What is Real Estate Financial Modeling?

welcome to another tutorial video this time we're going to be discussing what is real estate financial modeling we're covering this topic because we have featured a lot of points about real estate real estate valuation property modeling but we've never explained exactly what the purpose of it is and giving you a step-by-step process to go from beginning to end of a real estate financial model this tutorial is not at all an answer to a reader question it's just an important topic overall and it corresponds to a blog post on mergers and acquisitions you can follow the URL on-screen it's also in the description below this video click on it and you can get all the excel files and other resources that I go through here so go to that link if you want to get all the documents files and resources here we're going to expand on the article here and show you more of the excel parts here by going through this in video format our plan for this tutorial will be to start by explaining what the point of real estate financial modeling is then we'll go through types of deals properties and models then I'll show you an example of an acquisition model and then I'll show you an example of a development model and the key excel bits required to get those both working so what is the point of real estate financial modeling first off let's define exactly what we're talking about here real estate in this context means land and buildings that generate revenue or have the potential to do so in the future we mostly focus on commercial real estate which means that someone an institutional investor or a wealthy individual or someone else owns the property and then rents it out to other people individuals or to companies businesses we do not focus on residential real estate all that much such as single-family owned homes because it's a bit different it's a different type of asset class and it's not quite as likely in case studies and modeling tests the purpose of real estate financial modeling is to analyze a property from the perspective of an equity investor an owner or landlord or debt investor a lender and then determine whether or not the equity or debt investor should invest based on the risks and potential returns of the property to paraphrase the real question here is to buy or not to buy this is of course is not exactly Shakespeare's quote but I'm using it as a quick and simple way to remember what real estate financial modeling is all about for example if you buy multi-family property like an apartment building for 50 million and you hold it for five years could you earn a twelve percent annualized return on your investment real estate financial modeling cannot tell you if you're going to earn an eleven point three percent return or fourteen point seven percent return because you're predicting future events all investing is probabilistic so you can't go down to this level of detail but you can tell whether this range ten to fifteen percent for the returns is plausible or if getting to that level would require unrealistic assumptions and unrealistic financial performance therefore making it implausible let's now go into part two and talk about the types of deals properties and models in this sector there are three main ways that you can invest in properties when it comes to commercial real estate first off you can acquire an existing property you can change very little to nothing about it and then you can sell it in the future and this is called acquisition model another method is to acquire an existing property change it significantly and then sell it in the future and this is called renovation modeling and then the third method is to buy land pay to develop a brand new property find tenants for it lease it out to those tenants and then sell the property as soon as it's income its net operating income and rental income stabilize and this is called development modeling now in addition to those different types of investment strategies in different types of models you also have four main property categories and really if you limit it to commercial real estate it's basically three categories but I'll show you four just so you can see all all of them on screen here so first off we have the office retail and industrial category the customers here at businesses releases tend to be very long-term at least several years the details vary significantly between different tenants once we construct a new building we aim to sell it after the building is done and these are really all for business purposes on the other end of the spectrum you have hotels which of course are for individuals either business travellers or leisure travelers the lease term in quotes is very short because most people only stay for a few days if we build a brand new hotel we aim to sell it after the building is done and income is stabilized and then in between those two we have multifamily the customers are individuals who want to live there the lease terms are medium-term we could say usually about a year and usually the terms are very very similar and once again we aim to sell this after the building is done the one that's really different is condominiums because it doesn't quite fall into the commercial real estate category it's more of a residential one it's owned by individuals and it's often pre-sold in advance so even before the construction that development is done we aim to pre sell these to our future customers that makes it quite a bit different and the fact that individuals actually own these the fact that they're not leased out