The “Buy & Hold” Strategy with Linda McKissack | PREI 022
Linda McKissack is an investor, entrepreneur, best-selling author, business coach, and a highly regarded speaker. In 2013, Linda was co-author of the national best-seller “HOLD – How to find, buy and rent homes to build wealth”. Her authenticity makes you believe – If she can do it then so can I.
In this episode we talk to Linda about the “Buy & Hold” strategy and her huge success investing in single-family homes. She has accumulated 108 units in real estate, and is working on other passive income projects right now. Her basic strategy and formula is: Find, Analyze, Buy, Manage, Grow.
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The “Buy & Hold” Strategy with Linda McKissack
Why is the Buy and Hold strategy the best? The Buy and Hold methodology, as it applies to property, is and always has been the cause for making more millionaires than any other method. The main reason for this is really because it lets you develop equity through appreciation and amortization over a period of time. There are numerous short-term techniques like lease options, wholesaling and flipping properties that can create some cash or what I call, chunks of cash. But in no way will it improve your long-term net worth. I found in my many years of investing experience that purchasing real estate is the most significant part of the ownership cycle. It’s very important that you buy right; buying the right market, the right location, the right property, the right cashflow. These are all things that we help our investors do in Norada Real Estate. If you’re interested in that, talk to one of our investment counselors.
The selling side of it is pretty straightforward. As long as you’re in the right market and you have the right market cycle, liquidating property is very simple. That is one of my biggest regrets. I purchased a property for $40,000 many, many years ago. In fact, it was the first property I ever purchased at the age of 18. That $40,000 property would have been long paid off today and that property today is worth close to $400,000. It has appreciated considerably, certainly kept up with the rate of inflation. When it comes to Buy and Hold, your goal in property investing must be to develop as much equity as you can in the property while still having enough passive income to get you there. As long as you own the property, you’ll have the advantage of tax sheltering some or all of your income. You cannot get that from other short-term investment methods. The Buy and Hold strategy is the basic reason that explains why people have become wealthy over time.
Today’s guest is someone who I like and admire. I like the way she thinks. She’s a famous author, a New York Times Best Seller. The book is HOLD. It’s one of the Gary Keller Trilogy books, which are all fantastic books. I highly recommend them. Her name is Linda McKissack.
I’d like to introduce Linda McKissack to the show. Linda McKissack is an investor, an entrepreneur, a bestselling author, a business coach and a highly-regarded speaker. In 2013, Linda was co-author of the national best seller, HOLD: How to Find, Buy and Rent Homes to Build Wealth. Her authenticity makes you believe if she can do it, then so can I. Welcome to the show, Linda.
Thank you, Marco. I appreciate it.
It’s great to have you here. Just to give our audience a sense of geography, can you tell them where you’re located?
I’m actually just north of Dallas, in a town called Denton, Texas.
You’ve written this incredible book called HOLD. Although I know your story to some degree, you’re a very successful entrepreneur and real estate investor. I think the best place to start is for us to get into your story. Tell us about your story and how real estate investing played a role in all that.
If I can take you back to the late 1980s, my husband was in the restaurant and night club business. To be honest with you, I was only 23 years old. I didn’t know what business I was going to do or what job I was going to do. I was trying to figure all of that out. The economy crashed. Our economy was based on real estate, oil and the savings and loan. It just basically all went out at the same time.
I knew something was wrong because my husband wouldn’t sleep at night. He really was worried and he was concerned because every day, the bankers would start calling. Little did we know back then that there were clauses in your lines of credit and your notes that says if they get nervous for any reason, they can call those notes due. Basically overnight, we found ourselves $600,000 upside down in debt.
The good news about being 23 and so naive is you don’t have any idea how much money that really is. When my husband came to me and said, “Look, I need your help. We’ve got to figure our way out of this. I need you to do something.” I was still trying to figure out what I could do. I had never really had a job that paid more than about minimum wage. He suggested, he said, “You’re a hard worker, why don’t you get into real estate business?” That’s what I did. I started selling houses. Very quickly, we realized that as good as a career path real estate sales was, it had a problem. The problem was the last day we took up our last line would be our last dollar. Once we figured that out, we started reading books on building wealth. One of the best books we read was Cashflow Quadrant by Robert Kiyosaki.
