Podcast appearances and mentions of michael love

Play Episode Listen Later Jan 28, 2023 28:14

In this episode, we welcome House Canary's Director of Research, Brandon Lwowski to look at what has been happening in the real estate market over the last years and where we are headed as an industry. We discuss the health of the real estate market, the residual effects of the response to COVID-19, and the main challenges facing investors today. Brandon Lwowski built his career after studying Computer Science Mathematics at The University of Texas at San Antonio. In his role at HouseCanary as Director of Research, Brandon distills what is happening in the real estate market through data analytics and machine learning to help investors make more informed decisions about their portfolios. Links: https://www.housecanary.com/ https://www.linkedin.com/in/brandon-lwowski/ --- Transcript Before we get into the episode, here's a quick disclaimer about our content. The SFR show is for informational purposes only, and is not intended as investment advice. The views, opinions, and strategies of the hosts and the guests are their own and should not be considered as guidance, from Roofstock. Make sure to run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to an episode of the SFR show, the place where you get all of your up to date SFR investing information. I'm Michael Albaum, and today my guest is Brandon Lwowski, the director of Research over HouseCanary and he's gonna be talking to us about all of the things that have been going on in the market over the last several years and months, and how we can use that information going forward. So let's get into it. Hey, Brandon, what's going on? Thanks so much for taking the time to come jump in chat with me today. Appreciate it, man. Brandon: No, of course, it's good to be here to get an opportunity to discuss the real estate market for sure. Michael: Yeah, I'm super excited. So you're the director of Research at HouseCanary. Give us all just a quick little bit of insight background on who you are and what house canary is and what they do as a company. Brandon: Yeah, definitely. So HouseCanary, you know, it's basically a national brokerage and so it's really known for its real estate valuation, technology and accuracy. This company has been around since 2013. It was founded by Jeremy Sicklick, our CEO and our Chief of Research, Chris Stroud, kind of off of the 2008 housing crisis, they did decide to form this company to kind of help speed up the transactions and speed up and really gain knowledge and just competence in the real estate market through using analytics machine learning to provide 100 and 14 million valuations on properties as well as 91 million rental valuations. So if you think of how scary it's built around the analytics and valuations of the United States real estate market. Michael: It was at $114 million valuations that you said since it since inception. Brandon: No, that's monthly, we produce 114 million property valuations. Of course, the 114 million is a subset of you know, every property in the United States and that repeated monthly, but we train this very complex machine learning model AI model to produce 114 million property valuations. Michael: That's incredible. Well, I want to come back to HouseCanary as a company here in a minute. But I want to first start by asking you, Brandon, because it is so analytics and data driven, what is it that HouseCanary as a company and you as an as the director of research are seeing in the numbers in the data with regard to just where we are in the market, there's so much chatter about market cycles and ups and downs and bubbles, give us a little bit of insight to what are the numbers and facts supporting where we are right now, as we're recording this brand new into the new year 2023. Brandon: I think kind of the one of the biggest headlines to kind of drive home right now, especially in the market, we have this unique combination of these elevated interest rates and you know, the slow buying season that we typically see during the winter months, this has really impacted across the board, our new inventory coming into the market, our new listings, listings going under contract, all of these metrics that we typically look at to understand the health of the market and the health of the real estate market, have really had significant declines year on a year over year basis, that's across the board inventory listings under contract, the Feds kind of you know, their fourth straight 75 basis point interest rate increase, you know, as the thing is, the fourth month straight or the fourth, fourth one straight, has really had that negative impact on net inventory. But this is just providing more evidence that you know, supply of homes is still squeezed and it's remaining negative over time, we've kind of seen this trend since August, right where our supply of affordable housing and actually all housing in the market has really continued to drop and this is basically you know, the biggest driving factor here is that interest rates shot really driving down these new listings volumes to like a multiyear low since pre you know, I don't use the word pre pandemic because you know, we're still in the pandemic, but that pre pandemic peaks we'll call them we're seeing you know, all its multi-year lows in terms of new listings, everything going on the real estate market. The biggest picture here is even as these interest rates come up, our supply just remains extremely negative and still going in a downward trajectory. Michael: And when you say downward trajectory is that From 12 months prior, or is that from the prior month? Brandon: We're looking at a year a year basis right now. If you think about the month over month basis, we are still seeing declines. But when we're talking about these multi year lows in terms of net new listings, on the purchase side of the market, we've reached those multi year lows. I think, you know, the reason why this supply crisis is also happening right now is, in this current real estate environment, it's really difficult to convert homeowners and current renters and convert them into future homebuyers, right. In this elevated interest, interest rate market, it just doesn't make sense financially for a lot of people to enter the market, you think of this large group of, of homebuyers that purchase homes at record low interest rates, they refinanced during the peak of a call it the peak of the refinance, boom, that happened during the pandemic and for them to reenter the market, it just doesn't make financial sense for them. So in order to move out of their current home and into a new loan, they're going to be paying a higher premium for the same quality of home. So they're available availability to spend money has definitely decreased and I really don't see this inventory shortage, kind of relieving itself or beginning to increase well into, you know, the first quarter, second half or first half of 2023, the supply just remains super squeezed. Michael: Okay and so that, like the supply aspect is, I'm guessing one ingredient in the recipe, so to speak, what are some of the other things that you're looking at, and that you're seeing, to give you an indicator of where we're headed and where we are currently. Brandon: Right. So I think so the supply is, has been squeezed, I think since COVID, there's been a really tight squeeze on the flat supply side of the market. But with those low interest rates that were happening, I mean, 1- 2% interest rates, people were getting their home loans that the demand for property shot up, which is why we really saw that two, three years of just record breaking price growth and the real estate market. Now we're looking at the demand side, and we're actually in the seventh consecutive month of double digit declines in on a year over year basis, we're looking at the listings that are coming under contract in the market. So if you look at inventory as a supply of new listings coming in, if we look at listings of those listings, and the existing market, this existing supply, existing supply, listings under contract is still seven consecutive months of double digit declines since November, are all of our data right now, it's kind of up to that first week of December 2, so we kind of think of it as, as of November. This is this kind of is the driving force behind this is, you know, we've never seen this kind of seventh consecutive month of double digit. So it's kind of driving a lot of fear into homebuyers and home owners and the way we kind of know that this is not normal, it's kind of beyond the typical seasonality we'd expect during the cold winter months to have seven consecutive months, this kind of uncertainty in the market around interest rates, economic downturn, the inflation, they just continue to force homeowners and would be buyers, you know, to play the waiting game, they're, they're gonna sit in the sidelines, they're gonna stay away from the market and so they're a little more competent in in where this kind of roller coaster is going. Michael: As I'm thinking about such a visual thinker. I'm thinking about this as almost like a race to the bottom in a sense of like supply versus demand once because it sounds like they're almost moving in lockstep negatively, we were having a reduction in supply, but we also have a reduction in demand and once right is that is that the right way to think about it? Brandon: The demand has definitely began to decrease or is decreasing at a faster rate than supply because supply has been squeezed since the pandemic whenever the shutdowns happened. People just stop selling houses. They stopped listing their home so the supply side of the market has been squeezed since the shutdown the pandemic. The demand side due to the interest rate hikes the economic uncertainty, that's where we're really seeing the decrease on the supply side where the decreases are coming from. So even though you know supply is always been net always been tight. We've been tight recently in recent years. A lot of the continued decrease on supply side is actually coming from net new listings so people aren't putting listings on the market right now. For the reason that we discussed earlier. It's hard to get homeowners back into the game. They're actually down around 25% on a year over year basis, in terms of like how many new listings are coming into the market, but even a bigger piece here is on the supply side is our removals of listings are up 65% on a year over year basis. So houses that were listed last month six are being removed from the market further impacting supply, while supply has been remained squeezed like very, very tight supply of properties over the years, there still is a decrease in net new listings, and also an increase in removal. So in that supply is being affected. But when it's so squeezed already, that that impact in the market will not be as significant as the impact of a decreasing demand side of the market. Michael: Yeah and that makes total sense and so what are you seeing with regard to sale, as opposed to sale of percent of this price and then also days on market? Brandon: Yeah. So I think some other key indicators, the market, you kind of just discussed, you know, we have days on market, I think price lists ratio is important, I think, the median price, right, the time series of how is price behaving in this environment, all important and understanding kind of the overall health of the market and I kinda like to go with the big one first, in my opinion, which is the median price, right? Where is the market going? I kind of macro at a national scale. The, if you look at the year over year basis, median price of all single family listings, right, so single family dwellings, that those are actually up 10%, on list prices, and actually up 2% in terms of actual close prices. So even though we're seeing the storyline of these prices really starting to decline and kind of freefall, we're still seeing as a year over year basis, because we hit such a huge peak in the middle of 2022. We're still up year over year, by those two percentage I meant mentioned. On a month over month basis that compared to last month, we are slightly down, but it's very, very small. We're down around one and a half percent on listings and down and less than half a percent on close prices. So we see a lot of the storylines and the headlines across the news, that these prices are falling drastically. We're in a deep decline. The roller coaster rails are off and we're down to 2008 again, but just looking at the data alone without any sort of human interjection or opinions. I'm not an economist, I'm a data scientist. But by heart, I'm just looking at the data because we had such a high peak in the middle of 2022, in terms of the median house prices were still up year over year and on a month over month basis, the declines in price are very, very miniscule, to what we're kind of hearing in the media. So that's one thing, right? The median price is definitely a driving factor. Everyone's concerned about like, what am I going to get for my property? Where's the trend of our nationwide real estate market heading and even though we're in a slight downtick month, over month, if you look at long term, we're still up 10% on listings and up, you know, 2% on closed prices. Michael: It seems like there has been so much resiliency, if we're seeing such a miniscule price reduction month over month and year over year, there seems to be a lot of resiliency to interest rate increases for folks, and that they're still closing transactions, even at this much higher interest rates, and they're not saving a lot or really anything at all, in terms of the price that they're paying out the door. Brandon: Right, I think what's causing these prices to, I don't wanna say remain elevated, but kind of not declining at the pace that we would expect is that tight supply. Now, we're still a few months probably away from seeing how this kind of mass layoff and technology could affect the real estate market. Because, in my opinion, what's really going to drive these prices down is when we see supply, increase at levels that the demand has decreased and that imbalance in the market is what will really drive those prices down and the reason why kind of refer to that technology, layoff if that same style, that same volume of layoffs, hits other sectors of employment, then we're going to see defaults and people need to give up their homes because they can't afford it anymore. So unless something in outside of the real estate market really drives the demand. I'm sorry the supply side of the market to escalate at a very fast rate, that safety net is there to kind of keep our prices from really crashing, like we saw in 2008. We don't have the same supply that we saw in 2008. So we're kind of have that safety net there. Unless like I said, something really drives that unemployment up and forces people to default and give up their homes or sell their homes because they can't afford the mortgage anymore. Michael: But it's interesting, because from all the news that I've been hearing, and correct me if I'm wrong, maybe you've been hearing, the unemployment rate is super low. Like there just doesn't seem to be those mass layoffs that we saw in the tech industry, yet anyhow, affecting so much of the so many other industries. So it doesn't feel as imminent. Brandon: 100% right, I'm hoping I mean, just for the health of our economy, I'm hoping that that mass layoff doesn't reach other sectors and I hope that we're done with majority of it. But we're probably a month or two away from really understanding did that actually have an impact on our median, price per square foot or median close price of a property and then we can track those defaults, and those the supply over the next few months to see if that really impacted the real estate market or not. Michael: And that makes total sense. We'll talk this Brandon about those other two factors that you mentioned the price to list ratio, and then the days on market. Brandon: The price to list ratio has actually been on a pretty big decline. I think back in May 2022, it may have been June or May, I think we're at a multiyear high of around 102%. So most properties, were selling 100 or 2% higher than the list price, which means that it's definitely a seller's market, right. If I if I can list my house for X amount of dollars, I know I'm gonna get 102% return, I mean, I happen to present a 2% return on that is definitely a seller's market. We actually for the first time in about mid-August of last year, we're now down below 100. So that's just an indicator that the markets kind of switched right now buyers kind of have that power and that ratio now stands around 98%, which is kind of the levels before COVID emerged, and actually the lowest number since the first half of 2020. So we're not we went from a high of 102 in May to now we're down to about 98 which is definitely a key indicator that buyers now have more power than the seller's because of you know, just multiple aspects that we've been talking about the high interest rates buyers be a little more choosy. Even though the supply is down sewer buyers, there's not enough buyers in the pool to compete with me anymore. So I have a little bit more pool, which is why we're seeing that sale to list price or price to list ratio, starting to decrease. That kind of in parallel, what we see with that is to kind of tell that same story that we're now entering that buyers' market, even though demand is low, if you look at the volume of price drops, right, think about how many times a listing comes on the market for 100k. It sits there for 30 days, they come back and they say hey, you know what, let's list it for 95 maybe we can get more buyers, those price drops in terms of volume are actually up 142% year over year since the last time. It's just more evidence that buyers now because demand is so is so squeezing this high interest rate environment, they get more power listings are staying on the market longer list to or sale to list price ratio is down and then but yet the because supply still squeezed, we're not really seeing a huge impact that we're kind of seeing in the news right now, on the actual median price of all listings. Michael: Brandon, just out of curiosity, I think I remember if my memory serves me correctly, which it often doesn't, but like in the height of 2022, the max or the highest median home price in the country was like 395k. But do you happen to recall what that number was and maybe what it is now today? Brandon: Yeah, so if you look at the peak of 2022. So kind of that halfway mark, I think it was right around the ending of H 122. The actual median price is actually higher, at least according to our data, right? The data that we have availability to our actual median price was actually above 400,000. We're sitting right around like 420,000 was kind of that median price for closed listings for active listings was actually even higher than that. So for closed listings were around that for 120,000 range, right now as of the first week of December is kind of our data cut off. Right now in terms of the data that I'm giving you, we're sitting right around $380,000 as the kind of median price per square foot, I'm sorry, median price of closed listings, it sounds dramatic, and we go from, you know, that 420 ish down to three, it's a pretty big drop. But as you look at the entire time series from, we'll call it the pandemic, the start of the closed downs, all the way to today, if you bought a house, during those pandemic years, you're still doing really well in terms of the amount of equity, it's still in your home prices haven't dropped that drastically to where you're now upside on your loan, you're still well above you know, what you bought the house in, during the bottom of the pandemic years, what's really going to cause kind of some worry, and headaches is these people who kind of bought later in the year, kind of towards the end, or middle of 2022. Now, they're beginning to worry the most because they didn't have that same amount of cushion that these homeowners bought when they don't worry about houses a year or two years ago. So that number does seem like a big decrease. But if you look at the longevity of the time series of the pandemic eight pandemic shutdowns to now, you're still up quite a bit in terms of percent and you have a large cushion before you even have to worry about being upside down in a mortgage or, you know, losing a large amount of equity in your property. Michael: Does the data give us any indicators as to what's coming down the pike because obviously, data is rear looking. But how can we use that to be forward looking or is there a way to be? Brandon: Yeah, so I think you're talking about forward looking, you know, the next 6,12,18 months. If you look back slightly, we hit this topic quite a bit. It's a big topic right now in real estate is these large interest rate hikes. If you look at the timeline, the time series of the real estate market in terms of medium price terms of you know, list to sale rate of sale to price ratio, you look at, you know, the days on market, it seems that with the large amount of growth that we experienced in two years, you know, record growth, that was actually able to absorb a lot of the impact that people would assume, continuing to month over month raise this interest rate to higher and higher levels, they assumed that it was going to impact the real estate market at much a much quicker, much faster way. So then they can stop, right, the goal of raising interest rates tend to raise them forever. They're just raising them until they kind of see the market growth kind of settled down and adjust and kind of normalize. But it's kind of shocking when you think about how much and how quickly that interest rate rose and until a few months back. I mean, most of 2022 there was very little impact from those rounds of interest rates. So it's one thing that we can we can learn as, as we saw record growth, even that dramatic increase really did not impact the real estate market as we thought it would. Secondly, what's really kind of driving any sort of kind of negative view of the real estate market right now around this interest rate, is you gotta think of like purchase power of our homebuyers, right? We didn't see salaries raised at the same rate as the real estate market, we didn't see household income raise at the same rate as real estate. So the really big question here and the kind of the, you know, the driving force here is the purchase power of homebuyers. We actually seeing and this is from Freddie Mac, I believe a 32% decrease in purchase power, based on this 30 year, you know, FRM, that's given the same monthly payments for a loan made at the end of 2021. So we're really seeing a decrease in what homebuyers can afford and that combined with hopefully the Fed has definitely signaled smaller rate hikes in the future. We're hoping that housing fundamentals can hopefully come back to a quote unquote normal seasonality cycle and the expected returns, but into early 2023. I think we're still going to see you know, a real estate market that's just characterized by this continued tight squeeze on supply tight squeeze on demand. With the exception of what we discussed earlier, which was a major economic event causing mass layoffs or firings, then I'm thinking early 2023 is going to be characterized the same kind of, of patterns we're seeing now, which is tight supply, shrinking demand, days on market, increasing. median price is slowly decreasing month over month, until we see hopefully towards the second half of 2023, a market that's brought back to its normal seasonality and its normal housing market fundamentals. Michael: Brandon, I want to be super respectful of your time and get you out of here, man. But before I do if people want to learn more about you and the research team HouseCanary has a whole services that y'all provide. Where's the best place for them to do that or get a hold of someone? Brandon: Yeah, I would definitely just go to https://www.housecanary.com/ . From there, you can get a list of all the products services, there's probably people on our company that can explain the better business use cases and appear researcher, I'm all about the data. But if you go to https://www.housecanary.com/, there's plenty of people to contact through there and also, I'll attach my email. I'll pass it on to you, Michael after this. So you can share it with the listeners. Michael: Thank you so much for taking the time. This was super informative and definitely again, curious to see how things all pan out. Brandon: Yeah, stay up, same tune. I think next week, our new market pulse comes out as well. So if you're interested in different states and how the market is performing, and also at the national level, it's a free report and that report will be valid all the way up into the end of December. So it will have kind of our December numbers added to that report and you can see those trends going on there as well. So usually is dispersed on our website. Also LinkedIn, if you follow HouseCanary on LinkedIn, that report is shared monthly for free and you can see all those metrics that we talked about updated on a monthly cadence. So you can kind of have competence in your decision making process. Michael: Love it, love it. We'll definitely check that out as well. Well, thanks again, Brandon. Appreciate you and we'll chat soon. Brandon: Appreciate it, thanks, Michael. Michael: All right, everyone. That was our show a big thank you to Brandon for coming on and dropping so much knowledge, facts, data and statistics on us to help us guide our investing through these kind of tumultuous times. As always, if you enjoyed the episode, we would love to hear from you all ratings and reviews are always appreciated as are comments with additional topic ideas that you are interested in learning about. We look forward to seeing on the next one. Happy investing…

