Wealth is not all about money. To truly have it, you must also have the time to live life on your terms. What better way to achieve real wealth than through building multi-million dollar real estate portfolios that generate passive monthly cash flow for life? In this episode, Lisa Hylton talks to someone who specializes in helping people to do just that. She has over Kathy Fettke, the SCo-CEO of Real Wealth Network, a California-based real estate investment club that helps its members build wealth. Here, Kathy shares her real estate journey and the lessons she learned from people like Robert Kiyosaki that guided her with starting and growing her business. She then talks about the state of the different real estate markets in Texas and California, as well as the different options when looking to buy a single-family home. Imparting her own words of advice, Kathy highlights the importance of due diligence and why it is the only thing you should trust.
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Building Multi-Million Dollar Real Estate Portfolios With Kathy Fettke
I have another amazing guest on the episode to share with you. Her name is Kathy Fettke. She is the CEO of Real Wealth and bestselling author of Retire Rich With Rentals. She is an active real estate investor, licensed real estate agent, and a former mortgage broker specializing in helping people build multimillion-dollar real estate portfolios that generate passive monthly cashflow for life. With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS, MarketWatch, and The Wall Street Journal.
She was also named among the top 100 Intriguing Entrepreneurs by Goldman Sachs two years in a row. Kathy hosts two podcasts, which I have personally listened to myself. The Real Wealth Show and Real Estate News For Investors, both top ten podcasts on iTunes with listeners in 133 different countries. Her company, Real Wealth, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create real wealth, which she defines as having both the time and the money to live life on your terms. Thank you so much, Kathy, for coming on the show. I appreciate it.
Thank you for having me.
I can personally say that I have been a participant and a benefactor of Real Wealth Network. It’s been a large part of my personal education when I got started. I’m thinking about reinvesting in real estate again. This was a few years ago. I was living in California and I remember a co-worker discovering your website and your events here in California. We were like, “These events take place right here. Let’s go and see what they’re all about.” I’ve learned a lot from going on the trips and seeing the markets and being around other investors who have invested in multiple properties with you. It’s definitely been a big learning lesson.
That’s wonderful. It’s great to see you there.
Can we start with how you personally got started investing in real estate?
The first was Rich and I had just got married. My dad had invested in an apartment for years. He was a dentist and didn’t know much about real estate at all. He got into someone else’s syndication. We’re talking many years ago. When Rich and I got married, he called us in total distress because the operators of that apartment, the syndicators sold it and were terrible communicators. They didn’t manage the apartment well. They sold it and sent him a letter about that. It was before email. By the time my dad received that letter, he only had about three weeks to exchange into another property or he would pay all the capital gain from that sale. All the years of depreciating it, which a lot of people don’t realize, you get great tax benefits from real estate. If you sell it, you have to pay it back. It’s called a recapture. You never want to sell. Always 1031 Exchange into another property. That’s what he wanted to do.
He was on the verge of retirement. This mistake would have not allowed it because he would have had to pay several hundred thousand in taxes that he wasn’t prepared for and that he was hoping to retire on. Rich and I were newly married and we were renting. It’s not a nice house. Rents were high in the San Francisco Bay Area as they are where you live in California. I said, “Dad, tell me what you’re stressed out about?” He was like, “I need to find a property.” I said, “I’m a renter. How about I find a place I want to live in and you’d be my landlord and we’ll solve this issue.” He was like, “That would be amazing.” I went out and I found my dream house. I was able to turn it into a fourplex. Rich and I could live in the nicest part. We turned the in-law unit into a unit. There was an office and we turned that into a studio and then another little room.Never trust, always verify. Click To Tweet
We ended up being able to live in this property and save my dad hundreds of thousands of dollars in taxes for us living there. We managed it and then we made an agreement, “You’re retiring. Let us handle all of this. We’ll handle all the management and everything and then someday we’ll inherit it.” That’s where we had to understand the tax implications of that and what a 1031 Exchange is. That’s what we did. We saved my dad the taxes. We lived in that property, managed it, and ended up inheriting it. In that time, it went up from $500,000 to about $1.8 million.
From doing that, what made you decide to then start buying more single-families?
