The Stages of Real Estate Investing (Where Do You Stand?)

Dave:
Real estate investing does not need to be complicated. If getting your first rental property sounds too complex or too intimidating or you just can’t figure out where to start, listen to this. Set realistic expectations, write down a reasonable goal, make the investment work for you. Just get in the game. Today we’re talking about how you can do just that. Hey everyone. I’m Dave Meyer, head of Real Estate Investing at BiggerPockets. I’ve been buying rental properties for 15 years and I’m here to help you achieve financial freedom through real estate investing. Today we’re bringing Laika DTA back on the show. If you haven’t heard LA’s other great appearances on the podcast, she’s an agent and investor in Seattle. During her career, she’s tried almost every possible investment strategy and used every financing option out there, and I wanted to bring her on today to share some of her experiences so you can hear how she started with achievable realistic goals and then adapted as she gained more experience and the market shifted around her. Today, even as she scales, LACA is still using the same mindset to make sure the properties she buys are aligned with her investing goals. This is a great conversation, so let’s bring on Leika. Leika, welcome back to the BiggerPockets podcast. Thanks for being here.

Leka:
Thank you so much for having me back, Dave. It’s always a pleasure.

Dave:
Yeah. I wanted to have you back to talk about the evolution that you go through as an investor because what you do when you start is pretty different from what you’re doing when you scale from what you do after that. And so since you have so much experience as an investor, I thought you’d be the perfect person to come on and share this with us. So tell us about your experience, your mindset, or any advice that you have for newer investors and what your expectations should be. How should you approach real estate investing when you’re just getting started on your first deal?

Leka:
So starting out 11 years ago, I was brand new, not just new to investing, but even new to the country in a way. I had moved to the US seven or eight years before that, so it was literally I was starting from scratch. So anyone out there that grew up in this country or that comes from a background in real estate, you already had a leg up on me.

Dave:
That’s a really good point.

Leka:
I think the number one thing that I would say is if you want to start investing in real estate, especially now, the amount of resources, free resources you have, like podcasts like this, books shows, meetups. You should just immerse yourself and the more educated you get, the better the foundation is for you to scale from there.

Dave:
That’s excellent advice. There is so much free education on this podcast on BiggerPockets elsewhere as well, so you should absolutely be digging into that stuff. You obviously had some unique challenges when you went into your first deal, and I’m curious how you thought about it. I see so many people who want to get their first deal who face a lot of mental hurdles. There are real financial hurdles too, but I think the mental hurdles are often bigger in my experience than the financial ones where people, maybe you have the money but you are risk averse or you don’t feel confident, which are totally normal things to happen in the course of your investing career. So how did you get over those things mentally and get that first deal when you were starting from a place with a very little knowledge and experience?

Leka:
No one’s coming to save you. I think that is the biggest thing is there’s no special force behind this. It’s all you. What you put into this is how you create wealth. Every paycheck, even to this day, I’m like, okay, if I do X, Y and Z, then I am going to get paid out on this in 20 27, 20 28. So it’s really just building that up and then showing up to work every single day, even after 11 years and doing hundreds of deals, you have to put out fires every day
Because every project brings with it its own unique challenges, own unique problems, new set of adventures that you have not seen in the last a hundred deals because every house is different. Every block is different, every city is different. Every roof, every sewer line is different. And so when you do this, you have to be able to show up for yourself. You can’t trust the wholesaler, you can’t trust that the contractor is going to show up. You can’t trust someone else to bring you a contractor. These are things that you have to do. How are you finding your deals? How are you finding your next deal or your deal after that? So you have to be able to build that pipeline. Everything that you put out is what you get back in return.

Dave:
I think the thing about showing up for yourself is so important. Right out of college, I started a tech company actually, and I was talking to this advisor I had and I was complaining about how all the people who I hired or contractors just weren’t working as hard as me. And he was like, every degree you get away from you, the people care less and less and less. Maybe your agent cares a little bit and then the contractor cares a little bit and then the subcontractor cares a little bit less and it’s your job as the business owner to make sure they’re all doing it because they’re doing their own thing, they have their own business. That contractor is their own business that they care about. And so it’s totally on you and I think that can be hard for new investors because you might not have the confidence to know exactly what to do, but ask other investors, go to community, go to all these meetups, but it is your job to sort of do that and to make sure that everything gets done. I really appreciate that if you start that way early in your investing career, you’re going to be very successful. I see a lot of people blaming the contractor for why they didn’t succeed and it might’ve been a bad contractor, but it is your job as the business owner to make sure that goes well.

