Getting started in real estate investing can be overwhelming. Most that are interested get paralyzed with the number of potential ways to make money in real estate, and have a hard time ever even getting out of the gate. Fernando Ornelas shares how to get started with us in this FlipNerd.com Flip Show…check out this episode!
Mike: Welcome to the Flipnerd.com podcast. This is your host, Mike Hambright, and on the show I will introduce you to VIP’s and the real estate investing industry, as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week, which are available in the iTunes store or by visiting Flipnerd.com. So, without further ado, let’s get started.
Hey, it’s Mike Hambright with Flipnerd.com. Welcome back for another exciting VIP interview where I interview some of the most successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. Today I’m joined by Fernando Ornelas, who’s a large rental property owner. He teaches others how to successfully invest in real estate. For most real estate investors, the most critical time is right when you’re getting started, getting the confidence to get out of the gate and get your business going. Today we are going to talk about how to be successful, how to get started in real estate investing successfully. Before we get started though, let’s take a moment to recognize our featured sponsors.
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Hey Fernando. Welcome to the show.
Fernando: Hey, Mike. Glad to be here.
Mike: Yeah, yeah, good to see you again. So, before we get started here, why don’t you tell us about your story a little bit? I know kind of like me, you’re a corporate refugee that realized that there is a better world out there than working for someone else. But why don’t you rather tell us how you got started in real estate investing and tell us a little bit, about what you’re doing today.
Fernando: Sure. Definitely Mike. Well, I actually started off, and I feel very blessed by luck, I started investing when I was young. I bought my first investment property when I was 19 years old.
Mike: Oh, wow.
Fernando: This goes back in the late 90’s and I actually partnered up with my uncle. We bought a small little house and a year later, we sold it and made about $28,000.00 profit.
Fernando: And that’s when I was hooked. At the time, I was a college student, I was going to college, and I had a part time job. I was trying, obviously, to get through school. Then I realized, here I am working part time, and with real estate, obviously, we shared the profit of that transaction, but I made a lot more money with that transaction than working a full year. That’s when I got hooked. It was a combination of that and a book that got me intrigued was, Robert Allen’s Multiple Streams of Income.
Fernando: Yeah. So between that and the transaction is when I got really started. So what I did with that profit is I reinvested it into another property and kind of went from there, but looking back, I was not an expert. I believe it was strictly luck.
Fernando: It was the market. I was riding the wave. So this was back in the late 90’s, and I rode the wave all the way up until 2008, 2009. So I kept buying property and I was primarily in my hometown, in Los Angeles, and also I branched out into the Arizona market as well, and I bought a couple properties there, outside of Phoenix. That’s how I got started, and then kind of went from there.
Mike: Okay. And you were a corporate person too, right? You worked in corporate America.
Fernando: I was. I was. So during, after I graduated from college with my undergrad and from there I went into the corporate world. I moved up the ranks really quickly, but on the side, I was always entering real estate and continuing my education. I went to seminars, read books, throughout the whole time. I climbed the ladder quickly and I was actually in charge of, I was working just right below the CEO and the GM of the company and was in charge of 32 sales people. Traveled the whole country, I mean, I had a very lucrative position there. They took good care of me, but I was always inclined toward real estate and kind of, I wanted freedom, is what I wanted. Just like everybody else.
Fernando: But, I’m grateful that I had the opportunity to work there. I learned a lot. So it came to a point where my travel schedule was heavy. I would leave every Sunday or Monday, come back Thursday. It was all domestic travel, but it took a toll on me after a couple of years. I had to travel and go out with the reps and I just knew I had to make a change.
Mike: Right. So a lot of new real estate investors are those that are interested to start where it sounds like you started. Not necessarily buying a property at a young age, but just being, you know a lot of education, a lot of reading, many books, and many seminars. Many things like that, but they just never get over that hump. They never make their first deal. Or they do and they do something wrong and then they quit. Talk about, I know we are going to talk about how to get started in real estate investing today, but let’s kind of start with how, I think a lot of real estate investors are in that situation where they do a lot of reading, they have a lot of books, they’ve been to a lot of seminars, they do a lot of networking, but they just never get out of the gate.