covid-19 united states ceo director university texas ai research chief current san antonio fed making sense feds real estate markets freddie mac sfr frm roofstock michael it michael yeah michael love michael brandon michael thank michael okay michael all michael hey

The largest risk that one has is being an employee, with Neil Timmons

Play Episode Listen Later Nov 19, 2022 27:18

Being only an employee leaves you vulnerable to the ups and downs of the market. Real estate investing is one powerful defense against job loss and economic downturns. In this episode, Neil Timmons provides insight into the real estate business and shares his experience with overcoming economic adversity to secure a robust financial position. Neil Timmins is the CEO of Legacy Impact Partners, where they invest in real estate opportunities ranging from houses and apartments to industrial and medical offices. In 2021 Neil published his first book, Unicorn Hunting for Real Estate Investment Companies: How to Easily Attract, Screen, and Land a Unicorn. The book is tailored to helping real estate investors find and retain top talent through the strategic systemization of hiring. Neil also hosts his own podcast, “Real Grit” where he pulls back the curtain on real estate investing through interviews with industry titans. “Real Grit” provides listeners with the tools they need to secure their lasting real estate legacy! Episode Links: https://legacyimpactpartners.com/ https://legacyimpactpartners.com/podcast/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have Neil Timmins, who is an author, a podcast host, entrepreneur, real estate investor and he's gonna be talking to us about going from an agent and employee to building a significant business in the real estate space and what it takes to do so. So let's get into it. Neil Timmons what is going on, man, welcome to the podcast. Thanks so much for taking the time to come hang out with me today. Neil: Good. It's so good to see you again. I appreciate the invite. Looking forward to this for some time now. Michael: No, likewise, the pleasure is mine. I'm super excited. So you and I of course know each other. We were chatting offline just before we hit record. But for anyone who doesn't know Neil Timmins, give us the background quick and dirty. Who you are, where you come from, and what is it you're doing real estate. Neil: High level out of Des Moines, Iowa, born and raised, started as a residential real estate agent built a built a brokerage there on to REMAX for a number of years was a top REMAX guy with my 20s and then eventually found my way stumbled into investing worked my way through single family investing, we still do a little today but morphed into commercial investing. And that's a primary focus today. Michael: Love it and I hear this this theme so often with agents start as an agent, got my teeth cut, then went into the investment side. My guess if you're a top performing agent, in your local market, you're making a lot more money on an annual basis than you would if you're investing. So why did you make that transition? Why'd you make that jump? Neil: Yeah, no good question. Well, the not so fun story is I was probably 31 ish at the time. Maybe 32, I came home one day to my wife of a decade in our three little kids, all about five or younger, and my wife had them all packed up and said she was leaving, leaving for good. I had spent the better part of seven years or so working like a dog every day of the week, I worked. My second year in real estate, it worked 355 days. So that business was built, ultimately, you know, I was able to put his team in place and that business, but it largely was built on my back and my effort and so it was at that point that, you know, I had an ultimatum and I begged and pleaded with her to go, you gotta give me give me an opportunity. I understand. So give me an opportunity. She did thank God. 45 days later, I sold my REMAX and took a whole bunch of time off to decide, well, how am I going to how am I going to do this? How am I going to make a living in contribute because I like doing what I was doing and not the not to the degree in which I did it. But I enjoyed real estate a lot, right? The people, all the fun things around it. So it took some time off to evaluate things and then ultimately plugged back in largely on the investment side. Michael: And today you own a business around the real estate investing space. Tell us about that. Neil: Yeah. So I own a couple of things. On the on the investment side of things. We're primarily focused on commercial investing, right, we buy by multiple asset classes, you're on a primary ladder, Des Moines, Iowa, we still do fix and flip in the office. Although I'm not largely involved, we've got a nice little machine that runs that really good. Contractor base in place, literally same contractor. Don't quote me on how many but we've done probably nearly 200 with the same exact crew. So it makes running things and the efficiencies there of all awfully simple. I love talking to people going you know what I don't like flipping because then I gotta go pick the carpet, I gotta pick the paint whatever else I'm like, What do you mean, you have to do that we picked it once. It's the same carpets, the same paint, same countertops, the same appliance, nothing, nothing changes. You're not doing a whole block of these things. It's not like anybody notices. You just pick it once yeah and so then also, I run an education business, which we launched this year, which has been very well received from folks who want to make that bridge want to leap into commercial real estate and, you know, figure it out either how to do their first deal or how to do their next deal. Michael: And I'm curious, Neil, because I also come from the education space, and the folks that you're working with, are they the DIYers or are they the folks that have heard of commercial and want to get exposure to it in some form or another are a mix of the two? Neil: Yeah, no, it's really DIYers. Yeah, that's not largely the passive investors, if you will, it's people who are active in real estate like, like using… if you will, you know, in my career was it just laid out you know, as well cradle to grave if you will, coming through I'd like if you were to go, how should someone progress? Although most don't do that, you know, they end up in one thing and often stick there, but I kind of work my way through that. Is this constant evolution of how do we elevate oneself and one skill set to take it to a to a new level and that's where these folks are they know they've done, they've done single family, they've largely been exposed to it, maybe they've been exposed a little commercial, but just haven't gotten to the results. They haven't they haven't been on a foundation, a legacy had been on a foundation of financial freedom and, you know, arguably, in mice that that commercial gets you there faster and easier. Michael: And within commercial because it is such a diverse asset class and really name where do you see folks going that are having the most success? Neil: Oh, good question there. You know, we bring people in, and we do a lot of things from a training standpoint, want to be in an asset class exercise to go alright, well, fill this little asset class matrix out, we have my hand if answer a handful of questions to go, you know, do you resonate better? Would you rather work with people or businesses, and we just bring them through a series of questions, and that lines it up to go well, top to bottom ranked, we focus on six level six largest asset classes, there's top to the bottom, here's what here's what it looks like and then my encouragement from there is, Listen, if number two resonates a whole lot better with you than number one on that list, that's what you should do, because it's just easier and you know, this, if we were to go work on something you can get passionate about, it's a whole lot simpler, then put a little more effort into it and something you're just like, huh, maybe? Michael: Totally, totally and, you know, I'm curious, so many folks, I think can go invest in single family on the side as a project as a test as an experiment, the DIYers that are doing commercial real estate, are they doing it on the side? Are they really jumping in with both feet, kind of like you did, and making this their full time gig? Neil: Yep, great question most are doing on the side, most are either stacking it on to their single family business or, you know, if they've got a day job and several folks do is they're doing this, you know, in the evenings, nights and weekends, side hustle, if you will and you think about you know, from makeup, a number of you were to go market to single family or markets or commercial just by being in commercial, the number of available prospects has been largely diminished. It's a much more manageable group of makeup, an asset class, let's say self-storage, you're going to go market self-storage is in your county, well, in comparison to houses, it is a mere fraction. So your ability to call text or you know, mail somebody or connect with a broker, perhaps it's very manageable. You don't have to do it full time. In fact, that would not encourage it, because you're gonna sit around, you're gonna get discouraged. Because there's candidly not enough to do versus the single family side, you could always find something to do. Michael: Interesting. Talk to us about kind of the exits and the thought process around the exit from that business. Because in my mind, and I think in a lot of other investors' minds, a house is a house is a house, you know what it is? I know what it is everybody on the street, you know, that you bump into knows what it is, and knows how to buy it, versus a self-storage unit. I could maybe Name one person that I know that's involved in that business and so if I'm trying to sell it, who's gonna buy it? Neil: Yep, no, exactly. So that's, you know, what I do on the training side is bring people through, even if you know, largely set some goals, understand why you want to be in this business, and perhaps what you'll do get through the training go, I don't want to be in the business. And that's okay, too. That's okay because what you don't know or what you what you now know, empowers you, right? To make a better decision about what the path you should be going down. So we bring people through that large infusion for retraining to expose them to what this world looks like, and then how to, you know, identify an asset class that really resonates with you how to price something up, how do we get leads, so largely from a marketing standpoint, from a lead standpoint, what do we say then? How do we value it? How do we actually put something a price to it to go alright, this looks like a potential really good deal, then how do we put it under contract and then from there, you know, the exit plans largely are or we get to resell the property. Occasionally, we get a property that comes in our wheelhouse, what I call, it's not our perfect seller, so it's a good deal, just not for us. Now, can we move that along, so to liken that to single family wholesale it double close it novated right, do all the same things in the commercial side or, you know, we decide, hey, this is our perfect seller with the property we want to own. So how do we how do we close it up or we get to raise equity? How do we go get debt and then how do we bring the whole thing together to properly manage it? So that's what we show folks how to do and ultimately starts you know, on the front end of the process to go Alright, how are we buying this because I know what our required returns are and if it doesn't hit that I'm that's gonna lead us down a different path to either go it's either a non-deal or we're gonna get this moved along to another investor and cash up the big check that we can utilize for the next year. Michael: Yeah, that makes a ton of sense and you use the term that I'm not frankly familiar with novate. What does that mean? Neil: Novation is that this has become very popular on the single family side. So there's a lot of buzz on the single family side, especially for those in the wholesaling business. Okay, it is to replace one contract with one another with another contract. So essentially, if I was to, you know, say, for example, I was to buy a property from Mr. Jones, I have a contract in place with Mr. Jones, I decided I want to move this property along under innovation process, you would then provide me a contract that would replace mine, there's typically a difference in pricing, right, you're gonna pay more than what I've just paid and that delta ultimately gets paid back to me. As part of the process. I'm high level in here. There's some moving pieces but high level? Michael: Yeah, okay okay. Great to know. Neil, I'm curious if we can zoom out for a little bit, because you went from realtor agent, which is a kind of a unique profession and that, yes, you are an employee, but also you are kind of the business owner, your own of your own little business, your own little domain, and then you went and put a team in place, and then you ultimately sold that business. But for so many people that are employees in a traditional nine to five w two employee position to make the transition from employee to business owner, I think is a big leap for a lot of people. What was that like for you mentally going from? I'm going to be an agent to now I'm going to start and run and operate a business. Neil: Yeah, no good question in it. I think that's, it comes in incremental gains, right. So how do you how do you elephant, right, one piece at a time and so the same thing occurred from me mentally and I think that is? It's a terrific question because I think so much of this business, in business in general is mental, right? It's a six inch game in between your ears and so how do you combat that I read a book when I was probably 20 to 23 years old. The Millionaire Mind by Dr. Thomas Stanley. He wrote The Millionaire Next Door, that's probably his most famous book, The Millionaire Mind was incredible and it broke it down to, you know how millionaires think and my thought process, of course, is well, if you just think like a millionaire eventually, and then, therefore, act and operate like a millionaire, I will eventually become one, right. So it's not it's not hard success leaves clues. So there was a lot of things in there that that impacted me at a very deep level and one of them, the biggest takeaway for me was, the largest risk that one has is being an employee. They can let you go any day of the week, this is what I came to believe in, it's still my operating beliefs today are just risky, if you have no control and I, I am well aware that as a business owner, as an operator, as a real estate investor, we take tremendous risk. There's no doubt about it but I still think they pale in comparison to putting all eggs in one basket, men have an employer of someone else. Michael: Yeah, it makes total sense. So as you started moving things along, and created and formed and founded your business, how did you figure out who the right people were to put on the proverbial bus because I think, again, so many people have either a great idea, and they're really good at maybe doing that one thing. But doing that one thing isn't a business and so how do you scale it and have a proper functioning, running operational business? Neil: Yeah, no, great question and that's, that's probably, if I was to attribute any of our success over the course of last three ish years, two and a half years, somewhere in that range, we've had significant success in that period of time, it's largely been correlated to my evolution as a leader, knowing that the only way forward is ultimately with and through other people. And so I've had a focus internal so go back to a question you just asked earlier, from a mental attitude of taking that leap. For me, it's how do I develop as a leader how to become a better a better person, somebody that people look up to somebody that people want to be around, so many people want to listen to, and, and be on the same bus with going rowing in the same direction and so that has largely, that's been a big focus over the course the last couple of years. When I was at a spot where he's gone, it's time to grow. You can't hire and retain a player's unicorns as I call them. You can't hire and retain unicorns if you're not one. So how do you how does one improve their personal self to be able to get to that level? That other a players want to be around? Michael: Yeah, that makes total sense. So what it what did you do? Can you open the vest a little bit, let us peek under the curtain… Neil: Yes, you know, it's, I wish there was a silver bullet here, but it's largely just been, you know, what do they say what's mentionable is manageable and for me, it's just having that Cognizant thought that okay, well, now, I'm mindful of this and so now I need to give thought to this. How do I say things how do I handle things? How do I handle certain situations? What is the impact when making this isn't with an employee or with a team or with a customer in front of folks, how's this gonna resonate? What does this look like and then having the vision as a leader, as any leader, doesn't any organization, that vision to go, where are we going and this isn't about me, this is about us and so oftentimes you'll hear me say, we did this, I almost, you know, I try very hard to say that 100% of time, I didn't do anything. We did this collectively, all the results are collective right. It is us together and that reading, continuing to stay focused on that, stay ahead of what's transpiring, trying to, you know, hosting a podcast being around other people like yourself, other people in the industry having an understanding what's going on. So been trying to be on that curve from a knowledge base standpoint about what's transpiring that's helpful, too. Michael: Yeah, yeah. I love that and asking for a friend. I hate people and I don't think I want to interview people and screen people and that sort of thing. Does that mean that I shouldn't start a business with my great idea? Neil: The first part is I don't like people. So let's just call that the introverted, right? They don't want to interact with other people. My right hand gal is an introvert. She's not very gregarious as it relates to people. She's very good with people. But she wants to she's far more task oriented about how do we execute on what we're doing? I think that's terrific and now, what hadn't you hire her because she's the Yang, right? It's Ying and yang. She complements me in a perfect opposite fashion and I do the same thing. The other way around. Yeah, it's, I think that's terrific. I think it's wonderful, if you can, what you just expressed was, you know who you are, if you know who you are, you can identify a path forward and I would encourage you absolutely. Knowing what your deficiencies are is wonderful. We're all we're all given strengths someplace, just balance this balance your weakness with somebody else. Don't try to what are the what don't master in the weaknesses, right? So anytime we have a weakness here in anybody, you know, largely for me, it's going just don't do it. Don't master in the minors, because at the end of the day, you're still going to be a d minus for you, no matter how good you get at your weakness focus on your A's. Michael: Yeah. Oh, that's such a good expression. I can't tell you how many times I've heard people say, oh, I wanted to visit with my best friend. We're so similar that I'm like, that doesn't sound like a good partnership. Neil: Sounds like sounds like a great bar and I but not a good business decision. Michael: Yeah, I know. Totally, yeah right. Neil, if we zoom back into the commercial side of real estate coming from the single family space, what is it that you see is the biggest hurdle of barrier to entry for folks that want to make that leap into commercial but utilize someone such as yourself to help them get there? Neil: You'll never guess us? Are you ready for this? Michael: I hope so. Neil: I know, you're it's a mental barrier. It's all made up in their head. It's they don't think they can't. Yeah, but they don't think that that is it because past that, the ability to go well, okay. Well, if you've ever let me let me liken it to single family. A duplex is like a single family rental house, right? It's just two doors and the numbers change a little bit? Well, a 20 packs is the same thing. There's largely, there's not much difference in these things you're adding some zeros are calculated a little differently, but it's pretty much the same. In fact, management, in my opinion, gets easier. The more doors you have, right, you get professional management, you get it, it becomes simpler. Yeah and then to make a change to go into some other asset class, we just have to make a bridge. What does that look like? They have to go to an industrial buildings on a triple net lease, which is probably the simplest thing to calculate and get one's head around when you're going, well, they just pay a lease rate, and then they fix all the stuff that goes wrong with it, right? That's it your true and your true and why is the rent, we've got multiple properties like that and we're the management company, which means we just get the rent and never hear Yeah. Michael: Yeah, that's by far the easiest piece of property in my portfolio is triple net. Neil: Yes, correct. But people are, you know, we're scared about what we don't know and that's true of all of us, right? We're scared about what we don't know, afraid to make mistake, which is totally understandable and so we just help folks, we educate them as we go answer questions as we go and show them the exact path to be able to get from, you know, I want to learn more about commercial real estate, I'd love to be able to buy a deal to actually get to a close. Michael: That's awesome. And I'm curious, Neil, what's your favorite asset class and why? Neil: My favorite asset class, although I own I'd have to calculate up four or five different asset classes, but my favorite today is going to be industrial. Michael: Industrial why is that? Neil: Yeah, industrial is in demand like crazy. Secondly, in 2021, had the second largest rent increase across all asset classes, only trailing two apartments. But in comparison to apartments, they're far easier to manage, right, I get a triple net deal, or a double no deal, there isn't much to do, there's very few moving pieces you end up with, on average, let's say a five year to 10 year lease is pretty straightforward. Michael: Okay. So if I'm playing devil's advocate here, and we're looking at this industrial building, this is suited only for a business. This is not for people can't come live here and the type of business you might have to build to suit it out for that particular business 5-10 years down the road, that might be a future Neal problem. But let's drive down that path that tenant leaves goes out of business, what have you economy turns? If businesses aren't doing well, in the area, are you stuck with this vacant building now? Neil: 100%. If businesses are doing well in the area, meaning they're laying off or not employing people, my thesis is you still have you still have an apartment problem relative to occupancy and or rent rates. This goes back to earlier question is, admittedly, we have to take a risk someplace, right? It's just my comfort level and I like the box, you know, not a somehow engineering building has been added on to or defined for one, one person's exact use, I like a big giant box, just a rectangle, that's it, a business of multiple businesses come into that and fill it out in which way they want to. So like the fact that if I can buy my, my preferred buying is for buying some older not buying brand new stuff, buying some older buying something with a value add or on buying at a discount of some managers, the intent is to buy it correctly. And if I can buy a property, let's call it make up a number right now 70 to $80, a square foot brand new construction is gonna be 120 to 130 a square foot, I think I'm in pretty good shape over the course of coming years, I think that my dollars, and my rent rates get pulled up to the fact that sheer cost of new construction is gonna be 60% higher. Michael: All right, I dig it, I dig it and for anyone, I'm just realizing now, some of our listeners might not be familiar with the term double net triple net lease, can you give us a quick definition of what it is? Neil: Yeah, it just defines what people pay for double net, for example, is probably one of the least likely terms that use but let's say triple net triple net means ultimately that the tenant pays for everything, there may be some nuances inside the lease, but taxes, insurance, repairs maintenance, the tenant pays for that. So if your releases 100 grand a year, your net is 100 grand a year before, before your mortgage, any sort of debt payment you have on it. A double net means they don't pay for everything they pay for perhaps taxes and insurance, but not all the repairs and all the maintenance, and therefore your NOI is gonna be a little lighter, depending on what you have to maintain and pay for. Michael: Okay, perfect and I'm sure some of our listeners are hearing that and thinking like, this is the best thing since sliced bread. I'm gonna go put all of my single family homes and all my apartments on Triple Net leases. Why is it only a thing that's been heard of in the commercial space? Neil: Yeah, no good question. You know, to liken it to single family, you're like lease with an option or a contract sale, that's probably the closest thing you get to a triple net in the in the single family house side, right? So you kind of contract sale, somebody that mean that contract buyer is now responsible for everything associated with that house, right? That's what it looks like. If you look at the closest thing, there's some differences there. Obviously, a contract sale into a down payment interest rate. That's not the same as a triple net lease on the industrial side but that's probably the easiest way to liken it to single family. Michael: Yep. Yeah, that makes total sense and for anyone listening, like Neil mentioned, it's just the cap rate is like the easiest thing ever in the Analyze easy thing ever, you got a million dollar building cap rate 6% they're paying 60 grand a year, then bam, boom, end of discussion. You're not paying taxes, you're not paying insurance, you know, capex and maintenance. So you can calculate your true return, and then look to calculate what your debt service payments gonna look like and determine what your return looks like after that, versus the traditional single family rental or apartment or traditional residential space. They pay you a set fixed amount, the rent, and then you have to go figure out the taxes, insurance, repairs, maintenance, capex, that sort of thing. Neil: So hey, just because I like it or you know, in other investors likes something else doesn't mean it's right. There's only what's right for you. Michael: Yeah, yeah. I love it. Neil, this has been so much fun, man. I want to be very respectful of your time. Let's get you out of here. But before we go, like where can people reach out to you find out more about you continue the conversation if they're interested? Neil: Yeah, no, great question. Well, if you want to learn more about commercial real estate getting rich in what I call the 20x niche, why do I call it that? Well, because our target internally is to produce in a monthly return that's 20 times that of us Single Family return so we're scaling up largely is just go to my website give you a free download free report just you can learn more about the industry getting into commercial. So www dot legacy impact partners forward slash gift JF T legacy impact partners Ford slash gift: https://legacyimpactpartners.com/ Michael: Right on thank you so much and before I let you go I mean I'm not gonna let you out of here without mentioning your podcast you're also the host of a podcast was that was a you're kind enough to have me on what is that called and what can people expect to hear on it? Neil: Real grit is the name of it it's about the trials tribulations anybody from real estate. So we talked about single family talking about commercial talk about everything in between. But really, so that we fully admit that you know, life isn't all about Lambos and big houses on cash and checks and everything on Facebook that or social media wherever you'd see it right? That there's ups and downs there's, there's we have to go through stuff and many times to be able to find our own personal success and so we talk through that and people's personal stories and how they got there because all bunch people, they get their different ways and it's really exciting. It's, we get into some really interesting, very dynamic conversation a lot of fun, love it. You and I had a great conversation. Michael: I had a ball. I had a ball. Neil: It was a blast, man. Michael: Awesome. Well definitely go check out that podcast, real grit, a lot of fun, really cool stuff going on there. Neil, thank you again. Any final words thoughts for our listeners? Neil: No, you're going to find me you know, like I shared it though the website I'm also on all the all the social media platforms. Facebook's the best place to find me Neil Timmins, or there are many Amin just spell it right you got me Michael: Right on, many thanks again. Appreciate you, see you soon. Bye. Neil: Bye, bye. Michael: All right, well, that was our episode. A big thank you to Neil for coming on the show. Really, really interesting stuff that Neil's been through seen and experienced. As always, if you enjoyed the episode, we'd love to hear from you with a rating or review wherever it is get your podcast, and we look forward to seeing on the next one. Happy investing…

