Real Estate investing is like the Wild West.

Sellers will try to sell a fixer-upper for the price of the brand new remodeled home next door — or, as I encountered last year, try to claim they’ve done $50,000 of work to a property when they actually spent closer to $500 to cover up old damage.

Contractors will bid a project too high, not just by a couple hundred bucks, but by tens of thousands of dollars, trying to see if they found the sucker that will make their year.

There are no rules to follow, even if you wanted to.

If people acted like that in the corporate world, companies would just stop doing business with you. But in real estate, the shady characters have a way of hanging around. Most people are only involved in one real estate sale every 5–7 years, so it’s hard for them to learn whos-who — and who to avoid.

If this outlook seems grim, it should. But there’s a flipside: investing in real estate has potential for the kind of success most people can only dream of.

Real estate investing can be incredibly rewarding, financially and personally — if you can navigate the Wild West.

On a financial level, my partner and I made $400K in cash and equity last year through real estate investing. That was while only investing part time, while running our real estate tech startup Clever Real Estate.

On a personal level, it’s an incredible feeling: renovating a house that’s been neglected, providing a great place for people to call home, building relationships with a fantastic team of contractors, lenders and title companies we trust.

In addition to success, we’ve had our fair share of failures.

Last year, we lost tens of thousands of dollars on bad contractors, bad tenants, and bad decisions. We even experienced a grand theft from our property, committed by a down-on-his-luck contractor with a grudge (we’ve now equipped our house with a new security system and a very loud dog).

Looking back on the last year, a lot of our mistakes could have been avoided if we knew what we knew now.

2019 is starting with a clean slate. To start it off right, I’d love to share with you some of what I’ve learned, so you can avoid the mistakes that we made, and set yourself up for success in the New Year.

#1: Ideas are good, execution is better

If you can’t follow through, there’s no point in starting. I would love to buy a 100+ unit value-add deal, know the numbers that will make the deal profitable, and know how to manage the rehab. However, working 80+ hours at Clever doesn’t give me the time to take on a project like this, and attempting to do both would set both businesses up for failure.

Warren Buffet said it best: “The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.”

If you can’t follow through, don’t make a swing.

#2: Profit is made when you buy, but only if you can successfully manage

In his investment classic “Rich Dad, Poor Dad,” Robert Kiyosaki doesn’t talk much about management.

The truth about real estate investing is, if your manager isn’t performing, neither is your portfolio.

Even if your manager is a friend, you owe it to yourself — and your tenants — to find someone competent. Don’t wait to fire a bad manager.

#3: Hire slow, fire fast

The last principle applies more broadly to business partners, contractors, property managers, and employees. If it’s not working, don’t drag it out.

Most problems in real estate get tougher the longer you wait to address them. You won’t do yourself any favors by waiting.

#4: Always, always replace the toilets

If you remember nothing else from this list, remember to always replace your toilets.

Every time we decided not to buy new toilets for a bathroom renovation, we always ended up buying new ceilings under the toilet, instead (and in one case, we bought a new ceiling under the ceiling under the toilet, too!)

$1,500 later, we should have replaced the damn toilet when instead we redid the floor. Don’t be like us. Replace your toilets.

#5: Don’t be afraid to say no

You can only say yes to so many things before you run out of bandwidth.

Preserve your “yes-es” for times that really matter. You don’t want to be tied up working on a bunch of so-so ideas that leave you unable to go after the great ones.

#6: “Occupancy” and “Economic Occupancy” are NOT the same thing

I’d rather have a vacant building than a building full of tenants that have to be evicted.

Even if you don’t want to evict a non-paying tenant, start the eviction process the moment you can. That puts time and the law on your side — and then you can initiate a payment plan.

#7: Don’t be greedy with your rent prices

Being able to rent your properties at top of market is great, but having empty units isn’t. Drop your prices, and focus on getting your units rented fast.

Unfortunately, I can give you a real world example.

We inherited tenants in a building we purchased that wanted to renew their lease at $850. We thought we would be able to rent the property for $1,200, for an increase of $350, or $4,200 over the course of the year. That would give us 4.94 months to re-lease the unit for a positive gain.

Instead, we had to spend $2,000 to turn over the unit, and because we were leasing in the winter, it sat on the market for 2 months, and we were only able to lease it for $1,100, with the first month free. Now we were up $250 on the original rent price, or $3,000 over the course of the year. Once we factor in the free month, the $2,000 repairs, and the first month leasing fee to our manager, we just lost over $1,000.

To make matters worse, the original tenants before were a known quantity that took great care of the apartment. As I write this, I’m crossing my fingers that our new tenants will be just as good.

In summary, all our efforts to raise the rent achieved was displacing a quality tenant for no reason, and a loss of $1,000. We successfully turned a cash flowing unit into a money-pit for 3 months.

#8: For inherited tenants, raise the rent slowly, or plan on finding new tenants

Unless you can raise rents enough to cover the cost of turning over a unit (including vacancy, like in #7), it’s usually a good idea to raise rents slowly, and keep good tenants.

However, if you inherited tenants that are bad and disrespectful of the apartment, do what you can to remove them quickly.

I hope #7 has you wary of raising rents on good tenants. Here is an example of when it does make sense.

We bought a 4plex with 1,500 sq ft 2-bedroom apartments that hadn’t been updated since the 60’s. The apartments rented for $800 each. We believed that fair market rent for updated units to be $1,250 — $1,600 and that we would be able to cash-out refinance (the BRRRR method) and recoup all the money we spent on repairs. We would also be able to renovate the units one by one, and only have one down unit at a time.

We managed to renovate the entire building for $140,000, and raised the rents to the middle of our target range. That’s an extra $2,400 per month, and $28,800 per year. At an 8% capitalization rate, we generated $360,000 in value on a $140,000 investment. When it came time to refinance, the bank agreed with our math, and gave us the biggest cashout allowed by an FHA refinance loan. We received all of our capital spent on repairs back, plus enough to look for our next deal.

#9: Good tenants are as rare as latinum — treasure them

If you’re a Star Trek fan, you might recognize the 57th rule of acquisition. For everyone else, latinum is the trek version of gold.

Managing one bad tenant can be harder than managing 20 good tenants. If you think I’m exaggerating, how would you go about renting a building with a known heroin dealer that was recently raided by the DEA. Do you want to ask a heroin dealer for rent every month? I didn’t think so (note: this didn’t happen to me, but did happen to someone I know).

On a personal level, we once had a tenant who thought we owed him the world. When he asked for us to install a crystal chandelier on his first showing, we should have seen the red flags, but we were inexperienced, and saw dollar signs of our first paying tenant in a new upscale rehab.

6 months later and the tenant decided to move out early, after doing over $3,000 in damage to the floor below his unit, burning the floors in his unit, and complaining that his restored 1930’s apartment didn’t have the same level of perfection as a 2018 new construction.

I’d rather let my units sit vacant for an extra month to find a good tenant.

#10: Always check the plumbing

Replacing plumbing can be expensive, but it’s more expensive if you do it after your rehab is completed.

In my market (St. Louis), there are 4 kinds of water lines you’ll encounter:

Galvanized steel — this means the plumbing is old, and you will be replacing it soon, usually when it breaks in the wall.

Copper — this can be old or new, and if it’s in good shape, can last 50+ years.

PVC — I’ve heard the glue joints can leak with this type of plumbing, and we own one building with PVC. Hopefully I’ve heard wrong.

