May 30, 2018
In this two-part series, I talk about the real estate market and the value of an MBA. I was a real estate agent for almost 7 years and talk about how I feel a real estate license trumps an MBA for return on investment in episode I. In this episode, I'll talk about how to evaluate a real estate investment using two homes that are on the market today that I'm looking to possibly invest in.
Full Transcript:
welcome to the pharmacy leaders podcast
with your host Tony Guerra the pharmacy
leaders podcast is a member of the
pharmacy podcast network with interviews
and advice on building your professional
network brand and a purposeful second
income from students residents and
innovative professionals hey welcome
back this is pharmacists real estate
investing part two and what I wanted to
take you through is kind of how I look
at a property and how I look at things
and and we'll talk in general about the
market and some emails I get so I go on
Zillow listen and I look at some of the
zip codes and what I've done is I'm
looking back over the last twenty years
is that I find that I only invest in
places that have actually lived so it
may be a little bit tougher if you've
never lived in a place to know you know
how things are but the rule of thumb is
to rent for a year before you ever even
think about buying a home in an area
that you've never been in it just it's
just so much easier and then you know
I'm telling you that you should probably
be a real estate agent first learn what
all that is understand the contract
understand every single paragraph of
that contract understand what you're
looking for in terms of you know what
are the deficiencies that you're looking
for what are the things that you can
take what are the things that you can
what kind of what what age of a roof are
you looking for what are you looking for
when a term comes to you know the HVAC
how much longer is that gonna last and
immediately you know without even
thinking I'm going to the two most
expensive when you know you're probably
looking at well that that was a really
nice kitchen and they had really great
baths which are the things that you know
buyers really look at but in terms of
things that are kind of hidden you want
to go in there and go look and see when
was that HVAC put in and you want to
know when was that roof put in and
things like that so let's take a little
bit of a tour what we're gonna do this
week is we'll go to Baltimore Maryland
where I went to graduate school in the
in the 90s in 1997 and I graduated from
there and a place that I lived for two
years I feel like was originally delight
it's a neighborhood just south of campus
it's walking distance to the medical
campus there are 5,000 students there I
think well there or when I was there
and there's the hospital and I want to
talk a little bit about this
neighborhood because it was someplace
that I lived and and yeah anyway let me
it'll it'll give me an ability to to
project not project it'll give me an
ability to talk competently about the
current offerings that are out there and
I'm going to talk about - just so we
don't make it kind of crazy in terms of
all the houses because if you just pull
up - one two three oh I think it pulls
up five hundred and forty listings and -
one two three Oh expands all the way
from Locust Point up through Federal
Hill including the really expensive area
of Federal Hill up through Ridge Lee's
delight and then across Martin Luther
King Boulevard and so it's a giant area
so when Zillow sends me hey - one two
three Oh as a zip code I'm like that is
absolutely ridiculous
because the difference in that zip code
is enormous like if you go to you know
Beverly Hills 9:02 and Oh as a zip code
the average price of a home is five
million dollars but there are houses
that are way above that and there are
houses below it but in Baltimore City
the spread is enormous in terms of you
know the eight million dollar home
that's available from Tom Clancy and
it's really cool one and I'll talk about
that in a minute but anyway so let's
let's let's first talk a little bit
about kind of how I got to this decision
to even record these two podcast
episodes on real estate so I'm listening
to revisionist history and this is
Malcolm Gladwell it's a podcast that he
does and it's extremely popular he's the
guy that wrote I think it's like David
and Goliath and talked about 10,000 hour
rule and
it's this famous guy in a great voice
great really smart smart person and for
this revisionist history third season
there was actually a trailer so my first
two things I was listening to were these
two one-hour long podcasts on bigger
pockets bigger pockets money and then
I'm finishing up with revisionist
history as I'm finishing out the
three-hour run and so Adam grants there
with Malcolm Gladwell and these guys are
both heavy hitters and they're both very
smart and they're both on opposite sides
of a lot of things in terms of social
science and so it's a great you know
kind of a meeting of the minds it's
really really a fun episode but in it
Malcolm Gladwell talks about the
ridiculousness of you know the test
drive and how you could how can you
possibly know if this is the car for you
an X amount of time and then they always
make it seem like all right let's go for
the test drive like in some way you
could sit down and Intuit that yeah this
is the car for me you know what we don't
even need to drive it don't wanna waste
your time and so that's the thing I feel
like with real estate is that so much
we're like well I don't really want to
bother the agent I don't want to have to