god ceo talk real land risk iowa employees unicorns screen largest yang contractors analyze des moines amin noi re max ying single family cognizant millionaire mind timmons millionaire next door diyers lambos thomas stanley roofstock michael yeah michael love neil timmins michael okay michael all neil it neil you remote real estate investor neil oh michael awesome

Are higher interest rates prohibitive to making profits in real estate today?

Play Episode Listen Later Oct 22, 2022 35:22

Aaron Chapman is a veteran in the finance industry with 25 years of experience helping clients better understand, source, and finance cash-flow positive investment properties. He advises over 100 clients a month in the acquisition and financing of their investment properties and primary residences. Aaron is ranked in the top 1% of mortgage loan processors in the country, in an industry of over 300,000 licensed loan originators, closing in excess of 100 transactions per month. In today's episode Aaron gives us his take on the current interest rate and inflationary environment, where he sees things going, and his thoughts on what investors should be doing in a time like this. Episode link: https://www.aaronbchapman.com/ https://apps.apple.com/uy/app/qjo-investment-tool/id1533823468 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the remote real estate investor. I'm Michael Albaum and today I'm joined by Aaron Chapman, who's a lender, investor, bearded man and entrepreneur as well as an author and he's going to be talking to us about inflation and using long term debt as your battle ax against it. So let's get into it. Aaron Chapman, what's going on, man? Thanks for taking the time to come hang out with me. I appreciate it. Aaron: What's happening brother thanks for the invite. I think I kind of pushed my way in a little bit but I just Michael: Invite, forced invite. Aaron: Let's put that way. Michael: Ya, no happy to happy to and it's been a minute since since we saw each other over think Realty in Tampa. How you bee? Aaron: Been very good man. Think Realty in Tampa seems like so long ago, because I've been to Tampa two times since then. Miami a couple of times. Literally, I don't get to see very much of anything. But seats 3d of American Airlines is what it seems like. Michael: And that's pretty close up to the front of that first class? Aaron: It's always first it's what I've discovered in my career, it used to be you know, you got to you got to hang on to your capital is really kind of dumb to spend money unnecessarily. But then I got to thinking. So like I said first a few times, and I sat next to some amazing people. So it's not about the seat. It's about the person next to you. And more often than not, it's often enough, let's put that I sat next to some people, just some amazing conversations that end up doing business with some people when they didn't want to talk to me. And then it wasn't long, they were talking to me. And then they're giving me pointers, one guy who was like one of the executives over at the Business Journal. And I was finally DC next year, he's telling me all the cool places to go in DC. And now I've seen him pop up online. And I'll check in with him to see what's going on just a really cool guy that I recognized him by couldn't place who he was, until I got in talking. And then I found figured out who he was. So it's just, that's the kind of person that I ended up sitting with. And it's more the conversation than anything. Michael: What a different way of thinking about things like so many people see the price of the ticket. They're like, Oh, I don't want to pay that or like the experience. But you're you're approaching with a whole different lens. I love it, man. Aaron: Well, it's kind of how I approach going out for an expensive dinner paying a big tip, things like that. It's like, we know what's happening with the dollar right? It's not doing a whole lot sitting in our bank account. And believe me, I agree with holding on to cash, I believe I agree with investing wisely. But I also agree with taking that capital and putting it someplace where you're building relationships and building up somebody else. And so there's times when somebody does a great job, man throwing $100 tip on a on $100 Dinner is not an uncommon thing in my world. And that's not me beating my chest. It's that person earned it and what's that 100 bucks going to do in my world? My wife will ---- it away on somebody Amazon, right? So it's really not going to, it's not going to enhance our lives that much. But you'd be amazed at what it does to that person. And you walk back in there to that place you think that person forgot you? Well, they definitely don't forget me with the braids. Michael: I was gonna say yeah, with a look like that. Yeah, Aaron: Yeah, that's remembered. But then they remember that. And then it's there's this, I talked about the economy of gratitude a lot, and that autonomy kicks in. And they will do more and go above and beyond. Of course, now you're kind of stuck to $100 Michael: That's the minimum, yeah, the bar has been set. Aaron: So you got to be careful of how often you do go back or when you go back, you'd be amazed at the interaction you have with this person. It's a life changing experience. Because our like our lives are changed by the people that we interact with. And not necessarily what what we what we grow in it or what we amass in it is the relationships that we have. Michael: I love it. I love it. Let's give people the quick and dirty of who you are and where you come from and what is it you're doing in real estate and then we'll jump into kind of the meat what I wanted to cover today. Aaron: Very cool. So the quick and dirty is not so quick and but it's kind of dirty. So the interesting thing I was sitting in an event happen to be in Tampa, we were just talking about Tampa. This was years ago and one of the main speakers there talked about the lending industry that being a loan officer and he said the reason people become a loan officers because they can't get a job doing anything else. And it rang really, really true to me because that was my story. You go back to you know, I grew up on a cattle ranch in high school and from there to work in the oil fields in Wyoming drove truck ran heavy equipment, found myself in the mines in northern New Mexico in the late 90s. And they started to shut down the project and so I got laid off and I thought no big deal. I'll find a job easy and I had a wife and kid back in Arizona and I was up in northern New Mexico I go back and forth, went back and I couldn't find a job for nothing. I tried like crazy everything I applied for I got this this statement of being overqualified. I kept getting turned down. And things were getting dire at that point, I needed to make something happen. And as I left to go apply for a $10 an hour truck driving job to me, it was like the worst thing I could possibly do, but it was gonna put, bring money so I can at least feed my family. My wife as I left gave me a coupon for free diapers. So I drove over to this place, I applied the general manager turned me down again said I was overqualified. So I'm 23 years old, I feel broken, and walking down to my truck up coming from the type one of those job site type trailers go down the stairs. Get on my truck, said a quick prayer. I was really just I was trying to hold back the tears started up my truck and I started pointing myself to this grocery store. Well, as I'm headed to the grocery store, my gas light comes on in my truck. I had never ran that thing long enough to find out how long ago on a gas light. So I quickly found a store that had a groat a gas station on the corner. I pulled up that pump, got my debit card out, I said a quick prayer, prayer, I swiped it and I got declined. So I rifle through my truck looking for a lost dollar, found a few coins, I closed it lock the door, I started walking that grocery store pocket parking lot. And as I'm looking around, you know, I would find something on the ground look, make sure nobody's looking, reach out quickly pick it up, put in my pocket. This went on for what seemed like a couple hours. And then I got enough change that I thought would give me a couple gallons of gas. Luckily, it was 97 were Yeah, 1997 I think gallon, a gallon, a gallon gas, like 89 cents. So I went and exchanged my change, which was a couple hours of my life for two gallons of gas, went into the grocery store with my coupon, found those diapers hurried up and went to the checkout counter. I don't know if you've ever been this position, but nothing feels worse to, in my opinion, to have one item and your coupon for that one item. Right. And now it was just another just another crappy feeling to the day. So I got my stuff put in the bag, and I'm screaming either as fast as I can. And somebody recognized me. He called me over and I didn't want to talk to anybody. But he asked me how things were. And I told him what I just told you. He goes, Let's go to dinner. I'm like, Dude, I can't afford dinner. And I hated saying that. He was no, no, no, I got a gift certificate to Red Lobster. I'll take you your wife out. So we went to Red Lobster a couple of nights later. And that's where he told me about the mortgage industry. He explained to me what happened in it? And I'm like, Dude, how can I do this? I know nothing about that. I think there's numbers involved, and I cheated my butt off to get that C in high school. If it wasn't for the fact that could pick a lock, I would not have graduated. So I went in, I cut a foot off of my hair, I shaved. My mom bought me some business likes clothes, and I wouldn't do an interview. And they started me as a telemarketer in 1997. So that's how I got going. So going from a telemarketer to working actually some of my own leads to building this up and going through the crash and all kinds of stuff. And there's a bunch of stories in there. To now, you know, I was just called by an outfit by modex. And they recognize me I think is the number six guy in the United States. For transactions closed. I was number one guy in Arizona, I didn't even realize that I didn't really pay attention to the statistics, there's 1.6 million people in United States that do what I do. And from what I can tell, I'm ranked number six for how many deals I closed last year. So it's kind of an interesting dynamic to consider that swing. Michael: Yeah, I'll say, Well, you know, congratulations on how you've come clearly a long way. That's really exciting. Aaron: Well, thank you. And there is campfire story after a campfire story of of the different things we'll probably talk about this in the series of stuff we talking about the beatings that a person takes to become successful. And you don't what's really interesting is people say, How do you get there? How do you how do you achieve success? Mike, I'll let you know when I do. Because you just don't feel like it all the time. It's a consistent grind. You're always trying to be ahead of the head of everybody else. And once you achieve something, it's way harder to keep it. Michael: Yeah, I think people think it's like this just flat curve, you know, flat line once you've achieved something, but really, it's very sinusoidal. It's up and down and valleys and troughs. And you're like, man, some days suck. And some days are great, but the like, I think it's about the end destination right? Where you're trying to get to Aaron: 100%. So I look at it like Everest, right? You get up there. And I don't know, if you've ever really paid attention. Maybe you've climbed the same for all I know, but how long a person sits on top of Everest, it's a matter of minutes, and they're getting back down because that sucker will kill you. You know, and so it's it's just like any other achievement, we get the second you sit back and you relax and put your feet up. It's gonna kill you. You need to keep moving, you got to get down, you got to get to the next Everest. And it can be debilitating to think that we're constantly hunting the next goal. The next goal, the next goal, instead of just finding the happiness, you know, and you our viewers know who Larry Yatch is he says, you know, success is a optimized daily experience consistently achievable, right, something to that effect there are and so and it's sustainable over time. Yeah. I gotta find that optimized daily experience. Here's what I got to do. I don't think I've achieved finding that yet. Michael: I'm right there with you, man. We're in the hunt together. Aaron: Yes. And we'll keep hunting and maybe we'll keep communicating about one of these days. You're like, Dude, I found it. Michael: Yes. let me show you. So, let's shift gears here a little bit and talk about a topic that I think is on everyone's mind. And that's inflation. And you're working in the mortgage industry for a long time, you've seen a lot of ups and downs, sideways lifts, REITs give us a little bit of insight into why is inflation being talked about so much? And what do we as investors need to be cognizant of, and either using it or being abused by it. Aaron: So inflation is definitely an interesting animal. And it's talked about a lot, everybody is talking about this constantly. And what I point a lot of people to just even understand inflation is go to a place called Shadowstats.com. When you go to shadow stats, you're gonna go to, and I always encourage everybody to get log into it get to pay for the 100 bucks for the year, whatever, you're gonna go over to alternate data, you're gonna scroll down to inflation, you're going to find this chart, and what this chart has, it's going to be going to show you from 19, from the early 1980s, up until now, and it's going to have two different lines, a blue line and a red line. And they're going to be, they're going to be diverging at some point, they're gonna stay together at one point, they're gonna go down to when they show inflation started work its way down, and then they start to kind of break apart. And what you're watching there is the federal funds rate itself, or not the federal funds rate, but the CPI that the Fed tends to track, and it's what they have changed the index to contain. Right? So you're familiar with the Dow and the NYSC. And the and the NASDAQ, right? s&p, right, the s&p, none of them have the exact same value Correct. They're all different because they have things in them. Well, if you didn't get into, if you look at the the CPI, the Consumer Price Index, they will stack certain things in there that they can manipulate with monetary policy. And that's what they'll go off of. And you can see in this chart, that it's going to show that that that red line is skipping across the bottom right around their 2% Mark quite a bit, and then it spikes up to about eight and a half 9%, which is where we've been at recently. But if you look at the real rate of inflation, which is the shadow statline, it's going to be pushing up closer to 17. Why is that? Well, because back in the 80s, they took everything into account, what is the person really literally spending money on to on their day to day life, and they're going to track it so they can see how much their life is changing year over year as far as their expenses. But then they wait a minute, it's getting out of hand, because what we do to pass the law for will increase their their benefits or their social security and the retirement benefits to the rate of inflation. Well, we need to keep this to 2%. Right. So we don't want to raise that really, really quick. That's where you start seeing this particular manipulation? Well, if we're looking at 17%, people should really, really, really be concerned about what's happening with their dollar, because what's the dollar value doing with inflation? Michael: Decreasing. Aaron: Decreasing, right? It doesn't spend as far. So what I like to do is talk about this in the sense that it's always been that way. And when we're talking about real estate investing, you know, the, in my opinion, where a person does best when it comes to real estate investing is leveraging the property, you know, the way to leverage the properties, get some sort of financing instrument on it, if you're gonna get financing on it, you want to get it for as long as you possibly can. Because at that point, the longer you take a pay, the less you actually pay, because the dollar you're paying it with is worth less and less and less every year. So I know in today's higher rate environment, we're talking about inflation is pushing interest rates up. And if you look back at the history of inflation, last time, we saw inflation of this, this magnitude, you'll see in some charts that will show the history of inflation, and how it's somewhere right around 20%. But then you can see the history of the interest rates and the interest rates were closer to the same 17-18% for a 30 year fixed. Well, if we're where we are, as far as inflation is concerned, actually inflation was right around this 13 to 15%, where we are today. And then we're talking to interest rates at 19%. Well, the federal funds rate achieved over 20% at that timeframe. We're not there right now. So explain to people is the gap that we have there as a gift. Right now we're seeing somewhere in the sevens for 30 year fixed interest rates. And that's, you know, we're talking about this in October, the 2022. Do I expect it to get higher that I really do because of all the uncertainty within the market. But if you've locked it in and that interest rate for 30 years, and inflation stays consistently higher than that, you're never even going to pay back what you borrowed. In fact, I have an app to prove that, you know, people want to go to just go to my website, shoot me a message, I'll get you the app. And you can download this thing on your phone. And you can calculate your amortization table and then see what inflation did and how you paid less than what you borrowed over a 30 year window even though you're paying higher interest in what you hoped. Michael: We have to come back to that point because that's so counterintuitive and the exact opposite of what everyone tells you. When you look at the sum total you paid over a mortgage. But before we get there, I want to ask is it appropriate to look purely at The rate of inflation against interest rates? Or do we also have to take into account just the pure purchase price that we're seeing today? Or is it become irrelevant? Aaron: I think they're all a factor. Because sometimes when you're let's look back at interest rates go backwards a year, right? Interest rates were in the threes and fours were people buying investment properties. Unbelievable, we'd never actually seen that, and never thought that I would ever see that. But what's happened to the prices of houses, what what you're doing is you're opening up where they were, they say the affordability index had a right how that worked in and more people could afford houses. Well, the more people that could afford houses, the more people bidding on those houses, right, the more of those houses got bid up beyond their real value, price does not equal value in an environment like that people are just willing to pay an enormous amount of money. Well, because of that, all that affordability, it was so so called built into it because of lower interest rate was getting eroded by the fact that pushing the price so high. So now we're at this really interesting point where the prices are still fairly high compared to, to the, I'd say the real value of real estate because of what people are willing to pay. But our interest rates have increased to not quite to the highest it could and it's really not as high as the national as the average has been since 1971. But it's going to slow that down, I think an equilibrium equilibrium is going to kick in here at some point. And you might see those prices start to decrease a bit. And then of course, it's going to make a little bit more sense. So there's going to be people sitting on the side and waiting and watching. But then again, are they going to increase or decrease that much this begs the other question, were five point I think 5.2 million units short to fulfill the needs of that for housing United States. And then you're we're already short on that. We don't have as many building permits happening. We don't have the supply chain we used to, and now we have how many houses just got wiped out in Florida, you start compounding all this out, man. I'm telling people if you're in a contract, you probably want to stay in that thing. Because if you're backing out of a contract, because you don't like the price, you don't like the rates. Expect, just imagine what you're gonna like and a year from now, I don't think it's gonna get prettier. Michael: Yeah. Yeah, that's really interesting perspective. Let's come back to what you said before about, when you look at the total amount you've paid. Over time, it actually ends up being less than the original amount you borrowed because of inflation. Walk us through that again, Aaron: Gladly. And you're probably have to say that a lot to our conversation. Let's go back. You start with a topic. And now I go 100 different ways, because my mind is one, obviously, beautiful mind. There's a dude in here.. just just see it. So you've got. So when you think about our inflation, right, now, let's just take the BS metric that the feds throwing out there eight point, I think we're at 8.63%, if I remember correctly, right. So 8.3%, that means the dollar is losing 8.3% of its value every year. So if you take 8.3%, I'm gonna get my calculator out here on my phone. And we're going to divide that by 12. That means we're losing .691 percent of the value every single month. Is that not alarming .619% of the value every single month. So that's pretty well. So what I have here, and I'm just going to launch my launch my my app here, and anybody can get it is to QJO investment tool, you can go right to the app store and get the QJO investment tool. They may bleep me out here, guys, but it stands for the quit ------- off investment tool, because I think that's all a person does when they're so worried about interest rates. So if we're doing say, a 20%, down on a $200,000 property, and you're putting, let's say it's a seven half percent interest rate, you're gonna have a payment of a principal and interest of $1,118.74. Not real bad, right? But now you're gonna pay over that period of time on that interest, you're gonna pay $402,747.56, right? 