019 - What Type of Investor are You?

2 Wealth Show S3 Ep19 – What Type of Investor are You?

 Super E and Justin talk about investing and the risks and rewards associated. 

 Key Takeaways:  

1. Calculations and Education
2. Trials and Tribulations - Blood, Sweat, and Tears
3. Know Your Goals and Priorities

 Resources and links discussed  

• Videocast on BrightPath Notes YouTube Channel 
• Videocast on Elizabeth Maora YouTube Channel 
• BrightPath Notes Website - https://brightpathnotes.com 
• Elizabeth Maora LLC Website - https://elizabethmaorallc.com 

 
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 About the Hosts 

 Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!  

Super E – Real Estate Investor specializing in short-term rentals and the management of them. She connects investors with short-term tenants and manages everything in-between.  

  Connect with the Hosts: 

• @2wealthshow – Facebook/Instagram 
• @wealth_show - Twitter 

Transcript

Justin Bogard: 0:05

[inaudible] Welcome to the 2 Wealth show, a show that shares how you can create real wealth for you and your family. I'm one of your hosts, Justin Bogard. And my co-host is Elizabeth Sickles, AKA super E I am a real estate note investor specializing in performing residential real estate debt. I find the deals acquire them from my own portfolio, as well as educate investors will walking them through the process of owning a real estate note. My co-host super E, a real estate investor specializing in short-term rentals in the management of them. She connects investors with short-term tenants and manages everything in between. Our show was sponsored by bright path notes and Elizabeth Maora. You can find out more information by visiting our websites at brightpathnotes.com and elizabethmaora.com.

Elizabeth Maora: 1:09

Hi everybody. I'm Elizabeth with Elizabeth Maora, and welcome to episode number 19 of the two wealth show.

Justin Bogard: 1:18

Hey Elizabeth,

Elizabeth Maora: 1:20

How are you doing today, Mr. Bogard?

Justin Bogard: 1:23

I'm doing very well. Thank you for asking and I am Justin Bogard with bright path notes on the other co-host on the show. And so let's get into some conversation here, Elizabeth. Um, a question that I get asked often from new investors, uh, especially when they are trying to learn the real estate note business versus doing this the traditional real estate investment world of, you know, fixing and flipping wholesaling landlording is how do they calculate their return? And oftentimes it's very confusing for the novice investor to come into our world in the real estate, no space to understand that ROI really doesn't exist as far as the calculation. And I say that lightly because, um, most people assume that they're trying to take how much interest they collect and then, uh, over time they want to analyze that and work backwards. And you actually can't do that when you have a performing loan. So Elizabeth obviously in the fix and flip world, we're both from that. And we would buy a piece of property for, let's say,$50,000. And then let's say in 120 days, we rehabbed it and we sold it for a hundred thousand dollars. So we had a 50, we had a$50,000 increase in profit. So we can look at that and say, Hey, what is our ROI or return on investment based on that, right? Because it's, it was a static fixed situation to where there was no cashflow coming in between. So when we look at a performing loan, we say, okay, loan cost us$50,000. And let's say the borrower owed$60,000 on this loan. And then we say over the course of those, that another 20 years they're going to, we're going to collect$120,000 on this loan. And so we don't, we're not able to use the ROI calculation to give us an, a profitability number we have to use what's called yield. So we're projecting what it's going to be based on the consistent cashflow every month coming in, let's say at$600 payments coming in every month for the next 20 years. And so we, we use that calculation. So we have to have a financial calculator or use an Excel spreadsheet that has the we on the form, the formulas are pre-built into Excel. And so that's kind of how we look at the profitability of it. So we get a lot of pushback from people saying like, well, the ROI is, is this. I'm like, well, you can't use that measurement for this particular return because it's not backwards thinking it's not looking back on the investment, which an ROI is built for. It's a static situation when a performing loan is more of a variable or a fluid situation. And so that's, hopefully that definition made sense, which is why we use yield as our calculator for profitability,

Elizabeth Maora: 4:17

You know? And it's, so it can be confusing, right? Especially if you're new to real estate. But the nice thing about it is that we always have Google to go to when you do get confused about what is, what,

Justin Bogard: 4:30

Yeah. I've used Investopedia to have a website, I believe it's called investopedia.com and that has some great terminology that's spelled out. So you can understand what some of these terms mean. People throw out a term IRR internal rate of return and there's Excel that uses X I R R formulas. And you can get very granular with the type of returns and understanding your analytics, which is fine, but just, I guess my point is Elizabeth that I want to harp on is that there is a time and a place for each calculation, and sometimes it's not used in a specific investment and we'll, we'll, we'll throw out performing loans here as is what we're talking about for yield. So it's, it's, uh, it's difficult to have that conversation with somebody that's, that's dead set on understanding ROI.