Mike: So why do you think that is, and how do they get out of the gate.
Fernando: You know Mike, during all of my education, having real estate, going to the seminars, going to RA groups, which I went to a ton of them; I noticed one thing that everybody had in common. It was a common denominator that everybody had, and that is you have to have grit. You have to persevere. You have to continue. Most of them, like myself too, I’m guilty of this too, and get paralyzed by what direction you want to go towards. I think you develop a lot of information out there; many times, you are caught up with, should I do this side of real estate, should I go over here? Attack these. What should I do exactly?
Once, the first thing you have to do is pinpoint what you want to do, what you want to accomplish. You know. And for those that want to get started but don’t know how, that’s where I’d recommend your first start. Sit down and pinpoint. Okay, what do I want to do for myself and my family? What do I want to do I want to start? What do I want to accomplish? And then go from there.
Mike: Yeah. What’s interesting about many of the seminars, and there’s a lot of good information out there, for any of my guru friends out there who are listening, don’t take this the wrong way, but they always have an agenda as well, right? So they maybe talk about specific things but they almost pretend like other opportunities don’t exist. So even for myself, we’ve, by most measures been successful real estate investors. But, if I made a list of what I know or what I think I’m good at and what I don’t know anything about, the list that I don’t know anything about far dominates what I do know because I’ve just carved out a really small niche. It’s overwhelming to hear all that information for sure.
Fernando: For myself, Mike, what I did was back in 2008, 2009, I sat down and I wrote down exactly what do I want to accomplish in real estate. Then it’s obviously I want to create and bring in enough passive income to exceed my expenses. That’s when you can declare that you are financially independent. That’s what I did. I sat down and I went out and I created a whole program for myself to be able to do that, in a short period. But I was just laser focused on that strategy.
Mike: So your advice for people that are rather paralyzed by all the information out there is just to start by defining what it is that you want to happen. Kind of setting what your goals are.
Fernando: Right. And I can tell you a little bit about on our education side of the business, a lot of our students, this is really common, they will come to us and say; “You know what Fernando, I have no money, I have no credit, I have no idea where to start, but I want to buy my first rental.” That’s the common denominator of all these, all of our students.
So what I always tell them, to start Mike, is I always tell them to go out and as you know this business is a people business at the end of the day. You can’t be working over internet or by email. You have to go out and really market yourself. So, I always tell them to start this way, so if you want to bring a little bit of money into pocket, here’s what I advise you to do. Go out, especially in the bigger markets. Metro areas like where you are and where I am, there’s a meeting every single night. Every single night you can go out to a meeting. Go out, and just associate yourself with people at the meetings that are actually doing deals.
There are only a couple of people, three or four people that will go up. Sometimes a little bit more. They will go up and they will announce what they have for sale, what they are selling. Go up to them and just ask them if you can actually sell their deal, and just make a couple thousand bucks. Whatever they pay. A referral fee or if you can put it on top of whatever the asking price is.
Fernando: So, what I’ll tell them to do is just get all of the information for that property, that Performa, put it on your own flyer, go out and market that same property. It’s amazing, when you have a deal Mike, when you go to these meetings and you have a deal, you’re like a celebrity.
Fernando: Everybody kind of flocks to you and says, how did you get this deal? People are just interested in that. It’s been very successful. Just that little strategy to be able to go out and market someone else’s property under your own name. Just put your name, email address, phone number on the flyer and just market it and make a couple grand. Then what will happen is, once you call that actual wholesaler that you have paired up with, they will start sending you more deal that you can market. They will actually send you so that you can market their property.
Mike: Yeah. In my experience, the last couple of years what I think you are referring to is typically called co-wholesaling. They have other people that are marketing your deal. That seems much more common. I think many real estate investors in the past have not really wanted to do that. Because they are like “I don’t need your help. I have my list. I can sell it myself.” But people start to realize, no matter how big your list is, you don’t have everybody and there are always other people out there who could be potential buyers for you. So I think that kind of cooperative deal of wholesaling is becoming more and more common these days.