Leka:
I’m so glad you said that. People blame other people a lot in this industry because it’s easy to do that and not look inward. But I’ll tell you this, even a deal that I’m closing this week, if I didn’t do the due diligence, no one else is going to do that for me. The blame ultimately lies with you.

Dave:
And that doesn’t mean you can’t ask for help, it just means that you have to, at the end of the day, you’re the last line of defense and you always have to make sure everything gets done. And in real estate, that’s a lot of logistics. It is juggling a lot of stuff. It’s not like managing one person. You’re handling a bunch of things and I don’t want to make it sound more difficult than it is. Real estate has its ups and downs, but these are manageable problems. These are not things that you can’t do.

Leka:
Exactly. It’s not rocket science. And the best thing about real estate is that you have incredible people that have been in their jobs a very long time, like escrow officers and lenders and insurance brokers. You can leverage these people to grow your business and to build momentum, and that’s the beauty of real estate.

Dave:
Yes,

Leka:
You don’t have to have a huge team and you can 10 99 everybody and still just have a robust group of people helping you succeed.

Dave:
Absolutely. I have one more question for you on the early stage investing before we move on to more advanced topics and how your mindset shifts in this kind of things you’re looking for and expecting shift when you go into that growth stage. So lemme just ask you this, how would you describe a good first deal? What does that look like to you and what would you advise our audience to look for on their first deal?

Leka:
Okay. Your first deal has to be easy in many ways.

Dave:
Oh, I like that.

Leka:
And I’m not talking about easy to find, easy to fund. I’m talking about easy to execute because everything comes down to execution. You can turn around a really bad deal and still make a ton of money if it’s executed well. So if you buy a deal that’s already good to execute, then you’re winning. The second is don’t go for the deals with the minimal spread just because you want to get into real estate because that can crush. You

Dave:
Still

Leka:
Look for deals with a good amount of profit spread. I educate my new investors to not go for a deal unless it has at least a hundred k profit spread

Dave:
And that’s on a flip.

Leka:
That’s just for a flip and for a long-term buy and hold, you have to make some amount of positive cashflow, like maybe a hundred, $200. It’s not a lot, but you have to start with a positive because that first deal sets up the rest of your investing career and your portfolio. And I just think that it’s not about making the money, it’s about having that spread to fail.

Dave:
Yeah, just don’t fuck up. Yeah.

Leka:
You have to be able to say, okay, I have a hundred K spread, right? If the economy turns for some reason or if you don’t get the offers in the first 60 days or something happens with just flipping this house or something happens to the bad tenant or whatever it is, you have enough of a spread to fail.

Dave:
Oh, that’s such good advice. Yes, I totally agree. So

Leka:
That’s my only thing is easy to execute and have enough margin to fail.

Dave:
And that means being patient sometimes, right? If you have to wait another month and make more offers, go make more offers. I completely agree. Just you want to lay up, right? You don’t want a complicated thing, you just want to make an easy one. There’s one other thing that I think is so important too. You’ve probably heard this. People say you make money on the buy in real estate.

Leka:
Yes.

Dave:
Maybe that’s true. More for flipping than buy and hold investing. I think for buy and hold investing, you make money on operations, on execution. It’s not all finding some perfect deal, but if you can make the appropriate upgrades and you can keep your tenants in place and you can control your costs over a 10 year period, that’s probably going to actually mean more to you than whether you got it for five grand more or less for a flip, it’s probably different, but for buy and hold, I love what you’re saying about execution being equally if not more important than some of these other things people focus on early.

Leka:
I’m really glad you brought that up because I’m writing a book, it’s coming out soon.

Dave:
I heard you were writing a book, what’s it called?