PEX — this is illegal in some markets, as unions don’t like how easy it is to install. PEX is awesome. It’s a flexible, easy to install plastic piping that can use metal joints. It doesn’t freeze, and can last a long time. It’s dirt cheap, and thieves have no incentive to steal your PEX for scrap. In St. Louis, I’ve even started seeing PEX in high end rehabs, and after dealing with frozen copper pipes that burst in my own projects, and I’ve come to love PEX.

Regarding sewer stacks, I’ve seen 2 kinds:

Cast Iron — this usually is old and will need to be replaced during your tenure as owner. One of the most experienced plumbers I’ve worked with has explained to me that in nicer areas they used higher quality iron and sealing bands, and these pipes can last twice as long as the shit stacks (pun intended!) used in worse neighborhoods. Comparing the stacks in my high-end building to our lower-income properties both built in the same time period (1930s), I’m inclined to agree.

PVC — When you see this it means the sewer has been worked on in at least the last 20 years, and will last for a long time to come.

#11: With plumbing, you pay for what you can’t see

Just because you see shiny new PVC stacks when you walk through a basement, that doesn’t mean that the underground line isn’t still clay or cast iron.

If you cheap out on a sewer inspection, you might end up paying for a new sewer!

If you do find a leak or crack in a sewer line — stay calm. Newer technologies can fix a lot of these problems without you having to dig up the entire front yard.

Look up “trenchless sewer repair.” This technology now lets you run an expandable epoxy liner in an existing sewer to cover over cracks, without having to jackhammer your yard or basement floor. It’s usually a lot cheaper, and leaves a lot less mess.

#12: One-bedroom apartments are bad news

One-bedroom apartments in rough areas are bad news. We prefer 2+ bedrooms, as they come with lower turnover, better tenants, and less damage. One-bedrooms might be a lot cheaper, but they’re no longer our cup of tea. Our portfolio will stay with only 4 one-bedroom units into the foreseeable future.

#13: Have goals, and stick to them

We’re looking to grow our portfolio past 40 units, which means looking at single family homes isn’t going to get us there.

We’re on the hunt for a 10+ unit deal of 2- or 3-bedroom apartments in a C or better area. With that criteria, it’s easy to filter deals that hit the market, and make it clear to other agents what we’re looking for.

When you have clear goals, you know where to spend your time — and people on your team know how to spend their time to help you.

#14: Be mindful of the high cost of cheap labor

We’ve come to realize that there are 3 distinct kinds of contractors:

1. You have your fancy truck contractors with tons of staff and overhead. They do a good job, and warranty their work, but they charge a pretty penny to compensate.

2. Then you have the rag tag crews with no organization, that are flying by the seat of their pants. They usually lack experience, won’t hit deadlines, and might disappear in the middle of the night (maybe with, maybe without your money).

3. Then you have the incredibly experienced, family-driven teams. In my experience these contractors have been in unions, or worked for large companies for many many years, and either take work on the side, or are mostly retired and just do the odd job.

The third type of contractor is reliable, financially stable, and honest about their work. It’s also common for them to bring in their friends to help out if needed — and luckily for both of you, they have a large network of equally experienced, reliable people to call onto a job.

They aren’t the best-organized, and they won’t hit their deadlines every single time, but they won’t bullshit you.

The third type is our favorite type of contractor. You get to build a personal relationship, and can establish a level of trust that’s hard to find elsewhere. You’ll know you’ve found a great contractor when you aren’t negotiating on price — you trust their estimates — only on the scope of the project, to find a balance of costs that works for both of you.

Another good sign: when unexpected issues come up, they don’t charge you (or don’t charge you much) to deal with it. When everyone knows there will be more work in the future, your contractors will look after you.

For example, when we renovated our new office for Clever, we hired a fancy truck electrical company that left a few holes in the wall when they were removing old electrical outlets (we told them not to do this), and our contractor had already painted the walls. Instead of asking for extra cash to fix something that was out of scope, our contractor took care of it, as he takes pride in his work and wants the finished product to look great. In turn, we’ve done 7 houses with this contractor, and brought him additional work from friends and family members.

On another note — hiring contractors is similar to hiring realtors. The top 1% of agents by sales volume usually have large teams and overhead, and aren’t able to discount their commissions. The bottom 95% don’t do much work, and sell one or 2 houses a year, and while they might offer a discount, they don’t know how to offer good service. The top 2–5% of agents are incredibly qualified and experts at selling homes, and if you go through a service like Clever that takes out their cost of finding clients, they’re able to discount their commissions without sacrificing on service (disclosure: Clever is my startup).

#15: Always use your own contract

Contracts without an exit for missing deadlines or shoddy work leave you open to lawsuits and liens.

Always use a contract that has clear terms for the worst case scenario, and make sure the loser covers attorney’s fees. We play by the rules, and we’re only going to court if we’re going to win. This clause prevents frivolous lawsuits.

#16: If you’re not getting rejected on most of your offers, you’re doing something wrong

Especially in today’s market, many properties are overpriced. It’s easy to view the price you see online as “correct” or having some reason for being that high. Usually the only reason we’ve seen is “some sucker might be dumb enough to actually pay this.” We run all of our properties through this financial model, and offer what the numbers say they are worth.

We once offered $500k on an apartment complex listed for $900k, and ended up negotiating all the way down to $640k. Our Realtor was thrilled at the deal, but in the end the numbers didn’t work for us, even with such a large discount (it turns out when you hide $200k worth of roof damage, it’s hard to make any deal work).

#17: Getting your hands dirty to start is a good idea

When we first got into real estate, we started by attempting to renovate one unit ourselves.

It took months, and we did a terrible job on the painting, plumbing, electrical, and flooring.

But we did learn what it takes to redo an apartment — and how long it would take someone who didn’t suck to do the work. (Side note: we also earned the respect of a lot of our contractors when they saw us renting the 20 lb hammer drill from Home Depot)

The same goes for managing property. It’s a lot easier to judge a manager once you’ve been a landlord yourself.

#18: Get a partner

This is a tough industry, and you’re going to need some help. Almost every successful investor I know has a partner. It doesn’t matter if it’s your spouse, or a business partner, but you’re going to need someone to get you going after a long day.

It can be pretty overwhelming to realize that tenants count on you for a place to call home, and that you’re responsible for so many roofs, water heaters, toilets, etc. It can be especially difficult to deal with these problems on the fly when they come up at 2am (property managers help once you can justify them).

#19: Lean in, and don’t quit

Real estate is the ultimate get rich slow scheme.

All you need is consistent and relentless hard work, and the will to succeed. There will be times where you might feel like you don’t want to look at another old house ever again, or dream of renting a house and not having to worry about anything breaking, or stress about how you’re going to pay for a huge rehab before you can refinance.

It won’t be easy, and you will have to make some hard choices.

If you can stay in the game, eventually you will reap the rewards. Rents will go up, as will property values, while your loan balance will go down. You might even realize that real estate is something you love, and you couldn’t imagine doing anything thing else.

In the Wild West of real estate investing, winning means that you’ve mortgaged your time now for freedom in the future. It means you’re able to provide a quality place for tenants to call home, and meaningful work for everyone that your growing team employs.

I hope you enjoyed this. A lot of blood, sweat, and tears (or at least, a LOT of sweat) went into these 19 lessons. If any of these lessons were useful, please “clap” so others can read this. If you’ve like to read more, follow me on medium, or read my other stories below. If you’ve like to see what I’m up to, check out BenMizes.com or Clever Real Estate — the best way to sell your home and save thousands on real estate commission.

