ABC's of Money with Alan Akina - Lesson 6: The World of Real Estate Investing

Okay, kids and adults. Welcome back to another edition of the ABCs of Money with Uncle Alan. We appreciate you coming back, and hopefully you are safe and well, and also enjoying your time here each week. If you are brand new with us, we welcome you today for our lesson. It is on how to invest in real estate. So lesson. 6, how to invest in real estate. We, we gave you a financial project. I hope you did that and you had fun with it. And again, we wish we could recognize and give every one of you a, a stock gift card. But today's winner comes from the island of Maui, and his name is Justin. Justin Pitagi has his, his business called Protography. Okay, so Protography. Is a photo and video business that will take pictures for weddings and church organizations, sporting events. And I'm proud of Justin for coming up with that. And so Justin is going to get a $25 gift card, and that will go to probably your family's email. And you can use this to start your investing portfolio. Okay, Justin. So congratulations on that, and everyone keep doing your homework so you can try to try to win these gift cards. And most importantly, you get stuff done, right? The the there's so many ideas. There's millions and millions of ideas out there, but it really comes down to execution. How do you execute? How do you perform? How do you get your business going? That's that's what it's really about. So I'm proud of you all for getting it down, and you did the basics. You did what what most people don't when they start a business is actually. Write a plan down. So I congratulate you for that and keep going. Okay. Now for lesson six, we're talking about real estate. So my first question to you: You want to write this down or comment below? What is real estate? What is real estate to you? Could be a simple answer. You might come up with a complicated answer. But what is real estate? We're going to break it down into three areas. Well, simply put. Real estate is property. It's actually one of the oldest and most proven methods of building wealth in our country and across the world. It's it's something you can actually own, and I'm going to talk about the three different types of real estate. And I want you to write this down in your notes. Okay, family? So the first is what we call excuse me residential. Residential. What is residential? We think about it, residents. Okay, so it's, it's like condos, townhouses, a single-family home. It could be a duplex or a fourplex or even an apartment building. This is considered residential. So anything that a resident, a person or a family would live in, that's what we call residential. The second form of real estate is what I was saying earlier, commercial. Commercial would be like buildings, okay? So like an office building, a warehouse, storage unit, malls or strip malls, just standalone restaurants. There's, there's all kinds of commercial real estate out there, huge buildings. Complexes, stuff like that. Okay, so there's tons. Now the third is what we call land. Land is just that, it's dirt, it's land, it's a piece of land. So we're gonna talk a little bit about each, and over time, hopefully, but you start to grow your wealth by doing all 3. I want to talk about why invest in real estate. Okay, why should Should you invest in real estate? Why do you want to acquire properties or houses? I have 6 things for you. Okay, so I want you to write these down. Sorry, I didn't have enough space on my board to write them down for you, but 6 things of why you should invest in real estate. Number 1, because, because people always need a place to live. That's the that's one of the the essentials is is water and food and shelter, and so that's the one of the biggest needs people have, and so there'll always be a need for houses for people to rent. Okay, the the second reason that is a really good reason is because of appreciation. Okay, so write down appreciation. So what that means, kids, is Is that over time, the value of that house or that property will start to go up, okay, over time. So I'm gonna have you do an example of something for your financial project, but think about this. You know your parents? Do you know where they lived 20 years ago? What house it was? Have they ever shown you pictures? Or you might still be in that house, or it's in the neighborhood, or— Whatever, you might, you know, have some memories from it. Think about this. Was your— is your house worth more today? Is it valued more today than it was 20 years ago? Absolutely. I'll give you an example. My first house that I started in real estate that we bought to live in was a condo on the North Shore of Oahu. And we were renting. My wife and I were renting right out of school. We went to BYU-Hawaii. We, we moved to this condo and we were renting for a while. Then we eventually bought it from our landlord and we bought it for right at $250,000. And that was at the time, that was a lot of money. It was, it was at the peak of that market in that area. But we bought it and we were renting it before that. We were renting it for $1,000 a month. Well, we went and bought it. And today, that same