Leka:
Oh, it’s called Return on Real Estate and it’s actually all about making money on the exit.

Dave:
Oh, interesting. I like that.

Leka:
So you can buy anything, but it’s about how you turn that around. To your point with great execution

Dave:
To

Leka:
Actually make money on the exit. Let’s just talk about a simple fix and flip that I bought. I bought it from the wholesaler for 830 5K. My exit value was 1.35 million.

Dave:
Woo. Yes, like that.

Leka:
Yeah. Right off the bat though, I went through hurdle after hurdle after hurdle and instead of spending 200 k like the wholesaler suggested, I ended up spending 450 k. But guess what? My RV went from 1.35 million to 1.9 to 5 million. We just closed last month and I made a killer profit on it. And so it doesn’t matter what you buy or how much you buy it for, if there’s enough margin to grow and do something out of it that no one else can see and execute it well, there’s a lot of money on the sale.

Dave:
Wow, I love that. Very cool. Well, I’m excited to read your book. We do have to take a quick break, but right after this we’ll move on to how your strategy and your mindset need to evolve as you go from your first deal into scaling mode. Stick with us. We’ll be right back. America’s senior housing crisis isn’t coming. It’s already here. Millions of boomers are aging into care and there simply aren’t enough facilities worthy. Wealth is seizing this moment by buying and upgrading undervalued senior living properties to meet demand and deliver investors. A targeted 15% annualized return quarterly dividends now profit sharing later demand for senior living only going one way up, miss the wave and you are leaving serious returns on the table. Join the Smart Money by visiting worthy wealth.com/invest in senior living with Worthy Wealth. That’s worthy wealth.com/invest in senior living with Worthy Wealth. Welcome back to the BiggerPockets podcast. I’m here with investor at Laca dha and we are talking about how both your strategy, your tactics, but also your mindset and your expectations need to shift as you go from that first deal into scaling mode. So Laca, tell us what do you think about scaling mode? What is the mental unlock that you need to go through to get from that first deal into more of that growth wealth building mode?

Leka:
Yeah, so when I started doing this the first year I flipped homes, I flipped one home. The second year I flipped three homes and then the third year I flipped 12 homes.
And so I scaled quickly. So what I would say is the most important thing that you need to scale is obviously capital. You have to be okay with capital raising both from lenders like hard money lenders, banks, other financial institutions, and also from private money lenders, not just that. Finding creative ways to finance deals was really important to me. So just finding strategic partnerships, seller finance deals, all of these things really play so much into how you scale your portfolio and scale your business. Another important thing that I always tell people is find one path. Either fix and flip homes or be a broker or be a buy and hold investor, but just do one thing till you figure it out. Once you figure that out, it’s super easy to scale. Once the process, it’s easy to scale and then keep adding more income streams.
So for me, that first path was fix and flip. And so I just got really good at flipping homes. So building the systems, building a deal flow pipeline, having amazing contractors that you can put your trust in, amazing wholesalers that have your back that are not minimizing the rehab budget when selling you a deal, things like this. And then most importantly is building a network. I think very early on I viewed that as something that was going to really propel my career in real estate. And so I started building a network and I started a meetup group and then the more value I added to others, the more value I added to my own portfolio. These are a few things that are well within your control that you can get started on to avoid getting burnout, avoid taking on big risks and expectations, and then keeping your time intact.

Dave:
Okay, so let’s break some of these things down because financing was the first thing that you mentioned and capital raising because this one I think is a big hurdle because I mean if you want to just save up your money and buy a deal every couple of years, that’s totally fine, especially if you have a high income, you might be able to do that. But I think for people who either have a lower salaried income or want to scale faster, this is just an inevitable thing that comes up. So let’s break it down because hard money lending is for flipping. So let’s talk a little bit about that, but then can you also share with us if you wanted to be a rental investor, how you would think about just the mindset of it? It is kind of hard to think about taking other people’s money and being responsible for that. It is a big step. It’s a different business at that point.