• Investing In Real Estate Has Changed My Life
• House Hacking — The Best Investment You Can Make
• 26 Apartments in 13 Months

Over the past year and a half, I’ve grown a real estate portfolio from 0 to 22 units, part time, without a large initial investment.

Most of our growth has come from a few great deals that had exits or an opportunity to refinance and pull our equity out. Simply put, my strategy relies on buying great deals that provide the opportunity for rapid growth.

Whenever I get asked how I did it, one of the most common questions that comes up is “how do you find good deals?”

In this market, finding a deal can be tough. Even though I invest in a cashflow friendly market in St. Louis, good deals are hard to come by on the MLS. It’s a sellers market, and many sellers are testing their luck with high listing prices (myself included!). This means that as a buyer, finding deals is hard, and we have to do everything we can to source quality deals.

After all, it’s better to buy no deal than a bad deal.

So, how do you build a system to reliably source quality investment opportunities without working full time? There are many strategies I use, but at its core, the secret is building great relationships in your market, and leveraging those relationships into deals.

How Most Investors Look For A Deal On The MLS

The average investor trying to build a portfolio looks for a deal the wrong way. Let’s take Average Joe as an example.

Joe finds a property that he’s interested in on the MLS, and runs a bit of diligence. Then Joe calls their agent, or the listing agent to make an offer at a price that would justify a good deal. The seller rejects their offer, and Joe walks away frustrating, convinced that the deal is dead, and the market is too hot.

Occasionally after the offer is rejected, Average Joe might mention to the listing agent that the deal isn’t good enough for him, and to let him know “when they get a good deal.” Average Joe the investor has yet to get a call back, and probably never will.

While this might be an oversimplification, most investors aren’t willing or don’t understand the value of going a level deeper in an effort to learn information that might turn the property into a good deal, or to uncover another deal that hasn’t hit the market yet.

How I Look For Deals On The MLS

If I was looking at the same deal on the MLS, my process would be very different. I would start by running the deal through my financial model, to get a good understanding of how the deal looks now, and to have an idea of what information I can learn that will change my offer (condition of the core systems not described or pictured). Depending on what the listing agent says about the condition of the property, I will have a good idea of what I’m willing to pay.

Now that I have my numbers and questions, I’m ready to call the listing agent. Generally, I like to introduce myself, and give a brief background of what I do so the other agent knows I’m not going to waste their time.

My first call usually sounds something like this: “Hi listing agent, this is Ben with Clever Real Estate. I’m an investor that focuses on multifamily with a value add component similar to your listing at 123 Elm Street. Do you have a few minutes to chat?”

Now that I’ve introduced myself, I will usually ask specific questions about the age and condition of the plumbing, roof, electrical HVAC, and current renters. Depending on the answers I receive, I usually have enough information to make an offer.

If my offer is significantly lower than list price, I almost always preface the offer acknowledging that I understand that they have listed at a fair price, but I buy using a specific financial model, and this is where I’m able to offer.

I make sure that nothing is personal, and I’m not attacking either the agent or the sellers price. I’m simply stating what I’m willing to pay for it. Usually I just ask the agent to float the offer to the seller, and if it makes sense, I’ll put it on paper.

Now is where things get interesting.

Regardless of the outcome of this offer, I’ve just spent around 10 minutes discussing real estate with an agent that is active in the space I love to invest in, and if I’ve done my job right, they are now confident I can close any deals that meet my criteria.

Before I end the phone call, I always do two things:

1. I always mention my buying criteria, and ask them to let me know if anything comes across their desk that fits. A good example of my buy box would be “4–100 unit apartments with a value add component in cash-flow to fringe neighborhoods. I can close anything under 20 units myself, and have investors already signed on for anything larger.” This gives the other agent a clear idea of what I’m looking for, and how I’m going to be able to close.
2. I always ask if the seller has any other properties not currently listed that fit the criteria that I just mentioned. Usually the answer is no, but it’s fairly common for the agent to mention some of their other clients that do have property they’re thinking of selling that might meet the criteria. Guess who just made it to the top of the list for a potential off-market deal?

Networking

Another great way to find deals is through networking with other real estate professionals. I’m currently in 5 or 6 facebook groups for wholesalers, investors and agents who specialize in multifamily. Every day I see 5–10 off market deals posted I can review. I’ve yet to buy a deal from Facebook, but I’ve made a couple offers, and it’s only a matter of time.

Another great avenue for finding deals is through your property manager (if you have one). Your property manager spends their entire day dealing with hundreds of properties and investors, so it’s a pretty good bet they know when someone is likely to sell.

Some management companies will even do leasing for other companies, and can find even more potential sellers this way. If you haven’t already, give your property manager a call and let them know your buying criteria.

After all, if they find a great deal for you, they will almost certainly get to manage the property after you close. It’s a true win win for both parties. The last deal I purchased was sourced by my property manager, and they frequently send me off-market deals to consider.

The other way to find deals through networking is to tell the world that you’re in real estate. Some of your friends might get a bit sick of hearing about it, but you better believe when anyone they know has a real estate question, they’re going to funnel them to you.

It might not turn into a deal today, but you never know where a connection might lead.

Hunting For Dumpsters

This one might have you scratching your head, but I promise, it works! Do you ever drive around town and see homes in rough shape with a dumpster out front, and permits in the window?

That home is currently being renovated, either for a flip, or a buy and hold. While you might not have the whole story, it’s a pretty safe bet to think that whoever is renovating the home knows how to find a deal (or at least they think they can!).

If I ever drive/walk by a dumpster and see a crew working, I’ll always ask if the owner is there, and see if they have time to talk about investing. Every now and then I will find an owner who has such a strong deal flow from wholesalers and direct mail, they offer to take my card and let me know if there’s anything that isn’t a good fit for their business, but might interest me.

Direct Mail

I won’t go in depth on the best way to do direct mail in this post, but it does work. However, it can be very capital intensive, and it takes repeated mailers to have a lot of success.

I’m not currently pursuing this strategy as I’m too busy with my startup, and it requires you to be consistently available to answer the phone when a seller calls. If you’re looking to go full time in real estate and rapidly scale your portfolio, you should spend some time researching a great direct mail strategy.

Stay Patient

I won’t lie to you. Finding a deal in this market isn’t easy, no matter what you do. If it was easy, everyone would be a successful investor.

What I can tell you, is that finding a deal isn’t rocket science. It’s a problem you can approach systematically, and the effort you put in will pay dividends if you’re persistent.

Real estate is all about relationships, so get off the couch, get on the phone, and get in the field.

Passive income and financial freedom awaits those who are willing to work.

In the coming weeks I’ll be writing about how to pick a market and neighborhood to invest in, how to renovate properties, and how to raise capital for real estate deals. After all, finding a deal is only useful if you know how to finance, renovate, and manage your property.

I hope you enjoyed this article. If this added value to your investing career, I’d greatly appreciate if you “clapped” and recommended it so others get a chance to read it. As always, feel free to email me any questions you might have to Ben@movewithclever.com.

PS: If you’re not yet comfortable working and negotiating with agents, I highly recommend reading Never Split The Difference by Chris Voss.

A little over a year ago, I was introduced to the real estate investing forum, BiggerPockets, along with their weekly podcast featuring Brandon Turner and Josh Dorkin. I didn’t know anything about real estate investing, but I would listen to their podcasts on the way to work, and again when I was at the gym.

As an entrepreneur myself, it didn’t take many stories of listening to other investors who started with nothing and rapidly built a large portfolio to achieve financial freedom for me to think I could do the same.

