’s just torn up; looks horrible. They come in and they basically do a whole renovation on the house. And maybe they might buy the house for $200,000, they do $150,000 worth of renovation. 

So, they have $350,000 into the house and then they sell it at $450,000. And so, this is flipping homes. And I always tell my wife, I’m kind of walking by, and she’s watching this show, I say that’d be a great business if you owned your own contracting company and had some cost people that are doing those things. 

Also, I feel like maybe that’s the only way to really be successful at flipping homes. I’m really curious to hear if you kind of have the same opinion or if there’s other people that you’ve talked to that are house flippers that don’t own their own contracting company, and necessarily how they do it. 

Joshua Dorkin  33:01  

You’re about to get me on. I think the flipping shows are one of the best things for the investing business, and I think, they’re one of the worst things for the investing business. They’re great because they make it sexy and they make it interesting. They’re terrible because most of them lie. It’s not outright lies, it’s just lies by omission.

Preston Pysh  33:27  

Yeah, they get all the furniture for free from IKEA if they put up their advertisement on the show.

Joshua Dorkin  33:33  

I don’t know what they’re doing. I know the names of the shows. I’m not going to mention them by name so they don’t get mad at me or you. But that property that they paid $150,000 for, they spent $100,000 on renovation, whatever you just said, so there are $250,000 all-in, and they sell for $350,000. You know that $250,000 all-in was $250,000 for repairs. $250,000 for labor. It was not $250,000 for the time hold– the time value of money that they had to borrow. 

It was not the cost of capital. It was not their holding costs. It was not all sorts of other things that that show never told you about. At the end of the day, that guy may have walked away with five grand or may have lost 50. You know, you don’t know. And so, is it possible for flipping to be a profitable endeavor for somebody who does not own a contracting company? Absolutely. 

I said it earlier, flipping is a job. You’re not going to go and say, “Hey, I’m going to flip houses while I’m working my full time job and get it done during my lunch break.” That’s not going to happen. It’s not going to happen. 

And so, there’s a whole hell of a lot that goes along with flipping a house, so you have to know real estate. You have to know the numbers again. Everything in real estate goes back to the numbers. And I think most people get it wrong because they don’t realize that. There’s what we call the flipper formula–it’s the 70% rule. 

We tell people, if you’re going to flip a house, then you want to just pay attention to the 70% rule. Now, it’s not a strict thing that you have to pay attention to, but you’re increasing the likelihood of success by doing it. 

So, the 70% rule says that you want to pay 70% of the after repair value, so that’s those [that] sell retail sale value at the end. You want to pay 70% of the after repair value minus repairs. So, an example of that, let me try… it’s early here in Denver. These guys had me on at 7am on a Sunday.

Stig Brodersen  36:00  

Sorry about that, by the way. I was pretty sure you were looking on the east coast. 

Preston Pysh  36:03  

We tell that to everybody that’s on the west coast.

Stig Brodersen  36:06  

We tell that to everybody. Yeah.

Joshua Dorkin  36:08  

As long as it’s convenient to you, Stig, we’re good, man. 

All right. So here’s an example. This house is gonna sell for $100,000 after I fix it up. I want to pay no more than 70% minus the cost of the repairs. So, if it would cost me $10,000 to repair. I don’t want to pay any more than $60,000 for this property that’s going to sell for $100,000. And what that does is it pads you. It protects you. It ensures that you’ve got some level of profit if you’ve calculated your profit into the property beforehand. No single house flipper has ever gotten the numbers right on their first deal. That’s an exaggeration, but odds are pretty slim that you’re going to. 

You’re typically going to have cost overruns. You’re typically going to take longer than you think. And so, what that does is it gives you some sense of padding to ensure that you walk away with some kind of profits. I mean, the negatives of flipping houses are frightening. You can overpay. You can hire bad contractors, that’s almost a given. Almost guaranteed. Finding financing; selling at the price that you actually expect.

Preston Pysh  37:23  

I would think like mold and things you can’t see when you go into the house and you’re looking around, like okay, well, yeah, this looks like this needs about $10,000 worth of work. But then, whenever you pull the ceiling layer off, or whatever, there’s not a support structure there. There’s all sorts of things that you start figuring out after you already paid for it that were really your high risk that you don’t necessarily see.