Most people read Rich Dad, Poor Dad. Very few read Cashflow Quadrant. I always say Cashflow Quadrant is the how to what Rich Dad, Poor Dad explains to you as the problem. When I read that book and I realized that there’s only three ways to build wealth: real estate, stock market or businesses, the easiest, most natural or as my coach said this morning, “low-hanging fruit” would be real estate investing. The only problem, of course, was we were $600,000 in debt. But because I had been selling real estate, when we decided to put our plan together, we decided, “How much money would we need to fund our lifestyle? What would be an amount that we felt like would be a good number that if that money was coming in passively to us, we could work if we wanted to or not work?” We came up with a number of $250,000. For whatever reason, that’s the number we came up with.
We wrote a plan on how many houses we’d have to buy, how many years we have to get them paid off, because we really wanted this to happen. My husband was 40 by the time we bought our first investment property. He said, “I really would like to have this much money coming in by the time I’m 60.” We figured out, we probably needed to buy about 20 houses, have them pay out on a fifteen to twenty-year payout. Each of them, once they’re paid off, given us $1,000 a month. That’s how we did our first little goal in real estate.
I went out immediately and found a great deal, came home all excited. My husband said, “That’s great, but how are we going to buy this? We can’t go get credit right now. We don’t have any money. We’re $600,000 in debt, at least in the process of working our way out of that.” I just said, “There’s a builder named Lou Craft. This gentleman, I’ve watched him around money. I’ve done business with him for several years. I know his ethics. I know his integrity. I think if I go and ask him, he’ll do this deal with us.” Sure enough, he did three total deals with us until we could get back on our feet and get everything figured out. It worked out to be a perfect solution because it gave him an opportunity to invest in real estate and it gave us an opportunity to have a partner and helped bridge the gap that we had.
That’s how we got started in the real estate business. We watched a lot of people in the ’80s lose everything they had because they were overleveraged. In the ’80s, we didn’t have any real estate at that time. We had businesses. We felt the struggle through that. We realized if we ever invested in real estate, we wouldn’t be overleveraged in it because that’s what happened to almost every crash that we’ve ever watched happen. The people have either been on appreciation or they’ve bottomed with a negative cashflow or they’ve just been overleveraged.
We had formulated our plan as we watch people across the years make mistakes. We just saw real estate as the perfect first opportunity for us to build wealth and have some passive money coming in, so that someday we wouldn’t have to work if we didn’t want to or couldn’t for some reason.
There are a number of things you said that really stood out. I don’t know if you counted, I did, but the number of times you’ve mentioned the word “plan” and “setting goals.” It’s amazing to me how many investors don’t actually define what they want to achieve. I break it down into three levels: goals, your strategy, and then your criteria. That gives you your plan. If you know what you’re looking for, you can find it. It’s easy to identify. I think back to one of my favorite movies, Alice and Wonderland. The Cheshire Cat says, “If you don’t know where you’re going, any road will get you there.” It’s so important to make a plan and you did that in great detail and that, I’m sure, has helped you get to where you are in a very rapid period of time.
When I would think about a plan, what a plan does for me is it breaks it down to a simple point where you realize it’s not that difficult or that hard. What I like about building a plan is you go, “You may not only have to get this many houses to get that much money.” For me, it made it something that can feel overwhelming and complicated. It made it simple.
It’s a lot more simple than I think a lot of people believe it is. We offer a free strategy session in our company with one of our investment counselors. That’s exactly where we start. We ask them, “What are you trying to achieve? What are your goals? Do you have a criteria?” If they do know, great. We can move to the next step. If not, we have to stop, rewind and talk to them about, “Why do you want to invest in real estate and where do you want to go?” You need that road map.