Before I pulled the trigger on my first investment, I discovered the Wheelbarrow Profits Podcast with Jake and Gino, and got hooked on the concept of only buying multifamily. With multifamily, you’re able to control the value of your properties by changing their income and NOI, whereas single family is valued at the mercy of the market.

Armed with a bit of knowledge, I was ready to get in the game. I started monitoring every property that came on the MLS, and writing offers on anything that made sense. It took a little over a month, but I found a home run of deal in Tower Grove (a hot neighborhood in St. Louis) and made my first investment a house hack.

I had contractors do a bit of work on the property, but i came to find that this was pretty much a turnkey investment. The tenants were great, nothing major broke, and it gave me a taste of the responsibilities that come with being a landlord. About a month after I purchased my first home, I sat down with an old friend, Luke Babich, and discovered that he had been learning about real estate investing himself and we decided to form a partnership. Now with a business partner that was equally ambitious and someone I could trust, we set out on a quest to grow a portfolio in our hometown.

Luke and I knew that we wanted to scale, but we were acutely aware that we wouldn’t be able to achieve our goals if we didn’t understand the ins and outs of construction, negotiation, and the core systems that makeup a home. You can be a guru at financial modeling, but if you can’t walk into a house and properly assess it’s condition, you’re going to have a bad time.

My philosophy on business is simple — If you don’t know how to do every job in your business, you can’’t be an effective leader. With this in mind, we began a hunt to find our first rehab, or as we called it, “our education.”

We knew that we needed a property with a huge margin to give us breathing room for the eventual mistakes that we would undoubtedly make. We again began scouring the MLS, calling potential sellers we found online, and calling every “for rent” sign that I saw while driving in hopes of finding a motivated seller.

It was during one of these calls to a “for rent” sign that I discovered that the owner of a huge 4plex in the town that I grew up in was very interested in selling, and the building needed a full rehab. This was exactly what we’d been looking for. The best way to learn is by doing, so we began the long negotiation process on our first off market deal.

Luke and I didn’t know much about a rehab project, and didn’t have the best idea of what things would actually cost, but we did our best to ask questions from experienced landlords, as well as meeting with as many contractors as we could.

I’ll never forget the day we were given access to a short sale in Fox Park (neighborhood in St. Louis), and each called 10 contractors to meet us there. We arrived to see about 15 contractors confused as to why they had all been called to the same property, and why two clueless 23 year olds were the ones behind it all. We asked all 15 to bid out the potential rehab, and we were amazed at how different all 15 quotes came back ($30k-$150k). Analyzing all of the different quotes gave us a rough, rough estimate of what we could expect things to cost.

After several weeks of negotiating and hours of meeting in the library with our potential seller, we finally came to terms on price. We knew that we were taking a risk, and that there was a chance that our rehab budget wouldn’t even be close to what we projected. Because of our preparation, we “felt confident enough” to move forward. Our plan was to double rents which would give us margin to work with and increase the value of the property. We had found our “margin of safety” and decided to close.

After we closed, things went about as badly as we expected. We hired a couple bad contractors, started an insurance claim when a contractor damaged our floors, and we did a lot of the work ourselves (badly). Our first unit was like a constant struggle in an uphill battle, and we were ready to apply what we learned to the second. By the time we finished our third unit, we had learned the basics of plumbing, electrical, roofing, and interior renovations. We came into the property looking for an education that would give us the base to grow, and after cutting our teeth for 8 months, we’ve built a foundation that will change our lives for years to come. When it comes to grinding, no one ever graduates from the school of hard knocks, but this project moved us up a few grades.

A month or two after we started our big rehab project, I took my newfound love of real estate and started a real estate tech company, Clever Real Estate. Clever let’s anyone list their home with a local, full service real estate agent with a drastically lower commission than usual.After I founded Clever, the way I invested in real estate had to change. I no longer have time to swing a hammer, manage tenants, and constantly evaluate deals on the MLS. At the same time, my business partner was promoted and put in a similar situation. If we were going to grow our portfolio and grow our companies, we had to build systems and acquire units at bulk, instead of individual buildings.

With our new time constraints, we set out to make a new plan. Through my work at Clever, I’d connected with a fantastic property manager that also owns a construction company. Knowing that we had someone who could bear the brunt of the day to day management, turnover, and minor repairs, we were able to focus what little free time we had on finding a package to buy. There are rarely bulk deals available to buy on the MLS, so we set out to build relationships with wholesalers, brokers, and other managers. After a month of searching, our own property manager presented us with an 18 unit deal that his company already did leasing for. We ran the numbers, and knew we had to move quickly. We submitted our initial offer within an hour, and were under contract before a much more capitalized team of older investors had time to analyze and make an offer.

Our offer was accepted, and there was just one problem — Capital. We had been planning on buying an 8 unit deal, and didn’t have the funds for something this large. What we did have, was the power of the 1031 exchange. I bought my first deal at a discount, and raised rents enough to create a substantial amount of equity. A 1031 Exchange would allow us to sell the property and defer payment of all taxes, so the full proceeds could go into the new properties. We just had to find a buyer for the first property and close the deal before the closing of our 18-unit package. This was stressful, but the property we were selling was in the hottest area of St. Louis, and we were able to accomplish our goal with just four days to spare.

After going under contract, purchasing the package was easier than buying our first 8 units. We had a much better idea of what we were getting into on our initial walkthrough, as well as a team of contractors we could trust, a specific rehab budget, and already negotiated pricing for all of the work we need to stabilize the building. we had all the right ingredients for a perfect investment.

Two weeks after closing, we’ve already filled both vacant units above our projected rents, installed 5 new roofs, spot tuckpointed all five buildings, and repaired several sewer lines. This package is almost stabilized, and has already become a cash flowing asset that will allow us to scale our business faster than ever before.

I’ll write more about the numbers of the 18 unit deal in a later post. For now, I’d like to conclude with the biggest lessons I learned in 2018. Hopefully you won’t have to make some of the mistakes that we did.

1. Buy Right

I invest in St. Louis, which is a very stable market. In a stable market, you make your money when you buy. If you don’t purchase at the right price, it’s going to be almost impossible to build equity in the short term.

How do you buy right?

Model everything! Once you’re sure the deal makes sense as an investment, check comps to make sure it’s at or below (preferably below) market. If you’re buying at market price, you need to be able to add value and force appreciation.

Here is the spreadsheet we use to model deals. Feel free to make a copy of this and use it for your own deals.

2. Rehab Right

Learning how to properly manage a rehab was one of the hardest things I’ve ever done. I’ve always been comfortable with financial models, and negotiating prices, but I had no experience in construction. Taking on a 6,000 square foot building that hadn’t been upgraded since it was built in 1930 had me in way over my head.

I have a simple philosophy on business: In order to be an effective leader, you need to know how to do every job in your business.

This made our next choice simple, we had to learn how to swing a hammer. Luke and I spent four months doing as much work as we could on the first of 4 units in our property. We learned to do plumbing, electrical, painting, unclog a sewer, restore vintage tile and bathrooms, as well as a working knowledge of roofing, HVAC, and tuck pointing. With this newfound knowledge, it was much easier to screen contractors, manage projects, and keep our projects on schedule. We’re not perfect, but we’re getting better with each project that we do.

3. Manage Right

Owning rental properties is great, but if you can’t manage them, you’re in for a world of trouble. Just like learning to run a rehab, I’m a firm believer that everyone should self manage their first property to learn the ins and outs of being a landlord. I highly recommend Cozy.co to screen tenants, and automatically collect rents.