to people or companies also makes it different we're going to focus on the other three categories in this tutorial for now the main difference between all these property types is the lease office retail and industrial properties tend to use more granular financial modeling and often have tenant by 10 assumptions because the lease lengths and terms vary significantly hotels are a lot more like normal companies and multifamily is in between you can visualize it like this on one side of the spectrum you have hotels which are closer to normal companies and on the other side you have office retail and industrial properties and then in the middle you have multifamily and condom so that's a bit about the types of properties deals and models let's now look at the step by step process to real estate financial modeling first off you have to start by setting up your transaction assumptions you have to specify the property size the price if it's an acquisition or the development costs its if it's a develop model and then the exit details such as how much you're going to sell it for and how long you're going to hold onto it if it's a development model you'll have to project the construction period and then draw on debt and equity over time to fund the development then for both development and acquisition models you will build the operating assumptions which could be very high-level or very granular depending on the property type in the market that you're in you will use those assumptions to build the proof forma which is like a combined income statement and cash flow statement for property and you'll go down to net operating income adjusted net operating income you'll project the debt service the interest and debt principal repayments and then you'll get to the cash flow to equity at the bottom then you'll calculate their returns including the initial upfront investment the cash flows generated over time the exit and the debt repayment upon exit and then in step six you will make an investment decision based on your criteria and the model output in different cases let's look at an example of how this works by going to a simple acquisition model here we're going to look at a 76 unit multi-family property in Arizona called Arcadia Gardens our plan here is to boost rents and reimbursements via minor upgrades not enough to be a full renovation just some minor improvements to the property we'll give away fewer concessions to tenants such as fewer months of free rent and in exchange for that we will let the vacancy rate rise a little bit because we think the benefit of higher rents will outweigh the drawback of a higher vacancy rate so in step one here we have to set up our transaction assumptions and in this model you can see how this works we determine the rentable square feet in the property by taking our number of apartment units and multiplying by the average rentable square feet per unit and then we get the total grew square feet in the property by applying a rentable to Groo square feet ratio we also make an assumption for the purchase price around 10 million u.s. dollars which is based on a cap rate we'll make some assumptions for the loan-to-value ratio how much debt we're using and we set up a sources and uses of fun schedule here as well then in the next part we project the construction period except this is an existing property so there is no construction period so we just move to the next step which is the operating assumptions now for a multi-family property since there are so many units and everything is so similar there's no point going into granular detail so most of these will be based on per unit or per square foot metrics and the same for the expenses and the other cash flow line of Em's as well so here for example we have a market rent figure and then an in place rent figure and we have a growth rate for the rental and parking income right here and then we can see that right now the rents are below market by about 10% by renovating the property we aim to reduce that discount to only one percent by the end so those are some of our high-level assumptions for the rent we also aim to reduce our concessions here from 3% of effective rent down to only one percent we have to boost our utility reimbursements and then we have some assumptions for the property tax growth rate and the operating expense growth rate here and these are both simple percentages we have a lump sum number based on the stroke year and then these grow based on set percentages over time and we have some assumptions for the capital expenditures corresponding to the minor improvements here you can see our vacancy rate also goes up from 0% right now which is astounding up to about 3% which is more in line with what you'd expect for multifamily properties so those are some of our high-level assumptions here once we have those then we can build our pro forma which is fairly standard we'll also use the I PMT and P PMT functions for the debt service because it's simple fixed rate debt with no accrued interest and no interest only periods so for a pro forma we start with our based rental income our potential rental income at the top as always loss to lease shows us what we're losing because of that discount to market rents then we have our concessions and bad debt so tenants not paying tenants getting free months of rent and so on we get some income from parking spaces tenants reimburse us for some portion of their utilities and then we have general vacancy so spots units that are unoccupied and that we no plans to occupy with tenants in the near future then we