Linda, one more thing you said that I think really stood out is how accessible real estate is to the average folk. It doesn’t matter who you are, everybody can invest in real estate. Some people only have time. They don’t have cash or they don’t have credit, but they can partner with people. Real estate is just a fantastic vehicle for the average person to get into a wealth-building vehicle that can take them to wherever they want to go.
We have some great stories in our book, and even some that didn’t actually make the book. One of my favorite is a stay-at-home mom. We’ve been giving these real estate seminars on our whole philosophy for years. We’ve owned real estate franchises, so we always go in about once or twice a year and let all of our agents invite their clients. We do a free real estate investing seminar. This particular stay-at-home mom came to one of the sessions that Jim did at one of our offices here locally.
A few weeks later, Robert Kiyosaki was in town. I got the opportunity to present our formula in a breakout session for him. We didn’t know it at the time that she was at both events. We didn’t even know her at this point. About eight months later, we meet her at one of our school functions that our kids went to, a football game. She said, “You all don’t know me, but I’ve come to your seminars.” She had some unbelievable number that she had already purchased in houses in this eight-month period. I said, “You’re my new best friend. You and I are going to meet for coffee once a month and we’re going to hold each other accountable on strategies for investing.”
First of all, I’m thinking, “A stay-at-home mom and she’s done this in this short period of time.” I want to say it was eight months or a year. It was very short. I thought, “This girl is sharp. I need to get to know her more. I want to get to know her more.” We started meeting once a month at Barnes and Noble. About eight months into our monthly meeting, she’s been talking the whole time about these nightly rentals that she has and I’m halfway listening because I’m thinking, “Branson, Missouri, I’ll only invest in Denton, Texas and the surrounding areas. I’m not interested.” But she kept on and on. One day, she approached me and she said, “I’ve short-sale two of these cabins and I can only afford to buy one. Would you like to buy one?” Being a good investor, we don’t ever say no until we know what we’re saying no to. We’ve got in a car the next day, drove to Branson, Missouri and fell in love with these nightly rentals. Now, twelve properties later, we love the nightly rental business. I was so amazed that here she is, a stay-at-home mom, but on the side, she could figure out this investing thing and really literally changed their family’s life completely.
That just proves that it doesn’t matter who you are or what you do. You can get involved in real estate investing. What are you investing in mostly? Is it single-family homes, multi-unit, what do you invest in?
That’s a great question because we are very deeply entranced in single-family homes. I’m doing an upcoming webinar that I do for my company. The gentleman that I’m interviewing, one of the reasons I’m interviewing is because I’ve heard he has a great strategy on buying apartments. We bought one set of apartments before and we’ve sold and made about $100,000 on them. It’s one of the few properties that we did flip because we are hold strategists. It was interesting because I was thinking, “That would have been so exciting to learn about apartments. I probably would have bought apartments.” For us, we were trying to do the simplest thing for us at the time.
Being in residential sales, I come across a lot of homes or I might have opportunities. Now that I look back, I think every downmarket, I should have been the salvation to all my sellers and just bought their properties, because I would have been a hero to them and I’d been a real hero right now.
Single-family homes, we have about 108 of those single-family homes. We have twelve of the nightly rentals. I love those. Those have been a lot of fun because I’ve went in and negotiated wholesale prices on buying everything, which has been a whole new game. It’s fun and different. I think, as entrepreneurs, one of the things we like sometimes is the newness of something. Then, we have six commercial buildings. In those commercial buildings, we had a business typically in every single one of them.
Remember I told you earlier, Cashflow Quadrant says there’s three ways to build wealth: real estate, stocks and businesses. We picked real estate first. Then we ultimately, in the end, decided we would master owning businesses also and look for next natural businesses for us to own. Right now, we’re stuck with single-family just because it’s been something that’s been easy for us. That’s how we got started early on. I think investing is great no matter what you invest in. For us, it was the simplest and the quickest entry way, I think, was the single-family home. We’ve just stuck with it.