go to this many properties and and then
you're taking your time and a very
efficient way to do it is to be the real
estate agent yourself so that you can go
to as many houses as you want
and you introduce yourself but the other
thing is that you get to talk to the
owners and that's really where the the
magic win-wins happen when my wife and I
came to Iowa and I want to say it was
2009 so it's just post-crash we're
looking for a house and we literally
could not buy houses because the people
were upside down on the houses so much
that that six percent that the real
estate agent was charging was making the
house so expensive we couldn't buy it so
we in this middle of the night 2:30 in
the morning
I'm actually living at my
mother-in-law's house and I find out
what's going to end up being our future
house and I went and I talked to them
and I said no no no agent we don't we
don't have an agent but
you know my father-in-law's an attorney
and maybe he could help us with it or
certainly someone in his office could
help us with the deal and they're like
oh you know are our daughters an
attorney great you know we could do that
no cost there and then we you know we
looked at the house loved the house and
ended up buying it but if you are people
II as someone that I know that the real
estate agent in town says if you are a
people person people will want you to
have their home so people have people
never talked about this with investing I
don't know why they don't talk about it
but in many ways people want to know
that the home that they lived in that
they've worked so hard to make as
beautiful it is today because there is
no more beautiful day than you know
people getting ready to sell a home and
they really want someone that's gonna
care for it and if you're that person
you present yourself with is that person
like man you know I really wish I could
buy this home but you know as I look at
it I just feel like you know what the
other things that we're gonna have to do
to you know the repairs we're gonna have
to make I think it just falls out of our
our reach and then all of a sudden they
call you back like you know we really
want you to have it
what if we dropped the price $20,000
would that be okay like what what is
going on does that really happen
and in our case what happened was we
went to because I was on it we we went
to the Fizbo on the very first day that
it was open like oh we priced it too low
somebody's here on the first day and
wants it no no I I was looking I was you
know this is what we wanted we knew we
wanted you can the one thing that I
won't forget is that like I think my
wife could literally fit on the kitchen
island like head to toe like it's five
feet long or some just massive sized
island and that was just something that
she had just really wanted so anyway but
but talking to the person is one of the
huge advantages of being able to be a
real estate agent so if you are people
II if you are somebody who is really
good with people then you may also be
able to talk your way into it in a
multiple offer situation where like
we really like that person because the
person that is selling it just has to
you know take the offers but they can
pick someone with a lesser offer because
they like them better so there's nothing
against that like nothing says that you
well you know my offer was on paper the
best yeah but I feel like you're gonna
be a pain in the butt to work with and I
don't want your money
as much as I want this person who I
think is going to love my home that I've
worked so hard on I lived in my whole
life or maybe it's a you know parent or
somebody's selling a parents home and
it's like you know I really want to know
that the person that I'm giving my
parents home to is going to take care of
it so such an important part of it it's
such an important advantage of being the
real estate agent yourself when you're
looking for a home okay so this was the
weird email or I felt it was weird is
that you know so I'm looking at two one
two three oh maybe I'm gonna invest in
and I like Wrigley's delight and I know
Ridley's delight so it's a place that
I'm confident I'm also competent in two
one two two four which is Canton to some
extent Federal Hill but I never really
lived there and I never really lived in
Locust Point so I wouldn't feel as
competent in those areas but I know two
one two two four and I know Ridge Lee's
delight so if I'm going to invest in
Baltimore I know that you know I know
what to watch out for and this is and so
what Dillo says is that it's a buyers
market the market temperature is cold
and I don't exactly understand what that
means I think it means maybe there
aren't a lot of transactions happening I
don't exactly know what that means but
you want to think also well if I'm
Zillow do I want to tell the person that
it's a seller's market and that you know
you should stop looking or should I tell
them it's a buyers market so I wonder if
there are algorithms favor the buyers
market I just don't know and what you're
really looking for is so it says that
there was a seven point seven percent
one-year change from May 2017 to April
2018 and then from April 20 1889 teen
they're projecting a four point nine
percent one year for cat
that forecast is a complete that that is
completely dependent on so many
different factors and to say that a
whole zip code will go up is completely
irrelevant to your situation because you
only want one home in that zip code so
what I'm really looking at as soon as I
see that or as a past real estate agent
of saying huh the increases are going