Fernando: Yeah, Mike, and you know that in this business you can do it alone.
Mike: No. For sure.
Fernando: If you have a team in place and you have, like you said, co wholesalers or business partners, you get there, wherever you want to get to, you get there that much quicker.
Fernando: It’s worked out marvelous for a lot of our students.
Mike: Yeah. That’s great.
Fernando: And what they will do is they will sell three, four, five deals and make 10, 15 grand, and that will be just enough to get their first property. A down payment on a property and get going that way. It’s like everybody talks about, and I’m sure you have heard it before, it’s getting that first deal. Once you get that first deal your confidence level goes up and you can kind of go from there.
Mike: Yeah, and there’s no doubt that that is the biggest hurdle of getting started in this business, is confidence. Just knowing that you are not going to lose your shirt or get hurt or anything like that. Not that you could ever know that with certainty, but after you do a couple of deals, then your confidence level just goes through the roof from where it was and you start to, the learning curve is so steep you just go like this and then it’s like, oh this really isn’t that hard. To where you get faced with, even I after buying hundreds of properties, I get faced with new things that have never happened to me, but I can make decisions on what I’m going to do very quickly because I’m confident that there is a solution there. You just have to decide.
Fernando: Right. Exactly. So that’s what I would recommend to get started and I have always looked at this business in this fashion Mike, you’re always one relationship away from having your business explodes. Cause if you meet that right person that can refer you to somebody else, you just never know. You can be just one person away from having your business explode. And so you always look at it that way and just go out and really market yourself.
Mike: And what you were talking about is with basically finding other people that are sellers that have a property that you can sell for them, in the process you are meeting other buyers that you may have a relationship with down the line. Talk a little bit about the importance of just general networking, of going to REI clubs and events to help build your confidence and knowledge and kind of surround yourself with other people that are active in your market.
Fernando: Sure, and we have a lot of students that will come up to us and, like you mentioned earlier its funny and talk about this business is not that complicated Mike, I think we both agree on that, but students will come up to us and say this business is extremely difficult. A lot of times, the first thing I always ask them are, why do you say that? They are like, oh, you know, I have a couple of friends of mine that have been doing this for years, they can’t get a deal. So the first thing I tell them is, you have to change the group you’re in. You have to change your surroundings. A lot of times when you associate yourself with people who are actually doing deals, if you ask them how difficult this business is, they are going to say what you said earlier. It’s not that difficult, right? So you have to change the world that you are in and that’s the first step I always tell them. Don’t speak to them, don’t even get any advice from them, you have to talk to people that are actually doing the actual deals.
But as far as your network Mike, I do this, this is how I started as well. I went to all the REI clubs. I went to the entrepreneur-networking club in the area. I would meet people, grab their business card, makes notes on the back of the business card as to what they are looking for. Many times what happens too is when you present the deal, they will come to you and say, you know what, this isn’t going to fit my criteria, but I am looking for this other type of property. Business card, and that way you will know. You just have to develop these little buyers’ decks, without really putting too much effort into it.
But the point is, you have to get up and go out there. You have to, have to get up and go out there on that. That would be the easiest way to get started for someone that doesn’t know where to start. First of all, identify what you want to do, then go out and start networking people.
Mike: Yeah. One thing I’d encourage people to do, people that are listening too in terms of networking is be prepared to be a connector and give back. I think a lot of people go into this one sided like, who can I get something from or who can I learn from. But if you go into it, truly in your heart knowing that “I want to learn, and then I want to connect people and share that with others,” in fact that’s probably the biggest reason that I do this show. I just love to talk to people and you will see all the time. There’s people I have connected you with whether its B2R or our other folks, but it’s very common for me to be a connector to people. I enjoy that and I know that in the process my boat rises too in some regard. That comes back around. Karma is alive and well in this business.