402K. You got a $200,000 house, you put 20% down, that's $160,000 loan. Right? And then you're going to pay $400,000 In principal and interest people like there's no way in hell, I'm going to do that. But when you recalculate, every time you make a payment, that payment is worth what did we say? Point six 9%? Less? So I'll write $6.90 per dollar. Last, is that right? Or is that? No, that's not quite right. It's eight, it'd be eight cents per dollar per year. So it's point 06 cents per mile. Right? Right. But when you per dollar when you recalculate that every time for 360 months, the actual inflation adjusted payment over 360 months is $152,466. That's less than what you borrowed and that's based on 8% inflation, just 8% Because you think about that the dollar you're borrowing is seven and a half percent. You're paying a Back at an 8% decline, right now it's bigger than it's 8.3 8.4%. In fact, if you want to look at shadow stats, if you look all the way back, when you look how they track it, it's been over 8% since 2012. So in reality, you're never paying back what you borrowed because you're paying less them what they're getting in the form of interest. You're paying, you're literally getting paid to hold their money. And what's really, really cool about this is where it gets awesome. Because of inflation, we get to raise rents, how much are rents going up year over year right now in the United States? Michael: Like seven to 10%. Aaron: Last time I saw it was 12. Right? When you average it all out? Dang. Yeah. To a fact, Michael: I haven't looked for a while. Clearly, Aaron: Property manager in Kansas City. I had him check it out. They ran their books, they figured they said there was like 14.2, we looked at the last year, Mike, wow, this is crazy. I'm looking at what my kids are paying right there. They're in these apartments, and they're bumping up two to $300 every year. To me, it's kind of immoral. Now I get there's costs go up, taxes go up, upkeep goes up, because you got you got supply chain issues, right? You've got workers, the man ain't fixing anything over there really fast. So it's not like I think that they're, they're hurting themselves. From what I'm hearing, right? They're staying in my house now. And again, because of the darn AC has out for a couple of days. Those kinds of things. So when you think about that, what's going on in that type of environment, they're raising it like that? Well, let's see what I always tell people, we get to raise rents, even at just 5%. That's every time you raise rents, that's a compound on the previous year's rent, and then you compound it again and compounded again. So as you're compounding the increase in your income, you're compounding the decrease in what the lender makes, because they don't get to raise the payment because of inflation. So eventually, it may suck for the first 2-3-4 years because of your start rate. And because of all that, and you know, people always like to use cash on cash return is their metric. I think it's a BS metric. Guys, that's not that's not ratio, focus. There's other places to focus, we'll talk about it. But when you start adding that up, and really, really working out the math on it over time, you start killing it at about years 5-6-7 And just compounds huge. Those who don't want to be able to hang for the first three to four years of the ones going to be off on the sidelines. And they're the ones going to say that real estate's not the place to be because of interest rates will they're the they're the the people in the crowd. They're the ones that are the spectators, that people on the field, know where it's supposed to be at and they understand it. And those are the ones going to take opportunity. Michael: Love it. Aaron, let me ask you this, the Fed has tried to maintain inflation at around two to 3% annually. Right now we're up in that eight plus range. And so we did the math behind if inflation stays there for the duration of the 30 years that you're holding that loan. But if they get things under control, and it drops back down at 3%. I mean, did all of that benefit just get eroded? Aaron: Well, we also have to look at what they're dropping by 3% They're dropping their index by 3%. And that's dropping the real rate of inflation by India by 3%. So I don't see that as being eroded because you look back at you know, go back to shadow stats, start looking at what they were they calculate real rate of inflation. We've been over 8% Since what since 2012. You have a consistent increase in inflation, it's going consistently up cost of living has not gotten cheaper. Now, I don't know when you were born, but in 19 in the 1980s I could jump on my, it was the late 80s I could jump on my skateboard my mom gave me $1 Literally $1 Bill, I could go down to the corner store, get a gallon of milk, buy some candy for me and bring change to her. how possible is that right now? Michael: Um no, can't even buy the candy for the dollar right now? No, I just bought a KitKat for a buck. 75 Check it out. That's ridiculous. Dude, it's this dark chocolate and mint. KitKat I'm like such a sucker for dark chocolate. It was amazing. But yeah, Buck 75. Aaron: Well, it's probably probably an extra 10 cents for the blend, right? But, but again, kefir dollar 75. So that's what I'm saying a gallon of milk and I could get into it. It wasn't like the big jumbo candy bar, nut it was something. And I brought that change. But that was possible in like 1986, I think is when that was okay. It feels like a little while ago, but it shouldn't have changed that much. But it did. So if you look back at that's not a 2% inflation increase. That's common. That's some serious increase, especially the price of milk today. Right. So we started looking at that the Fed has never really kept it under 2% control. The other thing is, is our inflation today, I don't know if we're really know the full outcome of what's going to happen with what they did with those printed dollars. They have put $8.9 trillion into the markets that they never were in before. If you look at their holdings with respect to mortgage backed securities and treasuries, $8.9 trillion. Then we have they backed off by point zero 2 trillion. And now we have interest rates more than double what happens when they back off by half. Right? So when you start thinking about what they did, and what we're that we're the the amount of money that's in circulation, there's got to be some really massive moves here to get this under control and One of the things that really kind of stands out to me and if you heard this conversation were Powell, the chairman of the Fed was speaking. One of the things he said, I don't remember the exact words. He says one thing we've learned about inflation is we know very little about inflation. That's alarming. Michael: Yeah, big time. Aaron: And that was said within the last 45 days, I think 45 to 60 days. So what I am taking by that is inflation. There's this big loaded oil tanker, right, and it's headed towards ground right now. And they didn't get off the throttle early enough with all the stuff they're doing. Now. They're dropping all these anchors, they're hooking up tugboats. They're doing everything think everything they can, but it's too, it's too late. It's going to run aground. And what that happens when it runs aground, I don't know. But it's going to be pretty ugly. And so that's why I tell everybody I'm dealing with, you need to control what you can control for as long as you can control it. And the one thing we can control right now is a 30 year fixed loan. An ARM, Are these things they call, what did they call this thing be all in one loans, it's an adjustable rate, just a single adjustable rate, kind of a credit line? Yeah, great concept. But we have no idea how it's going to react in an environment like this. So for me, it's like whatever you can do to maintain it and keep control of it. And then when you know, we know for a fact that sense right now to close on this 30 year fixed and pay the points and get the rate. But what I do know is you're not going to pay it back, you're gonna pay less than what you borrowed. When you go with what the bank say, let's go with a five year or seven year, you have to do something with that loan, at some point. What did you just become a new client for the banks, that's what they want. That's what they say in the background, sell the arm because you're insuring your business for the future, the business for who the loan originator, not the person buying houses to rent out and to maintain a business, you are now become somebody's servant, you become a business, somebody else's future, you're a commodity. And I try and tell her but don't become somebody else's commodity control it for as long as you can. Only pull refinances, you can pull the money back out and reinvest into other things. Other than that, let that sucker sit there as long as you can run that out and let somebody else pay the freight. Michael: Yeah, that makes a ton of sense. Aaron, I know you deal exclusively in residential mortgages. But can you give any insight into why the commercial markets only have 5- 7-10 year options on their mortgages, as opposed to the 30? year fixed? I mean, I have seen a 30 year fixed, but it's not the Colt 45, like it is in the residential space? Aaron: Yes, you're right. It's it's very, very uncommon. Well, because most your commercial mortgages have to be made up by by investor capital or by banks, right. And so banks are going to take depositor capital, and they're going to create this or they're going to create their own type of security. And they're going to be able to get investors come into most investors don't want to let their money sit for 30 years. Most people don't know that when you're letting your money sit for 30 years in an inflationary environment, you're not getting your money, right, we all expect a certain rate of return on if you do any sort of hard money lending. Or if you've ever done anything to that effect, or fix and flips, you're going to calculate your return on investment annually. And I searched for a 12 plus. Right. And I don't know if you listen to Warren Buffett, Warren Buffett was talking about where, you know, some lady came to him. And, you know, she was trying to figure out how to how to invest her money, and it was a lot of money to her, but not to him. And he said, we have any credit cards? And she goes well, yeah. And he goes, we'll pay that off first. Because why would I do that? I'm not making any money. He goes, What are you paying your interest? 18 20% Because I can't make 18%. So I was I don't know how to do that. So get rid of the debt, you know, then I can show you how to make at least 12 to 13. So that's what we all are wanting is get that 12 13%. You're not going to make that in a 30 year fixed, you just aren't. So what we've had we've we've created a way to kind of subsidized by the system. And we've got this Fannie Mae or Freddie Mac. And what they did was they created the mortgage backed securities, luminary did that for anybody who watched the The Big Short. And if you haven't actually watch it. I know this is a family family show. So don't let the kids in there when you watch it, but it explains the history of the mortgage back series security, where it came from. And now what you have is now a tradable piece of paper that people keep just trading around. That's where its value is. Its value is in its trade ability in its liquid tradability as well as the fact that it the performance of the note people making the payments on time. That's what makes that's a valuable piece of paper, not to sit and hold it for 30 years. It's not valuable at all, you're losing money on that paper. So that's why I think in the commercial world because they have not had this initiative from the from the government say we need to create housing or we need to create people's businesses, right. They didn't have that initiative. They had the initiative when you create housing, when you give people opportunity to live in a home when you give them the best opportunity and mortgage financing. So they created a 30 year fixed and a 30 year fixed has caught hold and become kind of the gold standard is now the the the Qualified Mortgage, if you will, when you get into anything else. So those where you're not really a qualified loan, you don't have safe harbor from the government or do anything outside of that. So that's about my best guess is you can't get anybody to want to put money up for that long for so cheap and lose it, and just and not make a return is really what it boils down to. They probably just rather own the building. Michael: Yep. Yeah, that makes sense. That makes sense. Aaron, one final question before you before I let you out of here 15 year fixed versus 30 year fixed, you'll often see a pretty big spread on the interest rate. Does it ever make sense? Aaron: We're not seeing as big a spread now as we used to. But here's where I look, it used to be a bigger spread. It's not real big right now, if there is a spread at all. So and one, two reasons we're not seeing as big a spread as we used to, we have a lot of uncertainty in the labor market right now. And as a result, that uncertainty lenders like I don't know, if I want to saddle somebody with a bigger payment, when they may have a an issue with their income in the near future. And if they do have an issue with their income, what is their ability to pay this higher payment versus a 30 year fixed, so we're gonna price it in a way that kind of leads them back to good old fashioned 30 year fixed, because our value in our portfolio is them being able to make their payment. So then when you do compare them side by side, even if it's a lower payment, you can use my, you can't use my calculator, I don't have that feature in this, we will in a future iteration, by run the numbers, when you're paying off a 15 year fixed, even at a three eighths of a percent lower interest rate or even a half, I have found you actually pay more in actual dollars. The reason being you're paying those dollars while they're worth more, rather than stretching out over time when they're worth less, because in 15 years, they're going to be worth a hell of a lot less than they are within the first 15 years. So those who pay that off quick like that, yeah, feels good. You're getting equity in your house and all that kind of stuff. I'm of the mindset pay the 30 year fixed stretch as far as I can take the extra money I would have paid for 15 and reinvested somewhere else. And as a result of being able to do that multiple different properties and compound it that way I'll generate a lot more wealth. Because when you have when you have a home and I tell people if you're gonna buy real estate investments and get those those single families, duplex, triplex, fourplex, you have two jobs, right, you have to pick the right people to work with on the real estate side. And on the lending side to understand what you're trying to do and will guide you not try and lead you to make them money but lead you to make you money, and then pick the right asset to buy the stays reasonably rent it for the entire time you own it, you can raise rents, if you have that, who pays off the mortgage? Michael: The tenants, Aaron: the tenant, so if the tenant pays it off, and it's easy to do the math, guys just take 100,000, let's say it's 100? Well, you have to say it's an 80,000, or only about 100,000, our house with 20%, down, you got an $80,000 loan, you divide that up by 30, which is how many years are taken to pay it off, you'll find that it pays off. They're all they're basically giving you $2,666.67 per year, they're giving that to you, right, and that's what you're paying off the mortgage with? Well, you divide that into your investment, which is the money you invested 20,000 plus a 6000 in closing costs as 26,000 your investments grown by 10.25%, every year, do the math, you figure it out yourself. If they're paying it off, you did your job. And that's all you made was done paying off the loan, you made no more cash flow, you put no more out of your pocket, that's 10.25%, predictable, you still have the tax benefits, you still have the appreciation on the home. So that's before all, all cash flow. So what I tell everybody is let that drag out, it doesn't matter what you do, if you do it on a 15 year note, you're more than likely have to go to your pocket, you're more than likely have to try and maintain that in other ways. And if you're out of a tenant for a month or two, that's really going to hurt your pocket, stretch that thing out. If you really feel like you want to get it paid off 10 years you can all in 15 years, you can always pay a 30 like a 15 You can never pay a 15 like a 30. Michael: Yeah, it's very I always tell people to there you have the optionality with 30 year and that you don't have the 15. Arron: Options or everything. You know, that's all people want is to be able to make a decision for themselves. But when you pitch and you back yourself in the corner, and you're not allowed to decide for yourself, that's when you're frustrated, that's when you get angry, leave yourself out. It's a good business move to leave yourself out. The other thing of it is going back to the to the arms these other stuff, man, we're going off of hope. And hope is not a good business strategy. You need to go off of what you know and stick with what you know and control for long as you possibly can. Michael: Love it. And this is an awesome place to put us pause until our next conversation. Until then, where can people find out more about you reach out to you if they have questions or want to reach out to you for your services? Aaron: Best Places go to AaronChapman.com If you can't find me there because sometimes there are some some browsers don't like it you have to type in Aaron B chapman.com. Just type in Aaron Chapman a Google if you find a bearded redneck lender you found him. Michael: Right on. Right on. Well, hey, thanks a lot, man for hanging out with me and walking us through this really kind of tumultuous time appreciate you. And we'll definitely be chatting again soon. Aaron: It was my pleasure brother. And again, thanks for letting me under to poke some holes in in people's heads out there. Michael: All right, everyone. That was our episode A big thank you to Aaron for coming on and dropping some really interesting Insights for us on where we're headed in the market. As always, if you enjoyed the episode, feel free to leave us a rating or review and we look forward to seeing the next one. Happy investing