Joshua Dorkin  37:45  

Yeah, absolutely. And especially as somebody who’s new at this, it takes time to acquire that skill. Real estate investing is art plus science. And the art is, as a real estate investor on a property, and when you first look at a property and your realtor says, Hey, this thing is worth XYZ. And you say, “Okay, great.” 

As you go over time, one of the things we tell new investors is go see every house that’s in a market. You want to see every house for sale on the market. If you do that, you can probably acquire the skill set to eyeball what that property is worth. After you’ve looked at 50 or 100 houses, you kind of know what houses are worth. 

Well, the same goes with flips and other things. You can go into houses and for the most part predict, but you’re not going to predict everything. There’s going to be mold behind the walls. There’s going to be, who knows? You want to pull up that carpet and find that really nice beautiful hardwood. Well, wait. It’s not there, whatever it is.

Stig Brodersen  38:51  

Yeah, so Josh, I can’t help [but] think, you’ve talked about buy and hold, and flipping, and we also talked about fix and flip and other strategies, when do I know which strategy is the right one for me, specifically? How do you determine that?

Joshua Dorkin  39:05  

That’s going to depend on who you are. It totally is going to depend on who you are, and I’ll go there in a second.

Stig Brodersen  39:12  

I’m saying the exact same thing when people are saying, How should I invest? And I always say, it depends on you, Josh.

Joshua Dorkin  39:18  

It does. Well, let me go back… 

Preston Pysh  39:19  

That works so well.

Joshua Dorkin  39:21  

Yeah, I’m not going to answer your question.

I want to go back to the flipping because I talked a lot about the negatives, there is a way to do it, though. You know, you can do it if you really take the time and have somebody that you can potentially partner with, or things like that. But another way of doing it is the live and flip. And so what that is, is that’s buying a property that’s in bad shape and sucking it up. You know, you’re living in a place that’s got a 1960s kitchen and you’re fixing it up little by little over the next year or so. 

You’ve put in the time. You’ve done it on nights and weekends, but you’re also living there. So, you’re deferring that holding costs by paying your mortgage instead of paying rent. You’re living in this property and you’re fixing it at the same time. So, living in [a] flip is a decent strategy for at least getting to understand what house flipping is like. At the same time, it’s getting the value out of living in a property. So, I just wanted to kind of cut back to that part. 

That’s kind of something we call house hacking, a little bit. House hacking, I’m going to get to your question, by the way. But I do think your listeners will want to hear this because it’s something that we really encourage especially young people who don’t have a lot of ties. Once you get married and have kids and things like that, if that’s your path, it becomes harder to house hack. But house hacking is you go, you buy a duplex, or you buy a triplex, or four[plex]. Typically, we say do it with a small multi and you live in it. 

So, the nice thing about that is, up to a fourplex you’re getting conventional financing on these properties. So, you can get a good, reasonable loan, you can even get an FHA loan which is really cheap. And you now have a property that you’re living in. You’re also running out, so you’re getting rental income, and you’re deferring your own costs. So say, I’m spending X amount of dollars on rent, I can go in [a] house hack, buy a small multifamily, live in one of the units, rent out the other units, and I may even make money and not have any cost of living. 

House hacking is a really cool strategy. We write about it a bunch on BiggerPockets. We talk about it on the podcast. It’s something that along with live and flips, it’s a really good way to get exposure to real estate investing to see if you’re cut out for it. If you turn out to try this live and you realize how much you hate tenants and toilets, then maybe you should try a different niche, a different strategy. Which goes to your question, I told you I was going to answer it, which is there is no one path. Let’s start there. Right? There’s no one stock I have to buy Stig, right? Unless, you’re Berkshire Hathaway, maybe.

Stig Brodersen  42:33  

I’m not saying that. 

Preston Pysh  42:34  

You know him so well, already.

Joshua Dorkin  42:38  

Yeah. So listen, there’s no one path, right? It’s going to depend on who you are, where you are, what you are. If you are a 22 year old guy who’s got cash sitting on the side, you’re going to take one path that’s going to be very different than a guy who’s 65, who’s married, who’s got no money towards retirement, and needs to get there quick. 

Everybody’s going to have a different path. You’ve got to look at where you are in life. What are your goals? Are you looking to be an active investor or a passive investor? So active investors, we call it “investors,” but is flipping houses really investing? No, it’s kind of like I said, it’s a job. You’re not investing. I think actual investing is just buy and hold. That’s investing, right? Otherwise, you’re flipping. You’re trading. You’re like a day trader.

