We talk with one of my friends, Stephen F Gomez about what it takes to invest in real estate, flipping homes, being a landlord and risk!
Check out the Books Stephen Recommends: Rich Dad, Poor Dad; Bigger Pockets, Automatic Millionaire Homeowner
Vicki: Hi guys. Today we have Steven Gomez who is an associate broker at real living property for you, which associate broker also does real estate. So he can show you properties, he can tell you all about the neighborhoods that you’re looking in and tell you so much more than just how to buy a house. Uh, so without further ado, uh, I’ll let Steven introduce himself.
Stephen 00:55 Hey guys, Stephen F. Gomez. Vicki, thank you for the introduction and for having me here. I am an associate broker for real living property for you. And we’re here to talk about real estate and finances. So I’m excited.
Vicki 01:09 So Stephen, can you tell me a little bit about your background and your family?
Stephen 01:15 Yes, absolutely. Well, it’s very well I have grew up pretty much in real estate my whole life, so it’s kind of in the background all the time. My, my dad, you know, those funny stories of my dad waking me up to go help them paint houses or apartments definitely grew up like that wasn’t completely sold on real estate at that time. It was just kind of a job that I had to do. Part of the family is a small time investor. Nothing crazy but you know, I kinda, that’s where I kinda got the roots and the interest. Then when I got to college, uh, I started exploring as college is kind of, that’s kind of the time you start to more and I got hooked on real estate when I read rich dad, poor dad. I started, I was 21. And that’s just the , such a foundational book and changing your mindset and teaching you how to invest in real estate is really the catalyst for that.
Stephen 02:14 It’s just such a great investment, but it just enthralled me and I just started my like learning process at that point. Cause it’s a long learning process. So just started really learning a lot about real estate, you know, bought my own house. It’s just a primary residence to live in cause I knew it wasn’t a good investment and that kind of led to flipping houses. You know, I started exploring that and then I wanted to just know everything about houses. So I went back to school, I got an interior design degree, worked for a really prominent, uh, uh, interior design firm here in town and uh, just loads of experience and great knowledge from that. Then I went and got my, a certified for HVAC as a technician, which is air conditioning and heating and just really just kind of threw myself into real estate. Just wanted to know everything about it. And it’s been a process from there. Just keep learning. The thing about real estate is there’s always more to learn. So it’s constant learning and I love it. The things change, strategies change. Um, but there’s always opportunity and that’s what I love about it.
Vicki 03:31 That’s true. And, and I know that you learned a lot about green homes and tech homes. And so there’s so much smart homes and everything going into that too. And so, um, and you laugh, I laughed kind of to myself when you said your dad kind of made you do all these jobs cause I can just imagine like a young Steve and getting a door knock. Like no, it’s time to go and getting pulled out of bed, go paint.
Stephen 03:58 It wasn’t fun at the time, but I looked back in it’s, it’s fun.
Vicki 04:03 Yeah. By my parents kinda did some stuff to me too. And I’m like, ah, I remember that. I wish I didn’t have to do it at the time, but I’m glad that I did experience it. So it’s good when you’re older and then you remember that you have to do that to your kids as well because they’ll appreciate it when they’re older. Um, so I’m talking about flipping homes. What do you look at when you’re, uh, thinking about purchasing a home to flip?
Stephen 04:30 So what I look at specifically when I am trying to buy a house to flip is all about what you pay for the property. And that has a lot to do with the market. So it’s not always the easiest time to flip. Properties can definitely, there’s some flows to it as the market goes up and down. So there are certain times where I would say, you know, it’s going to be hard to find flip properties and make a good profit because there’s formulas that I can give you. Do you want to hear some of the formulas? So people kind of, yeah, just kind of get right into it. So yeah. So what you want to do is you, you do want to talk to somebody who’s either one familiar with how to value properties or to um, a realtor who does it every day. So just have somebody who can be confident in the values that they give you.
Stephen 05:26 And with that, what you want to do is you want to look at what would the property be worth after you’ve renovated it. That’s called an ARV after value, after renovation value. At that point you want to take the cost of the property to get it up to that standard to sell it for that cost. So repairs, you want to reduce that from the after renovation value. And then at that point a, the typical rule of thumb is 70%. Okay. And the reason you want 70% it’s cause there’s always something that you can’t predict is going to happen. It’s either going to take longer, there’s going to be holiday costs, it’s going to be repairs you missed or didn’t account for and you want to make sure it’s worth your time because you, you’re risking your money and you’re risking your time. The one thing I want to really, really, uh, bring to the surface is that flip properties are not passive income. That is something that I think is really important. Um, it’s like another job you, you’re basically taking on another job of fixing the property or just overseeing the property, overseeing the work, making sure it gets done. So depending on what type of investments you’re looking for, you’re either looking for hands on properties or hands off investments. Flip properties are definitely hands on. They will take time out of your day, out of your week to make sure things are running and, uh, you make a profit. So just to make sure you keep that in mind.