Elizabeth Maora: 5:21

And it's actually placed a call yesterday with actually two potential coaching clients and the one, you know, people are so focused and we've talked about this, but just kind of a nice reminder for our listeners is that it's not always about cashflow. You've got the tax benefit, the principal reduction, right? There's all these, there are four calculations that you really need to be running in real estate. And maybe you do need cashflow, right. But you don't know that until you've ran all your numbers and you know, what your financial situation is and that plays into what are your goals. And do you have those wrote as well?

Justin Bogard: 6:00

So Elizabeth, I would, uh, jump in there and also add, to say that risk has a lot to do with how you want to proceed with the investment. It's awesome to run your numbers, to know what your metrics are that you want to hit, or your profitability goals you want to hit. But the risk factor, I think, is an extremely important one. Uh, in our business, Elizabeth, we use that a lot to gauge on. If we're going to pull the trigger on an asset, sometimes we'll accept a lower return, uh, because the risk is so low that it seems like, uh, why pass that up? Right. Um, when a riskier asset, it could get us generate us a higher return, but I don't want to have my whole portfolio of be those very risky investments. I'd like to have a balance of them. So we, we use risk very heavily as an indicator to say like, okay, I would buy that. Yeah. I'm not getting the best return possible, but I'm getting a return. Right?

Elizabeth Maora: 6:57

Absolutely. Do you guys have an actual, what, what all is involved in what what's considered risk for the note industry?

Justin Bogard: 7:07

Great question. So when you have a promissory note and mortgage will say, there is an underlying piece of collateral that is secured to the loan. And so that is something that we look at and say, okay, this piece of collateral, do we feel like it's worth more than what the borrower owes today? And more than likely the answer is yes. Right? If it wasn't, then they would be upside down on their mortgage, right back in 2010, when everyone was upside down in the mortgages, that's what happened. Real estate values crashed and the unpaid balances didn't crash and didn't rise. They just, they stayed the same because the borrower still paying them down. So the reverse situation happens now. Well, we talked about before about tappable equity to where the real estate values rise and the unpaid balances are still, you know, where they're at. So that's now they have tappable equity. Um, so that is a factor that we look into as far as the collateral for risk. And then we look at that pay history on a performing loan and we say, okay, what is the story going on here? How are they paying? What, how, uh, which way are they paying as far as what type of MoneyGram, you know, they paying cash, they paying with check, are they doing, uh, uh, a debit from their account? Um, all these little things, we can see a story over a couple of years of pay history to be like, okay, this feels like this borrower is not consistent. So that puts them in a little riskier category, or this borrower is very consistent on the 14th of the month. Just like clockwork, even if the payment is considered late, but they're still paying on the 14th every month. We liked that Elizabeth, because it shows us like that's when they are paying their bills on time, because you'd be surprised, uh, how people run their financials at home. Um, but if you see consistency, what we love to see, and so we feel those are less risky, even if they're paying late.

Elizabeth Maora: 8:59

Okay. Awesome. Good to know, in the short term rental world that you have to pay before, before you stay in my property. So we don't have to worry so much about that.

Justin Bogard: 9:15

Yeah. What's the saying, you know, pay, you know, stay

Elizabeth Maora: 9:19

That's exactly right. It doesn't mean they'll make a mess and leave a big mess for us. But, um, but, and you know, one of the things that's nice now is that we've got so many more conferences that are opening back up. Trainings are opening back up for, for folks that are looking for the real estate training. So that's know that's obviously a really good thing. And just real quick, at least here in the indie market, we still have a hot market, although it's tapered off slightly, um, you know, which that's not, that's not uncommon. I mean, you have kids who have gone back to school now, so it's fall. Um, so you know, parents are, you know, more focused on their work now because since the kids are in school, um, so they're just kind of, it's nice to see a little bit of a, you know, normalicy kind of, you know, post COVID or whatever time we're in right now,

Justin Bogard: 10:13

Right. Elizabeth, getting back to some of the numbers and stuff. The question I have for you in the short-term rental space that you're in, what is a typical, and I think I've asked this question before we, maybe not this way. What is the typical length of time that someone stays in it's still considered a short-term rental,

Elizabeth Maora: 10:33

Anything less than 29 nights is considered a short-term rental and our minimums, unless you're a returning guest. Um, we have a two night minimum and the longest, I guess, has stayed with us has been seven months so far.