have our expenses property taxes insurance utilities management fees sales marketing replacement reserves that gets us to our net operating income then we have our capital expenditures and we have our reserves to pay for capital expenditures if we have enough set aside to actually do that in the given year that gets us to our adjusted net operating income and then for the interest expense on debt this is simply based on the loan interest rate the loan amortization period and the total amount of debt that we have and we use the AI PMT function for that we also repay debt principle each year and because of the IPM team P PMT functions these add up to the same number of four hundred thirteen thousand in each year that gets us to our cash flow to equity and we also track our debt balance and some of our credit stats and ratios like the interest coverage ratio and debt service coverage ratio over time the next step here is to look at the returns and calculate these on both a none leverage and leverage basis this is fairly simple for this deal because we just have the initial equity investment so the initial thirty five percent or so of equity that we use to purchase this property we have cash flows coming in each year so those add to our cash flows and then we exit the property we made an assumption here based on a six percent cap rate and we exit in about five years time so we exit for about twelve million after purchasing the property for about ten million we repay debt at that point we repays we pay some fees associated with this and we get to around a fifteen percent return on a none leverage basis the IRR is more like nine to ten percent which is still pretty good for a stabilized multifamily property so do we do this deal do we buy this property it depends on the returns that we're targeting and what this looks like in different cases a fifteen percent IRR is pretty good because the normal goal for a stabilized property like this might be 6% 8% 10% something in that range but we've only looked at this in one case we want to test the numbers and stress test this of a little bit more see what it looks like at a downside case an upside case build some sensitivities and look at what happens when rent rises more quickly and more slowly than expected and then we could make a decision here with more convection so that's an acquisition model I'm going to go into a brief aside here and look at renovation models because they're very closely related renovation models are similar to acquisition models but there are a few key differences first off you need to have renovation costs that reduce cash flow to equity or that are included in the upfront price there must be a penalty during the renovation period like a lower occupancy rate fewer tenants lower rents or something else like that and then you must have a benefit following the renovation such as a higher occupancy rate an additional major tenant or average rent that increases often times in a renovation once the renovation is done the initial loans to finance the acquisition will be refinanced into permanent loans the risk profile and returns of the property change once the renovation is done and so you take out previous lenders bring in new ones that have different goals that are more aligned with a stabilized operational property and then the exit assumptions are a bit different because it's more reasonable to assume that the property's value increases because you just completed the renovation so of course that should make the property more valuable whereas if you would acquire a property and don't change it much that assumption is a bit questionable in a lot of cases because the property gets older over time and doesn't really improve in a meaningful way to show you a quick example in a hotel renovation model that we have here we have assumed for the renovation costs here we acquired this hotel and then we spend a bunch of money to renovate it in years 3 & 4 of the model this is for a hotel property in Australia those renovation costs directly reduce our adjusted net operating income and also our cash flow to equity so those are the renovation costs the penalty here is very simple we have a renovation factor that reduces our available rooms by 50% so our occupied room nights here go down by about 50% and then right afterward we get a benefit because our average daily rate the average rate we get for our hotel rooms goes up and our occupancy rate also goes up in addition we have a permanent loan refinancing here so initially we have some acquisition loans these get refinanced with a permanent loan when the renovation is done and then the interest and principal repayments are different as a result and then in terms of the returns here we assume that this property is sold for around a 9% or 8 point 7 percent cap rate if you look at what we purchased it for the cap rate was around eight point eight percent so it's not exactly a huge improvement but it's a modest improvement we buy it for eight point eight percent we sell it for eight point seven percent meaning the property's value has gone up its Noi has certainly gone up and so it's exit price is substantially higher than its purchase price so that's a quick example of a Hotel renovation model let's go into part four now and talk about the simple development model the scenario here is that we purchase 18 acres of land in alberta canada we build a warehouse an industrial property we lease it out to two major tenants and then we sell the excess land and then we sell the property itself at their end of around six or seven