condo, which we still own— we love to keep our real estate and hold on to it forever— that piece of real estate now is worth over $600,000. Okay, and we can rent it for $3,000 to $4,000 a month. So it's like 3 to 4 times as much as we originally bought it for, and that's 20 years ago. So appreciation. The next thing I want you to write down is leverage. Okay, so write down leverage. And so if you're missing these things, my daughter— come here, Kiani. My daughter Kiani is taking notes for you, so she's writing it down. Thank you so much. Give her a shout out. Kiani Akina. All right, leverage. So what does leverage mean? Leverage means when you go to buy this house, okay, and let's say You're like me when you bought that first house at $250,000. Okay, so we'll take this away. So this house costs $250,000. With real estate, you can leverage, which means you don't have to give the owner of that house the entire $250,000. You just need to come up with a down payment. So write this down. Keyword down payment. And then the rest of the $250,000 you can get from a bank. So typically it'll be like 10% to 20% as a down payment that you'll need to have for— to buy this house. So 10% will be $25,000. For, for me, when I bought that house, Alan needed to come up with 5% for my down. So I had to save up that money. I just saved away, put that down payment to buy this house, and then the bank gave me the rest of the $250,000 to pay the owner. So that's called leverage. Compared to stocks that we talked about 2 lessons ago, if you wanted to buy $250,000 worth of stock today, you would literally need the $250,000. So this gives you a little different Look to investing. Okay, now the next is your tenant. Do you know what a tenant is? A tenant is a renter, so someone that's renting from you. So your tenant will actually help you to pay back the bank the money that you borrowed. Remember in our second lesson, good debt versus bad debt? This is called the money that we get from a bank. To buy a house is called a mortgage. Remember that? Mortgage. So the tenant, the people that live in your house, will pay you money to help pay the bank back in that mortgage, okay? So this is a very, very good thing. The The next thing is that you get some tax breaks, so you get some tax incentives. Okay, tax incentives go to homeowners or landlords. Why? Because the government wants—is encouraging people to buy a house, to become homeowners, and the government is also encouraging people like you and I. To become landlords so we can provide good housing for those people that need to rent. Okay, so, um, that's always, uh, always a plus when you can get some tax incentives on your investments. Okay, and then the last thing that I want to share with you is what we call passive income. Remember passive income we talked about in our stock class? Passive income means when you start to buy property and you have tenants paying you rent, which helps you to pay the mortgage and you get tax breaks, you are not having to be there every day to work. So it's not like you're working for this rent money. You're having your money work for you. Your money is the down payment, and then the banks helping you to cover the rest. Okay. So that is a great thing when your money can work for you. Okay. So those are the 6 things. Now we're going to go to number 3. There's 2 types of real estate, and I want to make it very, very simple for you. Okay. If you, if you take all the real estate out there, you can break it down into these 2 buckets. The first one is what we call cash Cash flow properties and there's cash now properties. Okay, let me explain what this is. Okay, kids. So cash flow properties are properties that you buy for the monthly cash flow. So you're buying— let's say you buy this duplex. So a duplex is 2 houses in one. And you're buying it because your tenants are paying you rent every month. So you get the rent check. That's called cash flow. Every single month you invested, you're buying it, so you get a paycheck— excuse me, you get a check in the mail every single month. The other benefit to cash flow properties is if you hold it long enough, the appreciation starts to kick in. So the value starts to go up, appreciation over a long period of time. Okay, and because of the cash flow that you have from the renter, you see the mortgage that you took out— if you took out a mortgage from a bank on each one, that mortgage now is going to start to be paid down over time. Okay, so there's a lot of benefits to cash flow properties. I want to now talk about cash now properties. Cash now are what we call flips. So there's basically a couple of kinds of flips. So you want to, in essence, you want to buy a house low because you're going to buy low. You might fix it up. And then sell what? You're gonna sell high. So how does this happen? Well, typically we'll find a house that needs to be rehabbed. Maybe it hasn't been fully kept up, the roof is falling apart, there might be termites or other things that are making the house less desirable. Well, we're gonna buy the house because it is in that depressed condition. We're gonna be able to buy it low, then we come in and we fix it up, and then We'll sell it