Justin Bogard: 10:48

Oh wow. There were a short long-term tenant

Elizabeth Maora: 10:53

That's right. Worked out great. The great guests, um, you know, really great residents when you stay with somebody for seven months.

Justin Bogard: 11:02

So how do you calculate the rent when, if you knew that person was staying longer than a couple of months, would you calculate the rent differently based on how long they stay?

Elizabeth Maora: 11:14

Absolutely. And we even, because part of this was during COVID, so we actually decreased his rent. Um, and we were still making more than what we would have if we were doing it as a short-term rental, just during that, obviously during that timeframe. Um, so, but we do different pricing for, um, rather we do discounts whenever you stay with us more than five nights. And then I see whenever you stay with us for, um, for at least 30 nights, we do a different discount as well.

Justin Bogard: 11:49

Okay. So when someone stays for a period of time, let's say longer than, than like 15 days or so. Um, you can lower your rate, your, your nightly rate because I'm, I'm just assuming here in, please tell me if I'm wrong, but you're not having to pay a lot of your maintenance people to come in to do things because well, someone's renting there. So instead of having turnover every two nights, then having some downtime, maybe lose a day or two, you're getting a consistent, uh, vacancy, um, you know, non vacancy, is that the right word for a period of time to where you don't have to worry about the maintenance people coming in and out all the time so that I can see how that, you know, even though you're lowering the price, it still makes it more profitable for you because you don't have to pay all those extra costs.

Elizabeth Maora: 12:41

Absolutely. So that's our occupancy rate. So we, our average is about 71% occupancy rate, um, overall, which is, which is really good. And we, we want that even higher, right? Some of our properties are a hundred percent occupied, which is fantastic. Um, and some of them are not. Um, but our, our goal is that is the occupancy. So, you know, it's always this fine line of how do we maximize the nightly rent, but also keep the occupancy rate high. And we use technology, we use a lot of software, um, and we use a software to help us with our nightly rates and making sure that we're, we're always higher than everybody else. Um, but just making sure that we're correct for where we are in the season and what's going on in the city,

Justin Bogard: 13:33

I'm curious, is there, cause I noticed hotels are starting to do this to where they want to save, like on cleaning, linens and stuff to where they say, Hey, if you just reuse your same towel for a couple of days, you know, that that'll help us out and just put your little door tag outside to say, Hey, don't worry about sending me fresh towels. Does the short-term rental space, do they do something like that? Where they say, Hey, look, if you're staying a couple of nights, if you kind of, uh, clean up after yourself or you put all your stuff in this pile of, is there, is there any benefit for them doing that? Like, do they get a discounted rate where they get, they get money taken off at the end of it? Um, is there anything like that out there?

Elizabeth Maora: 14:12

No, but that's a good idea. You know, we ask them to like put all their wet, any wet linens in the tubs or the showers, um, excuse me, most of the time guests do that, but not always. So

Justin Bogard: 14:28

I'm the type of person that I'm, even though I'm at a restaurant or I'm at a hotel or at a, at an Airbnb, I mean, sorry, a short-term rental, I'm always the one that's trying to clean up. Like, I don't know why I do that because I'm paying for the service for me to clean it, but I just feel bad. You know, like when we have all the kids at a restaurant, like I'm trying to stack all the plates and put all the utensils on the plates and the napkins on there, the server that will come over, just picks it up one time and it takes off like, that's just me though. But more people like that out there to save a headache for you. Right.