In my experience, being a landlord is an easy job 90% of the time, except for the 10% when it isn’t. One bad tenant is more work than 10 good tenants. It’s incredibly important to set your expectations early, so all parties are on the same page.

It’s also much easier to be a landlord for a building that’s in good shape, and was renovated properly. It’s better to spend more on the front end and do your renovation properly, than pay for expensive emergency repairs when things break.

4. Finance Right

A good lender is your best friend. We’ve been able to scale because of a couple fantastic relationships with both residential and commercial lenders. You need someone in your corner that you trust, and is willing to work with you to get a deal done that works for you. When it comes to commercial lenders, everything is up for negotiation, so be prepared to ask for what you want. On our last deal it was very important to us that we were able to separate one property from the package loan in the future, as we’re planning on doing a cash out refinance.

If you’re looking for a good lender, attend local real estate meetups, and ask successful investors who they use. They will be happy to help.

5. Don’t give up.

This isn’t easy. Some days you might want to quit. It can be tough to see the bigger picture when you come home from a 10 hour day to find a tenant who’s threatening to break their lease, a basement full of sewage, and a rehab that’s been delayed by a bad electrician. In those moments all you can do is grab a mask and some gloves, fix the sewer (or call a plumber!), and work on solving every task ahead. When this happens, It’s important to remember why you got into real estate in the first place.

I got into this because I’m passionate about improving St. Louis, and I want to provide quality housing for our residents, and provide a place to live that residents are proud to call their home.

I also want financial freedom to live my life on my own terms. Investing in real estate is the ultimate way to get rich slowly, and acquire financial freedom rapidly.

As long as you’re moving forward every day, you’re moving in the right direction.

I hope you found this article was helpful. If you’re looking to buy or sell a home, Clever can help. If you want to talk about investing, feel free to drop me a line at Ben@movewithclever.com, or connect with me on BiggerPockets.

This piece originally appeared on the Clever Blog

Houston, we have a problem.

Our small group of beta testers for Drizzle SMS had gone viral. In a matter of hours, we had 10,000 active users on our platform — all expecting to get paid.

Our app started trending on the Google play store, and the downloads kept coming.

There was just one problem: we weren’t ready to handle it.

Drizzle didn’t have any automation in place to scale. We barely had a functioning backend.

The first week after our startup launched, the majority of our time was spent manually counting rewards for our users — instead of improving our product and fixing critical bugs with our infrastructure.

This rapid growth put our team on a path of bad decisions that ultimately led to the death of my first startup — and taught me the crucial lessons I’ve used to build my second.

Drizzle SMS — get paid for every text you send

My latest startup, Clever Real Estate, is a recent graduate of Capital Innovators. Less than one year into our growth, we’ve just hit profitability.

But my story as a founder didn’t start with Clever, it started with Drizzle SMS.

Drizzle was the first mobile application that paid users for every text they send and receive.

At its core, the idea was simple: we show a small banner ad on our user’s messaging app (only visible to our users). Drizzle gets paid by the advertiser, and we split the ad revenue with the user.

While the idea was simple, implementing it was one of the most difficult tasks I’ve ever attempted.

In order for our app to succeed, we needed a product that worked on every version of android, worked with every mobile carrier’s SMS/MMS protocols, could track ads shown to each user, and build a platform for our users to redeem their rewards with a virtual currency we’d created, Drizzle “drops.”

So What Went Wrong?

On paper, Drizzle had a fantastic team. My co-founders Deepak and Vinayak are some of the best developers and product managers I’ve ever known.

However, this was all of our first startup: there was no one with experience to really point us in the right direction.

Until Drizzle, my closest experience to leading a company was running an eBay store that did over $100,000 in sales, with one partner. I had never managed a team of any kind, let alone a team of 10 developers.

Most of the problems we faced could have been solved by an experienced team — and experience is usually learned through mistakes.

Rushing to the starting line

As a young company, one of the biggest challenges of building an application is the lack of resources. We didn’t have the means to hire a full team, so our first prototype was built entirely by our CTO.

After four months of working on an app, it’s easy to get anxious and rush the launch date.

Countless bugs, new builds, and hours of beta testing will make any team begin to second-guess themselves. Is the product you’re building going to work? Will anyone actually use it? Are we wasting our time?

After four long months, our team finally reached a point where we had a functional app, with a design that was good enough for us to use as our daily messaging app.

The problem was, our team hadn’t completed a backend to actually track which users viewed ads, and how many drops (our virtual currency) our users should receive.

Rather than spend another month or two fixing the backend, we set out to acquire a small community of beta testers to provide early feedback on our app, so we could decide if this was a project worth continuing.

Our plan was to manually credit our beta users accounts with drops every day, and build an automated solution after we proved the concept. Building a community of beta testers is always a good idea, but this was the last good decision we would make for a long time.

Our App Blows Up — In A Good Way?

When our app went viral, we received 10,000 users in our first day, and close to 50,000 in the next couple weeks.

Our app wasn’t ready to handle this volume, and we were too excited to watch the downloads of our app grow. It never even crossed our minds that we could shut down the app for a bit to address our problems, and return once we had a working build.

Through all of the growth and excitement, we forgot that we didn’t intend to launch, we were just trying to build a community of beta testers.

As our number of downloads and users continued to grow, we quickly became focused on the number of ad impressions that our product was driving. I’ll never forget the feeling when we crossed our millionth ad served in just a few short weeks.

Unfortunately, that feeling was fleeting. We were tracking the wrong metrics.

Our App Blows Up — Definitely Not In A Good Way

Our active user base was only growing because of the rapid increase in new downloads — not because users were staying with our app over time.

We ended up with a core following of users that were using our app as a means to view ads and get paid, and not actually message their friends like we intended. These users were skewing our numbers, and fooled us into thinking that our product was growing.

It was only later when we stepped back and looked at our churn that we realized over 80% of our users were leaving the app within 7 days.

Once we understood the problem, we were finally able to begin building a plan to address underlying issues with the product.

Over the next year, our team grew in size. We began to focus on fixing the right problems. And it was working: as problems with our app were fixed, our churn rate improved dramatically.

It was during that year that my co-founders and I learned what it actually takes to run a company.

While our app didn’t end up being successful, the lessons I’ve from Drizzle gave me the experience to be a better founder, leader, and business owner. Every day I run my current startup, I’m constantly reminded of mistakes I made with Drizzle — that I’ve avoided this time around.

What I learned

My experience leading Drizzle SMS, and ultimately failing, led me to establish 3 key guidelines to evaluate any potential business I’m thinking of starting.

If you’re thinking of starting a business, these principles can save you a lot of the headaches my team and I faced at Drizzle — hopefully you won’t have to learn the hard way.

1. It’s All About The Numbers

No matter what business you’re running, the numbers need to make sense.

This may sound silly, but thousands of business are started every year with the strategy of building a big enough user base that you can figure out revenue later. This might work if you get lucky and build the next Facebook, but for everyone else, you’re going to fail.

I refuse to be a part of any business that doesn’t have a clear path to profitability.

When you’re modeling a potential business, you should be able to identify your costs at every stage of the funnel. If you don’t know how much it costs to get a lead, the percentage of leads that will close, and the average revenue per closing, there’s no way to know if your business even has a chance of being profitable.

2. Surround Yourself With Experience

Silicon Valley idolizes the image of startups as college kids working out of their dorm room becoming millionaires overnight.

That couldn’t be further from the truth.