I’m happy that you’ve been investing in single–family homes. A lot of investors we talk to think that it is an evolutionary process. You start with single–family homes and then you work your way up to multi-units and then eventually, to the apartments. That’s really the top of the hill of where you want to get to. That’s not necessarily what everybody needs or what you should do. You can be very, very successful investing in single–family detached housing or even duplexes, and you don’t need to be an apartment investor. You could be very wealthy and have an incredible cashflow just from single–family homes.
I think one of the reasons for us is, to me, we’re simple people and we like simple things. Again, you said it earlier, you have to start with a plan. Our plan was to create something that we could have cashflow long-term when our earning energy wasn’t as high as it was at the time. Once you know what your plan is, then it’s going to be really easy to say, “What’s the easiest way for me to get there?” Single-family homes, the other thing we liked about that is because when we did sell or if we did sell, we could sell to a retail buyer, whereas everything else we looked at look like we would probably have to sell to another investor or it’s going to be strictly on cashflow. That’s your only opportunity. For us, that’s just the strategy we use. Again, like I said, investing is a beautiful thing, no matter which one you choose. I think single-family was simple and it had some great upsides for us.
It’s not only simple, but everybody understands it. I like to say that single–family detached homes are the most liquid form of real estate investment. It’s a great place to be.
I’m sure our audiences are wondering right now or even asking the question, “How did you possibly finance 108 single–family homes?”
Here’s the funny thing, the 108 was a heck of a lot easier than the first. Again, that’s why because of our situation, Jim and I are big believers that if people loan you money, you pay that money back. Our first and foremost desire and interest was to get that money paid back. The beautiful thing about being in a career real estate is I’m a really hard worker and I went to the top 1% pretty quickly. I could make a lot of cashflow. Over time, we’re able to get those notes discounted. Back then, it was the RTC Properties, that’s what the savings and loan foreclosures were held under. Over time, what would happen is they would call and give you an opportunity to discount the note and get it paid off. Because my husband’s restaurants were still hanging by a thread and I was in real estate working as hard as I could, we were able to get those paid back.
On the frontend, I didn’t have any choice. If I was going to do investing while I was in that current situation, I had to get entrepreneurial and figure out how to get it done. That’s how I came up with the idea of my builder friend to be my partner. That’s how we did the first ones. I’ve threw my commission in, what little there was of it, I threw it in for the deal. The first deal we did with him, we’ve actually flipped. We made $15,000 on it and we flipped that one. This is before we had this strategy of Hold. Then on the second one, it was an RTC Property that was a $15,000 property exactly. We took that $15,000, we asked him, “Could we take the $15,000? Rather than split it up, could we take it and put it in a second property?” Then, he did the construction on to make it a fourplex.
Funny story is we actually have that fourplex deal today. We only had two properties after this because we flipped one. We let Lou take one. We let him pick whichever one he wanted. We didn’t care. He picked the one he wanted so that left us with the other one that we still have today. My husband got his notice a while back on how much money if he took his Social Security would he get. I think it was $1,300. That one property brings us about $2,100 or $2,200 a month. It’s a funny story of, “I’ve worked all those years. I’m going to get $1,300 or I can buy one investment property and I can make $2,100 off of that. Let’s see which one should I do.”
Let me take that same question one step further and drill down a little further. Most investors realize that they can get up to ten conventional loans. After that, it becomes a little more difficult, not impossible because you have a pool of portfolio lenders out there that will continually lend you funds to purchase more property beyond the first ten. As you started accumulating dozens and dozens of properties, how did you get the financing for those additional properties? Were you looking at refinancing your initial properties with commercial loans and then going back for commercial or conventional financing? How did you play that out?
After the first three we did with Lou, once we got back on our feet, the $600,000 in debt never really blimped our credit real hard because we never let anything go bad. We actually wound up getting discounts on the notes and paying them off because they were lines of credit for our business. Once we got that situated, that’s exactly what we did. At the time, the limit was eight. It was not ten. We went and got our eight with that type of financing. This is what we tell people all the time, get those first. After that, we had built a great relationship with a locally-owned bank. We eventually even got asked to buy some shares in that bank.