Elizabeth Maora: 15:01

That's right. And you know, there really is. I mean, I mentioned this before we started the podcast, but we actually did have a vandalism in one of our properties. And what is happening is a father is driving around three teenage kids to break into houses, vandalize it and steal the TVs. Um, but that's, that's one of the things that's going on in downtown Indy right now. And it was really cool. You know, there are always things that you need to account for, right? No matter what type of real estate you're doing, if you're flipping, if you're doing traditional rentals, there's always things that are going to happen. Um, and this case they did have overall, including obviously we had to buy a new TV. So it was about, about$600. Well, actually that's not true. It's going to be closer to about a thousand dollars or so. Uh, we don't have the fee for the glass yet cause they did break glass to get into the property. Um, but it's, you know, it's ridiculous, but it's things that, that happens, um, you know, in properties.

Justin Bogard: 16:05

Wow. So how did you know it was, um, an adult male with teenage kids helping, helping them out?

Elizabeth Maora: 16:15

Our neighbor told us

Justin Bogard: 16:17

Oh so they actually saw some of that happening.

Elizabeth Maora: 16:20

Yes they did. They did. And it was right after they left. The other thing that they did, you know, just nonsense stuff. I mean, they broke, they just took the plates out and broke plates and you know, just ridiculous. And they took, um, some of the spices and they dumped on the spices and then they dumped the coffee grounds all over the stove and the kitchen counter and, you know, just, you know, since lists, things like that, um, you know, but the good thing was we were able to get everything taken care of. And um, we had a check-in and just a couple of days later and everything is fine. So, um, you know, except the fact that my client is not that money because you know, some adult speaking their kids around.

Justin Bogard: 17:05

Wow. So does, does insurance cover some of that stuff? I take it.

Elizabeth Maora: 17:10

It's not enough. It's not enough for insurance to, for my

Justin Bogard: 17:15

Oh, that's right. Cause there's a deductible involved and stuff, so well, it's, it's sad that that stuff happens. I'm sure it does, but I'm not assuming that it happens more, more than not. Right. I'm sure those are probably rare instances where something like that would happen. Cause I've not, I don't think I've heard you talk about vandalism and quite some time actually

Elizabeth Maora: 17:36

We've the only time we had break-ins previously we had a property and Kennedy king and I don't know if my clients made the neighbors mad or something when they were rehabbing, but it was definitely some neighbor that kept, they were, it was a beautiful home and they, um, that your concrete through the glass and, um, they were, they ended up cutting off. Um, oh, well they do sort of the electrical box. I mean they, um, they got in the one time and then I said, okay, we can't manage just because we're getting calls at three o'clock in the morning and this isn't, this isn't good. So, but that's only, we've only had two pro you know, knock on wood to properties and you know, for years and you know, a total of somewhere around 60 plus properties. So that's not bad.

Justin Bogard: 18:26

Yeah. Yeah. I didn't want the listener to think this is all bad and scary and terrible stuff. It's these are just rare things that happen, but you will run across it in your career. If you don't, then you, you should buy a couple of lottery tickets

Elizabeth Maora: 18:41

That's right. You know, and it goes back to just what you were talking about risk, right? There's always risks, no matter what, no matter what you do, whether you're real estate or, or any industry, there is always, always risk to it. And just, you know, do you have the stomach? Um, and you know, and in some cases the wallet to, to whether this risk,

Justin Bogard: 19:02

Okay, I was going to say that that's how you have to decide what type of investor you are. There are definitely people that are very aggressive in real estate, as far as buying very risky thing because they see the big picture down the road and they're more than willing to take a swing for the fences, so to speak and, and have a little home run investment for them as other people that just, they're just really passive. They just want to be very cautious. And, um, they go down a different route and the choose different types of investments that just get them a solid return, even though it's a small return. Um, and they're happy with that. So it just, it all depends on, on you listener, uh, how you want to invest and why you want to invest. Um, I would say probably most professional real estate investors are pretty diversified as far as risky investments and conservative investments. Uh, I wouldn't say it's a true 50 50 balance, but it's definitely, uh, depending on the investor, it's probably 60, 40 either way conservative or aggressive, uh, with most, most investors that I know that are professionals

Elizabeth Maora: 20:07

And, you know, just on kind of this lines, I'm reading the book right now, capital gains by chip gains from, um, you know, from fixer upper, from the HGTV, from the HGTV show. And it's really, you know, it's really fantastic because, and we have talked about this that, you know, when, when you see people like they've already made it, so you don't see all of their blood, sweat, and tears. And so in the book, you know, he's talking about, you know, all of their, their trials and tribulations, and also the fact that, you know, he and Joanna are married and you know, how they've been able to work together and, you know, keep a strong marriage. And, um, so it's, uh, I will just tell you, it's a fantastic books. I just want to recommend that to all of our listeners, no matter what stage of real estate or life that you're in.