united states amazon google walk miami arizona dc bs dinner kansas city new mexico tampa guys wyoming mount everest ac fed buck powell profits arm correct warren buffett unbelievable interest rates nasdaq dang american airlines cpi dow realty big short kit kat reits red lobster fannie mae freddie mac consumer price index business journal nysc aaron chapman real estate today roofstock aaron b think realty michael yeah michael love larry yatch michael yes shadowstats aaron it aaron yeah michael all aaron yes aaron well aaron so

Can you crowdfund a 1031 exchange into institutional real estate?

Play Episode Listen Later Oct 18, 2022 28:00

Mr. Fernandez is President and Chief Executive Officer of 1031 Crowdfunding. Before founding the Company, he was Senior Vice President of Healthcare Real Estate Group in Irvine, California. Since January 2001, Mr. Fernandez has been responsible for researching and compiling accurately verifiable documentation across various industries, including assembling compelling content for marketing materials related to the purchase and acquisition of various real estate holdings. He has over 20 years of inside and outside sales experience. He is personally involved in raising over $800 million of equity from individual and institutional investors through private and public real estate offerings. He hired and trained a national internal wholesaler and external wholesaler sales force. In this episode, he shares how he interprets the current state of the economy and the real estate market; and how his company, 1031 Crowdfunding, creates opportunities to take advantage of during times of uncertainty. Episode Link: https://www.1031crowdfunding.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Ed Fernandez, President and CEO of 1031 Crowdfunding and he's going to be talking to us today about the state of the economy, the market, and his company, 1031 Crowdfunding, and how we all can take advantage of crowdfunding 1031 exchanges. So let's get into it. Ed what's going on, man, thanks so much for coming on and hanging out with me today. I appreciate it. Ed: No problem. Michael, thank you so much for having me. Michael: No, it's really, really my pleasure, I am super excited to chat with you, because you've got a really cool company doing some pretty cool things. So I know a little bit about it but for all of our listeners who aren't familiar with 1031 Crowdfunding give us a little bit of background, what is it that you all are doing? Ed: Sure, so what we're doing is we're taking real estate, packaging it up and selling it to investors in little pieces. For those investors that are either tired of the tenants, the toilets in the trash, or they run out of this 45 day Id period that you have to actually do for the IRS and so if you're looking for institutional real estate, but you really don't want to go running around trying to find your own property in this limited period of time, you can come to 1031 Crowdfunding, where we have a slew of institutional property for those investors who are looking to be passive, and defer their taxes through a 1031 exchange. Michael: Man, I love it, we are definitely going to come dig deeper into that because I was under the assumption that you couldn't turn 1031 into a passive investment. So we've got a lot to talk about. But before we get there, I would love if you could give us a little bit of insight into where you see us currently in today's housing market with all the stuff we got going on. We're recording this towards the latter half of September and 2022. What's going on man? Ed: Well, as you know, yesterday, the Feds hiked rates again to another 75 basis points and so what's so what they're trying to do, obviously, and it's currently not working, by the way, they're trying to slow down in the housing market. But with money continuing to flood the economy, real estate prices are still exceeding and going up and people can afford real estate or housing, because interest rates are going up. So we're in a weird market today, I can say we can go back to 1991- 1992 and kind of look at that market, very similar type of events that are occurring today. Michael: Okay, and for all of our listeners that weren't plugged in to the to the real estate market back then what was going on back then. Ed: So back then it was the tech boom, right? Remember the tech bubble that blew up? Michael: Yeah. Ed: Prior to that event occurring, interest rates on loans were double digits 12-14% and people were still borrowing and buying houses and getting involved in real estate. But then the bubble burst in the tech industry and all that money flooded into real estate and that's where you had all this appreciation on the real estate side. So in today's market, even though we're not in double digit interest rates, interest rates are higher than what real estate is producing. So we're not as bad as we were. But we're actually pretty close to where, and who knows, we might get there. If the fence keep doing that. So those are the similarities where interest rates exceeded yields on real estate, and real estate just kept going up. Michael: Yeah, that's so interesting. I mean, I remember hearing about those double digit interest rates, but I also have to think back and you could go park your money in a bank CD and make 6,7,8, 9%, which now is unheard of. So it's, again, we have these super high interest rates, but you can't make a yield, letting your money sit in the bank. It's getting eroded by the high inflation. So it's a really unique time Ed: And I'm glad you brought that up. You know, what's very interesting is that Treasury bills now you could buy a federal backed treasury bill, fully liquid and get 4% where real estate is producing three and three and a half percent. So you're kind of seeing what's going on in this market. Michael: Yeah, yeah. Where do you think we're headed? I want you to break out your crystal ball, change the batteries out put fresh ones in there. What's going on in the next two, three years? Ed: You know, it's, it's, it's a weird market, you know, I'm not gonna get into the political frying pan of who's doing what? Michael: Yeah… Ed: Right. But if money continues to flood this economy, I don't know how you put on the brakes on inflation, if that continues to happen. So what has to happen and what I hope happens is that money tightens up so that the feds can kind of slow down and we can get real estate to a level where people can still buy a home, the millennials, those are the first time homebuyers and investors can still get a yield. I don't see that happening at least for another two years. That's where I think we're headed but we'll wait and see. Michael: Okay and are you thinking that the interest rate hike is going to continue along that two year frame or are we kind of plateauing and we just have to wait a little bit longer for the effects to take hold? Ed: Well, if Feds continue to raise interest rates, then now we're gonna go into a recession and how do we come out of that? So it's a fine line of how much to push and how much not to push. So we just got to wait and see, look, if I had a crystal ball, and I can tell you exactly what is going on, I would not be on this call. I'd be on my 200 foot yacht in Monaco watching F1. So I'm just letting you know. Michael: Totally. Yeah, that's a great point to make. All right. Well, I am very curious to see how it all shakes out, I think, as are many others, but and let's transition here and talk about temporary 1031 Crowdfunding. So someone has an asset to sell. They've, they've seen the skyrocketing appreciation and let's just walk through it like some numbers as an example. Because I find that makes the conversation a bit more concrete. someone's property is worth a million bucks. They got 400,000 and debt on it and they want to go 1031. The thing, so they sell it for 1,000,000 1031 rule says they got to buy something for at least a million, if not more. Where does sentry one crowdfunding come into play here? Does someone have to bring additional 400k that was in debt to the table to invest in have a proper 1031, how does that work? Ed: No, no, absolutely not. So one of the one of the biggest things of a 1031 exchange is what we call closing risk, right and so you have 45 days to try to find something and then that's not, you know, there's holidays, weekends, that all counts, right? So you're out there, pounding the pavement, trying to find a replacement property within that 45 day period, which makes it very difficult. So in using your example, if an investor had a million dollar sale with $400,000 of debt, they can invest as long as they're an accredited investor and let me define that either an annual income of $200,000 a year for an individual 300,000 per couple or a million dollar net worth excluding the home you live in, you can come to our website and at any given time, we have anywhere between 30 to 50 different options to choose from and these investments are called Delaware statutory Trust, the term we use is DST been around since 2004, directly on the IRS website, and really what the DST is, is very similar to a living or family trust, where there's a trustee managing a trust for the beneficiaries, you as an investor, or a beneficial owner of a trust that's on title real property. So it could be a $50 million apartment building $100 million Amazon distribution center and for as little as $25,000, you can own a piece of this big property, right off all your expenses, like you're doing today, on your schedule II get paid cash flow on a monthly basis every 15th of the month, and when the property is sold, all the investors get 100% of the upside, and you're still in another 1031 exchange. So that's what we do. We're looking for those investors that are looking for passive investments, tired of the tenants and toilets in the trash or running out of time? Those are the ones that give us a call. Michael: Yeah, no, that makes total sense and it sounds awesome. So if we go back to our example, of the million bucks in the in the 400k in debt, how does it work because like, my understanding is if I'm if I'm selling something for a million, I gotta go replace that with a million dollars of property. So if I go invest with you all, do I have to bring the extra 100,000, how does that work? Ed: No, here's how it works. I'll give you an analogy. So let's say I'm a trustee. I'm going to go out and buy a $20 million apartment building. I'm going to create this broader. As the trustee, I'm going to the bank. They're approving me as the warm body, and they're underwriting the real estate, let's say they lend me $10 million. I'm the one that signs on the bad boy carve outs, and I'm the one that signs on the loan. So now the profit, I have 10 million of debt, I need another 10 million in cash. So I write a check for 10 million, and I close the property inside that trust. So to make the numbers easy, let's just call it 50%. LTV or loan to value and so let's say you sold your property for a million dollars, and you paid off the loan, and you got $500,000 in cash, and you got to buy something for a million dollars or greater. Well, when you invest in the DST, the DST already has a 50% loan on it and what happens is that it applies that debt to your position, along with the $500,000 of cash that you invest it. Now at closing, you own $1 million of this $20 million property, which allows you to satisfy your exchange. Michael: No way. Everyone watching this video just watched my brain explode. That is why that is super cool. All right. All right, I dig it and can people invest using an entity? So like, if I have an LLC that I own this property in that I'm now selling? I need to keep that same entity, right as my purchasing as my up leg for the new property can folks use their entities to invest with you all? Ed: Shoot, Michael, send me your resume I should be hiring you here quickly… Absolutely. So, so yeah. So you have to use the same tax ID number, right. So one of the one of the things we do in process in talking to investors is we ask them, are you owning this as an individual, an LLC, a trust and based on whatever tax ID number they're using on the sale of the property that tax ID number is the purchaser of this DST. So yes, you have to invest the way you sold. Michael: I love it, I love it and are you I know you said you're passing on cash flows and 100% of the upside, which is insane. We're gonna talk about that in a minute but are you also passing along depreciation to the investors? Ed: Absolutely. So whatever remaining basis they have from the sale will carry forward to this investment and based on the asset type, if it's an apartment building or residential 27 and a half years, or commercial 39 years, yes, depreciation will carry forward, in addition to that some of the opportunities have what's called a Cost Segregation analysis done on it, where you accelerated depreciation on the personal property in the first year, which is a huge help to shelter cash flow from tax. Michael: Yeah, I love it, I love it. I've done several of those ad it's just been amazing to see what my taxes look like postclassic. Ed: Yeah, It's good stuff… Michael: And just getting back just for a minute on the accredited investor designation, because the question I'm realizing I've had for a while, and we always joke in the podcasts are super self-serving, I get to get educated here along with all of our listeners, we talked about the requirement having 200k as a single or 300k as a couple for the last two years. Is that adjusted gross income or is that net? Ed: Adjusted. Michael: Okay adjusted… Ed: That's adjusted and here's the here's why that's required. It's because the investments in a DST are illiquid, right? So the regulatory environment wants to make sure that if you do have a financial emergency, that you have other funds to go after, and it doesn't have drastically affect your life, because you are in an investment that's illiquid. So that's why the requirements there. Michael: Yeah, that makes sense and the alternative way to qualify as having a million dollar net worth or more, right… Ed: Correct, or let's say you're in the financial services industry, and your securities license, and you don't have the net worth or the income, because of your professionalism and the designations that you hold that also actually qualifies as an accredited investor. Michael: Okay, good to know. I was gonna say, yeah, because it could be kind of interesting. Speaking about cost segregation studies. If someone's got great income, but also has a great tax strategist, their AGI is probably going to be zero, if they know what they're doing and so that they could get discredited that way. But the net worth piece probably comes into play more often than the income piece, I'd imagine. Ed: It does. Yeah, because we deal our client profile is anywhere between 55 to 90 years old and so they're always saying that they don't have the income, but they definitely have the net worth. Michael: Yeah. Okay. Why is that? Why is your target demo in that age bracket? Ed: It's because if you're younger, you know, I'm a control freak, right? I want to control everything. When you're younger, you want to control your destiny. Though most younger real estate investors go by their own deal, they manage their own deal, and they live or die with their performance. But when you get a little older, and you've already built up your net worth, you get tired of those tenants in those toilets in those trash, right and so you are looking for a passive way to continue to kick that can down the street, i.e. taxes and so normally the demographic is 55 years or older, they're kind of slowing down on their real estate investment portfolios. Michael: Yeah and that makes total sense and so talk to us a little bit about what the exit looks like on some of your deals, because I was looking at your website, before we hopped on, I noticed you have some triple net stuff. So I'm just curious, you know, how are you exiting those assets? Ed: Sure. So it's got to be accretive to the to the beneficial owner or the investors, I would say triple net lease stuff. Those are bonds. If you're looking for a Walgreens $1, General and Amazon, you shouldn't expect appreciation on those opportunities, you should just expect that coupon plus getting your money back, right? If you're looking for appreciation, which I would call more like a dividend stock. That would be a multi-tenant asset, apartment senior housing, student housing, self-storage, where you have the ability to mark rents to market which gives you that that appreciation. So the exit really is going to be based on the economics is or are the investors making money. If they're not making money, there's no reason to sell because it's still producing the cash flow, right. So as soon as the property starts appreciation to a point where the sponsor or the trustee feels okay, it's time to sell. That's the exit, you put it on the open market, you got a real estate broker, you get the offers coming in, and then you pick the best offer and you sell the property. Michael: Love it and are you all targeting value add type of stuff, are you getting stabilized assets? What is the mix look like? Ed: So the DST cannot use value add assets, meaning it can't move walls, and has to be stabilized assets? Unlike a tenant in common, right. 10 in common, you can do that, right, so the DST is all stabilized assets and when I say stabilized, it's either if it's multi-tenant, that's 90% plus occupancy and if it's single tenant, triple net investment grade tenant corporately guarantee and leases. Michael: And is that regulated by the DSDM, is that a requirement of the entity structure that you're using? Ed: That is the structure, yes, sir. That's the structure. Because if you if you disqualify the structure, You disqualify the exchange and now, people pay taxes, because it's not approved by the IRS. Michael: Interesting. So the IRS is actually dictating what type of asset you can own in order to get this 1031 designation and benefits. Ed: Yeah, if they're, you know, there's a specific structure and a specific way that needs to be structured. That's why a DST should have a legal tax opinion attached to it, from your securities lawyers to show that the structure is complying with this approved structure, that it should not be challenged if you invest and qualify for the deferral of tax via 1031. Michael: Interesting, are there other vehicles out there that you could do something similar but have a value add component Ed: Tenant in common. A tick, we call it a tick, the similarities are very similar to the point where you own a fraction of a piece of property. The differences are huge. Tenant and Commons. The investors make all the investment decisions. A tenant in common can have a capital call, a tenant in common can use non stabilized assets, a tenant in common can leverage the property and so back in 2000, and 4,5,6, and seven, the tenant in common was the most primary way of syndicating 1031 exchanges. But then and so, you know, everyone is going to agree as far as the investors are concerned when real estate goes up but in 2008, great recession, you have savvy investors, not so savvy investors. It's called hurting the cats. They disagreed on everything, right and so about six and a half billion dollars went into receivership by tips and so banks will not lend to a tenant in common structure. So your question and previously of how do I replace the debt would not happen in a tenant in common. That's why more tenant in common deals are all cash and the way they address Sit to investors is, hey, all cash, no foreclosure is owned, by the way, we're going to lever you up, pull the cash out and get it back to you tax free. Well, that's what happened in 2008 and everyone lost their money. So ticks in our business is a four letter word. Michael: Very interesting. Okay, this is really good to know it. I'm curious and maybe some of our listeners are as well, because the investors are getting the cash flow, the investors are getting 100% of the upside, you're doing all the work, how does 1031 Crowdfunding make money, how do you all get paid? Ed: So it's aggregating a portfolio. So yeah, we charge an acquisition fee, right anywhere between two to 4%, upfront and then we also get asset management fees, it's anywhere between half a percent to 1% off of the cash flow, but you really don't get rich doing that but the idea as a sponsor is, if you're managing $5 billion worth of assets, and you're charging a 1% asset management fee, you're making $50 million a year just unfortunately, watching paint dry. Michael: It's not a bad business model. Ed: It's not a bad business model. But you know, there's a lot of work to it. I'm thinking I'm kind of, you know, dumbing it down, but that's how sponsors make their money. Michael: Okay, all right. This is great. If someone is considering investing with 1031 Crowdfunding or a different syndication, what are some things that they should be looking for? How do they go and educate themselves about the sponsor and about the deal? Ed: You know, that's, that's a big deal right there and that's a great question because these deals have an upfront expense, we call it the load, right and even though the load doesn't affect an investor's capital accounts, so if you put a million dollars in, you're getting credit for the whole million in your cash flow is based on that whole million. The problem is, is that you overpay for that property. So let's give you that $20 million example that I used earlier, right? Let's say there's a 10% load on it. Even though I bought it for 20 million, I have to offer it to you for 22 million and even though your capital account is not affected, it's when you sell the real estate when that becomes material and so you need to make sure that the real estate can appreciate above its expenses, before entertaining a sale, right? So that at least you come out at par if you're going to invest in these things, and you're using a financial advisor to advise you to do this, the most important question you should ask is, Mr. Advisor, when does this investment overcome its upfront expenses and if that guy is any good, you should be able to tell you that, that's the most important thing when it comes to investing in these DSPs. Michael: Yeah, that's super, a super great question to be armed with and so are most folks who are investing with you coming to you all via their advisors or via their team or they individuals. I mean, how do you find most of your clients? Ed: So I'm, we do a lot of marketing, right. So we do a lot of SEO, a lot of SEM, I do things like this, my PR team is working. So we get anywhere between five to 700 new registrations a month on our website and we currently have about 60,000 registered investors today and so they just Google 1031 exchanges, and we pop up. So we're not, we don't use the financial services industry to distribute these products, even though we are in that service. But people normally just find us on their own or an attorney might say a CPA might say their friends might have used us. We have wonderful Google reviews. They just find us that's how they get to us. Michael: Yeah. Okay, that makes a lot of sense and I'm wondering if you can shed light on like your worst deal ever, how it went wrong, and what happened? Ed: That's a great so 2020 on the east coast of Florida, apartment building got hit twice by hurricanes within three weeks. Okay and you probably it's right, that time when Maria was coming and all that stuff. The property got flooded. 50% of the units became uninhabitable. Cash Flow stopped to investors, enough cash flow to pay debt service and then you had to get to the insurance companies and get the catastrophic damage insurance payment and the renter's interruption insurance payment and remember, I told you in a DST you can't do construction, right. So how do you fix the unit, right? So there's a term called a springing LLC. That's an every single DST ppm or private placement memorandum and what that what that means is that you dissolve the DST and now you're a member of an LLC, non-taxable event, your exchange is still good but now in an LLC, you can do construction, you can modify loans, you can do all these things to fix the property, right? So you go and you start fixing the property, you release the property, reinstate cash flow, right. But the issue is, you can't go your separate way anymore. You're in an LLC. So the entire LLC has to do an exchange or not. So they don't want to mess up there at 1031. So the LLC sells the property, does an exchange into another property and then two years later, the terms called Safe Harbor, you can convert it back into a DST and then everyone can go their separate ways when the property sells. That is the worst deal that has happened since I've been doing this. Michael: And did the insurance proceeds cover all of your expenses enough in your business interruption to kind of make you guys hold in during the process? Ed: Yeah, absolutely. So even though the timeline was delayed, the investors did very, very well. They just lost cashflow for about a year but then when the property was sold, they did well. Michael: Yeah, I love it, I love and that's one of the things I really love about real estate investing as a whole is if you understand what you're doing the downside just isn't that scary… Ed: Yeah, I agree. I mean, dirt is never gonna go to zero, right? It's just not gonna happen. Michael: Right, right, man twice in three weeks. I mean, the only thing that I've heard of comfortable that I'm doing, I'm in the midst of a develop redevelopment project and I had two fires in the same building a week apart, during the course of construction. Ed: Wow. Oh, that's not good. It's sucked. Michael: It sucked, so… Oh, man. This has been super fun, man. If people want to find out more about you, continue the conversation invest with you, or what's the best way for them to do that and get a hold of you. Ed: So you can go to 1031crowdfunding.com , like a crowd of people not a crown on your head, right or you can dial our number 844-533-1031 and you're absolutely you'll be able to find us. Michael: Good stuff. Well, hey, thanks again for coming on and sharing and helping educate our folks. We'll definitely chat soon. Ed: Michael, thank you so much. Looking forward to hearing back from you. Michael: You got it, take care. All right, everyone. That was our episode a big thank you to Ed for coming on super interesting stuff. I learned a ton. If you are in the middle of a 1031 or thinking about it definitely an interesting option to take advantage of. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing…

ceo amazon california president trust google pr speaking real estate llc seo id cd senior vice president cpa irs chief executive officer delaware advisor f1 crowdfunding cashflow sem monaco treasury irvine fernandez feds commons walgreens institutional tenant agi ltv dst safe harbor 1031 exchange cost segregation dsps crowdfund roofstock ed it michael you michael it michael yeah michael love michael good michael okay ed you michael man remote real estate investor