We have a couple of banks. We have a line of credit at one, and then we got another one that really wants our business really bad that’s making some awesome interest rate deals for us right now. Actually, we have three banks because we have one up in Branson, where we’re building more cabins, and then two here locally that we primarily use. Now, we have a line of credit with one and back through 2008 and forward when we were going to the foreclosure sale a lot, we just used that line of credit. What they would do is they would refinance based on the appraised value of what we were going to do to the property. We would pull that money back out and then have that line of credit again the next as soon as we could get that money free back up, get the repairs done and get an appraisal and all that stuff.
Now, pretty much everything we do is through banks. We try to pick locally on banks. We try to not pick commercial or banks that are owned nationwide. It just seems a lot harder than if you can know the president and go in and take your financial statements and that stuff.
You are a believer in leveraging your investment capital?
Yes. For our line of credit, we took a few of our properties and put those up as collateral. But most of the time, we’re not even having to do that. Of course, the property that you’re financing is collateral, but mostly not all your other properties. We’re not necessarily refinancing and pulling money out or any of that stuff.
Just as segue to your book, why did you decide to hold properties instead of flip? You’ve done a few flips but your chosen strategy is Buy and Hold. What brought you to that plan or strategy?
The truth is I think no one wrote a book about what to do. They wrote the books on “Go and buy investment property” but no one said what to do when you were really, really successful at it, so we were stuck for a while, “You just hold these suckers.” You don’t really know what to do. Partially, that’s true. The other part is, remember, we were just trying to get to an income amount that we would have passive money coming in. I am the queen of back-up plan A, B and C. My eggs are a lot in one basket. I’m in the real estate world. I own real estate franchises. I sell real estate. We buy real estate. But still, they’re just diverse enough. The good thing is when real estate sales goes down and your brokerages goes down, guess what you can buy a lot? Investment properties. We got them where they offset each other.
Again, it was because we were looking for a certain stream of income to come in passively, so the only way you can do that is hold them if you’re flipping them. To me, it looked like that may probably be a great strategy for someone else. For us, I thought, “We don’t need cashflow right now. We don’t need more money. We’ll just spend that money.” My husband said we had the “DND” disease, “disappearing money disease.” If we got the money it disappears. We just said, “Let’s just go and put it in properties, at least it won’t disappear.” We saw it as big piggy banks that other people were depositing money in.
Warren Buffett says, “The great time to sell and get asset is never.” Then we got to a point where now we have all of these properties and some of our other businesses have done phenomenally. It’s like, “You don’t really need that money from those.” Now, we’ve really just gotten good at this. We just keep buying them. We’re teaching our son. He went to a foreclosure sale today. Jim is in Branson working on one of the projects we have. I’m here in Texas and our son went to the foreclosure sale. We’re really leveraging ourselves and trying to teach him to do it now.
They bought their first property the other day that they are going to live in for a couple of years. It’ll be their first investment property. Just trying to pass it on and teach other people how to do it.
What a good education for your son too. The book HOLD that you co-authored is the final book in Gary Keller’s national best-selling trilogy. He started off with The Millionaire Real Estate Investor, which is a fantastic book. The second book was FLIP. Then, the third is HOLD. I’ve got the book. I haven’t finished reading it, but it’s great. I get what it’s all about. You guys break down the process into five sections: find, analyze, buy, manage and grow. Do you want to take a minute or two and just touch on those five categories or five areas of the book?
We felt like how do people think about investing? What are the deep questions that they have? You’ve got to start out with, where do I find them? The interesting thing about finding investment properties, and you’d probably discovered this also, it’s harder in the very beginning, but then later, once you’re versed in it, you realize they’re everywhere. I don’t care what market we’re in. We’re probably in one of the best sales markets we’ve had in a long time. There are still deals out there. What I find is that’s a big question everybody has. They don’t know where these properties are and they don’t know how to find them. We just really took the sections and try to think through, what are the questions people ask? How do I find them? How do I buy them?