years for the transaction assumptions here we have the land and construction costs we have the timeline and then we have the equity versus the construction loan based on leg wound cost or LTC ratio you can see all those assumptions up here we're buying 18 acres it's going to cost a $700,000 per acre so we get to our land acquisition costs like that we calculate our construction costs based on the gross square footage of the property and the construction cost per gross square foot we make an assumption so that we use 50% debt and 50% equity to fund this property and we have it all set up like that then in the construction period we distribute these costs over a year we draw an equity first and then debt to pay for them so on the construction projections tab over here we have our land acquisition cost first then we distribute our construction costs initially we are nowhere close to the maximum amount of equity that we can use for this project so we can draw an equity to pay for all these costs but midway through the first year that flips and then we draw in our maximum amount of equity and so we have to draw an debt to fund the rest we have loan fees and interest on this debt but there's no cash flow during this construction period so all these are capitalized and added to the loan principal balance instead so that's how the construction period here works for the operating assumptions we only have two tenants so we just make tenant by tenant projections here for the rent the concessions and other items if you go down and take a look at this we have the base rental income for tenant number one and we have the year in which the lease is up and the turnover vacancy that might be possible there we have concessions in free rent we have the ten improvements for when the tenant first moves in the leasing Commission's based on the term of the tenants lease and a percentage of the total rent expected to be paid over that term and we do the same thing for tenant number two as well then we use all that to come up with our pro forma the debt service and the permanent loan financing here refinancing are a bit tricky most of the pro forma is straightforward we have based rental income we have adjustments to it we have our general vacancy and then we have our expenses and our Noy the tricky part here is that this permanent loan that we use to refinance the construction loan has a 55% LTV ratio but when this refinancing takes place the property's not yet stabilized so we need to get the property's value one year after the refinancing takes place which is about 32 million here once we have that then we discount it back to its value at the time of the refinancing based on a 15% discount rate and we get to the permanent loan amount based on that so that's how we get to that number here and then we just use simple I PMT and P PMT functions to project the interest expense and principal repayment on this permanent loan and we get to the cash flow to equity investors below we calculate returns based on the upfront equity draws the refinancing which takes place at the end of year one here construction for industrial properties such as warehouses tends to be pretty quick we have cash flows we have the sell of excess land midway through and then we have the exit and the debt repayment at the end let's take a look at all that so in the first year we draw on a certain amount of equity to fund the project we refinance with a permanent loan here and repay the construction loan so all that factors into our cash flow to equity investors right here then we have additional cash flows that are generated throughout we sell the excess land here in year four and then we exit in year seven at the end so we sell the property we pay some fees we repay debt and we get to an IRR here of around twenty percent on a leverage basis once again we don't have scenario so it's tough to make a real investment decision but we probably say this is a no because we just barely get to a twenty percent IRR in that base case the target with new developments is often above twenty percent so if we're just barely reaching that without even stress testing this we're pretty pessimistic about the steel there are also some issues with buying so much excess land in the beginning around fifty seven percent of the land is excess so we don't need to buy that much land up front the waterfall returns schedule here also creates some issues because it puts certain investor groups specifically the limited partners here us the third-party investors had a slight disadvantage relative to the developers that's it so let's do a quick recap than some right now the point of real estate financial modeling very simply is to analyze a property deal either an acquisition or new development from the point of view of equity investors and debt investors lenders and then make an investment decision based on the risk and potential returns of the property you determine whether or not the targeted range of potential returns is plausible or implausible and then go based on that the three main types of deals and models are acquisitions renovations and new developments the four main types of properties are category number one office retail and industrial category number two hotels category number three multifamily and then category number four condominiums the step-by-step process is to first create your transaction assumptions then project the construction period and a new development then set up your operating assumptions then create the pro forma then calculate the returns and then make an investment decision based on that and you saw examples of that with the simple acquisition model and a simple development model hopefully this now gives you a good overview of what real estate financial modeling is how you can use Excel to answer these types of questions and what could come up in interviews and case studies on this topic and once again you can get all the Excel files screenshots and accompanying documents if you go to that link mergers and acquisitions comm slash real estate financial modeling