Justin Bogard: 20:55

That's awesome. I'm about to check out that book as well.

Elizabeth Maora: 20:58

And you know, one of the other things too, is that he talked a lot about fear and he's like, you know, no matter what, if you might as well do it because the fear is going to be there. So go ahead and realize your dream and this you're going to fail then fail now. So

Justin Bogard: 21:14

Yeah, I mean, I, I don't know anybody that hasn't had some sort of failure when they, when they try to start investing in, you know, even doing this on your own or with a mentor, you know, that there's still some hurdles you have to go over, uh, and you just learn. Sometimes you learn a little bit the hard way, or you try to avoid those. But, um, you know, I've, I've had many, many, uh, failures to get to where I'm at today. Elizabeth. I know that you've had some failures too and, and encourage the listener to you. Just, you just can't give up, you just, if this is what you want to do, this is what you're meant to do. And this is what you want to invest in and real estate, you know, he's got to continue to push forward. Uh, no matter there are going to be sunshines and rainbows some days, and there's going to be cloudy skies and, and typhoon rain sometimes too. And, and just how you weather the storm, right? The cliche is, you know, keep, keep contained to fail and learn from it and move forward. So,

Elizabeth Maora: 22:10

And it just goes back to, okay, what, what are your goals, right? That that's really, that's such a key thing and no we're coming up. It's never too late to make new goals or even make goals for the first time or revise your goals. So I actually just in the process about, uh, about a month ago, I revise my goals. Um, and one of the things I said was I made a list. This was from Darren Finney, um, for our listeners who know Derek great guy. He's a flipper here in Indianapolis. Um, he's a veteran also. So he'd like to shout out to them for protecting our country. And, um, he has a list of things that he was going to stop doing. So what, and I was like, well, Darren has a stop list. I should have a stop list. I made a stop list. And one of the things is like, I don't work past noon on Fridays and it is so refreshing. And what that means is sometimes I'm working a lot later Thursday night, or even Wednesday, or a lot, really to Friday morning, but I'm done. I'm done at noon on Fridays.

Justin Bogard: 23:15

Yeah. Yes. Is that sensation, you know, you have that relief off your shoulders going, oh, it's 2:00 PM. I'm done. I'm checked out.

Elizabeth Maora: 23:25

That's right. Yeah. It's on wonders for, for the business. I mean, I was working crazy hours and I was like, all right, this is, you know, there's always work to do. Right. So when you finally make those boundaries and it doesn't matter what it is, if it's in your personal life or your, you know, your business life is if with real estate, especially if you're working a full-time job and you're getting into this industry. Um, but man, those boundaries are, are really important.

Justin Bogard: 23:54

Yeah. You meant, you mentioned something in that conversation about there's always work to do because you know, people would ask me like, are you busy today? I'm like, I'm busy all the time. It's just, you know, whether I choose to do something non-work right now is up to me. That's the freedom I have. Yeah. There's always something to do. Like, do you have any work to do tonight? And like, yeah, there's probably stuff I could be doing or shouldn't be doing, but I'm choosing not do to spend time with, you know, with the kids or whatnot. So

Elizabeth Maora: 24:20

That's right. Goals, right. Priorities. What do you want

Justin Bogard: 24:23

Using goals? Yep. We are at a time for today. This is a great conversation. I love that we started off with our measurement tools for profitability and, and ending on some great knowledge and insight and inspiration for listener out here. And so we hope you guys have enjoyed this conversation and all the conversations we've had before. And we highly encourage you to check out our YouTube channels. BrightPaths notes, YouTube channel, or Elizabeth Maora's YouTube channels, because you can see the video stream of this podcast.

Elizabeth Maora: 24:58

Thanks everybody. We will see you next time.

Justin Bogard: 25:01

All right. Signing off on episode 19 guys. The 2wealth show was produced by Justin Bogard and super E sponsored by Brightpath notes and Elizabeth Maora. Thanks for listening and watching for our show.