The facts and fictions of asset protection with lawyer, Brian Bradley

Play Episode Listen Later Oct 11, 2022 36:19

Brian T. Bradley, Esq. is a nationally recognized Asset Protection Attorney. He has been interviewed and a featured guest on many top shows such as: Bigger Pockets Rookie, Flipping America Podcast with Roger Blankenship the “Flipping America Guy” and member of the Forbes Magazine Real Estate Council. Brian was selected to the Best Attorney's of America's List 2020, Lawyers of Distinction List three years in a row (2018, 2019, 2020,) Super Lawyers Rising Star List 2015, nominated to America's Top 100 High Stake Litigators List, nominated to the 2017 Law Firm 500 Award. Brian also writes on high-end asset protection. Ownership of real estate has many benefits from an investment and tax standpoint. There is downside risk, however, since the value of real estate holdings may be significant and can be used to cover damages awarded in a lawsuit. Therefore, it's important to consider asset protection strategies relating to real estate holdings in order to minimize such risk. In today's episode, Brian lays out how asset protection really works from a legal standpoint and dispels some common myths that are thrown around in the industry. Episode Link: https://btblegal.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Brian Bradley, asset protection attorney and he's going to be dropping some knowledge about all the things we should be aware of as real estate investors when it comes to protecting our assets. So let's get into it. Brian, what's going on, man? Thanks so much for taking the time to hang out with me today. I really appreciate it. Brian: No, absolutely Michael, thanks for having me on. It's going to be an important topic, a fun topic, I'm gonna try to keep it fun and not legally dense and you know, just like I'm not anyone's, you know, Attorney here legal guru. So we're just gonna be talking generalities, right? We're gonna learn a lot in this, you know, it's gonna be a lot of fun and as you're building scale and making more money, you know, you're getting a bigger red button on you and so like this world of where we're gonna be talking about asset protection is kind of a big deal. There's just a lot of ways to skin a cat, different layers, different strategies for where you're at in your life. So, you know, I think as we break these down, hopefully I can, you know, make this will make a little bit more sense for you and your listeners. Michael: Yes, it will. Thank you. I am super excited to learn a lot because before we hit record here, you and I were chatting about some of the topics that we'll be covering today and I was like, what is that totally brand new. So I'm really excited from a self-serving perspective. So give everyone that quick and dirty background who doesn't know Brian Bradley, who you are, where you come from, and what is it you're doing in real estate today? Brian: Yeah, absolutely. So, you know, I'm an asset protection attorney, you know, we're talking about it off recording, like from Lake Tahoe, so you know, big snowboard ski, you know, ski bum, you know, Lake bum, I got into asset protection from the litigation side of the law, I was selected to America's best attorney list 2021-2020 Super Lawyers rising star 2021-2015. Michael: My guess is that no, that's not like an online survey, you filled out to get that… Brian: Oh, no, and another do with me, that's really just people that you work their butt up in court, and then they recommend you or judges recommend you and I have nothing to do with it and it's actually pretty, you know, I appreciate even just the nomination, let alone winning it, you know, to where I think they only say 1% of all attorneys in the nation even get nominated for those awards, let alone then, you know, 1% of those even gets picked to as a as a winner and so… Michael: Congratulations… Brian: Thanks, yeah and for me getting into, you know, asset protection, which will define what that is, you know, in a minute, like, that'll be like our think our base starting point. I just, I just got into this weird area of law, because when I like money, I like investing, I like, you know, not paying as much taxes as you know, as I can and as you grow, you got to be smart with your money, right and who can take it from you and so as a trial lawyer starting out, I just had so many clients who were being sued and their lives just turned completely upside down coming to me after they're already being sued and at that point, you know, you're just too far down the rabbit hole, you know, it's like going to get a car insurance after you already got in an accident or, you know, home insurance after your house already, you know, caught on fire, it's just, it's not gonna happen and so I see a lot of people thinking that they don't need to do anything is another misconception. You know, it's kind of human nature, right? You know, like, I'm just gonna ride lady luck. I'll deal with it when I when, you know, it hits me later on and that's just not how anything that needs to be proactive in the legal sense is going to work like insurance or asset protection. Wishful thinking is not a protection tool. You know, that's how everything you know, like, go to Vegas, go to breaks and hit the roulette table and see how long your wishful thinking is gonna last for you, right? You know or, you know, as you're leveling up, people forget about this. Like, as your wealth is leveling up, you're leveling up, you don't level up your protection, you don't level up your insurance. Yeah, people go buy an umbrella policy, but they don't realize what an umbrella policy is just like everything else, right? You know, it just provides more access and money to, you know, for coverage, but it doesn't, it's not the same escape clauses, you know, like, there's no insurance in the world that's gonna say, okay, hey, if I go punch you in the face, are you gonna cover it for me? No, like, they don't cover you for intentional wrongdoings or allegations of fraud and intentional wrongs and so that's how they have their escape clauses out especially for very big cases. You know, if you're talking about like a million dollar or more lawsuit. A couple other big misconceptions that we need to address as we lay this landscape is just, you know, the revocable living trust, if people think like, oh, yeah, I have a trust, right, that you know, they don't realize trust. There's a lot of different types of trust. Your family estate plan, your revocable living trust are not designed to protect you while you're living in they don't have the lead have teeth to be able to. So once you pass, they're only designed to avoid probate not protect you while you're living from lawsuits and then over the last five years, I've noticed this massive misconception about the use of limited liability companies. LLCs and they just think that they're like, you know, Silver Bullet Dracula slayers and you guys miss, like, first word first letter, like limited, I tell you. Whereas, whereas this happened, where's this come from? Like, they're not hiding the fact they tell you like they titled it telling you limited liability. So like, now we have to reeducate people on this, like, yeah, don't put everything in the world under one LLC. Otherwise, if it gets pierced, you're gonna lose it on like, What are you talking about, which we'll break that down, you know, in a little bit. And then the sad thing is like, and I think it's worth explaining is this, if you just look around, and you look at, you know, our legal system and the world we live in, it's just broken, it's a broken system, you know, and we're so happy nirvana and just to like, kind of lay this framework down a little bit more. We're no longer about justice. We're about redistributing wealth from the haves, which is you, your listeners, people trying to grow and accumulate more to the have nots and over the last 40-50 years, things that didn't happen in the past, or that weren't allowed to happen in the past like contingency fee lawyers or law from advertising their common place. and then this created a cultural shift of a predatory legal system that's no longer about justice. So it's about profits now and then when you get on the road of high net worth, in affluent families and wealth, this level of protection, now we have to deal with taking a macroeconomic, more of like a global look about what's going on and the big picture here is really that we have a global financial system that has structurally deep rooted issues. You know, we have government backed fiat currencies that are now in question. This is also including the US dollar. So don't think like, just because we're in the US, we're exempt from all of this, you know, monetary policy today, you know, the one that exists is, you know, inflate or die and then you got governments looking for a deep and accessible pools of financing and meaning our money, you know, the hard workers, the people who are investing, along with financial repression, monetary economic manipulation. So this just adds all the challenges that we have to deal with when we're looking to protect your assets and so asset protection is that modern best bet to level this playing field by using a lot of the tools and the combination of the tools that we're going to talk about today to make it very hard for you to be collected on and so what this is really about is just like a talk about giving you peace of mind, lifestyle preservation, and you know, really just how collectible are you at the end of the day… Michael: Love it. But well, I am all about doing things to help peace of mind and insulate ourselves from the world at large. This you happy world at large. So help us understand Brian, like, what are some of the things when someone says asset protection to you like, Brian, I gotta protect my assets? What does that mean to you? What alarm bells are going off in your head? Brian: Yeah, absolutely. One is like, do you understand the difference between tax mitigation and asset protection and I've been getting this a lot, you know, especially this last year, obviously, as we see what's going on, you know, within inflation, taxes and everything right now, asset protection is not tax mitigation, like that's your CPE and wealth managers job. If creating an asset protection plan or an asset protection, trust or going offshore, you know, where to create tax havens like one that's illegal, it's fraud, you know, so system won't work, and then you go to jail for that type of stuff. Michael: So don't do that is what you're saying. Brian: That's not what this is about. So people always like, oh, I want to protect my assets and I don't want to pay taxes, completely two different things. The asset protection plan is to protect your assets from predatory lawsuits and litigation, not saying I want to not pay taxes, that's tax mitigation, talk to your CPA and wealth managers. First, lock down your assets from lawsuits because if you get sued and lose everything, what's your miracle working CPA going to be able to do for you if you have nothing for them to work on, so order of operation, protect your assets, then let them work through the system that's created to actually like mitigate, you know, forced depreciation, all those wonderful things that they do cost segue analysis… Michael: Yeah but Brian, to that, to that point, really quick. I'm just curious, like, do you work with a lot of CPAs because I can see, I can envision a scenario in which the legal side of things is super buttoned up super tight, but maybe isn't very tax efficient and so my guess is there's probably a happy medium, or some input that a CPA or wealth manager can inject into the situation to help make both things as tight as possible. Brian: Correct. You got to, you know, the issue generally is people don't involve their lawyers until later on down the line and it creates a lot of problems. So for example, a lot of CPAs will set up S Corps for investors, especially real estate investors for some reason, and great for tax purposes, horrible for litigation and I get this call a lot, you know, and most of my clients are calling with like 50 $100 million of real estate all stuffed in one S Corp. Okay, great again, for tax mitigation, horrible for let's say you get sued and now you're S Corp and all the shares get frozen and cease, there is nothing I can do for you. At that point, I can't move assets out and then even if I want it and you realize like, oh my god, I have so many pieces of property under one corporation like this is very risky, I need to start diversifying and employing these assets out, you're stuck, you're not going to be able to and I just had this call yesterday with a potential client. The reason is, when you're all the benefits of the S Corp, right? You know, deferred taxation and all this stuff, you're kicking the can down the road, once you start taking the assets out, you have to pay the money back and so people don't generally have millions of dollars sitting in their bank account saying like, okay, hey, I feel like you know, taking all the assets out of my S Corp now and now I'm going to go and pay the piper and the IRS. So because you don't have that money sitting around to pay the IRS and the taxes, we can move the assets for you and I'm not going to force you to go, you know, and have the IRS coming after you to collect on you and move the assets out anyways, because now you're just creating a bad situation for the client. So the lesson here to learn is if you're thinking of investing, you need to talk to both the lawyer and the CPA, because a lot of CPAs, they shouldn't be giving you legal advice. They're not lawyers, and they're not going to understand the aspect of what happens actually in court with s corpse and C corpse, when it comes to litigation, and why we don't want to use those to protect your assets. So we have to all talk together. The problem is I get this all I get the mess after the fact right, and then I have to start supporting afterwards and so when done, right, really, the modern, you know, estate planning is asset protection, what we're doing is creating legal barriers between your assets, and your potential creditor, the person suing you, the person trying to come after your money before it's needed and that's it, you know, it's like a safe for your gold or your guns or your valuables. Anything of value, you know, you want to put behind the legal barrier and out of your personal name so that it's not easily attached with a lien or reached and so I just like the rich, I really liked the Tony Robbins saying success leaves clues. The rich don't own things in their personal names their businesses do their trust, do they just get the beneficial use and enjoyment out of them while separating out that legal liability and we do that through just like different tools and mechanisms that we have kind of like key concepts and roadmaps like LLC is limited partnerships and trust. Michael: Got it. Okay and so when real estate investor comes to you, they're just getting started. They are moist clay, you can totally mold them, they don't already have a bunch of issues. What is your go to, like ideal scenario for asset protection? Brian: Yeah, so there, I mean, you're just starting out your green horn, like really just going to be an LLC and insurance and that's where you're gonna go, okay and as you think about how to use these systems and how to grow within them, okay, I want you and your listeners to think about winter, okay, like we were talking about this before we started recording like I'm from Lake Tahoe, snow, cold snowboarding skiing, I lived in Michigan, freezing cold arctic, you know, minus 40 degree weather for a while, well, I'm in Portland damp cold, you got to really layer you and so the first entry layer is as your base layer, when you're getting dressed, it's going to sit on your skin. This is the equivalent of an LLC and insurance. This is you know, when you're just starting out investing in you have zero to three units, or you know, zero to three properties, you're exposed net worth generally is like 250,000, net or below and then as you grow, and you add more assets, and you hit around that four unit or four property mark, you could be starting to invest in a couple different states as well, you know, you have now around like 500, to 700,000 exposed nets, what you need is a mid-layer, which is usually a little bit thicker, that's going to be made out of like a merino wool sweater, or for you ladies a car and again, this is your management company, like a limited partnership and I can break down that later on if we have time and then when you hit around that 1 million net worth mark, you know, you're gonna want to water shell waterproof layer. This keeps you nice and dry and warm when the weather's really bad. You know, this is your doomsday lawsuit protection layer is going to be an asset protection trust and specifically for our clients, we use a hybrid trust, which is combining an offshore trust and domesticating it through the IRS. So when a client comes to me, I receive it I realistically, you want four things you know, you want you're going to want an effective plan to have, you're going to want to control your plan. Three, you want a reasonable and sustainable cost, you know, depending on what layer you're at, is going to be individual for the for the client profile and then four you want a plan that's going to be easy to maintain compliance on what the IRS like I can create the strongest thing in the world for you. But if you're not going to be maintaining it and you don't want to do the IRS compliance with it, eventually you're just going to stop doing it and the whole system falls apart. So as you go through the valuation process and you're talking to different attorneys and you're vetting the process, just remember the acronym ECCC effectiveness, control cost and compliance and as long as you can start checking off all those boxes, you know you're gonna have a really good system. If you want to I can break down the first layer if you want to Trying to kinda go there like LLCs, or just really wherever you feel like directing this. Michael: Yeah, so I think our listeners probably have a good handle on LLCs. But I would love if you would walk us through what this hybrid trust is because it's not something that I'm familiar with, I've never heard of before. Brian: So yeah, and I think the reason why is like not many people focus on asset protection at a high level, you know, I think events like insurance, a lot of people wonder not only purely asset protection attorneys, right, they're generally business attorneys who do some asset protection or their real estate, you know, attorneys who do a little bit and they take continuing legal education course, learn about LLCs, and the kind of stops there and like insurance, they kind of tried to cast a large net nationwide, what was one thing you can cast nationwide and LLC and so I kind of think that's why like, the base layer, knowledge kind of stops there, because not many people just focus on, you know, very, very strong protection. This comes with the asset protection trust. So it's this final layer, the bad weather, you know, the outer shell waterproof layer, is this asset protection trust, it's going to be really the heart and soul of the system, especially when you have over 1 million exposed and that wealth and what I mean exposed is like your 401 K is exempt. So I don't include that in a net worth evaluation, because it's already a reset protecting some states, like if you're a Florida resident, we have a very strong homestead exemption of 100% of your of your primary residence. So I will take that out of the equation too, depending on the state you're in and the homestead. So what we're looking at is exposed unprotected, and that, you know, equity and wealth, all right. The great thing about trust is that they can be sculpted, to fit how you need them and they can morph as you need them without dealing with funding issues that you're going to fall into an LLC and other business entities that get their protection pierced, meaning now you're going to be held personally liable. So I just love trust and having a trust at the very top of the planning is very powerful and this is where picking the proper jurisdiction for a trust really comes into play. The standard 101 trust that I'm sure like everybody's familiar with, you know, kind of started in the 60s is the family revocable living trust. So you know, like when trust, you know, trust don't die. So then when you do, you act, and you fund your trust, which a lot of people forget to do, like, oh, I created my estate plan, and then they never transfer title into it. Remember, fund that fund the trust, if it's just, you know, your revocable living trust, the benefit of it is when you pass you don't have to go through probate, you can just skip the court system and probate and it changed the landscape of estate planning. Then you