Preston Pysh  43:35  

Let’s see here. So the next question I got is one that I think a lot of people have this question because whenever you think real estate, you have to have a lot of startup capital. I mean, if you’re going to do a four-unit or a six-unit, I mean, you gotta have some money in your pocket in order to do this because you have to have a down payment. Now the bank’s just not going to hand out loans to somebody who wants to do it with a business plan and no money. So, I guess the question I got for you, Josh is, if you don’t have a large down payment, are there any tricks, are there any hacks for being able to get into the real estate business without having that large down payment?

Joshua Dorkin  44:15  

Well, I’m going to plug a book right now. Actually, I will plug a book later. But there’s no trick. There’s no secrets in real estate. And again, anyone who says there are run aways, do not listen to that person. There are no secrets. I’d say, “I’m going to answer it by not answering it.” No, I’m not going to do that this time. If you don’t have money, you need to get money. I mean, that’s one answer and I do believe in it. 

If you are dead broke, you’re dead broke for a reason. And the odds are you’re probably not in a good position to become a real estate investor. Get your financial house in order, and at that point, you’re probably in a better position to get into the game. If you’re flat broke, the odds of being successful in real estate are slim. There are strategies where you can invest with no to little money, but you need to have money in order to do it.

So, you can invest with no money. But that doesn’t mean you can do it without having any money. If that makes sense, there is a distinction there, right? Let me let me explain. So, there’s a strategy called wholesaling. Wholesaling, you’re flipping contracts on properties. 

Essentially, to put it briefly, you go, you lock up a property, and you sell that contract to somebody else who then closes on the property and you make a cut. It’s illegal in some places. I’m not going to say where it’s legal or where it’s illegal. 

It’s up to the investor to do their homework, talk to their lawyer, but it’s a strategy. Now, if I can go, I can lock up a property, and then, sell the contract. I can make that split. This is called a wholesale, but I’m never going to get that property without having any money, because I’ve got to go and do marketing. 

I’m going to go and find that property. And to find that property, it costs time and money. Hustle, whatever it costs to get that property. Same applies for buying holds and flips and things like that. There are ways to acquire properties with no too little cash, but at the end of the day, you need some cash to be able to at least get the ball going. 

One of the strategies that we talked about… Well, first off, with that in mind, if you don’t have money and you want to get into real estate, get a job in real estate. Get a job, J-O-B in the field that you want to ultimately kind of spend your life in. Do that. So, become a real estate agent. Become a contractor. Become an appraiser. Get a job that pays you money, and when you have money, you can then go and invest it. Go ahead.

Preston Pysh  47:29  

I think that’s fantastic advice. I mean, if you don’t have any money, get involved in what your interest is. And that’s a form of investing in itself. Go out and read Josh’s book or read other people’s books on investing or in real estate, and whenever you’re doing this, you might not be able to accumulate real cash or real returns, but that knowledge is planting a seed. And what you’re doing is you’re able to warp yourself into a position that whenever you do have the cash to invest, you already know what to do because you’ve invested the time to understand it, and to learn, and to have that foundation, that knowledge base to act upon.

Joshua Dorkin  48:10  

Yeah, absolutely. There are various ways to invest with “no money”. You can work with partners, you can get harder private money–wholesaling, things like that. I want to talk about partners because I think it’s one of the more viable ways to do it. So, you Preston are broke and Stig is loaded as we know, he’s got the fancy shirt on. We can’t compete with him. And so, you, Preston, say, “You know what? I want to do some deals.” And Stig’s like, “Yeah, you know what? I also want to do deals. I’ve got some cash sitting on the side.” And you, Preston, say, I have nothing I’m dead broke, but I’ve got time. 

So, you say, Stig, let’s cut a deal. I’m gonna hustle, I’m going to find the deal, you’re going to finance it, and we’re going to split the profits. So, you guys work together as a team. You take one part, he takes the other part. And suddenly, you’ve got this deal. Stig wasn’t going to buy the deal anyway before you because he didn’t have the time to go and find it. You weren’t gonna buy it because you’re broke. 

And now, working together, you guys both get about a half of a deal, but a half of a deal is better than no deal at all. And so now, you just went with no money, partnered with Stig, and walked away with a deal. So, that’s a great way of going. The problem with that is Stig doesn’t trust you because you’ve never proven yourself. 