Leka:
Yeah, I had never imagined that I could raise money from other people to fund my own business, but then when I first raised capital, that’s when I realized, wow, this is as much of a win for me as it is for the person that I’m raising money from. And that was such an aha moment for me because the person that I raised money from, he just had money sitting in a bank account that wasn’t growing. And so he said, okay, I’m going to fund your deal for you. And in doing so, he earned 12% return on his money plus a point and he was like, wow, that was the safest investment I ever made. I got to see a project from start to finish and I actually really enjoyed investing. And so he’s an investor for life.
And the other thing about capital raising, it’s easy. A lot of people have a lot of money in stocks or sitting in a bank account that they would not know how to grow because they have a pretty solid W2 income. So it all comes down to you as the operator. If you do what you say you’re going to do, it’s actually super easy to raise money. Money is everywhere. If the deal is right, the money will come. So raising money from private lenders is something easy if you have a track record and experience and then you just again show up and do what you are going to do.

Dave:
That’s a really good point about finding the deal first. I think a lot of people miss this. Actually, we were at a meetup together the other week in Seattle at my first passive flip. I was talking to a young guy who’s wanting to raise capital. The premise of this meetup is I was talking about how I invest passively a lot in other people’s deals. I like doing that. And he was asking me, what do you recommend? He’s like, would you lend me money? And I was like, for what? In a nice

Leka:
Way.

Dave:
But it’s like I am not lending it to you as an individual just for fun. What is the deal? And I don’t know why a lot of people assume. It’s like you have to present yourself as the entity to lend, which is part of it. I do very carefully evaluate the person, but I’m not going to evaluate a person until I see the deal that they’re presenting me. There’s no point in evaluating the person if the deal stinks. And so I think that’s a super important mindset shift. This is true in any industry. If you have a good business plan, people will fund it. If you don’t, no one will fund it. And if you can’t get a good deal together that is appealing to an investor,
Then there’s no point in even approaching them because you’re going to lose credibility if you go to them without a deal or with a bad deal. And so I really encourage people to think about that first and then secondly, put yourself in the mind of the passive investor because passive investors think about this a little bit differently. I don’t know if you see this, but I think a lot of operators focus on the home run deal. They’re like, we can make a 50% IRR or this huge thing. Great. As a passive investor, my whole objective is to minimize risk. I’m like, great, I just want to make sure you’re not going to run away with my money. And what happens if you’re really bad at your job? Exactly. And so I really recommend people sort look at these kinds of things and think about how do I mitigate risk? How do I control risk? And put the passive investor, the hard money lender, whoever it is, the partner that you want to raise, how do you make them at ease working with

Leka:
You

Dave:
Instead of just focusing on the best possible outcome? Because no passive investor who’s credible is going to believe you and they’re going to haircut whatever you think you’re going to get in half and then go from there. So I think that’s a super good point that you brought up.

Leka:
Yeah. And then I think to your point, the way I structure these on a flip is either through debt or equity. And if it’s debt, then the investor just gets a straight up interest rate. I pay my investors anywhere from nine, 10 or 11%. That’s

Dave:
Great.

Leka:
And then maybe a point, it’s a one year long term typically with the option to extend by a couple more months, say my deal’s going over whatever it is, and if it’s equity, then they get 15% of the profit that I make on the deal. And a lot of my investors are low risk, and so they just prefer going the debt route more than the equity route. And then the way that I structure the long-term buy and holds is I typically only do one investor. I have done syndications in the past, I don’t like them, but on the buy and holds, I just do one investor per deal.

Dave:
And

Leka:
So the investor brings all the capital, I bring all the deal, the execution. If it’s working with the property manager and then again they get 15, 20% equity in the deal through the deal, whatever money we make on rent they get, and then at the time of sale, whatever the exit value is, we get a profit split each.

Dave:
Okay. This is a great example of finding mutual benefit when you’re raising money and that is really sort the name of the game when you’re sort of going out beyond your own capital, beyond your network, it’s to just figure out ways that you can both benefit. And that comes with giving something up as the operator, but you’re also gaining a lot of ability to scale and just finding the right balance for you is really important. You also mentioned before about in scale mode, adapting your mindset to preserve your time. That’s a hard one. So how do you approach that?