Right around 2003, about four years after that, my husband was killing it in his career. He was a business coach and a personal coach and author. He wrote a book called Extreme Success. He was an incredible motivational speaker. He was traveling the country all the time. We have two little kids. I was living my dream in this beautiful house. Everything was great. Until one day, he comes home from the doctor. He had been on a media tour promoting his book. He came home and noticed a freckle. He’s a redhead. I have no idea how this one little freckle, out of thousands, stood out to him but it did. He went and got it checked. It turned out to be melanoma.
He did more checks. It had spread to his liver. The doctor looked at him and said, “You’ve probably got six months if that did indeed spread because melanoma is a quick-moving cancer.” Back then, they didn’t have treatment for it the way they do nowadays. He came home in shock because we were at the top of our game and suddenly not. That’s how quickly life can change for you like now in Nashville. Things can change quickly overnight oftentimes. I thought, “I’m going to figure out what to do if the doctor is right,” which I refused to believe that a freckle could take down my big strong husband. I thought, “I’m going to let him stay home, take care of the kids. I’ll go out. I’ll go on that treadmill and let him relax.” I had no idea how to do that.
I had been a stay-at-home mom for years. I didn’t have a career anymore. I didn’t know how to make money. I had been in broadcasting in my early years. I worked in many newsrooms in San Francisco. I still had a little radio show that made no money and it was terrible. I had no following. It was not a good show. I had this little radio show on this small station. It kept me sane. I could get out of the house on Saturdays and do the show and feel like I had some career. I thought, “Maybe this is the time to make that a career.” That’s the one thing I did know how to do and I had experience and I like doing.
I took this little show and I started looking for sponsors to monetize it. I ended up finding a sponsor. This was back in 2003. That’s when mortgage brokers were making so much money. I thought, “I’ll call a mortgage broker and have them sponsor.” I ended up being lucky in the sense that the mortgage broker who agreed to be my sponsor also was a real estate investor. I thought, “How am I going to make mortgages sound interesting on my show?” It turns out it was interesting because he would talk about the power of leverage, how you can borrow bank money to acquire an asset that you can fix up and sell for more and you get the entire profit even though the bank put up all the money. You buy that property, fix it up, rent it out, you get all the income from that. You get all the tax benefits and all the upside but the bank lends the money. At that time, they’d lend 100%. You could walk in and get all the money to buy that asset but you got all the upside and all the tax benefits. That made sense. Those were the days and it was unlimited too. You could get an unlimited number of investment properties with no money down. It was a crazy time. That’s also why it all imploded.
You’ve built an amazing platform that helps to educate people but also provides people the opportunity to invest in real estate. Can you talk about the building of that platform and the decision to do that?
There was never a decision. It just happened. There was nobody else. People are calling me a pioneer because there were none of the resources that people have now. There weren’t any podcasts. There was no meetup. It was the little real estate investment clubs that were run by people who would make money on the speaker. The speaker would come in and talk about how to buy apartments. You’d run to the back of the room and pay $2,000, $10,000 or $20,000 to buy that system because there was no other way. The internet wasn’t what it is now. I’m dating myself but this is how it was.
You would try to trust these sleazy speakers. Most of the times, they never even had done any deal. They were just selling these products. That was the world of real estate investing. There were almost no women. It was a strange world. What I fell into was this radio show that I thought, “I’m going to learn how to make money.” I have the sponsor teaching me things about leverage. All of a sudden, I had a platform. Because it was in San Francisco, a lot of people were willing to come and talk. I got people like Robert Kiyosaki to come on my show and tell me what he was doing. It was the first time I was able to get information from the experts, which was difficult to do back then, and be able to share that with my audience.
I did it for totally selfish reasons because I wanted to understand why some people have money and others don’t. It was obvious that people who have money, most of them were in real estate. They made it from real estate or they made it from a business and invested it in real estate. It always came down to real estate. I wanted to understand what do they know that the regular people don’t know. I would interview them and ask questions. It was Robert Kiyosaki who pointed out like, “Getting no money down investment property is unlimited.” That’s where you don’t have to prove any ability to pay those loans back. That’s probably not going to end well.