Fernando: Oh yeah Mike. You run into those. Definitely, and we always do that too and have in the past too. Where it would be a good fit for that particular investor and I’ll refer them to somebody in our industry. And that does come back to you.
Fernando: And that person will remember you. That person will remember you saying, oh thanks for connecting me with so and so, it worked out marvelous on that. So absolutely, I completely agree with you with that.
Mike: Yeah. I think with that said, for many new people I think that they will find that most successful real estate investors, if you go meet them at clubs, they are willing to share more than you think. People are somewhat surprised, they are like, aren’t you my competitor, why did you tell me that? They aren’t going to tell you their best secrets, but at the beginning you don’t need to know secrets, you just need to know basics.
Fernando: You know Mike, looking back on my personal portfolio, that’s exactly who I built mine. Actually connecting people and in return they refer me to other people who might have been interested in what I had to offer and that’s exactly how it came about. So, I didn’t do it alone. I connected with the right people and they refer me to other people and it just rather built that way. Now its flourishing. Now I’m getting a lot of referrals. People are calling me and saying, hey, I’m looking for this or hey Fernando, I want to collaborate up on a certain deal. So it’s amazing. Your absolutely right about that.
Mike: Yeah. Well maybe you could share a few thought in terms of people planning what they want to accomplish. If they have an existing job, how they figure that into the mix. At some point there’s a natural breaking point where you can just focus on real estate full time, but I would say most people that are getting started or want to get started, their ultimate goal is to leave their job.
Mike: And maybe talk about those that go in feet first and leave their job before they have even bought a deal, versus those that kind of build up some cushion and can take the leap when it’s a little more comfortable.
Fernando: Right, that’s great question, and I will tell you from my experience and I’m guilty of this too. I think a lot of times what we do is, everybody wants instant gratification. They want this to happen overnight and you have to come to terms that it may take some time, that’s the first thing. So a lot of our investors or students that come to us are very optimistic, which I have nothing against that, but I think their action plans, if they don’t hit their action plans they get demotivated or discouraged. A lot of times, you have to tone down that action plan and just start small. Just take that first step and then from there go on to the next step. So if your action is too big, just lower it a bit. That’s what I did. I started really small and kind of went from there. Now we are starting to buy bigger complexes and now we are stepping up our game on our portfolio, but it has to start small.
Fernando: And if you’re okay with it being not overnight, and just come to terms that you can do it in a couple of years, and I still think real estate investing is the only path to be able to get where you want to get the quickest. But you just have to lower that action plan. Obviously be optimistic about it, but if you don’t hit it, just tone it down a bit more and proceed with that.
Mike: Share your thoughts a little bit on kind of exit strategies. So I know you are a huge believer in the power of cash flow, as am I. Many real estate investors are. There’s a lot of glitz and glamour, a perceived glamour in rehabbing a house and getting a big check. In my experience it needs to be a balance of a little bit of everything. But just talk about, for new folks that want to get started, the importance of exit strategies and having different exit strategies.
Fernando: Sure. Mike, let me share a story with you. So back in 2000, 2001, I purchased two properties outside of Phoenix Arizona. They were almost brand new and I bought them for about $160K. Roughly around there. SO, they were rentals. My motivation of buying those properties was to just buy and hold. It went up to about, they were both about 550 back in 2007. It was insane.
Mike: And you bought them for 160?
Fernando: About 160, 170 if I remember.
Mike: Each, or?
Fernando: Each. And they were almost brand new. They were large homes, like 2700 square feet. So they went up to about 550 and I so many calls from buyers wanted to buy the properties. Agency, I can sell your property by tomorrow. I was just like, no. It wasn’t cash flowing that much. It was cash flowing maybe $50.00, $100.00 a month. The rents were about, I think $1150.00 or $1250.00, roughly around there.
Here’s the most interesting part. So when the market collapsed the property went down in value obviously to about $120,000.00. It was insane. But what was interesting was the rents only went down around $100.00. SO the rents went down to about $900 or $1000.00. There were more inventories, so as a renter in that market you had more options. It was a good lesson for me because here I thought I had all this equity in the properties, but it can be gone just overnight. But the power of cash flow, so whether the market was up or down, I was still cash flowing that property. Which is really interesting for me.