have what are called land trusts for real estate, you know, you hold your land, and then you connect them to an LLC. But land trusts don't have any protection in and of themselves. They're only as strong as the LLC that they're connected to, you know, so they're just a privacy mechanism, not a protection mechanism. Okay from there, you have higher levels of trust. They're called asset protection trust and I really want to spend the time, you know, with this and break down the three different types, you know, and after this, I think you and probably 99% of your listeners are going to know more than 99% of all the attorneys out there about asset protection, trust, they came, yeah, they came about in the early 1980s. You know, and so an asset protection trust is what's called a self-settled spendthrift trust. All sell settled means is that you created it for yourself, you know, they're for you, by you, as your own beneficiary, and they have very important spendthrift provisions in them. So this lets you protect your assets while you're actually living, you know, from creditors trying to sue you from not having to relinquish control of your assets. The difference is that they allow you to protect your assets, not just for your grandkids, but for yourself, which you weren't allowed to do in the past and then like I said, you're probably familiar with another type of self-settled trust the revocable living trust. They're the same and that they're self-settled created for you by you. The difference is that with an asset protection version of this trust, it includes these critical provisions called spendthrift provisions and what spendthrift provisions are is they are provisions that allow you to protect your assets from the creditors, they're the actual teeth behind it and for those to work, the trust them has to be not revocable, but it will revocable. So it's a very different type of trust, you know, just like chocolate or vanilla, both ice cream, just different types of ice cream. Michael: Yeah… Brian: You know, this is where the fun really starts to actually happen. There's two major school of thoughts here you can go international meaning offshore, another country jurisdiction, you know, you hear about Cook Islands, Cayman Islands, Belize, in the Bahamas, or domestically here in the US, you know, Nevada, Delaware, Wyoming, Texas, um, so you can set them up here in the United States and you know, if you don't mind, I think a great way to talk about it, just kind of talking about it through historical context, because I think if you understand the foundations of both offshore and domestic then you understand the principles of how we combine them together and why you want to Michael: Yeah, let's do it. Brian: Alright, cool. So again, you really have these three options, right, you can establish them offshore, you're going establish them domestically, and then we can hybrid them out like a hybrid car, take the best of both worlds put them together. So from the historical concept, the offshore trust actually came first, in 1984, when the famous Cook Islands, they created the first asset protection trust. I like and choose the Cook Islands if and when it's applicable, just because it literally offers the best home court advantage and why it's the best is because asset protection is just what these trusts in the Cook Islands were specifically drafted for and the power here is they have this wonderful word called statutory non recognition of any other jurisdictional court orders in the world, including the United States and so what this means is that if you have a judgment against you, in the United States, and you took it down to the Cook Islands, your US judgment is literally worthless, it literally has no value whatsoever. statutorily the Cook Islands they prohibited from recognizing it even from their own constitution and so if somebody wants to sue your trust, and it has a Cook Islands, you know, clause in it. So as a Cook Islands trust, they will have to start their case all over from scratch, the person who's suing you, they're going to have to prove their case beyond the reasonable doubt. This is the murder standard, the highest legal standard in the world that 99% sure standard. Not that you know, 51%, preponderance of the evidence, I'm not sure we don't know what happened. But we don't like the way they look right now. So let's just let's just give it to them. You know, you can't get a contingency fee attorney to represent you, because they're just not allowed down there. It's an ethical in the Cook Islands, just like it used to be unethical here in the United States. But then that got changed in the 60s, the claim meaning the lawsuit, you know, it's not amendable. So what this means is that it can't be changed or amended after the discovery process starts like we can do here in the United States. Like we can literally just say, okay, I'm suing you for this, dig around start discovery, then completely change what We're suing you for, because we started using as a fishing expedition. The person suing you, yeah, no, I mean, this is just like standard trial tactics is like, okay, hey, let me just flood you with discovery and like, start poking around and say, oh, hey, we didn't even know this was right here. Now I'm gonna add this to the complaint and sue you now, for this looks like a better cause of action anyways, I can't do that down there. But we can do it here all the time in the US. Michael: So it sounds like I need to go move to the Cook Islands. Brian: Now. Well, here and maybe not right, because you know, there's, there's cons to things, we'll get to the cons in a minute. So the person suing you, they're gonna have to front the entire court costs by the judge from New Zealand and if you lose your pay, you know, and I honestly think this is one of the worst things that we don't have here in the United States, though, like the loser doesn't need to pay the legal fees and the cost of the winner. So if you get sued for something completely bogus, I mean, a frivolous lawsuit, and you spend $200,000, defending yourself on legal fees, then the judge finally is like, this is ridiculous. I'm throwing this case out, you're still out 200,000 bucks, you know, the person who sued you, they're not going to be getting the bill for that because our legal system in the United States, they just that will discourage lawsuits and our legal system is run by trial lawyers who don't want to discourage lawsuits and there's only a one year statute of limitations. So if you go back to those four things I mentioned, right, remember, like effectiveness, cost, control, compliance, I mean, effectiveness, five out of five stars, nothing really nothing beats statutory nonrecognition. So what about the other ones, right, you know, control costs and compliance. This is kind of his kryptonite, you know, these are the drawbacks. If you're going to be purely foreign, like a purely foreign trust, you have a lot more IRS reporting, compliance and disclosure. So you have these things called IRS forms 3520 3520 A's. What this is, is a full balance sheet disclosure of everything that trust owns, and sometimes even the entire trust agreement to be disclosed and submitted to the IRS and it is expensive for this IRS forms to be done every year. Also, you're going to have factor compliance, because you're going to have a foreign bank account at that time. And of course, we're these trusts to work, you're going to be out of control of the trust. That's why they work so good. That's why they're the creme de la crème and clients are just not comfortable with this. So while we literally have the most effective trust in the world, by far, it's not something that I generally start with, I probably only say like 1% of my clients, I will go to a purely foreign trust with which then brings us right to the second option. Okay, we're not going to be going forward and what about these domestic trust? Yeah, they came about 10 years later down the road of all places, Alaska started it out and then not to be outdone, obviously, you're gonna be like, Well, hey, we're Wyoming and Nevada and Delaware like this is what we're known for. So we're jumping on the gravy train, right and then now about 19 other states now have created some form of asset protection, self-settled trust statutes. So we're seeing as a state starting to jump on board seeing yeah, our legal system is a threat and things have to get done to protect your assets and so as to protection the United States is very is very important to understand this ballot on It's just the concepts like how you go about doing it is very important. The issue with a purely foreign under the purely domestic asset protection trust is that, you know, we live in the United States of America, we have a Constitution, Article four section one for Faith and Credit Clause. What this provides and means is that every state has to grant the full faith and credit to the judicial proceedings of every other state. What this is means what it's telling you is that, for example, Nevada can pass and has passed an asset protection statute, okay, but it cannot ignore a California or Washington or like another states court orders. So where the Cook Islands can literally just throw that California judgment in the trash. Nevada can't do that. Nevada has to respect it constitutionally and even litigate it and then you have courts that are just simply ignoring the choice of law clause. So I mean, like literally, like bait levers more dissent in re Hubber, cucumber Steelman, Dover still all great facts, all great cases, they should have one of those cases, and judges literally just use their superpower public policy, we're ignoring the you know, choice of law clause, trust is breach means loss of assets, that's just completely unacceptable and so because of the case law that we're seeing, I'm not a big fan of a purely domestic asset protection, trust or anything purely domestic without something offshore built into it. This is why I prefer the hybrid version called like, we just call it a bridge trust, but it's really just like a hybrid, hybrid trust, think of them like a hybrid cars, okay? What we're doing just combining the best of both, and then making a better product and so these trusts have been around for almost three decades. So they're not, you know, the new lady to the dance, they've been around for about 30 years now and at the end of the day, what you're doing is taking a fully registered foreign Cook Island, offshore asset protection, trust, what all that for two years of solid case law, again, so it's fully registered offshore from the day we created with the offshore trustee, they're there in standby just in case you need them and then we build a bridge back to the IRS for IRS classification. So the IRS is literally taking this foreign trust and then they're classifying it as a domestic US trust, by complying with USC Section 7701. It's called the court test control test and so because of that bridge, as long as we have our compliance in place, we stay classified domestically and what this does is that the trust is now going to be cheaper to create. So generally, a purely foreign trust is going to cost like 4550, even $60,000 plus $12,000, a year to maintain very expensive, a hybrid trust is going to be cheaper, you're generally gonna be talking about, you know, 23 to 30,000, to set up a hybrid trust, plus no IRS tax filings whatsoever, while you're domestic because it's classified as a domestic US grantor trust, so you have no more IRS tax filings, unless God forbid, we have to break that bridge and now you also get the power of the offshore trust. If and when we need it. It's in our toolbox now, just like a contractor who says like, okay, hey, I don't need to use all my tools today. But I'm going to need them possibly at some point. So now I can use them as I need them. Versus coming to me later on after the fact oh, my God, Brian, I mow somebody over with my car, like, can you help me? You know, like, I want that foreign trust? Well, no, sorry, it's after the fact I can't do it now. But if we have the hybrid, I could have engaged it. So that would be like during the State of duress, we would break the bridge, stop being an IRS compliance, you are what you are a foreign trust. Until that point, you want to be classified domestically. So that hybrid trust is very, very effective, you may control of your assets, you may take control the trust, right up until that doomsday scenario where you don't want to be in control of it anymore. You know, maintenance and compliance with the IRS. Very simple. So at that point, you've now checked off all the boxes, effectiveness, cost control and compliance check, check, check, check, check and so this is where you know, for our clients, we generally are starting with these hybrid trust. Michael: Wow, this is wild, is super cool and so are you thinking that most folks that are in that kind of million dollars of expose net worth, this is where that starts to make sense. Brian: That's exactly like, so our main client profile that comes in you would think they'd be like, you know, 10s of millions of dollars for us, like realistically, I would say 75% of our clients generally around that 1.2 million, exposing that. Some high risk, probably like a doctor or surgeon lawyer, or just straight real estate investors. I have some of my favorite clients, nurses, firefighters, cops who self-funded their retirement through cash flowing properties, and now they're about to retire and they realize like, I can't lose all of this now because this is literally my nest egg and my legacy. Yeah, they need to lock it down and so you generally see the average client profiles like 1.2 to 2 million of exposed net with some risk, and it makes sense at that point. Yeah, get the LLC get the limited partnership get the trust for like 30,000 dollars locked down a million plus, and then sleep well at night. That's when the investment kind of makes sense for this type of protection. Michael: Yeah, that makes total sense and what would you say because I would imagine, after listening to this folks might go to other attorneys they work with mentioned this type of hybrid trust and they might be told now you don't need an LLC is good enough. I mean, what's the I know, we've talked about kind of a counter argument, but how does that conversation get ahead? Brian: Most of the time, I was, say, like the one the estate planning attorney, they will know about this, because their knowledge base, you know, is just not going to be around, let alone foreign trust. I mean, there's not that many people who even know like that much detail about how a foreign trust works, let alone using the incorrect domestic asset protection trust, you know, how many times I have California residents, using the Nevada asset protection trust, and the person who set it up for them, like the lawyer has no idea like, okay, what about this case? We're still in 2012, California case that said, hey, you're a California resident, we don't recognize asset protection trust, because we don't have the statutes here. So your Nevada asset protection, trust, and sorry, it's worthless, it's not gonna it's not gonna work, you know, so unless you go to an actual specialist and say, hey, here's the case law, here's what's going to happen down the run. Most people don't have that level of education, because they're not in that world. They don't exist in in it. So I feel bad for the clients because where's the knowledge come from? You think you're going to an attorney who was specialized in this, but you're not taught this in law school, you're not taught this for the bar exam, so how you develop this level of knowledge is really just did you get into the right group of people and were you passionate about it enough to like transition your practice into it… That's why I do these talks is just to educate people and you know, just the base thing, like, why not just an LLC, they're disregarded entities for tax purposes. So they're disregarded for taxes. That means it's disregarded to you for lawsuits and liability, meaning you're pierced. If you're using them for real estate. They're not businesses, they're holding companies, which means the number one argument that will win and pierce that every time is well, Your Honor, this is an actual business. It's an extension of Michael is just a holding company. Boom, you're pierced funding issues, bad accounting systems, like there's four ways to pierce that veil right there and I don't even have to think part about it. Charging, charging order protection mean, like what state do I go set these things up in? You know, how many times I hear people like, oh, just go create a Wyoming LLC? Are you a resident of Wyoming? Is the asset in Wyoming and the answer is no to either one of those, you just tried to buy another state's jurisdiction, that you have no connection to try bringing another state's laws to like California and other state that you're not connected to, and there's no reason to, you're gonna get laughed out of court. Like, it's just you can't go by other states more beneficial laws and bring them, you know, to another state that, you know, that has no jurisdictional connection to it and anonymity is the other like, really, like, flavor of the last like, two years is like, oh, create this anonymous, Delaware or Wyoming? Trust and Ghost the lawsuits, right? Yeah, well, that's not how these that's not how it works but that's how it's being sold by, you know, law firm salesmen and promoters. Yeah, create this and get a really crazy operating agreement and then next thing, you know, like, you're never gonna have to show up in court. I'm sorry, you have a personal agent of service for these out of state law firms their sole job, like, let's say, Mike here is my, you know, personal agent of service, he's gonna get my service and he's gonna say, hey, Brian, here's your service. That's why dude, you just… Michael: Got to show up in court… Brian: Court now and amenities done at that point. So the only way that an amenity works is you show up the court, a judge is gonna say, Hey, you're getting sued for a million bucks. Here's your you know, asset disclosure list. Tell me everything that you own, because we didn't know what can be collected on or not, at that point, and amenity or a quote, unquote, air quotes, Secrecy is now up to you. So you're gonna decide, am I gonna lie under oath and hope to god, I don't get you know, my operating agreement will hold up and commit perjury in court, or do I just disclose it. So like, you're the weak link at that point and then if you lie and commit perjury, under oath, you're going to jail on top of losing your assets. So it makes more sense just to say, hey, create a proper asset protection plan, LLC in the state that is layered up into a management company, once you hit the net worth put in the trust, and then sleep well at night because at the end of the day, I don't care if you lose your lawsuit. I care about it for your collectible or not, you know, like you can lose the 10 $50 million case. I just if the asset protection trusts setup strong and in the right jurisdictions with a proper exit strategies, does it mean that you can be collected on and then it lets me settle a case for pennies on the dollar… Michael: Dang this is nuts, Brian… This is like or this is earth shattering stuff. We got to have you back on to talk more about this. But I want to be very respectful of your time get you out here for people that have a similar response and you're like, holy crap, I gotta call this guy Brian, immediately. Learn more about this, reach out for your services. What's the best way for folks to get in touch get a hold of you? Brian: Yeah, one great resources, jump on my website, www.btbegal.com , I use it more as an educational resource with a lot of case law client studies. I just want you to be educated at the end of the day like, listen this here's the case law. Like, that's what lawyers should know about, especially trial lawyers. That's why I'm a good trial lawyer. I tell stories through case law and then another great way is through my email, you know, Brian: B R A I N @btblegal.com. I do you know, free 30 minute consultation, whether we're a great fit or not, like we'll figure that out over the phone. I would just rather how people have an educated decision, and then they can like go shop around. Michael: Love it, love it. Well, hey, man, thanks again for coming on. Really appreciate the time and we'll definitely be in touch. Brian: Yeah, for sure. Thanks brother… Michael: All right, everyone. That was our episode, a big thank you to Brian for coming on talking about a lot of things that we've never heard before on the show and definitely bring up some excellent counterpoints to be thinking about as always, if you enjoyed the episode, feel free to leave us a rating or review wherever it is to get your episodes and we look forward to seeing the next one. Happy investing…