He could see the writing on the wall that many people couldn’t, most of the world couldn’t. He could see that in 2007 these loans would adjust. People will not be able to pay them and you’re going to get a lot of deals. He goes, “You’ve got to get out of California where it’s going to implode.” He said he sold everything because it bubbled up so high, way past affordability. He had identified Dallas, Texas as the place that would not implode. Based on research, I knew this because I was in the mortgage industry with this co-host. I ended up becoming a mortgage broker because the show worked and everybody wanted a loan. I said, “I’ll become a mortgage broker.”
What I knew is that Texas was the worst place to be a mortgage broker because they didn’t do those things. You could only go up to 80% LTV on a refi. They were much stricter on their lending standards because they’ve gone through the S&L crisis. They’ve been wiped out. They were not going to do that again. They didn’t have crazy loans. Home prices were low. The State of Texas had decided to become the most job-friendly place in the country and it worked. Jobs were moving there. People were moving there, but home prices were still low. I learned those basic fundamentals from Kiyosaki. I taught that to our audience.
Rich and I got on a plane. We went to Dallas and bought twelve properties because it was easy to get a loan and no money down. We picked good areas because we were learning these fundamentals from the people I interviewed. Where’s the biggest job growth? Where’s the population growth? Where are the most affordable homes? We picked this little area called Rockwall, Texas. We could buy brand new homes there for $140,000 that rented for $1,400, $1,500 a month. It made sense. A few years later, the housing market crashed. Those houses did not. In fact, they went up in value and so did the rents.
The properties we bought there were not affected by one of the largest housing meltdowns in history. Fortunately, I had talked to people and said, “Here’s what we’re doing.” A bunch of our audience, I was able to do loans for them. That was my business. I helped them get into properties in Texas. Those people also didn’t feel the recession because they got out of California at an overpriced market and into one that wasn’t, all at the same time. That’s why when people say, “Real estate is in a bubble.” No, there’s no real estate. There’s no one market called real estate. There are many different markets all at different timing of their cycle. At that time, you could sell California at the peak, cashing on all that wealth, and take that money, 1031 Exchange it in Dallas that was at the beginning of its boom. If you timed that right, you could make a lot of money. That’s the same opportunity we have now.
Can we talk about now in the sense that we’ve been in an amazing market up until this point? With the Coronavirus, we’ve seen shakes in the stock market and potentially the effects that it will have. Can you talk about what you’re seeing in terms of the future for real estate?
What we’ve been seeing is a lot of the same issues that we saw before where a lot of values have gone beyond what is affordable for that area. In San Francisco, we saw this in 2019. That area is overpriced. The average person can never afford to buy. It reached a peak. That’s what people forget. There’s only so high that rents can go before people can’t pay them. There’s only so high the prices can go before it doesn’t make sense for the average person. Unless there is some other stimulus, maybe foreign money or something else driving it, which was the case in California. A lot of foreign money is gone now. We could see that that was going to happen. There are other areas of the country where they’ve never had that. They’ve never had home prices go up the way they’ve gone and they’re in shock. Areas like Seattle, Denver, Dallas and Chicago, these are areas that historically had flat prices and now they’re up high.Don't trust anyone. Only trust the process of your due diligence. Click To Tweet
The question is, how high? Have they gone past affordability or are they still in line? Let’s take Dallas, those little areas that we bought years ago, they’ve tripled in value. That’s a shock to that area. Is it in line with affordability? When we bought, it was 26% undervalued. Now, is it overvalued? What’s happened is many jobs have moved to the area that those homes are still within an affordable range. It’s a shock to people who aren’t used to it. If you’ve got the average income like $90,000 in the area, a $300,000 house is affordable. If you look at the chart, prices are going like that. Is that the same for Denver? Is it the same for Chicago? You have to zone in and say, “What is the average income of this area? What is the average home price?” I’m talking about single-family homes. It’s easy for people to understand. If the average income is $50,000, then the average home price shouldn’t be much more than $150,000. It shouldn’t be more than three times income. That’s how you can determine if your area is in a bubble or not.