Investment Fundamentals #1 – Take personal responsibility

well it is my pleasure to welcome you along to a new themed week here on property tribes it's called investment fundamentals week and who better to join me than Graham Rowan investment consultant and Graham so great to have your input for this week you're going to be here the whole week and actually I have to thank you for coming up with our topics and I think you know a good place to start is to say that to build a solid investment portfolio whichever entity you're building that in whether it be property or shares and you've got to get the fundamentals in place and that's really what this week is all about isn't it yeah so I'm delighted to be here Vanessa and yeah I think it's it's one of the reasons I run you know the investor code myself is to try and help people to put some kind of plan and structure together for how they're gonna build that wealth and how they're gonna protect their wealth because let's be honest you don't learn this stuff in school or university they don't teach it in the workplace and despite loads and loads of new regulations all the time you never hear anyone from government or the FCA saying hey let's do something about financial education so yeah you've got to do it yourself absolutely now the starting point for this week is actually your story because that's really going to guide the week of how you became I guess financially aware and you know worked yourself towards your own financial freedom so perhaps if we could start off by saying you know give us your backstory and how it triggered that desire to start taking responsibility for your financial future yes certainly I guess you know people just need to get a box of Kleenex ready so that when I get to the appropriate point you know that they're prepared but for me I had a great job in the corporate sector I I was a director of a big American company called Texas Instruments and we were selling multimillion-dollar billing systems to telecoms companies all around the world so I'd be jetting off all over the place and you know the good news is I was making a lot of money but I really didn't have that at the time or frankly the inclination to manage it from a sort of investment viewpoint so one of my colleagues said why don't you get yourself a professional wealth manager like I have southern seems like good idea so when met them they came up with this fancy plan that said my freedom figure was 2.4 million pounds and this is how they were gonna get me there and they put my life savings into something called a Nasdaq which I have to say at the time seemed like a great idea because every morning I would wake up two or three thousand dollars richer than when I went to bed the night before and every June I'd go along for my annual valuation with these guys and the figures just went up and up and up then we got to June 2004 at the sky and computer systems didn't crash but you know the Nasdaq had gone down about 10 percent so I said hey guys you know should we take some money off the table and do something else and they said don't be such a wimp can't you recognize a minor correction in a raging bull market when you see one we're staying in ok you know best I went away to my busy lifestyle again came back in June of 2001 and it had crashed and burned and they'd lost me a hundred and fifty one thousand six hundred pounds in 18 months ouch and then they take me into a little side room and say unfortunately mr. Rowan these losses take your net worth below the level at which we look after clients so I'm afraid we're gonna have to let you go so I was fired by my own wealth manager because of the losses they had made on my portfolio so you know I was angry I was confused I was embarrassed had to go and tell my wife Daphne that we'd lost a huge chunk of our life savings and when I kind of reflected and processed a bit I thought you know it's easy to be angry with those guys but in truth it was my fault because I haven't just delegated my wealth management to these guys had abdicated it and just gone off on my merry way and at the lesson I learned expensively and painfully was that nobody else cares about your financial future you are not top of their agenda I don't care smart they are how many advisers you've got accountants IFAs none of them have got you at the top of their agenda the only person that has you at the top of their agenda is staring back at you in the bathroom mirror each day the biggest message I need to get across to people is that no one else cares you've got to take ownership even if you have a team around you you've got to be the orchestra leader absolutely as we always say on property tribes similar to yourself the best person to look after your money is the person that you see in the mirror every morning as you said and I guess what this week you're all about then miss cryptogram is that you had to go through that horrendous financial pain to have this wake-up call and really we're now giving the wake-up call using I guess your hindsight for other people's foresight well I hope so I think