Preston Pysh  49:48  

This sounds so familiar. I hear this all the time. Let me tell you, Stig requires a whole lot more equity than 50%.

Joshua Dorkin  49:58  

So, what do you do? That’s something working with partners, as you, become established. It’s a really great way to build a portfolio. The problem is, how do you get that first deal done? And what a lot of people do if they’re in a good position, they have family, potentially, that has some money. The family trusts them, probably, they shouldn’t have, it gives them money when they do a deal. Friends, things like that, that’s one way to go. And again, that’ll help you build your track record of success. And then you kind of can go from there and move forward. 

Preston Pysh  50:34  

I’m really curious. Have you ever seen a relationship like that build on your forum?

Joshua Dorkin  50:38  

All the time. On a daily basis. I’ll brag about our site. I mean, it’s amazing. Our site went from a place where people go to learn and because people go and invest their time and share their knowledge, on this platform, they build their own brand. They build their own name. They build trust. 

I know that you know what the hell you’re talking about. So when you say, “Hey, guys! I found this great deal.” You share the deal, you share the numbers. And you say, “I’m looking for some partners. I’m tapped out. All my cash is deployed to the six other deals that I’ve got. I’m out of cash.” 

I’m going to say, “You know what? Look at this. Okay, these numbers look good. Let’s find a way to work together.” And yeah, it happens all the time. It’s amazing. I’m astonished that I built something that is helping so many people do business. And yeah, it happens all the time.

Stig Brodersen  51:41  

So, Josh, now [that] we[‘re] speak[ing] on this, could you recommend any resource for people out there listening and they’re really thinking, “I want to dig into real estate. That might be the right thing for me.” Do you have any resources that you can recommend to people? Any books, perhaps, or websites?

Joshua Dorkin  51:59  

So I mean, give me a ball on a table stand and let me get my big league slugger and whack it out of the park here. I mean, BiggerPockets, obviously, is the site to go to. The BiggerPockets podcast is the podcast. I mean, we’ve written a book on flipping houses. It’s literally a book on flipping houses. It’s on Amazon. We’ve got the book on estimating rehab costs, which kind of pairs with the book on flipping houses. 

We also wrote The Ultimate Beginner’s Guide that we talked about. And then, the book on no and low money investing. We’ve written all three. We’ve got more books coming. That’s just me plugging and being really greedy here, so I apologize. We’re on a money show. I’ve got to be a little greedy. All right, more like the books that have played a role for me.

Preston Pysh  52:54  

What books influenced you in the real estate arena?

Joshua Dorkin  52:57  

The book that influenced me was Rich Dad, Poor Dad. It influenced me so much as that it opened my eyes to the fact that real estate was kind of a great means for wealth building. I’d say the book that really got me kind of hyped up on finance and personal finance was The Richest Man in Babylon. Have you guys read that? 

Preston Pysh  53:26  

I have not read that one. 

Stig Brodersen  53:29  

I think it’s a great book and by that I mean, the first three minutes, but it’s so tedious to read. The length is so old.

Joshua Dorkin  53:38  

What’s wrong with old people, man? Come on.

Stig Brodersen  53:41  

Wow, really? No, sorry about that.

Joshua Dorkin  53:43  

It’s a bunch of parables, right? For me, I love it because it’s these different ways of thinking about saving and making money. And it’s like a Babylonian parable or something like that. Yeah, I’m going to be completely misquoted here, but the thing was great. And let’s just leave it at that. That was amazing.

For me, also on real estate was The Forbes List. Looking at the richest people list. I would always dig through that when I was a kid and look at how people are making money, and if it wasn’t inherited, and if it wasn’t made through [a] unicorn, where you’re suddenly a billionaire. A lot of those folks made their money in real estate. 

And so, it wasn’t a book, but it was seeing these people who are the wealthiest people on the planet and seeing that many of them had a path that started with real estate. It was inspiring. We talked about earlier. A lot of people’s pathways [are] very… you know, they start with single family homes and move up to multis and the multi to the next, to the next, to the next. And I’ve interviewed and talked to so many investors who are extremely successful and watching that growth. 