That brings me to investing in single-families. Some people that are reading are probably sitting at their desks, working their corporate jobs, and they’re interested in investing in real estate. They’re looking at, “What are my options if I wanted to buy a single-family home?” What advice would you give to that individual who’s thinking about doing single-family turnkey properties?
You’re going to get me excited. I love it when the lights go on. It’s this a-ha moment. If you have people in California who have thought, “I’m never going to be able to own real estate,” it’s true. It is expensive to own property in California. It’s hard to come up with that down payment. If you can, it’s cheaper to own than rent. That could be the case if you get an FHA loan. You only have to put 3% down and you find a condo. There are still ways. For the average person, it’s like, “How am I ever going to come up with a few hundred thousand dollars as a down payment? I can’t do it.” What I love to share is that you don’t have to. You can live wherever you want as a renter in California. You can buy a rental property anywhere and all you need is 20% down. That’s still money, you still need money. What if the house is $100,000? You only need $20,000. You can put $20,000 down. You can get a loan for $80,000. That loan is going to be $400, $500. Rates are low. It’s like you’re renting that house for $1,000 a month.
For people to realize, “I can still own a real estate portfolio,” but it’s not going to be here. It might be somewhere else where $100,000 home is normal. There are plenty of places in the US where you can do that. What a lot of people don’t realize is you can get up to ten of these loans. If you were able to save that $200,000 to buy your home in California, what you might not realize is you could buy ten rental properties elsewhere that cashflow. You can use that cashflow to rent your property in California or use all that cashflow to pay down those properties. If you use $200,000 to buy ten rental properties and if your goal was about $3,000 a month cashflow, which is possible in certain markets, that’s $36,000 a year of cashflow. Remember, the loan is $80,000 on these homes. You could have one of those rental properties paid off in two years from other people’s money, from the renters and the bank money that got you the asset. Plus, you get all the tax benefits.
I can’t tell you how many people I’ve helped. There are a couple and they’re both working hard. They’re in the tax bracket that says, “Why am I even working? What happened to my money?” They look at their check, two people but they want to have a family. They want to have kids. Don’t quit your job yet. Buy your property first because you need the job to qualify for the loan to get the property. Never quit your job first. Get the loans. If you can take one of you as a couple, max them out. I’ll say husband and wife. The wife goes out and uses her salary to buy 8 or 9 houses. I know it sounds a lot but it can be done. It’s manageable, property management.
There are ways to do it. She’s maxed out her ability to get loans. Now she quits her job. She has her babies. He still works and all of that income from those properties and the tax benefits can go against his income. Talk to a CPA. A lot of people have found out that they make more money with one person working because of all the tax benefits of the other person not working and owning all that real estate. Talk to a CPA. Listen to the stuff on our website. When I find out that people’s lives have improved because of understanding this stuff and they have more time, more money, and they can have the family they dreamed of, I do get excited.
As people think about buying in states where they don’t live, what are some of the key things that they need to think about or look for when making that decision?
I’ve been in this business for years. I was the only female for many of those years. Now I’m seeing many women come in. I love it. Back when I started though, it was a game of sharks. It still is. Back then, it was worse. I thought you could trust people. If someone shook my hand and looked me in the eye and told me something, I thought, “Why would anyone lie to me?” On my real estate news show, I’m constantly talking about people who have ripped other people off. It’s amazing. It’s a sociopathic ability of someone to cheat someone else. I don’t know how they do it but they do and they’re out there. It’s commonplace and they flock to the investment world and real estate, for sure.
Let me be clear, never trust, always verify. Don’t even trust me. I’ve had many people trust me and a referral I make but you’ve still got to do your due diligence. Don’t trust anyone. Only trust the process of your due diligence. We teach a lot of that in my book, Retire Rich With Rentals. There’s a whole process for doing your due diligence on our website. Don’t have someone say, “Here’s a great property,” and then you buy it. Don’t do that ever. You need to understand the market. Understand the rents in that market. What are the drivers and the jobs in that area? Are those jobs going to survive something like Coronavirus? Who knows who our next president will be? Are these the kinds of jobs that aren’t going away? Those are a few of the bigger picture things. When you look at the property, you’ve got to understand that property. Every property is different.