The average age of the founder of a billion dollar company is 34, and the average successful founder is 40 (https://www.forbes.com/sites/krisztinaholly/2014/01/15/why-great-entrepreneurs-are-older-than-you-think/#67c0278a3016).

As a young founder who experienced a failure where experience played a large role, I’m acutely aware of how important it is to have experienced team members in key roles. This time around, everyone on Clever’s Board of Advisers or in a C-level position at the company (well — except me!) has over 10 years’ of experience in their specific role.

This allows our team to spend less time learning general knowledge, and more time iterating and improving our product.

3. Get Help With Your Problems

Most first-time founders have never faced any adversity in their professional life.

Before I started Drizzle, I had breezed my way through high school and college. The hardest classes I took at the Kelley School of Business, I was able to pass just by cramming 12 hours before the final, and still get a better grade than most of my peers.

I was cocky. You’ll find this mentality with most young startup founders. It’s a lot easier for someone who has never failed to think they can start a business and change an industry.

As someone who had never failed before, when things went south I found it difficult to share what was going on with our investors, peers, and mentors. I began to think that if my company was a failure, I must be a failure as a person as well.

In reality, the more experienced eyes you can get on your problem, the better chance you have of succeeding. 90% of startups fail, and almost every successful founder has been in that 90% at one point of their life.

After all, you can fail 1,000 times, but you only need to be right once.

If you’re reading this and you’re thinking of starting a business, or currently running one, I hope this article helped.

If you want to join a fast (and sustainably) growing startup team, Clever Real Estate is hiring. Feel free to contact me with any questions at Ben@movewithclever.com.

This post originally appeared on EQ.

A year ago I sold all of my investments in the stock market. I’d exceeded 15% returns in less than a year, but that didn’t impact my decision to sell. The more I learned about the stock market, the more it scared me. It’s incredibly difficult (some would say impossible) for the average investor to beat the market on a consistent basis, especially if you account for risk.

The stock market has two main flaws:

1. Returns are out of your control. Even if you invest in a winning company, a systemic crisis could drive the whole market down.
2. Decisions are out of your control. A company can make a decision you don’t agree with that negatively impacts their stock price, and there is nothing you can do to prevent that. Once something goes wrong you can sell for a loss or hope that the price comes back up, but there is no way to actually impact the outcome.

Even though I’d done well picking stocks, I realized that I was taking on significant risks investing in the market, and I didn’t have good system in place to mitigate them.

Then I discovered the world of real estate investing. The more I researched, the more I was hooked. I decided to pursue a strategy in multi family apartments in the midwest, specifically in my hometown of Saint Louis, Missouri. This strategy had everything I was looking for.

Predictable Returns

While some areas of the country are experiencing a massive increase in rent prices, St. Louis has remained constant, in both price and vacancy rate. During the 2007 financial crisis, the average rent in St. Louis only went down by $12, and the vacancy rate actually decreased by .91%.

With a predictable source of rental income, it’s easy to model an investment and project returns over time.

As long as you’re knowledgeable about the condition of your investments, and the costs of maintenance, repairs, taxes, insurance, vacancy, and property management, you can accurately predict how much you should be putting into an escrow account every month. You can find this information from contractors or your property manager, but I strongly recommend taking the time to learn yourself. When my business partner and I were rehabbing our first apartment, we made a point to do almost everything ourselves so we could learn exactly how much work it took, and how much materials cost. It took us 2 months longer than it should have if we hired a professional, and our work is nowhere close to quality, but I wouldn’t trade that experience for the world. We’re now able to walk into any building, and quickly create a rough estimate of costs and a timeline for any necessary repairs.

You Can Hustle

Anyone who knows me would probably describe me as a hustler. Real estate is the ultimate sport for hustlers to get ahead. Every aspect of real estate is a game that’s up for negotiation. There are some properties listed for sale on the MLS or Zillow, but a hustler knows that they can call other landlords or frustrated owners and buy their properties before they hit the market.

Once you find a property you like, it’s time to make an offer. When I see a property listed for sale, I view the asking price as a suggestion, not a number that actually matters. My partner and I base our offers off of our financial model, so we’re only paying a price that makes sense. While this strategy takes time, and your real estate agent will probably begin to resent you for making them write 100s of offers, it works. Eventually you will find a seller willing to meet your price, and that’s when the fun really starts.

Once you’re under contract, you can negotiate on anything and everything. You can change the price, ask for credits, demand repairs, or even change the terms of the offer. A good negotiator can sometimes convince a seller to finance some of your down payment, allowing you to purchase an expensive property for a fraction of the cost. Negotiating with sellers deserves it’s own post, but know that when it comes to seller concessions — if you don’t ask, you’ll never know.

Protection From Downside Risk

A couple days ago a friend of mine asked me if I’m worried about a correction in the real estate market, and how that would impact my portfolio. One of the best facets about investing in multifamily apartments, is that a younger investor can answer, “I don’t care.” If the market has a downturn and cap rates go up again, you might not be able to exit your investment for what you paid, but as long as you don’t sell you can continue to collect rent and receive a great return. You can simply wait until the market goes up again, and sell at the appropriate time. This is especially true for investments with a 30 year fixed mortgage. If you buy a property correctly, you will never have to sell unless you want to. If you get into commercial properties with adjustable rates and balloon payments, it’s crucial that you know exactly what terms you’re accepting, and that your investment is able to handle a substantial increase in interest rates.

Control

For the most part, the success of an investment depends on your ability to execute and build systems. Through every step of the process you have control over the outcome. I choose my purchase price, ask for seller concessions, manage renovations, choose a property manager, rent prices, and approve every tenant that moves into one of my buildings. If something goes wrong, I can look in the mirror and see the guilty party.

If a situation comes up where no one has an answer, you can step in and save the day. On our first rehab we hired a bad contractor to drill through 12 inches of concrete floor to run ducts for an HVAC system. When he failed we received incredibly high quotes from professional concrete cutters that would put our rehab $5,000 over budget. My partner and I did some research, called an expert, rented the largest hammer drill that Home Depot sells, and did the work ourselves. It was backbreaking work, but we were able to save $5,000 by getting our hands dirty. How can you do that in the stock market?

Next Steps

If you’ve never thought of investing in real estate before, I hope this post sparked your curiosity. If you’re a younger investor looking to make your first purchase, I strongly recommend that you house hack to purchase your first property for as little as 3.5% down.

If you’re looking to buy or sell a home, my startup, Clever Real Estate, can connect you with a local, investor friendly agent to help you buy your first property with a commission rebate. Clever also let’s you list your home for a flat fee of $3,000 with a full service agent. If your home is worth more than $350,000, a 1% fee is charged.

If you enjoyed this post please clap and recommend so others get a chance to read it.

Feel free to contact me at Ben@MoveWithClever.com

The concept of house hacking is simple. You buy a duplex, triplex, or quadplex with an FHA loan (3.5% down), and your tenant’s rent covers all or most of your mortgage and other expenses. If it’s done right, you can drastically increase your available capital for investing every month. If it’s done wrong, you can purchase a money pit of a property that’s hard to manage and will cost you more than renting. If you’re not willing to take a bit of a risk, this investment probably isn’t for you.

Before I go into the details, I’ll provide an example of a 4plex house hack based on my own purchase a couple months ago.

Purchase Price — $220,000 — includes closing costs, and a credit for a new roof, sewer, and tuckpointing

Cash To Close — $10,000 — includes down payment, inspections, and $3,000 that the seller didn’t cover in repairs.