high. Now, the way you make money is you got to do your calculations to be sure that your purchase cost plus the fixing up costs and any what we call holding costs, the money that it's going to take for you to have that property over time and then closing on it, will cover the sales price. I mean, your sales price will cover all that, so you end up with a profit. Okay. So, Cash now properties have two ways of doing that, and you can do it through what we call flips, which is buy low, fix and sell high, or you can buy land and you can build a house on it and then flip the house. Now cash flow, so this is the term for for cash now is called flips. And the term for cash flow is what we call— I'm going to write it up here— just rentals. So if you use real estate lingo, most people don't know what this is— cash flow properties. This is just my term to help teach you. But cash flow properties are called rentals, and then cash now properties are called flips. Okay, so there's— that's basically in the world of real estate. Everything in a nutshell that you need to know. I want to introduce you to this book. He's a friend of mine. This was um, he's a he's a world famous author. His name is John Shaw, and he wrote the book Building Wealth One House at a Time. What that author John taught me though is something very simple. So here's a golden rule for investing. Okay, you want to buy. Good houses in good neighborhoods. Okay, why why would you want to buy good houses in good neighborhoods? Because it equals good tenants. So good tenants will stay there longer. And you'll have less repairs and things of that sort. He introduced me— I mean, John's, you know, older guy, so he's been in real estate for like 40 years. He showed me a house of his that he's had a tenant in there for over 30 years. Same, same lady, just loves renting from him because he takes care of the house, he takes care of her. So this is a very good formula to know, kids, that you want to buy good houses in good neighborhoods. Equals good tenants, and good tenants have good what? Cash flow. Good cash flow. Steady. Very, very steady. Okay. So those are the two ways. Now I want to go into number four. We still have a little bit more to cover, but number four is how do I make money in real estate? And there's four ways that we do that. Number one is through what we just talked about here, rental income. Rental income is cash flow. The next is what we call appreciation. Appreciation is when the value of the home goes up over time. Okay, the value is going, going up over time, and you can even increase your appreciation by making it look nicer. So We've done this before where we paint the house, we put new carpet, we put a new bathroom or kitchen in, and it makes the value of the house go up. Okay. The next way to make money is wholesaling. Wholesaling is when you, when you can buy a property and you can sell it to another investor, and sometimes you don't even need to actually close on that property to sell. So You can you can move properties to other investors. So you come across a deal, you can't do it, or it's not in your portfolio. It wouldn't fit well. You find another investor and flip it over to them, and you know make make some money. Some some guys make ten twenty grand on on that or more every time they wholesale. And then the the last way is ancillary ancillary things like you can put in. Like this would be like a washing machine and dryer set. And let's say you own an apartment complex, you can put these washing machines in and you can, you know, obviously charge for it. And that could be another source of income for you on your property. Okay, so another way to generate cash flow. All right, we are moving on here. How do I get started? How do I get started in real estate? This is, this is a tough one because there's all, there's all kinds of ways to do real estate. And so I tried to, to make it very, very simple for you. So I got 2 ways and there are several things that I want you to write down. First thing we have to do is find a deal. So write that down: find a deal. Okay, how are you going to find a deal? Well, I have, I have many options for you. Okay, so write this down, kids, and Kiani's going to type it in for you if you can't follow along. The first is what we call ride for dollars. Adults call it drive for dollars, but since most of you can't drive, I'm calling it ride for dollars. So I want you to get on your bike, okay, or your skateboard, and you're going to ride around your neighborhood. Go down streets that you hardly ever go down. Make sure they're safe. Okay, you might have to go with an adult, but ride around the neighborhood. And what you're looking for are properties that are maybe not kept up well. Things are falling apart. You notice that people hardly ever come to the property. You, you're looking for a yard that the The grass is overgrown. If the grass is like up to this high, like as tall as you, or, you know, to your waist, then something might not be all there. So that might create an opportunity for you to buy low because this property is not nice, and you can fix it up and flip it. Okay, so you're gonna ride for dollars and you go around in different