down or that we're seeing a leveling so
I'm saying alright well I wonder if
we're starting to approach a top of
market here and I don't know I have no
idea I'm not telling you it's top market
I don't know if it is or not so seven
point seven to four point nine percent
and so the two homes the first thing you
know if you look at two one two three oh
you see there's 549 homes for sale and
you got to be careful because it's
totally addicting to start clicking on
these places because you'll you'll see
like you know you'll you'll you'll see
like these awesome homes if you click
instead of clicking cheapest you click
like most expensive or something like
that and so you know one of the top ones
is uh let's see it's seven million nine
hundred thousand dollars Zillow
estimates it worth nine million so
you're supposed to get a million you
know you think oh wow you know I make a
million dollars as soon as I buy that
place but then you look at and you say
alright well how long has it been on the
market it has been on the market for
four hundred I saw it somewhere four
hundred fifty three days well that's the
estimate doesn't look like it's right
then if it takes four hundred and fifty
three days to move something that's
seven million nine hundred thousand
dollar that's supposed to be nine
million dollars well if it's a million
less than it should have sold all right
so there's some things here that you
want to start intuiting and really use
your your pharmacist brain and really
use your you know like okay what am I
really seeing okay is a twelve thousand
square foot home twelve thousand that
just boggles my mind the pictures are
phenomenal there's four bedrooms 7 baths
it's very I don't know the views are
spectacular and it just looks like boy
that would be a really nice nice home to
own but be careful because Baltimore
City taxes are brutal in terms of their
comparison to the county right next to
it so Baltimore City is usually double
what the county is for the exact same
priced home so that mortgage is thirty
two thousand dollars a month looks like
I can press a button and get
pre-qualified for that so that's cool
and that's Cummings & Co those guys are
good guys
so I that's that's just a really
phenomenal home alright so let's go to
the two homes that I'm gonna talk about
and let's see let me close this one and
then so what I do is so we got that five
hundred and forty nine homes so I go in
and I start on Zillow and I start
pushing in and then what I do is I use
the little circle tool and Ridge Lee's
delight is so it's on the east side
Green Street turns into Russell Street
then you go back up MLK and then you go
back east on Lombard oops
I actually don't like cut part of it so
let's cancel it do it again okay so I
lost I lost part of PACA Street there
because I know that's a big part of it
okay so let's go back do it again
oh I'm not far enough inland so
apparently okay so now I can do it so
I'm cutting all the way across Camden
Yards is to the east where the Orioles
play and then come back up Martin Luther
King okay so now I can apply it and now
I go from 540 homes to nine okay and
that's a very manageable number and so
I'm looking at these homes and I see one
that's at 640 Dover Street and that's
the first one I'm gonna look at and it's
a hundred and eighty five thousand so
well within you know pharmacist salary I
mean you're talking about maybe being
one point two five of yourself
if your year at the average although I'm
hearing the averages are closer to a
hundred now with offers I don't know if
that's true or not or I've heard as low
as 90 up to a hundred I'm completely out
of that group I'm in the bottom 10% in
terms of my actual salary but I don't
use my license at all really and then
six twelve South PACA Street which is
three hundred and forty thousand dollars
and you know on the surface you'd say re
well Wow once twice what the other is
you know it's it's a no-brainer you know
let's get the cheaper one you want to
get the cheapest one in the in the best
neighborhood but the first thing that
and you'll you'll hear this on bigger
pockets is you want to look at square
foot or price per square foot and so if
you Zillah will do this for you if it
picks it up right and you want to be
careful with some of these houses
because a lot of them have additions
that aren't included in in it so you
want to look at it and say okay well
let's let's see so 640 Dover I'm looking
at two hundred and ninety-six price per
square foot that is right above the
entry into Los Angeles prices so Los
Angeles is somewhere between 250 and 750
per square foot so extremely extremely
expensive price per square foot so I
mean you'd say oh my gosh that's not a
deal that's not worth it but I actually
know these houses and they're all set up
in such a way that there's a bedroom
upstairs and a bedroom downstairs so
although that's 624 square feet it may
be 624 above ground square feet and that
really matters because if the lower
level is furnished in such a way as to
make another bedroom that means that
you're probably actually looking at 900
square feet and so the place to find
what the actual square footage is is you
go to s I think it's s dat assessment
and that's Maryland and then you can see
the real property search so you go into
the county and this is Baltimore City
not Baltimore County and you look at a
street address and then I'll use this
I'm going to use this three times
actually today
for the two properties going to talk
about and then one I need the property
that I lived in to compare it so that I
know what I'm doing so I look at 640