I’ve had people I do trust say, “Buy this house.” I go out and look at the house and it was like, “This house feels bad. I wouldn’t want to live in this house. It’s dark. The floor plan is wrong.” If you don’t feel good in that house, your tenant is not going to feel good. Personally, I urge people to see what you’re buying. It seems obvious to me. It’s like a $300 plane ticket. If you’re going to go to Dallas, look at what you’re buying. In our network, we have lots of people who buy sight unseen and it can be done. Why not take the time to see what you’re buying? Because every house has a different feel and different energy. You want your tenants to love it and stay forever.
Turnkey is a word that has been used a lot. I can tell you that it means nothing. There is no such thing as a turnkey. I started investing before that was even a word, and then it became a word and everybody stuck the flag up. “I’ve got turnkey properties,” but there was no definition. It’s just silly and inexperienced people thought, “Turnkey means all I do is turn the key and I’ve got a rental property.” There’s no definition. We created one saying, “We’re calling them real turnkeys, which means they have to fit our real standards.” Someone could put up a flag and say, “I’ve got a turnkey property,” when all they did was put new carpet in. That thing could break. Understand what you’re getting.
Make sure you get appraisals. Make sure you get inspections by a third party and not the person selling it to you, so the inspector can say, “Here’s the condition of the property. Does this look like a turnkey to you for whatever your definition is of that?” For me, the definition is I want to know that I don’t have to replace an HVAC system after I buy it. I don’t want to have to replace a roof. That’s not turnkey to me. I want to know that there’s life left on that roof. The plumbing has been handled. The electrical has been updated. That’s turnkey to me. I don’t want to buy a property and then have to completely renovate it. I want to know that that’s been done or I just want a brand-new property.
When you’re buying properties out of state, it’s important to make sure that they’re updated properly. When you’re buying a property that you can’t see every day and you’ve got someone else managing and that property hasn’t been updated, it’s like buying an old car. Lots of people buy used cars. There’s nothing wrong with buying a used car. You have to know that the day you buy it, the brakes might go out. That’s no fun unless you got a great deal. If you got a great deal with my car, fine. You’re going to deal with how it falls apart but you have to know it’s old versus a certified new car that’s been updated. It’s the same with housing. If you buy a house that the electrical and the plumbing has been updated with a new roof and a new HVAC, you’re going to have a little bit less difficulty than the property that hasn’t had that. You got it for cheap, who cares? Except be careful because some of the cheapest properties out there are the most difficult if they’re in high crime areas. If they’re in C-class or D-class areas, those are hard to maintain as well.
I know that a part of your platform, you also help people with development type of syndication opportunities. Can you talk a little bit about going into that space? What are the things that someone who is a potential investor would want to think about when it comes to investing in those types of opportunities?
Syndication has become the hot new word. We fell into it. I didn’t even know what it was when we started doing it. It was 2009 and you could get stuff for cheap. We were buying land that was $0.10 on the dollar and took more than one person to buy it. We pooled the money and bought it. Anytime you pool investor money, it falls under securities licenses versus the Department of Real Estate. Everything I was talking about when you buy a house or buy a rental property, that falls under the Department of Real Estate. When you’re investing passively in somebody else’s project, that’s a security. Many people are doing it incorrectly. Let me be super clear. You cannot sell a security if you’re not a licensed broker-dealer with the SEC. You cannot raise money for somebody else unless you’re licensed to do that. If you see a syndication, make sure that whoever you’re investing in, find out what their real role is. If their role is just raising the money for it, they might be doing it incorrectly and they might not even understand the project.