For somebody who wants to be full time and really build wealth through real estate, it’s fascinating and it’s possible. Also, it all comes down to having a strong knowledge base; doing your homework; working hard; being patient. There’s no “get rich quick” in real estate. There’s no get rich quick in real estate. And there’s no get rich quick and real estate. I mean, no matter what, somebody is going to try and sell you. That’s not true. Play the long game.

Preston Pysh  55:41  

You know, Josh, it seems like for the person who is starting out, maybe wanting to do it for the first time, they need to be even extra conservative with the prices that they might pay and their analysis because they’re just going to make those amateur mistakes. They’re not going to make like the guy who’s been doing it for 10 or 20 years who already knows the mistakes he’s going to make, or potentially make on the deal, you don’t have that knowledge base to pull from. 

So, it seems like reading the books that you’ve put out there, some of these other resources that you’re talking about, definitely your forum would be a great place for people to try to catch up and maybe have a little bit of that experience before they maybe step into this and try it for the first time. But our audience knows that we don’t bring somebody on the show that’s not an absolute expert in what they do, and I think it’s a testament to you. 

We’ll definitely have all the links to your forum, to your books, in our show notes, so people can pull that up and reference it. And folks, we can’t encourage you enough to go to Josh’s site because you can tell from this interview, he’s a very genuine person. 

He’s somebody who’s trying to put out good information that is going to help you as opposed to force feeding you down a path that might not be right for you. So, I think everyone could absolutely see that from our interview. 

Josh, we can’t thank you enough for coming on our show. This has been such a fun interview and we really appreciate the conversation we had before we started recording.

Joshua Dorkin  57:06  

Thanks, thanks. Yeah, I really appreciate the opportunity. Stig, I hope I didn’t beat you up too much.

Stig Brodersen  57:12  

I loved it. 

Joshua Dorkin  57:17  

And as you said for somebody who’s looking to start out, just be smart, be careful. If there’s folks out there who I believe prey on new real estate investors, there’s nothing worse than losing money in real estate. It’s really heartbreaking. It’s really a challenge. 

Listen, even experienced people do bad deals, but it’s really easy when you’re new to mess up. And so, I encourage people before they jump in, be smart, do your homework, do your research, take the time to map out your path, to draw a plan, and do it. 

We as a financial media, I consider you guys, you are the financial media, right? You and all the shows on TV and the magazines. I’m happy you have me here because I think it’s great to get exposure for people, so that they can better understand that real estate does make sense, but you just have to be smart about it. 

I wish everybody who’s listening luck. They can reach out to me through BiggerPockets if they’ve got questions, and you guys are rocking it. You guys are doing such a great job, and thank you.

Preston Pysh  58:31  

Great having you on the show. Thank you so much!

Joshua Dorkin  58:34  

It’s a pleasure, guys. 

Preston Pysh  58:36  

Okay, so this is the point in the show where we take a question from our audience. And this question comes from Charlie Lasky, and here’s what he’s got for us.

Charlie Lasky  58:42  

Hey, Preston! Hey, Stig! This is Charlie Lasky from British Columbia. Big fan of the show. I’ve been listening to it every day on the way to work and please keep it up. Had a few, or well, I’ve got a lot of questions, but the two that I wanted to ask right now, currently, I use FINVIZ as a stock screener for equities, just trying to do some general research and looking at companies backgrounds. And mostly, they have US equities. 

I live in Canada. and I would like to have some Canadian equities in my portfolio, eventually. Can you recommend any free stock screeners out there that are similar to FINVIZ \, having a lot of different criteria that we can use for free that will also have a lot of the Canadian equities. 

And my second question is, are there any free websites out there that offer a background to financials up to 10 years for all the different companies out there that you don’t have to pay a membership fee to? 

Because a lot of the ones that I’ve looked at, they want to charge you an annual fee, and me being a starting investor that’s not something that I want to do at the moment. So if you could answer that, that would be fantastic. 

And I would also like to say thank you too, Stig. I did send in a question earlier last week. And even though I did not make it on the show, he was nice enough to respond to me which I really do appreciate. So thanks, guys! Keep it up. Look forward to hearing from you. Thanks.

Preston Pysh  1:00:09  

All right, Charlie, great question. And Stig’s going to go ahead and answer this one for us.

Stig Brodersen  1:00:13  

Yeah. So, Charlie, first of all, thanks for reaching out. We always appreciate getting a lot of questions. I think one of the most public questions is the one we have about stock screeners. And I’m not really endorsing anything, but I do want to say that the one in Google is completely free. So, you can just google stock screener. I’m pretty sure it’s the top one. 