Ever since then my whole strategy for me was, obviously, cash flow. We personally myself, me and my wife, we buy in markets that are more than year. One-year markets appreciations are almost nonexistent, but the cash flow is always there.
Fernando: So, yeah. I don’t, as an investor myself, I don’t purchase for appreciation, we us purchase for cash flow.
Mike: Yeah. I think another lesson in there, the way I have traditionally thought about rentals, or my rental properties is, and I’m never going to sell any of them. Why would I ever sell them? I’ve never worried about that, and that’s okay, but I think there are times when it’s okay to take something off the table too. I think a lot of buy and hold investors, which it’s a great strategy for all the reasons your saying, but sometimes they are hung up on I’m not even going to consider anything else. At the other hand, everything is for sale at the right price, you know?
Fernando: Right. I agree with you too in that because there are properties that we have sold and we rolled over into other projects that made more sense.
Mike: Yeah. That’s right. So, talk a little bit about the importance of kind of what you teach for cash flow. Just your general philosophy for those that are looking to buy and hold. Maybe there are even people that want to get started in real estate investing and they truly just want rental properties. They don’t necessarily want to leave their job, their just using rental properties as a retirement fund so they can leave their jobs, so they can truly retire.
Fernando: Sure. I think a lot of investors Mike, even myself too, you know you come across a deal and you can make 20, 30, 40 thousand dollars if you flip that property really quickly and a lot of times its hard for us to grasp, either do I make 30, 40 thousand dollars overnight or do I just hold it and make 2 or 300 bucks cash flow. So, once you kind of, if you can make a decision and look at it as I can make 2 or 300 bucks a month for the rest of my life as opposed to 30 to 40 grand, make a quick flip and have to get up again and do it all over again. If you can distinguish that versus cash flow, that’s really hit home for me as an investor.
Mike: At some point that cash flow goes up much more than $200.00 a month when the house is paid down or paid off.
Fernando: Right. So for us, what we teach too is during your wealth accumulation phase it’s easier to leverage the debt responsibly, then when you get to a certain cash flow you can start paying off the debt and you preserve all your wealth that way. That’s what we try to teach at our company.
Mike: Yeah. So if folks want to learn more, I know you have a couple, you have Cash Flow Savvy. That’s more for folks that are interested in turn key, rental properties that are looking for deals that are looking for partners. And then, EpicRealEstate.com is your coaching business.
Fernando: Right. So the cashflowsaavy.com, what we do is we help busy professionals that just don’t have the time to go out and find the deals and do it themselves. Whether its family, obviously, their profession, we do everything for them. So they leverage our relationships and they leverage our time, our expertise. So we do everything for them. We help them build their own real estate portfolio. That’s on the Cash Flow Savvy site.
Fernando: And then for the Epic Real Estate site, what we do is just help individuals that want to get started in real estate, and start their own business in the real estate industry. Whether it is wholesaling or even starting to build their own portfolio as well. We guide them through there as well.
Mike: Okay. Well we will add links for both of those sites down below the video here for those who are interested. So any kind of final comments on helping people get started and just some general advice on getting out of the gate and getting things going.
Fernando: Sure. There’s a quote, Mike, it’s a Chinese proverb quote that I have up on my fridge and it’s the person that says it cannot be done should get out of the way of the person doing it. Many times whether it is family or friends, they always hold you back. So don’t listen to that, stick to your plan, write it down, and I really encourage everybody to go out and market yourselves and build relationships. That’s really helped me, all the relationships that I’ve built.
Mike: Yeah. Great. Well, hey Fernando, thanks for sharing your insights and your information. We will add links down below the video here for those that want to learn more. Appreciate your time today.
Fernando: Yeah. Thank you Mike for having me.
Mike: All right, and I’ll be seeing you again soon.
Fernando: All right. Thank Mike.
Mike: Take care.
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