areas. Okay. The second thing that I want you to write down to find a deal is from realtors. You know what realtors are? The real estate agents. These are professionals that their job is to help people to buy and sell houses. So they have access to what we call the MLS, okay? The MLS is the Multiple Listing Service. So it's an online directory of all the houses that are for sale and all the houses that just sold. So they have a lot of data. Realtors are, are really good to work with, especially at the beginning when you're getting started, because they have some experience and they have access to helping you find the deals. The only problem with the realtor is that everyone else is looking at the MLS. So this is what we call retail, and some realtors are great at just being realtors, and then there's some that are realtors/investors. Those are the ones that I typically like to work with because they understand what an investor like you and I are looking for, as opposed to just buying this house because it's so pretty, it's so cute, it's this and that. We're not looking for pretty and cute. We're looking for cash flow. We're looking, we're looking for opportunities, and opportunities typically don't come in a pretty pink bowl. Okay. Okay. The third way that you can find a deal is from friends and family. Friends and family typically run across properties that they know of, or, you know, so-and-so's selling this property, or they need to move, or this, and they know inside stuff. And so friends and family are a great resource. Next, I've done this as well. I've gotten other deals from other investors like me, other people that are investing in properties like, hey, Alan, you know, I can't do this, or you want to do this together. We've done, we've done deals together. All right, next is online. So now today, kids, there's so many resources right at your fingertips, right on your phone. You can look up things and get access to a lot of the things that the MLS has. You get all these properties, the price, the history of it, the taxes and the insurance costs and the maintenance and everything right at your fingertips. So use these different websites and apps to find a deal. And then lastly, I suggest making business cards. So, so make a business card, put your name on it and just say real estate investor or whatever your name or your company is. And you can put your number and your email address on there and just give it out to people as you're walking around the neighborhood. Say, hey, Hey, my name is Alan and I'm a young real estate investor and I was always looking for a good deal. If you come across one, here's my card, please give me a call. And once you start to get the word out there and people see you as someone that's very serious about what you're doing, then you'll start to get what we call deal flow. Okay, in the world of investing, it's called deal flow. How many properties are you getting access to be able to see and evaluate? Because not every Property you see is a good deal. In fact, most aren't. You got to weed through it to find the good deals, and so it takes a lot of deals to come through. Okay, so that's the first way to get started. You got to find the deal. Okay, why do I put that first? Because if you don't have a deal, then you don't have an investment. So the second thing is we're going to find. The money to do the deal. Because you might say, well, I don't have money. Well, it's okay. There's, there's investors out there that don't have money as well. And when I started, I didn't have very much money. And so you can do deals. Finding the deal will help you to find the money. Okay, so let me talk to you about ways that you can find money to do your real estate deals. Now, Number one, which is probably going to be the cheapest money you'll get, a little harder, especially as you're— when you're younger. You know, when you get older, make sure you take care of your credit. But the first way is what we call the banks. Okay, so banks can help you to fund a property. Second way is an investor. So it might be other investors that will want to jump in to deal with you, or they may just invest in stocks, but they want to get into real estate. They see you as someone that's doing it really well. They're going to invest in you. Okay. The next way is by leveraging. Remember we talked about leveraging here? Leveraging means we can use money from another house of ours. So maybe when you're older, you have your house, you start to pay it down fast. Like Uncle said, pay that house off fast. You can go back to the bank and leverage that, get money from that to use as a down payment to buy the house and get another loan. So it's called leverage. People do that all the time. I do that all the time. The next way to get money is what we call hard money. Hard money comes from nontraditional banks. So there might be other investors or smaller organizations that give you Money. The benefit of them is that they're a little easier to get to than a bank, but their interest rates and their fees, or they call them points, are more than a bank. But hard money, there's a place for hard money in your investments. And then lastly is called seller