Another big one that really stops people a lot, and you may get this also, is managing them. They just really freeze up over the management piece of it. They think of all the horrors or all the things that go along with managing it. It is, to me, one of the biggest obstacles that keep people from buying investment properties. The financing and the managing, to me, are the two areas that people really get hung up on. We wanted to say, “Don’t just stop.” Once you learn this, it actually gets easier. How do you grow that portfolio? What does that look like and how do you plan for that?
Those two questions are very common. In fact, in late 2003, early 2004, at the time when I was investing in real estate rapidly, I was accumulating a very large portfolio in a short period of time. At the same time, I was co-instructing a foreclosure boot camp for Robert G. Allen, another well-known author.
I had investors coming to me all the time. Two of the most common questions they would ask is, “Where are you finding your deals? How are you finding your deals? How are you doing the analysis?” To be quite honest with you, that has put the light bulb in my head to start Norada Real Estate Investments, which is our turnkey investment property providing company. Why we worked with investors today is because they just didn’t know where to look and how to do it. They can learn how to do that, but then that led to another problem that many real estate investors have, is one, they don’t have the time. I find that’s the biggest thing. They don’t have time to do it on their own, or they don’t have the expertise, the knowledge, the resources and the team. All those things can be overcome, maybe not so much with time, but this is the whole reason why I started Norada Real Estate.
You can learn how to analyze. You could learn how to buy. The management piece, I don’t recommend investors manage their own properties if they can avoid it. If it’s down the street maybe, but you’re better off getting a professional full service, a property management company to manage your assets for you.
Then, your last item here, “grow.” Can you expand on that a little bit because I think the audiences are really interested in how do you grow your portfolio and grow your equity and your success after you get started?
Again, so much of your growing, to me is got to be around what is your end goal? It’s really interesting because we’ve had lots of people that we’ve helped learn how to invest. It’s interesting because they have different end goals in mind. My nephew is one of them, who was one of the first earlier students we had. He just realized real early on that he wanted to have his life and his freedom. He had been in the mortgage business for years, and he just didn’t want to do it anymore. He just figured out what would be the number he had have to get to have enough money that he could just live on his investments. He was younger when he started, so he could finance this on a 30-year payout.
It’s really about figuring out what is your end goal? Manage to that goal. What does that mean I need to be buying? How many do I need to be buying to do that? What are my models to grow that? What plan am I going to use because I think it’s everything. When you first get started, it seems like there’s a million ways to do something. But when you really start investigating, you start peeling it back, most everything is going to be narrowed down to something really simple. Some of those are going to appeal to you and tug at you. Some of them are going to be, “That just sounds awful and too complicated.”
People will start spitting off all those numbers and things and I’m like, “I don’t want to have to do all that.” I just want to say, “What’s a simple plan or a simple formula that I can follow that if I follow that plan, I’ll get to the end result?” It really is about you having to know, like what you said, your strategy, free strategy session that you do. The first place you start is, where are we trying to get to? Why do you want to do real estate investing in the first place? What are your retirement needs or what’s your freedom number so that your lifestyle wouldn’t have to go down drastically.
I think we’ve seen over the last fifteen years more reasons why people should look at real estate investing with the financial collapse, with Enron, with everything that we see happen on a daily basis of someone else. I have a saying that I say, “If you don’t design your life, somebody or something else will. That is a guarantee.” It’s just a way for you to design what I like to call your freedom number. What is that number? If you’re going to pick real estate to do it, how many houses would that take to do it? We tell you, “If you’re in debt, get out of debt first. Don’t do this and be way overleveraged.” We’re not totally all the way to Dave Ramsey, where you have to do everything with cash. We do say you need to take care of any major debt you have. You can’t be overleveraged in your debt. You want these things bad enough that you’re willing to control some of your desires and wants on a material level.