Monthly Rent — $2,000 for 3 units, one unit occupied by the owner (me)

Monthly Payment — $1,400 — includes principal, interest, taxes, and insurance

Cashflow — $600

Budgeted Expenses — $600

Net Cash flow — $0

Cash saved from not renting — $8,400 a year

You can get the model I use to forecast cash flow here.

In this situation, the owner now has a stabilized property that allows him/her to live for free, and still have capital to repair their building as needed. The owner is now free to invest the $700 a month they would have been spending on rent, and create over $8,000 in wealth in one year. That’s around an 80% ROI, not including the principal that’s been paid down on the mortgage of the 4plex. In a year or two, the owner can refinance into a traditional mortgage, and house hack a new property. This property would generate around $700 of free cash flow a month once it’s fully rented, or $8,400 a year.

It’s important to note that in this example, my building has newer plumbing, electrical, sewer, HVAC, and a new roof. $600 a month might not be enough of a repair budget for an older building with major capital expenditures coming soon.

Finding Your House Hack.

Finding a good property to house hack isn’t easy, but it can be done if you’re persistent. When i’m looking for deals in my market (St. Louis), I won’t look at a property unless the total rent is at least 1% of the purchase price of the building. I would love to be closer to two percent, but a 1% deal can still cash flow. In St. Louis it’s possible to find deals closer to 2 or 3% price to rent, but they won’t necessarily be in an area I want to live in or manage. If you’re starting out, interview several realtors, and find one that has experience working with investors, and ask them to help you find your first property.

Your realtor should set you up with MLS alerts, so every deal that meets your criteria will be sent to your email. If you like a property, it’s time to schedule a showing. When you view a new property, be sure to inspect the following:

• Age of the roof
• Plumbing
• Sewer
• HVAC
• Tuckpointing
• Major cracks
• Water in the basement
• Do doors and windows open easily?
• Condition of the windows
• Is any paint peeling
• How nice are the kitchen and bathrooms (these rent houses)

It’s unlikely that you’ll find a property at a good price where all of these are in good condition, so you need to budget the cost of repairs into your projections. After you view a building you can make an estimate of the major repairs that will be needed, and make a more accurate model of how much to save for repairs and maintenance every month.

While it’s very tempting to offer on a nice property, you can’t get emotionally invested. This is a business, and needs to be treated as such. Only buy something that makes a lot of sense on paper, because it’s probably going to do a lot worse in reality. You want an investment with enough margin for things to go wrong and you still end up OK. Buying a property that barely cash flows on paper is a recipe for disaster.

Once you’ve found your property, a good agent will help you make the right offer. Be sure to include a personal letter to the owner for every offer that you make. If two offers are equal, the offer with a convincing letter is probably going to win the house. You can reuse the same letter on every house you offer on, and just make minor tweaks based on the situation. Assuming the offer is accepted, you’re officially under contract!

Financing

Financing for a house hack is a bit more difficult than a conventional loan. FHA properties have to pass a more rigorous inspection, and peeling paint isn’t allowed. While this can limit some potential deals, it’s possible to do the work before you close, or use an FHA 203k renovation loan. A good agent and lender will be able to help you navigate through the FHA financing process. Before you schedule any showings, it’s important to get pre-approved, or your offers won’t be taken seriously.

Closing

After you close on your home, you’ve officially entered the world of becoming a landlord. It’s important that you prepare for this before you become a landlord, or you could have some costly problems. Managing tenants and keeping your property maintained is the backbone of a successful house hack, and rental property business.

If you’re thinking about getting started with your own house hack, the following resources were a huge help to me:

• Rich Dad Poor Day By Robert Kiyosaki
• The Book On Rental Property Investing By Brandon Turner
• Biggerpockets.com and the Bigger Pockets Podcast
• Real Estate Rehab Investing Bible by Paul Esajian
• Walking up to every house with a dumpster and asking the rehabber if you can buy him dinner

When you’re ready to buy your first property, my startup, Clever Real Estate can connect you with a local, investor friendly agent to help you find your house hack.

If you have any questions feel free to message me on Bigger Pockets here, or email me at Ben@MoveWithClever.com.

1. Do I have a goal of how much to save and invest every month?
2. Do I have an investment portfolio?
3. If you have an investment portfolio, why did you chose that investment strategy?
4. Do I understand the risks of your chosen investment strategy?
5. Does my investment strategy align with my short term and long term goals?
6. Is buying a home an asset or a liability?

Upon becoming the solitary source for financial and investment advice in my circle of friends, the realization came very quickly that most millennials (and Americans in general) don’t have a good understanding of the investment tools at their disposal to build wealth. Most of my friends know they need to be saving money, but they’ve never learned the right way to save and invest. Some of them keep all of their money in a savings account because they’re afraid of the risk of losing money in the stock market, while others are investing in individual stocks they haven’t researched because they heard good things from a family friend. Almost no one I talk to has taken the time to hash out a financial plan for their future.

If this sounds like you, and you’re nervous about investing, it’s not your fault. Our school system doesn’t teach basic financial literacy, so we’re left with millions of Americans who know they should be saving for retirement, but don’t understand the right way to go about it. I graduated from Indiana University, one of the top 10 business schools in the country, and while I learned how to calculate risk premiums and expected returns of stocks in our finance class, we were never taught how to actually apply any of that to invest in our personal lives. If the nation’s top business students aren’t being taught the right way to invest, it comes as no surprise that financial literacy is so rare.

I’ve spent the last two years learning everything I can about investing in the stock market, and for the last year I’ve been learning how to invest in real estate. The rest of this article will give you the tools you need to plan and invest for your retirement. I’ll cover the safest, low risk strategy for millennials that’s easy to follow, and then cover some strategies that require a more active approach but can generate significantly higher returns.

Step 1 — The Mindset Of An Investor

The biggest mistake most investors make when they start out is letting their fear of losing money cause them to lose money. While this sounds counter intuitive, it happens all the time. We’re investing for our future, so we need to take a long term view. The easiest way to lose money is to panic and sell when the market goes down, and then buy back in at a loss when it goes back up. It sounds silly when you read about it, but the first time you watch one of your investments take a dive you’ll understand how powerful the fear of losing more money can motivate you to sell. This phenomena impacts both new investors and millionaires using hedge funds.

If you’re only buying relatively safe investments like the S&P 500 index, you don’t need to worry about short term fluctuations, as you know that your investment is going to appreciate in the long term. The best way to not stress about your investment account, is to view it as a fund that you can’t withdraw from. Once you put money in your investment account, it’s going to stay there for the foreseeable future, working hard to earn you passive income.

Step 2 — Make A Plan

Every investor needs a plan that they can follow. Take a look at your salary and your current expenses, and set a reasonable target for how much you will invest every month. Once you invest this money, view it as money that is only going to be used for investing for the next 20 years at a minimum. Every dollar you invest is a dollar that works around the clock to earn you more income. I view this money as my personal business, working towards my retirement. Every month I need to add funds to this business before I do anything else. This concept of paying yourself first became popular in Robert Kiyosaki’s best selling book, Rich Dad Poor Dad. Every new investor should read it.

Now that you know how much you’re going to invest every month, it’s time to get started. If you’re concerned about not having that much to invest, this Bigger Pockets article about retiring a millionaire on a $30,000 salary will put your mind at ease.