If you’re raising money, this is going to SEC law called Reg D. There’s a way for real estate investors to be able to raise money and not have to go through the full securities process. The most important thing to look into it is to make sure you know who you’re investing with. What is their track record? Have they done this before or is this just some salesperson selling someone else’s deal and they don’t understand it? They probably shouldn’t be doing that anyway. What is the deal and how is it structured to protect you as the investor? I had a total Facebook battle with somebody who maybe hasn’t done this long. They’re saying, “A straight 80/20 split is the best way to invest in syndication.” I’m like, “What do you mean?” Let me explain. When you have a capital stack, “Here’s all the money that came into this project. Here’s how it’s going to get paid out once it’s done.” This is the capital stack. You’ve got to understand it. Who gets paid first? Who gets paid what and why?Take the time to go see what you're buying because every house is different. Click To Tweet
Ideally, you want to be at the top. The way I described it on Facebook is if you’re at a cocktail party and they bring out the coconut shrimp, and you know there’s never enough, you want to be right there when that tray comes out. You want the first shrimp that’s hot and fresh out of the oven. Not the guy at the end of the line like, “There are crumbs.” You don’t want to be that person. It’s the same with syndications. Where do you stand on that capital stack? One of the ways to move higher with higher priority is what’s called a preferred return. A lot of syndicators are dumping the preferred return saying that it’s a better deal. It’s not because a preferred return means you get preference. You’re higher up in the capital stack. When those profits come, yours comes out first out of that. The promoter, sponsor or developer comes last. That’s how it should be. Understand what a preferred return is. I won’t say names, but there’s a famous person who’s doing a 65/35 split on a class A property that brings in a 5% cap. The investors don’t understand they’re getting 65% of 5% and the sponsor is getting 35%.
I would never do that deal. I would want my 6%, 7%, 8%, or whatever is my pref. If this property’s only generating 5% but I have a 6% pref, that means I get all of that cashflow plus 1% of it later each year cumulatively. I would look for a preferred return that’s cumulative. That’s important to me. In the end, if they didn’t hit the target, you get it out of that final profit. That’s important in my opinion. I had deals come across my desk every day since we work with developers. This was like a hotel thing. This operator has never run a hotel so it was this easy, immediate no. Just because you’re good at apartments, does not mean you’re good at hotels. It’s a different business. Did they get a great deal? Yeah. Unless I see someone on their team who has run a million hotels in the past, I’m not doing it because I’ve done this. I’m speaking from experience. I don’t need to be their experience. I don’t want to be on the journey with them as they learn. I want to know that they already know what they’re doing.
Thank you, Kathy, for coming on. My last couple of questions are my level up questions that I asked all of my guests. The first is, what are you grateful for in your life?
I’ve been traveling nonstop. I’ve enjoyed this opportunity to teach and I get asked to speak at a lot of events. I’ve been traveling almost every week. I have respiratory issues so it’s safer for me to stay at home with the Coronavirus going on. I don’t want to risk it. I’m probably that category of person that says, “Stay home and wash your hands.” I’m happy to do that. For me, this is an opportunity to stay home and I am loving it. I was sitting on my couch reading. When have I done that? I’m going to take this time to be with my family and my little grandson. He’s my first grandson and I’m excited to slow down a little.
I see pictures of him with you on Facebook. You are definitely happy grandparents.
He’s still a part angel. He’s not quite human yet. He’s just a cherub. I love him.
My next question is, what do you attribute your continued success and growth?
Honestly, it is my partnership with my husband because usually opposites attract. Whether your business partner is your husband or somebody else, it should be your opposite. That can drive you absolutely crazy, which it has in the past or it can be good because you’re balancing each other. Rich is a systematic researcher and planner. He read many books and listened to audiobooks. He loves running the business, strategic planning, hiring right, having the core values, and all that stuff. I don’t like it but I’ll do it. It’s important. I love looking at the deals. I’m an entrepreneur and I love jumping into things. We finally learned that jumping into things is not as good as planning but you need both. We have learned to work together through something called EOS. I get to be the visionary and he’s the integrator. We figured out how to work together well so I do recommend that if you have a business.
Is EOS a program for personal development?
It’s a way to run your business where most businesses have a crazy entrepreneur that just jumps into things. That’s me. They need that balance of the person who goes, “Great idea. Let’s see how we can implement that carefully.” They usually clash because one wants to go faster than the other and so forth, but when you follow the EOS system then it’s like, “Great idea. Let’s break it down. How do we implement it?”
What do you wish you had known at the beginning of your journey that you know now?
I’ve trusted way too many people because I’m a trusting person. It comes down to, “You can like people, but only trust your due diligence.”
Thank you, Kathy. I appreciate it. Thank you for coming on. If my audience wants to learn more about you, where can they go to find out more?