One of the things I love about Dave Ramsey’s program is the hope that he gives the family for the situation they’re in. Where he describes where you put on maybe a white board in your house or something, the debt you’re going to start paying off and it’s a visual and you get to mark that stuff off. You should do the same thing with real estate investing.
Get excited about where your life is going to be when you’re totally free from other people deciding how much income you’re going to make or anything like that. Make it a big deal and control your wants and don’t waste money, because, really, all assets are just your money making you money. You sometimes may have to live below your means to make that happen and have enough money left over to do it.
Do whatever you can to contribute. If you truly believe that investing in real estate is a vehicle that you want to use to build wealth, because let’s be honest, we can’t save our way to wealth. We’re just going to have to pick something. We think real estate is a simple one and a great tool to do that with. Build that overall plan. Are you just trying to send a kid to college? Will that take one house or will it take two houses to pay off? Are you trying to have enough money? I always say, “We’re the first generation that’s got our kids and our parents needing financial help at some point.” We have to start preparing. I don’t think it’s possible for us to get by on one stream of income. I think it’s going to take multiple or I think Robert Allen was onto something many years ago. It’s going to take multiple streams of income.
Our business coach that we had years ago said that the income level we were at, we might want to think about seven streams of income. I said, “Whether he’s right or wrong, I don’t really care. He gives me a number to shoot for.”
The growth section really is about you deciding and planning, how am I going to grow this portfolio? Honestly, unless you just want to send a kid to college, most people aren’t going to stop with one house. Once they figure this out, they’re going to do more than one house.
We find real estate investors never stop at one house. You can’t become financially-independent with one property. You get the bug. After you’ve purchased your first, you’ll do your second, you’ll get your third, and then it becomes easier and easier, and you keep growing that portfolio. I like your idea of the board. I’ve heard it referred to as a vision board. Whatever you call it, it’s a great idea.
I’m a very visual person. If it’s out of sight, it’s out of mind. If something’s really important to me, it’s going to stay on some big white board somewhere where I look at it on a regular basis.
I only have a couple more questions for you here. I know that when you first started investing, you were investing locally in the local Dallas market, but then, eventually, you started branching out into other markets in other states. I want to ask you, because this is a question that we deal with all the time, how do you choose your other markets? What do you look for? Do you have a criteria?
Again, we accidentally went out an area with the nightly rentals. It’s like a business. Once we decided to master the business side of it, really, being successful at business is about people making you money. You really have to master the “who.” We keep the same strategy in investing. The only two areas that we have outside of our local area so far or locations, that we have a very important “who.” For example, the stay-at-home mom, she was our connection to the nightly rentals, and she actually manages those nightly rentals for us. We feel very good and very confident about her and her ability. We partnered with her on some of the properties and then we own some by ourselves, but she manages all of them, even the ones that we have on our own. That’s a real big thing to us is who do we have in that area. Who could we trust to take care of it?
The only other area that we have investment properties in is Florida. I went to bed too early one night and my husband got on TV with the little guy with the pony tail that does the auctions in Florida. The location that he actually bought in, he has a cousin that had just been to see us that summer, and the minute she left, I looked at him and said, “She would be awesome at property management.” Late night TV came on one night, there was a property we actually eventually bought too, but a property came on that was in that Port Charlotte area and that’s where she lives, so she manages them for us.
Now, we’re looking back, we’re thinking, “We should have bought more.” We always say, “We should have bought more.” We never say, “We should have bought less.” We always say, “Dang, we should have bought more.” It’s about the “who.” If I can find a great who in a location or a great opportunity comes to us, in the case of the nightly rentals, that opportunity just presented itself. Once we investigated it, we said, “Yes.”
Your team is so important. You just can’t jump into a market and start buying property unless you have your team in place first because you need to know who you’re going to work with and who you can trust. That’s so important.