the hard part is that you know for me I'd gone through the pain then it became an emotional decision not just a logical when I was angry with myself and I think what I want to try and convey to people is that you know if you're not where you want to be at this stage in your life don't look for other scapegoats don't look don't blame the government don't blame the weather or the economy you know it's down to you you've got to take ownership and if you can do that without incurring that sort of losses and the pain I had to because you're watching this on properly tribe that's great you know you're so far ahead of where I was and you can avoid the pain and the grief and the cost that I had to go through absolutely and the sooner that people start to take responsibility for their own financial situation than this you know they've got a longer time to actually enjoy the benefits well that's right I mean what we're going to go through and the rest of this week is the specifics of how you go about this but I think it's important to just emphasize that there has to be this decision you know it's a little bit like you hear people saying about wanting to lose weight or something that's all well there are also full of good intentions but unless you really really really feel it and you're one that and you've got a strong reason why you want to make this happen you're gonna just let it all slide and life gets in the way you'll be too busy doing a B and C so my plea to people watching us is is to really sort of look in the mirror make an emotional decision that you're gonna take ownership and then you will take action on the stuff we'll cover in the rest of the week I think it's really about making a commitment to yourself and to becoming educated which indeed is the topic of our next video and then you know just taking sustained and intelligent action on a regular basis and that's really how people are going to build a kind of solid foundation for their future wealth no absolutely it puts me in mind of in one of my favourites of mentors was the the late Jim Rohn and yeah one of the things he used to say was that you know the difference between success and failure is small decisions you know repeated each day and if you make the right decisions over a period of time you'll see a phenomenal result if you make the wrong decisions over a period of time you get a very different outcome so it's really all about just those little things you do every day that are furthering your your whole process towards financial independence and once you take that decision and you start doing these little steps day-in day-out for weeks months and years you'll be amazed at how you can transform your financial circumstances and indeed people do have to take a long-term view and there's not really any get-rich-quick unless you win the lottery or something of that nature so people have to have a very long event horizon yeah I think unless you're gonna marry it divorce it or inherit it then you've got to go about creating and it's gonna take a long time but I tell you what you know what once you start the process you know you'll see some results quite quickly and I always tell people to celebrate those little results you it might it might be the first thousand pounds that you save or something but just you know celebrate those baby steps along the way and it they become habits and once they become habits you know then you're on the road you're on the journey and the rest will start to happen and even if you make the occasional mistake within that context of owning your financial future and taking steps every day it doesn't matter you know you will get there it really is a case of kind of like almost like a switch being flicked where somebody just has to have that realization that they now to take responsibility and just you know start moving forward and almost that kind of switch flicking on is the most important part and then you're away that's right and then that just gets reinforced with all the other actions and all the other topics we're going to cover for the rest of the week well I hope that has whet your appetite for the upcoming week of content that we are hosting in association with Graham Rowan of elite investor club I've got lots more really great stuff to come it's going to delve deeper and deeper into this topic of investment fundamentals and I guess Graham it doesn't matter what level of knowledge people have already there's good whether they're an absolute beginner or somebody very experienced we hope there's going to be something for them within the week no absolutely and I think you know that the fundamentals as the name implies are always true and so it doesn't matter where you are on the journey it really helps and it really pays to take a fresh look and yeah we all have our biases that some people are only in the property some are only into the stock market I want to try and broaden people's thinking a bit because if you want real firm foundations for your wealth you've got to understand the whole marketplace all the opportunities are open to you and you've got to understand you know how you're going to build wealth across a whole range of different assets absolutely so that's what we're going to be looking at for the rest of the week if you're watching this video on YouTube I invite you to hit the subscribe button and if you want to join our conversation and also where Graham will be interacting please click across to property tribes comm but stay tuned as investment fundamental week continues

Investment Fundamentals #2 – Get educated!