Vicki 07:07 So if you’re a person who’s looking at a flip, should you have, um, a contract during background, should you have that kind of background to do the flip?
Stephen 07:16 Not necessarily. Um, so w so one thing you have to get used to as an investor is risk. So every investment you do, uh, there, there’s risk involved, some low risk, some high risk. So you have to get used to just being okay with some risk in order to make profit off your investments. So I think that on your first property, you just need to align yourself with people who know. So basically you need to line up a good lender. You need to line up a good realtor. You need to line up a good contractor, a good home inspector, lion, all these people up, get good, uh, referrals from your realtor who’s probably knows a lot of those people and, um, take advantage of their knowledge and, and you can learn it by being inquisitive. Yeah. So just go out of question. Yeah. I mean, if just because they’re, you’re paying ’em doesn’t mean, you know, you’re, I mean, you can keep paying them if you want to, but if you’re just there during the process and being inquisitive and learning, at some point you’ll be able to do it yourself or um, you know, you’ll just know a lot more and you’ll make better decisions.
Vicki 08:34 Yeah. That, that’s absolutely true because if you don’t ask questions, you’re not going to learn. So, and they don’t know that you don’t know it unless you ask.
Stephen 08:42 Yeah, absolutely.
Vicki 08:44 Yeah. Um, so, and we talked about the passive income versus the non passive income, so yeah. So a passive income would be being a landlord, right?
Stephen 08:55 Possibly, yes, yes and no. Yeah. You talk to us about that. Yeah. So, I mean, you got to kind of choose what kind of landlord you want to be. So, um, I love buying whole. That is one of my favorite it to me, it’s the lowest risk investment that somebody can make. But there’s that. Oh yeah, sorry. So buy and hold basically rentals. So you buy a house that’s about for so many years, a lot of advantages to that. Um, we can get into that, but I want to explain the landlord part first. As you get a rental, uh, you have to decide once again how hands on do you want to be and you can really get burnt out as a landlord. So once again, you should probably have a property manager take care of the property for you and then you can learn from them once again.
Stephen 09:50 And then if you feel like you’ve got things under control and you know what you’re doing, then maybe you can become a property manager yourself of your own properties. But me, I’m pretty familiar with property management. Um, and I still have a property manager because I just prefer a little more hands off. So a good way to look at property management is I think they’re well worth the money if you find a good one because they take about 90% of all the horrible things about being a landlord, right? You have to evict somebody or you know, have to go chase people down for rent or there’s repairs and you got to find somebody to fix ’em uh, things like that. They take all that off of your plate. So to me that’s so worth it. But the 10% that you still have to do is managing the property manager cause they’re not going to love your property like you do.
Stephen 10:47 They have a thousand properties and you don’t always take priority. So you just have to stay on them. You have to be like, Hey, how’s rent coming? Hey are there any issues? Yeah, you just kind of have to make those phone calls to make sure that things are getting done. So, but to me it’s well worth taking 90% of all the, you know, not stuff off your plate. So that’s a really good way to start. So you don’t get burnt out. And it’s a lot more passive. You can have a lot more properties and build wealth a lot faster if you aren’t doing all the work and you just build the costs of the property manager into the, um, into the numbers, you build it into your profits. That’s awesome. That’s, that’s the best way to do that. And that’s the, you were saying that’s the buy and hold.
Stephen 11:37 That’s buy and hold rentals. Okay. Yep. Okay. Awesome. Um, so who should be a landlord? Who should be a landlord? You mean it’s a PR, it’s a personal choice. Honestly. It’s really a personal choice. Like I don’t think if you’ve ever done it before, you probably should not do it. But I think if you like to be involved and you find yourself really enjoying like real estate and talking to people and like screening people and kind of picking and choosing who you’re, um, who your renters are going to be. But also, once again, being inquisitive. There’s laws that you have to follow this for housing laws. There’s contract law, there’s things that you have to know. So I wouldn’t say risk that stuff in the beginning, you know, have a property manager do it. But if you’re inquisitive and you find yourself really enjoying real estate and learning all of it, then at that point make the decision to take it over. Oh, that’s a person. Yeah. Personally decision though.