Dover and I see that it's somebody out
of town that owns it but I see that
they're 624 square feet and 312 square
feet in a finished basement okay so what
Zillah is not doing is it's not counting
that 312 square feet so if you add 624
to 312 you get 936 so 936 so then it's
180 thousand divided by 936 if you want
to do it price per square foot price per
squit finished square foot which is 192
dollars
so all of a sudden that changes things
quite a bit I have no idea if this is
one of those one-way streets where you
have parking on only one side that would
be kind of a concern but I feel like you
know and then you look at the price that
they paid for it it was about a 150 to 5
in 2012 so five years ago so significant
appreciation on it from what they paid
for it but this is a this would be
someone that if the price continues to
push down it's only been on the market
for two weeks they would probably have
give or there would probably be some
room in there to offer something lower
if if again this that there are just so
few that open up in Ridge lease but it
might be something but anyway the first
point is is that when you look at Zillow
that's just a starting place and that
you see that the Zillow made a
calculation on above-ground square feet
and then you say okay well are there
finished square feet then of course you
want to know does it flood and I don't
know if those Dover Street houses flood
or not so you would want to find that
out but those are the kinds of things
that I'm looking at and I even even
looked at the inside of it I haven't
looked at a single picture and I know
that that mortgage is probably gonna be
what like 800 a month and then you've
got taxes though but taxes there are
really expensive so you would want to
really be careful with those taxes and I
want to say let's see so let's see on on
that much
do they have the taxes in there they
should I don't see it and then you have
to deal with ground rent so you also
want to find out if there's ground rent
and that's something that's intrinsic to
Baltimore City where somebody might own
the ground and it's a little bit weird
but that would be an extra cost for you
to buy the ground back and there are
reasons to do that and there are reasons
to just leave it alone
but you would you can check out the
ground rent regen redemption in the
ground rent registration but you can
hear that I know a lot about this area
and it's not the person's principal
residence so it was maybe an investment
property for them okay so the other one
I'm going to look at is if you're going
in why do I keep clicking these shut 612
South PACA Street it's four bedrooms
three baths and on Zillow and the reason
I picked is because it doesn't have the
square footage on Zillow so you go to
the assessor and you go to the street
address and you see it's 612 PACA and
any time you don't see information on
there somebody might just overlook it
because the information isn't there and
somebody might say oh well I don't know
how much that you know that would be
worth so I look at it and I see you know
what what it says and it says it's 2040
square feet now from my living there I
remember that most of the ones on PACA
don't have finished basements and I
think it's moist in the basement if I
remember right they those were where the
coal chutes were so that you would put
the you would bring the coal in to the
basement so they wouldn't finish
something like that that I just don't
know they my understanding was that most
people just push the house back and
added something to the back rather than
that the other thing that I would want
to know and let me see if I can see it
from the pictures is what the alley
behind it looks like so do they have
parking pad and it looks like they
actually have a garage and what I think
they did with the space would they put a
garage on the end of their land and if
it was me personally I would probably I
would probably rip the deck off and I
would rip and I would tear down the
garage
if it was if it was if I was going to
invest in this as a rental property I
would rip that out because I would want
parking for all of my tenants and that's
something that they would definitely
look for but right now they've got it
set up that it's got a deck on the back
it looks like they've got some kind of
table and chairs underneath it and so
maybe one or two people can park and the
rest have to do street parking but I
would price set it up to do off street
parking and that stained glass is really
cool it looks original anyway it's so
addicting from real estate so addicting
anyway so I would look at that and I say
okay well 2,000 square feet how big is
that and then I go alright well I don't
really know but I do know that I lived
at 607 South PACA Street and I know that
I could look that up on the SD 80 and
say all right well let me see how many
square feet I was living in then and
that was 2700 square feet so now in my
head I'm like alright well I've kind of
got an idea of how much it is how big it
is but I also see that okay well in the
607 one there's two finished bathrooms
and they were kind of back-to-back I
would really look at that one and a half
bathrooms that that other one has and
say okay well is there a way I can
create another full because I don't want
four people sharing a single full
bathroom or do they have to do it am I
gonna be able to at the plumbing on the
back so that I could add a third or make
it two and a half bathrooms if that's
the case so a lot of things that I would
look at but anyway all this came from
you know doing it and and being part of