Leka:
If you can hire the right people and then pay them, what do you get back in return your time and with that time you get to scale, you get to learn new things, put yourself in front of learning curves and you can do bigger.
And so I’m all about like, okay, why do I have to go direct to seller and find these deals when I can get some of the best wholesalers in my city to send me amazing deals? Also, finding the right lender. Why keep finding new lenders? If you have one lender that completely works for you, they have all your business, they have all your bank accounts, they know what your credit score is, and then I just keep going through the same lender over and over again to get all my flips funded. The more you can set up a system and hire the right people to do the work for you, the more time you can get in that time. I can underwrite more deals, I can execute better on my existing deals. I can find more investors. I’m also a broker, and so I go out and find properties for other investors and I have a lot of fun doing that. So just focus on where the fund is and where your strengths are, and I think that eradicates a lot of the processes that you don’t have to be involved in and just getting your time back.

Dave:
I mean this being an entrepreneur, whether you’re in real estate or anything else can just scale infinitely. It can take over your life if you let it. How do you mentally stop yourself from doing too much or stop yourself from doing too little? What’s the sweet spot for you?

Leka:
My sweet spot could be doing a little less,

Dave:
But

Leka:
It’s about picking everything. Picking the investors you want to work with, picking the private lenders you want to deal with, picking the deals you want to work on, picking the right neighborhoods. I mean the list goes on and on and on. And it’s not something that you have the liberty to do when you first get started because you just want to explore everything and see what works for you

Dave:
And you should early on

Leka:
And you should,

Dave:
Yeah,

Leka:
You have to put in those reps. Otherwise you don’t know what’s best. But as you go through it, I just feel like as you start to weed out what’s good and what’s bad, that’s when you can truly succeed. And that takes time and that takes effort. But over that time and experience, I have a very clear set of the kinds of I’m going to buy going forward and I want stray from that, but it’s taken me a decade to figure that out.

Dave:
It takes a while. There’s just so many different things to do in real estate and a lot of them are great and you just need to figure out what works for you. And there is just some trial and error in that unless maybe you just find something that works. Actually on this podcast, we sometimes just meet people who are like, I bought this one fourplex and I bird it now. I’ve just done that 30 times. I’m like, good for you. That’s awesome. If you found something you like and you just want to stick with that, it probably works better. But I don’t have the mental discipline for that. I want to try a little bit of everything. Same.

Leka:
I’m going to try everything. But then also I think the biggest time freedom I have got is I did that. I bought a property, I bird it, and I did that a few times when interest rates were lower and that’s how I built my rental portfolio. But that also means I own a lot of rentals, very tenant heavy state, and for which I have to have the best property managers representing me and finding a good property manager that has saved me so much time and effort,

Dave:
It’s worth it.

Leka:
It’s still not passive.

Dave:
Yeah, no, it’s

Leka:
Not. There’s nothing passive about it, but at least it takes up less of my time.

Dave:
Yeah, absolutely. I’ve had this rule for myself where I only spend, I work full-time, so different situation. You work obviously, but you work full-time in real estate. But I am a 20 hour a month limit on real estate. And so that’s basically, it’s roughly an hour a day, a working day, right? And so that’s probably way less. You were probably like, that’s crazy, but that’s why I invest a lot in passive real estate. Or I’m thinking about maybe I’ll do my first flip. Now I live in Seattle and everyone’s convincing me to flip. That means I probably can’t buy rentals for those three months because that is my limit. I work a lot at BiggerPockets. I have other things that I do.
When I started, I didn’t have that. I was working all the time on real estate, but now that I’m sort of a little bit older and I have other priorities and things I want to do, that’s the way I just keep that discipline. And I think it works really well for people just setting a limit because then I’m like, every year when I look at my portfolio, I’m like, man, this one property is making me a decent return, but it’s a pain in the butt and it’s costing me eight hours a month. That’s too much. That’s 40% of the time I spend in real estate. I got to sell that thing.