financing. Okay, so write this down: seller financing. Seller financing is when you get the owner of the home. So let's say you bought this house here. And the owner wants to get rid of it. And you can say, well, what if I turn you into the bank and I just pay you back a little bit of money? Make— we'll make a deal to pay you a certain amount every month until I can go get a loan from the bank. So give me a year or 2 years, I'll pay you this much every month. And at the end of that, I'll get you bought out by getting another loan from the bank. So seller financing. It does happen quite a bit. I've done many deals with seller financing. Some will do the whole thing, some will do just a little bit. I did one deal in Hawaii with, with a couple houses that the seller financed the whole thing except for a small down payment I made. So they're, they're out there. Okay. All right. So that's now finding the money and finding the deal. I want to move on to What we call real life monopoly. So real life monopoly is this: remember I said earlier start small? Okay, start small. So you might want to you know buy a condo like I did. Then you go from a condo and then uncle got a house that had two units on it. So I went from the condo. To the house with 2 units. Then I went to more single-family houses. Okay. And then you get the commercial stuff and you get the big stuff. So remember the game Monopoly? 4 houses turns into 1 hotel. That's kind of what happens in the real estate game. So you can start small and build up, and then eventually you, you can go to the next game now. I do want to say this, you know, real estate, you got to be savvy, you got to be smart. And that's why I, I recommend getting a good education, studying hard, even if you're in homeschool, do all your work. English, math, science, all this stuff counts. History. This is going to help you to be a better investor. It's going to make your brain smarter. Okay, so real life Monopoly. You got to be smart. Okay, you got to understand your area. You want to be the expert. You want to be the expert in your area. So if you live in a small town, okay, so let's say you live in, in a little town called Aloha in Oregon. There's, there's a town called Aloha, Oregon, and you, you want to get to be that expert in that area. So you know the prices of homes, what things are selling for, how much things are renting for, what the property taxes are going for, how much it costs to insure the house. The maintenance costs. What are contractors charging? There's so much to know, okay, to to be an expert. And again, it's all about starting small, starting small. All right, couple more things before we wrap up. I have keywords of the day. Okay, kids. So first keyword of the day is landlord. Landlord is actually a good thing. I've had many of those in my day, many landlords for a while, and some were great, some were mean. But you can be a great landlord, you can be a nice landlord, and, you know, be able to take care of people, take care of your tenants. Landlord's a good place to be because you, you're the owner and people pay you. Okay, another keyword is leverage. Remember leverage? I've said this many times, that's why it's a keyword. Leverage means we borrow money, we use Other people's money from a bank, hard money, other investors from other properties, so you can get more assets. You can get more assets. You can leverage. Okay? Because ultimately, here's our goal. Ultimately, we want to do this. You want to collect houses. You and I, we want to collect houses. We want to collect properties, assets that produce cash flow. So to do that, you're going to need to know the keyword of leverage. Okay, here's another keyword for today. Rental. All right, rental. What is rental? Cash flow property. You become the landlord and they pay you rent every single month. Next is a flip. What is a flip? Cash now. We're gonna buy low, fix, and sell high, or we're gonna buy land, build, and sell for more than all of our costs. We create a profit, and then we use those profits to go buy more properties. Okay, a couple more for you. Appreciation. Appreciation is when the value of your home goes up because of the market or because of how you fixed it up. And/or both. Very good thing. Tenant. What is a tenant? Tenant is a renter. Take care of your tenants. Commercial. What are commercial properties? Commercial properties are where businesses will rent from you. And so you, you might own a strip mall and you have a grocery store or restaurant that rents from you. You might have a salon That rents from you. Okay, so that's commercial property. So you have business, business owners that are your tenants, they're your renters, so you get rental income. And the last one is seller financing. What is seller financing? That's when we get the owner of the house to basically be the bank for us, and then we pay them. Okay, there's a lot of keywords today. I hope this kind of helps you out a little bit. Like I said, there's so much to do here that it is absolutely crazy, and I don't expect you to know it all, but the goal here is to get you started. So with that being said, I have some financial assignments for you again, and these financial