And I really like it partly because it’s free, but it also covers all of the major exchanges. For instance, the Canadian equities. I just pulled it up before the show, and there were close to 6000 stocks in there, so I’m not completely sure how many listed companies are in Canada, but it seems like it covers a lot of them. And there’s plenty of criteria that you can put in there. So, that’s probably the one that I would like to, if not recommend, then just say, “Hey, that’s an option.” I don’t know about the second one, Preston, [do] you have a favorite resource that you go to?

Preston Pysh  1:01:16  

So I personally use Morningstar. I like Morningstar. I have a paid account with Morningstar. I don’t necessarily know that that’s something that everyone should get. The thing that I like about the paid subscription with Morningstar is you get access to their certified financial analysts that write about particular picks. 

One of the things, I guess, this is one of my complaints with Morningstar is that they don’t have every single major company listed under that paid subscription which you think that they would. They’ve got a lot. Don’t get me wrong, but there are some that I do pull up that there’s no analysis to. 

I particularly use that not necessarily for the estimate that they give like their intrinsic value estimate, which they do give with the paid account, but I look at it more for the use of identifying risks with the company. 

Those certified financial analysts will list out what they think that the potential risks with the companies are, and a lot of the times I find myself reading some of these risks that I did not identify myself.

And so, I find that very helpful in trying to mitigate what could potentially go wrong with the pick. So, that’s what I personally use. I think there’s other tools out there. I know if you have a fidelity account, sometimes they have free types of financial analyst reports that come with that depending on what dollar threshold you got, but there’s a bunch of different ones out there. 

I also like Morningstar because I feel like it’s kind of an unbiased opinion. [It’s] like there’s nobody that’s trying to sell me some brokerage account through Morningstar. And I think that that’s an advantage. That’s what I personally use.

Stig Brodersen  1:02:45  

Yeah, I use Morningstar too. And I think the free service is great. There’s few things that are not covered. So for instance, I like to look at the last 10 years as you’re saying, but it only shows the last five years for financial statements. So, that’s just one drawback. 

However, it is showing you 10 years for all the major key ratios, so I think that’s sufficient. If you have 10 years, you have a pretty good picture of the company. And then, if you like the company, then you will go and read their annual reports. But you would go read the annual reports anyway, even though you had a paid subscription. 

I do completely agree with Preston about the qualitative criteria that you can find in the analyst reports. Now, it is not so that you can’t find them in articles and Seeking Alpha, which is completely free, but I think is really nice, because it’s short. So, it saves me a lot of time. And it’s usually very concise, the information that’s in there. So, it’s not information again that you can find elsewhere. It’s really just a time saver, I guess.

Preston Pysh  1:03:46  

I guess the reason I like that too is I can see everything is organized in the same manner. So if I pull up a company like IBM, and then I’m comparing it to Microsoft, or to Google, or whatever, it’s laid out in the same exact manner so I can kind of compare apples to apples as I’m looking across the industry. 

If you’re using like some free Seeking Alpha, you’re going to read some random article by some person that you don’t even know what their credentials are, and they might be talking about something that’s just random down in the weeds, only going to impact the company by one or 2% if something would fail. You’re not hitting those big nuggets where I think with the Morningstar account, I’m actually getting that. So, maybe I’m biased, but that’s what I’m using.

Stig Brodersen  1:04:26  

Yeah, and just to find disclosure [to] that, I know we’re talking a lot about Morningstar. Before that, I used MSN money, but it’s not like we’re affiliated with those sites. So, it’s not really what we’re pushing. Again, Morningstar’s not trying to sell us anything. Even though we had a few amazing guests from Morningstar on. It’s not like we are in a collaboration with them at all. 

Preston Pysh  1:04:44  

So, that’s all we got for you guys today. We really want to thank Josh for coming on the show. I mean, he just gave a fantastic interview with the information that he has on real estate. And if you guys haven’t checked out his site, you definitely need to go there and look at that if you’re interested in investing in real estate. So, that’s All we have for you today and we’ll see you guys next week. 

So one of the things that Stig and I are very strict about is not endorsing any kind of service or product that we don’t personally use ourselves. So with that said, we give our full endorsement of our sponsors content realvisiontv.com. 

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Outro  1:06:56  

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