Leka:
I

Dave:
Buy something easier or I’m looking to add to my rental portfolio. This fall purpose-built multifamily is built eighties or later. It really just sort of helps you think about exactly what you need to buy and at least has helped me control my own desire to try everything. It just buy a random house that looks cool or has a good spread and might be great, but it is just going to be too much time for me. We do have to take a quick break, but we’ll have more with Laca right after this. Welcome back to the BiggerPockets podcast. I’m here with investor Laika dta. Would you say you’re still in scaling mode? Actually, let me ask you that.

Leka:
Yes and no. I’m always looking for good deals and I have the ability to now buy some incredible deals with huge profit spreads. And so if I find a deal like that, I’m never going to say no.

Dave:
Yeah, no way.

Leka:
You saying no. Unfortunately, I find a deal a month and I’m like, oh my gosh, I just bought another house or I’d bought another building, whatever it is. But I would say that I’m always scaling, but also I’m doing things that I like. I’m buying projects that I like. I’m working with amazing investors whose investing career that I can influence. So I’m a big believer of just giving back to the community. When you came on the Real Estate at Work Meetup, Dave, I had so many people come back and tell me, okay, that was just one of my favorite meetups. I learned so much from Dave. I learned so much from just being in the room with all these other investors. So just giving back is huge for me. So I’m always scaling,

Dave:
But

Leka:
I’m also scaling by doing less if there is such a thing.

Dave:
I totally think there is. I think it takes time to develop this, but I don’t know, I just feel like you get into this rhythm after a while where it gets easier and it’s not like stuff doesn’t come up, but you have your HVAC person, you know who to call, and so everything gets just a little bit easier. And so you can actually do more and make more money by doing less in real estate over time, whether it’s through passive income or just system. I’ve sort of gone the passive route. You’ve gone more of the systematization

Leka:
Route,

Dave:
Like systematizing everything so that it’s just much easier. But either way, I think it’s fine. This is just different paths for scaling that I think are better for different people depending on what you are hoping to accomplish and what your life is like.

Leka:
Yeah, I think when I went from flipping 12 homes in one year, the next year I only flipped two and I made more money on those two homes than I did in the last 12.

Dave:
Oh wow. That’s

Leka:
Great. And that’s when I realized you can actually scale the income you make by descaling the kinds of properties you’re buying.

Dave:
Absolutely. Or just as another example, if you’re a buy and hold investor, if you can somehow cut the amount of time you spend managing your property, you can spend all that time looking for great deals or networking or doing just something else to scale your portfolio. That probably is more cost and time effective. And for me, this was a big mental shift. I refused for 10 years to outsource my property management. Even when I was working full time and in grad school, I was like, I’m doing it all. I’m not paying anyone to do anything. And it was such a mistake. It was such a mistake in retrospect. The only reason I did is I moved to Europe and I was literally forced to hire a property manager. But man, learning to do that, the earlier the better. You don’t need to do it right away, but I think once you’re ready to scale and I think take the leap, just go systematize things as soon as you can.

Leka:
Exactly.

Dave:
Well, Laika, thank you so much for joining us again on the BiggerPockets podcast. Congrats in advance on the book. Can’t wait until it comes out. Do you know when it comes out?

Leka:
I think it’s already on the BiggerPockets website.

Dave:
It is. I can see it right now. It’s on the website. You can pre-order it though. It says it will ship September 23rd, so you can pre-order it now if you want. Which comes with bonuses usually, right? Yes. So get that, you can do the bonuses and then two months from now you’re going to have your leika DHA book. That’s

Leka:
Awesome. I’m really excited for you guys to all read it because not only does it have all the different strategies that I personally use, but it also has my own personal stories on how I executed these different strategies. So it’s really just based on my own experience doing a myriad of different kind of techniques, investing strategies and creative finance deals. So I’m so excited for everyone to read this.

Dave:
Absolutely. I am excited to read it myself. Thank you again.

Leka:
Thank you, Dave, for having me again.

Dave:
Of course. I think once you’ve been on three times as official, you’re like a friend of the pod. So you’ve been a friend of BiggerPockets for a long time, but now you’re an official friend of the pod.

Leka:
Yes.

Dave:
And thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time. See you.