but welcome along to day two of investment fundamentals week here on property tribes where my guests for the entire week is elite investor chairman Graham Rowan and Graham and we're moving on to day two of our content and today we're going to talk about the importance of education and of course this is a topic very close to our heart here at property tribes because we believe that you can never learn less and actually the way to success is to actually make a lifelong commitment to get educated and that's something you subscribe to isn't it oh totally I mean my whole sort of mission has become to try and end financial illiteracy you know this is something that I I see everywhere and it's it's a mission that's taken me to the UN in New York to Harvard Business School in Boston houses of parliament you know Singapore yeah I just really want to get on my on my soapbox and talk about this because yeah we briefly touched on this in the first day's episode but you know you you you just don't learn this stuff in school or university or the workplace so you know once you've made that fundamental decision that you're in charge of your financial future you've got to start looking for where you can learn a bit more and it's it's a double-edged sword because there's so much out there now with the internet you know I mean when I was growing up you know you just had books in the library and whatever you know these days you've got you're bombarded with it so as much as anything it becomes a process of narrowing down and selecting what you're going to look at but really you've got to start with a fairly broad view of what's going on in the financial market so I I subscribe to a magazine like money week which is a nice succinct way of seeing what's going on the financial times especially the weekend edition I think is particularly helpful so just just starting to read those will put you ahead of ninety percent of the population in terms of having an awareness of the economy of stocks and shares of property of bonds what's going on in the marketplace then you can start selectively reading some books by people who are obviously in those fields and then you can start looking at content obviously you know property tribes is one platform where you can learn a lot there are similar platforms from stock market type investments you know for us we have specialized more an alternative investment so you start to learn about those through through elite but the idea is that you can go to some seminars read some books regularly read magazines the sort of thing I would avoid frankly is the kind of 24/7 CNBC kind of TV stuff where the stickers going across the screen and it's real time yeah nanosecond you know none of that matters that's just noise and distraction but if you can just have a perhaps a couple of hours a week of just dedicate that time plus occasional seminars that you go to I mean I I mean obviously been around this world for quite a while now but I I still probably spend ten thousand pounds a year going to seminars in in Britain and America to keep myself sharp you know and to see what the latest thinking is now I'm not saying everyone has to start at that sort of level you think a lot of these events are much much cheaper than that but you know go along to a few see what you learn see who you meet because another benefit of this and you know because those of us who are real into staff and onto a future we are weird you know I mean our friends and our family don't understand us sometimes your spouse doesn't understand you know so it's really nice to go somewhere where you've got like-minded people one of the best bits of feedback we get is the events we run I love to meet other investors who think like me because you know no one else in my circle does so so you'll find that it all becomes kind of reinforcing because you're starting to learn a bit more you're meeting other people who want to learn a bit more and you kind of help each other along that process and you know the main thing I would say is to start but don't get too many sources of knowledge or else you'll just feel overloaded and pressured by it so you only need a handful of things you know two or three books and magazines couple of seminars and a platform like like the property tribes that's enough you know but just regularly consume it and start growing your knowledge week by week indeed and I think you know when you're choosing a source of advice I think it's important to understand if there's any kind of agenda behind it and one of the great things about property tribes it's a hive mind of knowledge it's not a singular opinion it is a mass of opinions that people reading can take in and take away from it what they like Mull it over form their own opinion and that's a very very healthy way to learn but unfortunately a lot of people tend to get sucked into what I call the wealth creation industry which is where they're told they can be a millionaire in a year I can see the look on your face already and they don't need any money and you know once they get into those kind of marketing funnels they can actually end up paying thousands and thousands on education and maybe even end up with nothing to show for it and what what's your view on on those kind of property gurus that say you can be a millionaire in a year oh it really it really pains me to be honest I mean you know one of the places I at a couple of times a year is the property investor show I think it's where we met actually and it does pain me there I see gurus there peddling the same strategies that may have worked ten years ago and we know today from all the recent changes that they're not going to work and there's an awful lot of gullible people go to those events thinking they can get rich quick in real estate and they sign up for these programs and some of them are thousands and thousands of pounds deposit on a house actually indeed you know so so you know please so yeah be very very careful you have to have a bit of discipline about what you're doing you have to you know just by all means gather information but but don't be too quick with your credit card or your checkbook I mean I had a member in here the other day who's in this kind of education phase he went along to his first property auction the other day as part of that and he bought the property and I said really wouldn't have done that you know you were there to learn and you couldn't resist you got emotional and you bid on something and now you own this property that's 300 miles from where you live what exactly you're gonna do with that you know so you've got to be careful not to get then but the