assignments will allow you to win more gift cards. Okay, so write these 2 assignments down. And then we'll go to answer any questions at the end. Okay. So your first financial assignment. So I want you to do a ride or a drive-by. Okay. A ride on your bike or go with your parents and drive through neighborhoods. I want you to try to spot at least one opportunity where you might see a house that doesn't look like anybody's lived there or the grass or the The pain or the house is falling apart. Look in those areas, or you might go if you if you live in a nice city, you might have to go to surrounding areas to go find it. But jump in the car and don't get arrested though. I'm not sure depending on what state you're in. I don't know if your states are shut down. We got kids from all different states here, so abide by the laws. But if you can go out, do a drive by with your parents and go look at properties. I want. This financial project is to get your mind trained to look at at properties and not just look at different scenery. We're looking at houses here, okay? I want to train your eye. That's first assignment, and I want you to to write about it. You can take a picture of it, but you don't need to post it unless you want to. Okay, the second one is you can do this is a research project, okay? So what I want you to do is find out about the home that your parents lived in 20 years ago from— or just 20 years ago from now. And I want you to research and find out if you can, from asking around your parents or doing research online, what that house was valued at, what it was worth 20 years ago compared to today. So those are the 2 numbers I want you to do on the value. Then I want you to look at the rental income from those 2 years. So 20 years ago, what did it rent for? And 20 years later today, what would it rent for today? So some of you may be in the same house, some of you might be in a different state or a different area, but this is a good time to research and ask your parents for pictures. So, so maybe your parents have an old Polaroid they can pull up. Now what I want you to take that picture of that house, try to get a picture somehow, and then post that picture online. Tag me in it on my Facebook or my Instagram, and have the hashtags Money ABCs and hashtag 101 Financial to enter in for your chance to win this gift card. And I want you to say the price, okay? The value. So value that. This 20 years ago, now it's valued at this. Rented for this 20 years ago, now it rents for this, or could rent for this. I don't know. Okay, so I hope that this exercise, this financial project, gets you thinking. I hope today's lesson was a lesson on getting you started in the right direction, because this, this is huge. Real estate is such a huge builder of wealth. And if you understand it and you take advantage of it young, like stocks, starting young is a huge thing. Understanding real estate at a young age, not that you have to— the crazy thing is you can't really buy real estate now. It's a little more difficult because you're younger, but I want you to know about it.

Tony says, if you can't go outside, how can you do the first project?

Hey, if you can't go outside, don't do it. Then don't do it. And I'm not counting that. The second project you can do because it's just research. But yeah, I, I don't want you to go outside if you're not allowed to go in your car. So be safe. That's my first thing.

What does wholesaling mean?

Hmm. So wholesaling is, let's say you find a property, but you can't buy it, or it doesn't fit into your portfolio, but you found the deal. You can take that property. So I found this house, it's it's for sale for two hundred fifty thousand, but the market is three hundred fifty thousand. I can't do it. So you go to my real estate friend. So I say, "Hey, Kiani, I can't take this deal, but I can flip it over to you and and you buy it." So just pay me ten grand and I'll give you the deal. And so Kiani takes the deal from me. She didn't have to find it, spend the time doing it. I make ten grand without doing it, without. Having to put any money in, and then she gets a $90,000 profit on it.

How much money do you need to start your business?

How much money you need to start? Zero. You need this, okay? Because if you have this, you have brainpower, you can go find the money. You go find the money, you find the deals which will help you find the money. Just being really smart.

How long does making a business take?

You can start a business in a day. I— some, some of these— some of you kids Have some of these business plans in in a matter of a few days, and so it doesn't take long. And I really believe, kids, that every single one of you, you have a million-dollar idea in your head, or it is developing. So when you become an adult, you'll be able to harvest that idea out and it'll become a million-dollar idea or more. So I believe that in every one of you. Let's get your financial projects done. Be safe, be healthy, and I will see you on. Thursday for lesson number seven. You know what lesson number seven is? College and career choices. Okay, college and career. I'm gonna take you through that. Take care, everybody. God bless you. Aloha.