the real estate community in Baltimore
and and I think I was a real estate
agent for I would say five or six years
maybe it was seven I don't think it was
that long but I arrived real
understanding of what it's worth and
then you know I would do that
I you know price per square foot there
and so I say okay well we've got two
thousand I've got three hundred and
thirty nine thousand dollars three
thirty-nine one two three divided by two
thousand square feet
and so it's 169 per square foot so per
square foot
this is cheaper although it's a more
expensive property I could get four
people in there
I could probably create off street
parking making it much more attractive
so there's some level of improvement
though you know tearing down a garage
some people would say that's crazy and
then I could you know that deck is that
really serving anything do they really
use it because it's off of is it off of
one rumor is it off of a hallway like
this is there like this master suite for
this one person in the back and then I
would look at the windows
because original ease delight I think
the rules are still there that you have
to replace them with these expensive
wood windows rather than the
energy-efficient ones and then you know
are there stars in the front of it or do
I see buckling from the the bricks like
these these houses are so old so it's
about 117 years old although the inside
isn't that sometimes the weight of the
house itself pushes it out and you'll
see stars on the front where they
literally jammed a screw through the
entire house and put stars on it and
then they push the house back together
to make sure that doesn't buckle anymore
so a lot of things to look at but what I
want to kind of impress in you is that
look you just spent how many years in
pharmacy school how many years getting
to pharmacy school and now you're gonna
drop you know two three four hundred
thousand dollars with no education and
that you know at a minimum go get a real
estate license go look at at least you
know 50 homes in the area to understand
you know what what's going on with the
the real estate there what makes
something valuable what are some of the
things that are happening and then if
you want to go away Ziglar on it which
is you know if you help enough people
get what they want you can get whatever
you want if you in a median home if you
if you look at the median price of a
home and if you make you know 3% per
transaction we're just saying let's say
two and a half percent per transaction
of the value of that median then you
have to help 40 people to you can have a
home so what I mean by that is if you
help 40 people find a home at two and a
half percent per then you have grossed
the median
price of that area so if you help 40
people find a home in Beverly Hills you
have probably helped 5 million you know
prior earned 5 million dollars towards
the home that you want and obviously
there's taxes involved and costs
involved and all that stuff but I'm just
saying that you're now educated you're
now able to do it and the last point I
want to make is the FOMO ok fear of
missing out okay so in 2004 the people
at 611 South PACA I think it was let me
make sure so 611 try not to click this
off and break it off
so 611 South packet bought their home
for three hundred and thirty thousand
dollars here it is 2017 and they're
selling it for three hundred and thirty
nine thousand dollars so it is
appreciated nine thousand dollars in 13
years so the information that yfp always
says is that you know you need to save
20% and all you're thinking is oh my
gosh if I wait that long I'm gonna
totally miss out on an upmarket but you
have no idea if it's an upmarket or if
it's going to be a down market and in
this case if you had bought in 2004 you
would have had no appreciation you
actually don't haven't gotten enough
appreciation to even sell the thing
because to sell a home it costs about 10
percent of the value of the home so
you're talking about 6% of the realtor
and I know that there's different
amounts that you can spend on a real
estate agent but let's just for easy
sake to get into a home you know you
might need 5% 20% whatever it is but
then to get out of it you need 10% of
the value of the home that it's going so
we're not even talking about if it
depreciates so of this home so you know
if you're in it for thirty three
thousand and ten percent of that is
thirty three thousand to get rid of it
so if you talk about that you're looking
at 363 and then so if they're selling at
339 they're already probably looking at
you know right off the bat you're
looking at a loss of what 121 geez why
can't I do that math okay so let's try
again 33 plus 330 thousand you're
selling it for 10,000 more subtract 12
so $23,000 so you losing 23
dollars when you sell it on the
appreciation side because it didn't
appreciate but they've made paid into it
and then this all may have been renters
and they may have paid down the the
mortgage a ton I just don't know but
anyway I hope this was helpful I know I
went long on this second one but I try
to I'm just trying to give you some tips
on the things that you're going to be
facing as we're kind of going into this
very very strange time when student
loans are higher than they've ever been
jobs are uncertain
the real estate market may be reaching
some kind of tipping point we don't know
we have no idea and interest rates are
way up or they're going back up again so
again you know if this is valuable
please let me know but anyway have a
good holiday weekend and I will talk to
you next week
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