Vicki 12:36 Yeah. Yeah. It sounds like a hard, hard, hard decision. Yeah. And how do you know if you should invest in a rental property? Like who would you say is a good person to take on that risk?
Stephen 12:50 Um, I, when I talked to my clients, I kind of go through a process. So when we sit down and talk, the first thing we talk about is debt. How much debt do they have? Right. Cause one of the main things in building wealth is, is debt control. So I am a avid reader of Dave Ramsey. I like a lot of what he teaches. Yeah. Ultimate money make over is really, really good. I don’t necessarily agree with his, um, investing strategies. You know, he’s very, very risk adverse. And I think there are ways to leverage and be smart with how you leverage in order to grow builder wealth, ma higher net worth. So you know, as long as you are, I’m not over leveraging, I think it’s smart to do that. But debt control and what he preaches is very, very important. And then having emergency funds, having savings, that’s part two.
Stephen 13:48 And then once you get that, we talk about risk versus reward with like flipping and um, longterm buy and hold strategies because now I can get into the benefits of, of real estate, uh, in buy and hold. So if you keep a property for more than one year and then you sell it, you get, you get a tax advantage, uh, which is called the longterm capital gains. So that’s why, that’s one of the reasons why I like to hold property longer. Uh, on top of that, it’s just the real estate market is such a driving force and the U S economy, the government really provides a lot of benefits, encourages people to own real estate. So, with that being said, if you take advantage of those benefits, it really is a, uh, it really, um, adds to, it really makes it of a no brainer to, to be a real estate investor because of all these advantages.
Stephen 14:57 So, so I’ll continue with that. Um, there is the capital gains tax advantage. Um, there is depreciation on your property that you can, it helps you on your taxes. And there’s also the deductions of, uh, costs on those properties like insurance and interest and all of those payments. The only thing you can’t really deduct on investment properties is the principal. Cause that takes, if you know a principal, you know, a principal is, but in case you guys out there, don’t know when you’re paying your mortgage, the money that pays your loan down is your principal. So if you, if you buy a house for 100,000 and he owe 100,000, and let’s say $200 of your payment goes towards principle, now you only owe 99,000, $800. So, and that’s the only thing that you can’t deduct on taxes. All the other costs you can deduct. So it’s really, um, it really helps, uh, deduct your taxes and just longterm advantages, um, Tor for real estate. Right.
Vicki 16:08 That sounds awesome. so I, I know you have done a lot with building wealth and, um, just investments and so can you tell me a little bit about what you’ve been doing with that?
Stephen 16:20 Uh, yeah, so I most I was, I do some flips but they’re harder right now. They are harder to find. So, uh, this is what I tell people. Here’s the truth. If you want another full time job, they get a flip property as it takes a lot of time to go out and find the property. Because the truth is, guys, let’s be real. Um, nobody’s going to go out there, find a great deal on a property and they give it to you. They’re going to keep it, they’re going to keep it for themselves cause they’re hard to find right now. So they’re knocking on doors, they’re sending mailers in, they’re spending all this money to find these deals and they’re not just going to give it to you. They’re going to keep it and make the money themselves, right? So that means you have to actually go out there, knock on doors, balers, find these great deals, which is a lot of work.
Stephen 17:16 So they’re just really hard to find. And then when you find them, there are a lot of work to actually flip. So if you plan on like changing your complete, like your whole job and your career and like I’m just gonna flip for full time, then you could probably make some pretty good money. But then there’s risk there too because now you don’t have a job to pay the bills. So you just gotta be really careful with flip properties. I’ve done a couple just because I’ve run into the deals and I kinda got lucky. So then I, then I flipped the properties and resell them. But for the most part I buy and hold is the easiest and the best way to build wealth. And the reason is rent, rent prices stay super consistent. They pretty much go up in price throughout history. Sometimes they’ll slow down, sometimes they’ll stagnate.
Stephen 18:12 If they dip, they’ve dipped just a lit, a little tiny bit. It’s not even noticeable. So for the most part, rent prices keep going up. And uh, while the renters are in there, guess what? They’re paying your bills for you. They’re paying your principal down for you. And the difference between that is your equity is your a profit every month. And at the same exact time, the house over a long period of time is appreciating and going up in value. So not only is your income increasing every year and your returns are getting better every single year, or your equity is growing every single year. And that’s how you build net net worth is because the difference between your debt and all your liabilities and your assets, the value of your assets, that’s your net worth. So take the value of everything you own and subtract all your debt and that’s your net worth. And so as that equity is growing, and let’s say you have multiple properties and it’s all growing at the same time, your net worth is really exploding.