the idea that you can get rich in real estate or anything else I see the same in kryptos I see the same with financial trading of the stock markets oh yeah I'll remind people of the the nineteen ninety ninety rule on financial trading which is at ninety percent of people lose ninety percent of their money in the first 90 days when they get involved in this sort of day trading and so on so be careful this is the education of phase yes shouldn't be spending too much money at this point maybe a you're buying some boots you're subscribing to some papers or magazines and you're going to the odd seminar that doesn't mean you're signing up for the top-end mastermind program here whiz-bang whatever and and remember that you know a lot of people go for the things where they think they'll get rich quick back where I come from in Georgie land we have an expression which is fur coat and no knickers you know which really means you're going for that sort of top-end yeah Shoei high risky stuff but you haven't got any other fundamentals underneath you haven't laid the foundations this week's all about foundations and that stuff ain't foundation laying so don't come at this with a get-rich-quick attitude in fact I often say I reverse it and say look get rich slow that's the way that will last no I agree 100% and I do get very concerned when I hear these property gurus recommending that people go straight into HMOs for instance and I've been to those kind of seminars and was very concerned that they never once mentioned the word tenant and that's the person that's going to be paying your rent and servicing your mortgage and they they don't even mention them so you know I totally subscribe to what you say and you've mentioned quite a few sources that are free like property tribes or you know a few few pounds a week for a magazine or a subscription and maybe a couple of hundred pounds for a good day out at a seminar or indeed the landlord investment shows are free to attend as is the property investor show so there's lots of good sources of information out there but then do you also you know we need to talk about paid advice as well because paid advice is insured advice is this at the stage that you start thinking about working with a broker finding your tax advisor and starting to build those relationships well the thing I think that really should start you off depending where you are in the journey I appreciate we've got people at every different level that will be watching us but in the very earliest stages I always encourage people to open a bank account that's separate to their main bank account often with a different bank and call it your name wealth account so the John Smith wealth account and then get into the habit every time you get paid whether that's a salary or dividends from your company or whatever go and put a percentage of that money into your wealth account once you get into that and I say don't do this online do it have it as a physical branch in the high street so you've got to walk there and the only reason you're going there is to make a deposit in your wealth account you're not doing this for convenience you're doing this with a psychology of it the habit-forming side of it so then you've got money that's accumulating first that gets you into the habit of saving and frankly I don't care what you earn if you can't save on 20,000 a year you won't save on 200,000 a year it's a mental discipline and all the wealthy people I know we're saving money when they're on 20,000 a year so so you've got to get into that discipline first so once you start accumulating the wealth that sort of takes the pressure off your urge to sort do something quickly because that you know that's going on in the background so that just keep the saving going whilst you're educating yourself when you come into the point where you know I'm gonna pay that veiss I think certainly it's worth looking at perhaps getting referrals or recommendations to people from people that you know have been successful with them and you know obviously there are good and bad mortgage brokers good and bad tax advisers so the more you can find the right people who have already achieved success and see who their advisors are that's a great way into that and also you need to really get start to get some clarity on your strategy you know I mean this may be be heresy on on a property platform but you know that there are other investments out there apart from property that people should educate themselves on as well and the whole point about this it's a bit like you know whenever I meet somebody who's got all their money and buy to let or all their money in the stock market I I say well you know basically you're riding a unicycle you know you are kind of wobbling around on a single whee here and all your wealth depends on that one asset class if you start investing across multiple asset classes you've got a bike quality a trike quad bike or multiple legs on your table you know so so you need to learn about the whole market and real good long-term investment strategies are well diversified so there'll be property in there but the loss would be stocks and shares there'll be precious metals that commodities you know there'll be currencies and all the rest of it so we'll go through this later but you know you've gotta have a breadth of investments and then start looking at where you might source them from including advisors including sourcing deals and all the rest of it so you're building your network at the same time as you're building your knowledge and your education well fantastic so that is part 2 of our investment fundamentals week and we've been talking about the importance of education and Graham I think this week's just going to get better and better as we go on I'm so really just find the way you explain everything it makes it really really easy to understand and it's very engaging so thank you very much for that tomorrow we're going to be looking at your income engine and why you need to turbocharge it so we've got another exciting day tomorrow haven't we go to it so if you're watching this on a youtube I invite you to click the subscribe button and if you want to join our conversation we're gray and will also be interacting with property tribes members please do click across to property tribes comm that is where the conversation is hosted and if you pop over there you'll see that we've got over 45,000 members who contribute to our discussions and you can tap in to all their knowledge experience contacts and as we like set prosti tribes none of us is as smart as all of us so stay tuned and we'll be back tomorrow you