Everyone has different levels of risk that they’re comfortable with, so there isn’t one investment strategy that will work for everyone. The plan I’m going to lay out will work for most millennials who have a long horizon for investing. If you don’t know much about the stock market, you don’t want to even think about picking individual stocks. Almost everyone who tries to pick stocks ends up doing worse than the market as a whole. While there are strategies you can employ that can beat the market, they come with more risks, and you have to be willing to be more of an active investor (the real definition of beating the market is getting a higher return for the same amount of risk, but that’s a topic for another article) You can achieve great returns without a lot of work if you stick to index funds.

Step 3 — Getting Started With A Broker

Before you can buy a stock, you need to find a broker to work with. I recommend that you use RobinHood. Robinhood is a mobile brokerage that has no fees, with no minimums to invest. This means you can invest small amounts at your leisure without having to pay a fee for every trade. Robinhood lacks some of the powerful analysis that other platforms offer, but since we’re only buying indexes, this isn’t important. If you’re only investing small amounts at a time, the $7 fee that most companies charge will destroy your potential returns before you even get started. Robinhood gives you a level playing field to get returns without having to worry about fees.

Step 4 — Making Your First Investment

You’ve created your Robinhood account, and you know how much you’re going to invest — it’s time to get started! In the search bar in Robinhood, type in “SPY”, and click on the “SPDR S&P 500 ETF Trust”. This is a combination of the 500 (actually 505) largest companies put together in one index. Buying one share of SPY means you own a piece of 500 different companies. You don’t have to worry about one company having a bad year and your investment going south. The S&P 500 index is generally considered the best gauge of the US market as a whole.

Every month, invest your target savings goal into SPY, and don’t get discouraged if you see a downturn in the market. Consistency will pay off.

There are hundreds of other index funds you can invest in, but to get started, we can just invest in the S&P 500. As you get more comfortable investing, it’s prudent to invest in more than just the S&P 500 to further spread out your risk. However, getting started now is more important thing you can do. I’ll cover more advanced diversification strategies in another post.

I’m Investing! What Can I Expect?

Congratulations! You just made your first investment. You’ve officially entered the world of investing. Over the long term, you can expect around an 8% return on your investment. That does not mean that your investment will increase by 8% every year. Some years you will see huge gains, and some you will take a substantial loss. The most important thing you can do as an investor is not to sell if the market dives. I’ll say it again — Do not sell if the market tanks! When the market takes a dive, Savvy investors buy more. As Warren Buffet says, “ Be fearful when others are greedy and greedy when others are fearful”. Keep investing the same amount every month, and you will start to see your investment increase with your consistency.

It’s important to note that this strategy is not a smart idea for everyone. Millennials have over 30 years left in their career, so we can afford to take on the risk of a market correction, as we won’t need our investment accounts for the foreseeable future. Anyone who is further along in their career and closer to retirement should be taking an approach with less risk, and not have all of their cash in the stock market.

Bonus Content: Buying A House

Buying a home can be one of the best, or worst investment anyone makes. Buying a home you can’t afford can sink almost all of your income into your mortgage payment and maintenance. There is no guarantee you will be able to even sell your home for more than you paid for it, and even if you can, the 6% realtor fees would still have you selling at a loss. The average home appreciates 2% per year, which is a dismal return when you consider the maintenance and interest costs you pay on your mortgage. I’ll cover the benefits of buying vs renting in another post.

For these reasons many savvy investors (myself included), don’t consider your primary residence as an asset. It’s a liability. That doesn’t mean real estate is a bad investment, you just have to be smart with your approach. If you’re confident that you’re going to live in the same town for at least two years, I would recommend that you look into House Hacking. House Hacking is the term for buying a duplex or a 4plex, and having your other tenants pay for all or most of your mortgage. When you move, you rent out your unit, and the tenants will pay for your entire mortgage, and if you made a smart purchase, you can have positive cash flow every month! First time home buyers can buy a duplex or 4plex for 3.5% down with an FHA loan. I’d also recommend that you use GoldenKey when you buy or sell a home. GoldenKey Gives buyers a 3% commission rebate when they buy a home, and let’s sellers sell their home without paying commission. Full disclosure, I do work at GoldenKey. There are other similar options you can use, but none that will offer the full 3% rebate that GoldenKey can offer.

Finding the right property to house hack takes a lot of work, and I’ll be covering all of the details in another article. I recently closed on my own house hack, and the results are staggering. Instead of paying $700 a month for rent in St. Louis, I’m actually getting paid around $200 a month to live in a home I own. That doesn’t account for the equity I’m receiving every month by my tenants who pay the mortgage. That’s a difference of $900 in cash flow to invest per month, and equity in an asset that I’ll be able to sell for a large return in 5–30 years. That extra $800 will provide an additional $10,000 I wouldn’t have otherwise had to compound wealth every year. House hacking is one the the best financial decisions any millennial can make.

Conclusion

I hope this article has motivated you to take your financial future into your own hands, and get started investing. If you’re interested in learning more, I’ll be posting a lot more on medium and the GoldenKey blog about investing and real estate. Please follow me if this helped you.

In the meantime, here’s a list of books I recommend to get started.

Investing Books

1. Rich Dad Poor Dad by Robert Kiyosaki
2. The Intelligent Investor by Benjamin Graham
3. The Essays of Warren Buffet
4. The little book that beats the market by Joel Greenblatt (if you’re interested in more than buying index funds)
5. www.valueinvestorsclub.com

Real Estate

1. The Bigger Pockets Podcast
2. Any of the Bigger Pockets books by Brandon Turner
3. www.GoldenKey.com when you buy or sell a home

General Reading

1. The Hard Thing About Hard Things by Ben Horowitz
2. Good To Great by Jim Collins
3. Zero to One by Peter Thiel
4. Choose yourself by James Altucher

I’ve been involved with startups since my freshman year of college - high school if you count the garage sales my friend Alec and I hosted with stuff that Washington University Students would throw out when they moved out for the summer. Looking back on my college experience, it’s clear that it was my past experience founding and working for various startups are what made me successful, not what I learned in any of my classes.

Every summer students have the opportunity to apply the skills they’ve learned in the real world, and spend a couple months as an intern. A good internship will teach you new skills and make it easier to get a great job out of college. A bad internship is usually a great way for companies to get busy work done for slave wages, with no benefit to you. When I was in school I interned for a large company, Answers.com, and a startup, Geekatoo (now Hellotech). While I have nothing but positive things to say about my coworkers at Answers, I learned a lot more during my internship at Geekatoo.

When most students intern for a big company, they join a “team” or a specific division at that company. I was on the finance team at Answers, and all of my work related to finance, paying bills, or entering expense reports. At Geekatoo I was the only intern, and I reported directly to the CEO, Kevin Davis. I applied for a summer internship at Geekatoo at the start of the fall semester, and instead of waiting until the summer, Kevin had me start the next week (another benefit of a startup).

Initially I was doing small tasks that Kevin needed to get done, but as I proved I was willing to work hard Kevin began to trust me with a lot more difficult and important work. In a matter of months I was part of a two person team, leading all of Geekatoo’s institutional sales. My first sales call was with Nest (smart thermostats), and I was attempting to land a nationwide installation partnership. There is no way any large company is going to let an intern take a call with the potential of such a large deal. Startups are usually strapped for cash, and are thrilled to have any interns willing to work hard join their team.

The only downside of interning at a startup, is that the pay is probably less than what a big company would offer you. In the words of Robert Kiyosaki, the author of Rich Dad Poor Dad (read it if you haven’t already), “Work to learn, not to earn.” The skills you will learn at a startup will put you miles ahead of your classmates who took internships at large companies. Working for a startup will force you to solve problems you didn’t even knew existed, and that skill is invaluable at any job you’ll get in the future.