Real Wealth Network is our website. It’s free to join and there’s so much information to help you on your journey. Retire Rich With Rentals is my book. That’s easy to read and it’s simplified, but it will help make sure that you do your due diligence properly. Of course, the The Real Wealth Show and Real Estate News podcasts.
Thank you for coming on.
Some of my insights from this podcast with Kathy are to be open to things evolving. She stated that it was never her decision. She didn’t start out wanting to build a platform, do a podcast and do meetups. She didn’t start out wanting to do all that stuff, but as she explored, investing in real estate more and more, the ideas of doing these different things evolved and grow. I think that for me, at least the insight I took away from that was just continuing to be open to things evolving.
Some of my other insights are there isn’t one market. There are many markets and many of them are in different parts of their life cycle. It’s super important. A lot of people will look at the US and be like, “The US is in a recession.” They feel like the entire US is in a recession. It’s important to consider the fact that different cities might be going through a recession or be in a different part in their life cycle. It’s important to do your research on the city that you’re choosing to invest in and understand at what part of the life cycle that city is in.Jumping into things is not as good as planning. Click To Tweet
The next insight that I thought was very important was never quit your job. First, get the loans. I want to say that I had a couple of other guests on my show who have said the same thing, who have echoed the same thing. The importance of how your W-2 job enables you to be bankable, you can go to the bank and get loans. Once you become unemployed and working for yourself, it’s a more challenging situation in order to execute. It’s definitely something to consider if you’re thinking about leaving your job.
She also talked about how “never trust, always verify.” You receive information and you look at it, but you must verify and do your own due diligence and how it’s super important to understand the market. A part of understanding the market is to understand the rents. What’s the average rent in that market? How the rents are currently projecting and how they’ve been growing. The types of jobs that are coming into the market, that are expected to come into the market, and that have come into the market. Any kind of politics that is going on in that market as well, just to take a pulse on it and understand what’s going on. There could be new rules and laws coming down the pipeline that could affect you, your business, and your property. This applies to real estate, but it applies to businesses in general as well.
Go and see what you are buying. Make sure that, as I said before, she said, “Never trust, always verify.” Get appraisals done and get inspections done by a third party. Some of the key things to look for and to check on when you’re choosing to buy these turnkey properties is our HVAC systems. Looking at how they’re working, how old they are. It’s the same thing for roofs, how old it is, the current condition, plumbing, and then electrical updates, if any of those have been done.
Switching onto syndications, because she also does development syndications, some of the key things that she mentioned was finding out the real role of the individuals that are bringing deals to you. You just understand what their role is, the role that they’re playing and then making sure that you understand who the operators are on those deals. Do your research, do your due diligence on them, as well as the market, but you also want to do due diligence on the operators and their track record, understanding how they have handled deals in the past.
A couple more things was understanding where you are in the capital stack. That is understanding whether something was to happen and they were unable to execute the business plan or anything of that nature. In terms of getting your money, where are you in that capital stack? Who are you behind, if there is anyone behind you or who are you in front of? That’s super important. She also noted that there’s a trend where a lot of operators are removing the preferred return. The preferred return, she noted that in her opinion, it was very important to look at deals that are continuing to keep the preferred return in, which enables the investors to get paid before the operators.
Something that is key, obviously investing, it’s up to you personally what you choose to do and what you’re comfortable going with. However, as you’re thinking about it, you’re risking your money, essentially you want to be first in line to get your money back. That’s something to consider as you’re thinking about investing. There are a lot of great points. I enjoyed chatting with her and learning more about turnkey investments, as well as growing her business, the Real Wealth Network. Until next time, guys, keep leveling up. Have a good one.
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About Kathy Fettke
Kathy Fettke is Co-CEO of RealWealth and best selling author of Retire Rich with Rentals. She is an active real estate investor, licensed real estate agent, and former mortgage broker, specializing in helping people build multi-million dollar real estate portfolios that generate passive monthly cash flow for life.
With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.
Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for Investors — both top ten podcasts on iTunes with listeners in 133 different countries. Her company, RealWealth, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create “real wealth,” which she defines as having both the time and the money to live life on your terms.
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