I think the last thing I want to ask you is about what your success formula is? People answer this question a little differently. Clearly, if you were to wrap up everything we’ve talked about and what you have in your book, HOLD, what would you say is your real estate investing success formula?
Again, we’re very simple people. I don’t want it to be super complicated or anything like that. We really narrowed those down to a few really key points that we just don’t veer off of. These are set in stone for us and we stick with them. One of them is we buy a property at 10% or greater below market value, because, remember, we watch a lot of people be overleveraged in the late ’80s in Texas and in other real estate market crashes also, because we’ve survived through every market crash with these strategies. That’s why we believe in them.
One is buy the property at 10% or greater below market value at the time. Put at least 20% or more down on the down payment or I have to have a 70% to 30% loan-to-value ratio. In some markets, that’s meant less money. In some markets, that has meant more money.
It needs cashflow of minimum about $200 a month after the principle interest taxes and insurance on about a fifteen-year, no more than twenty-year payout. That term was important because of my husband’s age at the time that we started. We tried to buy newer, this has changed over the years. We used to fall in love with all-hardwood floors and things like that, but we’ve fallen out of love with some of those recently. Typically, we buy newer, if possible, fifteen years or newer, three or four-bedroom brick or stucco, if possible. We buy homes in stable and/or appreciating neighborhoods that look like they’re stable and/or appreciating.
That’s just our simple rules that we follow. I have people say all the time, “What’s your rate of return on your properties and all that stuff? What’s your ROI and all that?” I said, “Here’s the thing, it varies because we just follow this formula in some of them in the markets because we bought so good we could probably triple our money on them right now if we sell them. Who knows what those rates are. We just stick with this formula and it’s just always worked. We bought in every market. The only money we’ve ever lost on investment is when we flipped too soon.” It’s also a learning experience. Learning experiences usually cost money.
I like your formula. What you’ve actually described is what we try to get our investor clients to come to grips with, and we call that their criteria. Essentially, what you’ve just told me is what your criteria is in what you invest in. Everything becomes so much easier when you start to define it that way.
It takes the emotion out of it, because you can get in there and get emotional about a house or a person or feel bad for a person’s situation. This helps you not do that.
What are you working on right now that has you excited?
I would have to say we’re still putting more into the nightly rentals in Branson. I’m having a lot of fun with getting to buy things wholesale because that’s a whole new thing and it’s just making the numbers even better, because you do have to furnish these things. Literally, it looks like your second home that they’re walking into. From the first ones compared to what I’ve been able to do just by reaching out and finding people, because we find such large quantities that it actually just qualify to be a wholesaler. That’s fun and interesting and unique right now.
The other thing that we’re really excited about is we’re building an online platform to help people invest in real estate and learn how to leverage their businesses like we have. It’s fun to really think about what you’ve learned over all these years, and figure out a way to put it in a course or formula so that other people can do the same things. Because sometimes, you don’t even think about how you do something until you start trying to put it on paper.
We all have to learn one way or another. We either have a coach, a teacher, a mentor, a partner or we read books and take courses and whatnot and learn that way. At the end of the day, you still have to pull the trigger, right?
Exactly. I’ve done all the above and believed in every one of those; coaches and partners, and mentors and books, you name it. They certainly have helped us get where we are. No one can pull the trigger for you but you.
Linda, this has been great. Is there anything else you want to add?
I would just say if you’re even remotely interested in real estate, it’s a great opportunity to buy yourself some freedom at someday, and just go ahead and pull that trigger and do it. The first one’s the hardest.
I appreciate your time, Linda. Tell our audiences how they can find you and where can they get your book and find out more information about what you have and provide?
You can go to LindaMcKissack.com. We have all of our offerings on that website. Also, I believe we may make our book available there. If not, you can for sure get it at Amazon.com and it is available on audio and Kindle also.
Linda, I appreciate your time. Thank you so much for sharing your knowledge and wisdom. Hopefully, we’ll have you on the show again at another time.
Thank you, Marco. Have a great day.
You too, Linda. Thanks.
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