Well you’re making me want to invest in some property. It’s really the tried and yeah, really tried to ensure that has worked over and over and over again. Throw the actors through the times, through a sessions, through the booms, through everything. It’s a really is a tried and true way to build wealth.
Vicki 19:40 Absolutely. So you listened to a lot of podcasts and audio, audio books. I know I’ve even sent you stuff too. Um, so what, what things have been uh, the most significant or ones that are like your top, top things that, uh, have made most difference for you?
Stephen 20:07 Yes. Okay. So everybody, we’ll start with books. If you are going to start changing your mindset about building wealth and real estate, any just building wealth in general, but also real estate. You have to read rich dad, poor dad. That is like the basic book that explains everything to you. Most big investors, they start with that book. So start there. Yeah, absolutely. And you’ll hear that a lot. I’m not the first person to say that. Everybody says that too. I really, really love bigger pockets. Okay. Bigger pockets. They have, they’re everywhere now. They’ve gotten pretty big. But the reason they’re so good is like they’re very real. They don’t paint a like pie in the sky picture of, you know, uh, how easy it is. Like they’re very, very real. But they also explained the potential and they have a bigger pockets.com they have a pot, they have tons of books and if you, depending on what type of real estate you’re interested in, I can recommend different kinds of books.
Stephen 21:18 Uh, and then they are on YouTube and they have podcasts. So you could just search BiggerPockets and all those platforms and you’ll just get loads of ridiculously good content. Like all the secrets are all right in that one source. So go, go there. That’s knowledge. Get them knowledge. Absolutely. And read rich dad poured out at the same time. I have some other ones too. You could spell it. I could put it in. Okay. Okay. Yeah, let’s do it. Okay, so for debt and for savings, you want to read ultimate money makeover by Dave Ramsey. It’s really good one. And some really good you tubers who also have podcasts are a Garrett Gunderson. He, he talks a lot about real estate but also about finance in general. And then Graham Steven’s pretty good too. I do recommend him as well if you didn’t catch all that, it’ll be in the show notes if you’re driving or whatever.
Stephen 22:29 Don’t try to write that all down. So no, I actually have a book right here that I also recommend I’ll just show you because becoming a real estate investor can like sound scary, right? It sounds like, Oh, I’ve got to have all this money, blah blah blah. There is very simple strategies and using your primary residence, which is you get a lot lower interest rates, you get assistance on the down payment. A lot of times it’s just so much easier to turn your primary residence into rentals, you know, using certain strategies. And this is actually a really good book. Can you see it? Okay. Automatic millionaire homeowner. That’s also a really good book and it just teaches you, um, how to re how your just, your house turns into a great one of the best investments of your life. It turns into Ash cow. It’s a nest egg for your retirement. It’s, yeah, it can’t, it can be a lot simpler than it sounds. Um, but it’s, but it takes time to, yeah, it’s patience, time, consistency, all of those things. Americans have patients. Let’s see if we could do that.
Vicki 23:47 You could have patients out there, people. Um, so anything else you’d like to let our readers know about you or anything else you want to end with? Yeah, at some point the podcast. Okay. I’m waiting.
Stephen 24:03 No, not yet. Not yet. I have a lot of content though. I have a lot of content on Instagram, you know, backslash Stephen F. Gomez, um, to YouTube. Same thing. Even tock, it’s fun. I’m having fun with ticktock uh, LinkedIn, uh, pretty much any of those platforms. If you type in Stephen F. Gomez, Stephen with a pH F Gomez, um, yeah, I’ll have content there. The only one other than that is Facebook. My Facebook page is backslash the ASAP team, so the a S a P team.
Vicki 24:44 All right. Well thank you so much for all your wisdom and knowledge. You’ve always been a great resource for me over all the years that I’ve known you. It seems like it was just yesterday, but it has been years, years now. It does fly when you’re having fun, but we won’t say how many years it’s been because then it just ages us, so we won’t talk about that part. So thank you so much.
Stephen 25:08 That’s some good content. There was a lot more, so maybe we’ll do a follow up.
VIcki 25:12 Absolutely. I think we’ll, we will have to. Well, thank you guys for tuning in and we’ll see you next time. All right. Bye. Thanks.