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Entity structures for investing, and which one is right for you w/ Garrett Sutton

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Play Episode Listen Later Sep 24, 2022 32:23

Garrett Sutton is a corporate attorney, asset protection expert and best selling author who has sold more than a million books to guide entrepreneurs and investors. For more than 30 years, Garrett Sutton has run his practice assisting entrepreneurs and real estate investors in protecting their assets and maximizing their financial goals through sound management and asset protection strategies. The companies he founded, Corporate Direct and Sutton Law Center, currently help more than 13,000 clients protect their assets and incorporate their businesses. Garrett also serves as a member of the elite group of “Rich Dad Advisors” for bestselling author Robert Kiyosaki. A number of the books Garrett Sutton has authored are part of the bestselling Rich Dad, Poor Dad wealth-building book series. There are three types of entities most commonly used to own real estate: Limited Liability Company, S Corporation and Limited Partnership. Tune in for todays episode where Garrett provides a quick summary of the best entities for real estate investment. Episode Link: https://corporatedirect.com/contact/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Garrett Sutton, who is an attorney, investor and author with over 1 million copies of his book sold and today Garrett is gonna be talking to us about all the different entity structures we should be aware of as real estate investors, as well as wherever we might want to think about forming those entities because it plays a big role. So let's get into it. Garrett, thank you so much for joining me on the show today. I really appreciate you taking the time. Garrett: Thanks, Michael. It's a pleasure to be with you today. Michael: No, no, the pleasure is all mine ad I'm super excited to chat with you. I know a little bit about your background and what you do kind of on a day to day basis. But I would love if you could share with our listeners who you are, where you come from, and what is it that you're doing in real estate today? Garrett: Well, I grew up in the San Francisco Bay Area like you and I moved to Reno in 1989 and Nevada is a great state for setting up LLCs and corporations along with Wyoming. So I practiced corporate law since 1978, and became associated with Robert Kiyosaki and have written a number of books in the rich dad advisor series and you know, have enjoyed talking to people around the country around the world about how to protect your assets. As you start investing in real estate, you need to think about how you're going to protect that real estate because we live in a very litigious society, people sue each other all the time and unfortunately, they don't teach this in school, you have to get this information on your own and so that's what we provide is the information you need and then we offer a service to help you protect your real estate and brokerage and other assets. Michael: Love it and just right off the bat, I read one of your books for our Roofstock Academy book club, it was a great read, so I can definitely vouch for it. But what are the books that you've written and then what talk to us about your most recent book? Garrett: Well, I've written a number of books in the rich dad advisor series, including start your own corporation, that's kind of a foundational one, and then run your own corporation, a lot of my clients and I set up a corporation now what do I do, and you have to run it properly. Then I also did loopholes of real estate, which is kind of the tax and legal strategies for investing in real estate and then the newest book is veil not failed and that deals with the corporate veil, you set up an LLC or a corporation to be protected and too many people do this themselves, Michael, they just set it up online, and they don't realize that there are additional steps you have to take to stay protected and so if you don't want your veil to be pierced where someone can sue the company, there are no assets there. They can go through the veil of the company and get it your personal assets, if you don't want that to happen and that's why you set up an LLC. Michael: That's the point, yeah… Garrett: It's that you don't want it to happen. You need to follow these corporate formalities and so that's what the book veil not fail is about kind of stories, horror stories of people who didn't follow the rules and then in the latter part of the book, it shows you how to follow the rules so you can stay protected. Michael: Yeah, great. and where can people find out if they're interested in picking up a copy? Garrett: Amazon has it the veil not fail. It was supposed to be out in April, but we have this thing called supply chain problems. Michael: I've heard of that. Garrett: Not enough paper out there. So it's not out until November but you can go ahead and preorder it. Michael: Fantastic. Garrett, let's talk about I think a pretty hotly contested and debated topic in the real estate space and that's LLC versus no LLC, I think and it's tough because we're I'm California based. A lot of our listeners are California based and so to have an LLC in California, you're paying at minimum 800 bucks a year and with today's cash flow based on some real estate investments that can eat in to your investment pretty significantly and so I've heard folks say, you know, forget the LLC, go get umbrella policy, go get high liability limit insurance and call it a day. Don't worry about it. What are some risks pros cons associated with doing that, that you've seen folks run into? Garrett: You know, there's a whole area of law called Bad Faith litigation, and that's when insurance companies collect the premiums and then find a way not to cover you. All right, the insurance companies have acted in bad faith over the years. errors in collecting the premiums and then having exclusions, that little tiny print that you never read and so, you know, the insurance companies, let's face it, they have an economic incentive to not cover every claim and so they're going to find reasons not to cover you and so I always recommend that people have insurance. That's the first line of defense but these LLCs are the second line of defense, in case the insurance company doesn't cover you, or what about a situation where your insurance is, say 2 million, but the judgment is 4 million, right? I mean, you're personally responsible for that extra 2 million. If the property is in an LLC, they can get what's inside the LLC. But if you've done it, right, if you if your veil is strong, they're not going to be able to reach your personal assets for that extra 2 million. So the idea that you're just going to rely on insurance is, in my opinion, quite naive. Michael: Yeah. Okay, I love it. I'm of the same opinion. I always, I never like to play my hand, though but I love hearing that because I come from the insurance world. So I know how bad things can go and I also have seen how they're supposed to work. But I think you're totally right, there's totally an economic incentive to not pay claims and the insurance industry as a whole gets kind of wrapped in with the folks that are doing the latter, not the former. So I think it makes a ton of sense. But Garrett talked to me about I've heard this concept, and this idea that, okay, there's this, you can be over insured, there is such a point. Now, if I go get a $10 million umbrella, because I really want to be protected. Does that then put a target on my back for a claim or a plaintiff to say, well, hey, he's got a pretty a pretty massive insurance policy, you know, I was only going to sue him for a million, but let's go after the full 10. Garrett: Well, I mean, there are a number of factors there. I mean, having enough insurance is not a bad thing. If the claim is a million, it doesn't give the attorney the right to try and collect 10 million, you know, I mean, the claim is a million. So you know, the fact that you have extra insurance isn't a bad thing. The attorneys, you know, what we like to do, what we tell our clients is you want to have enough insurance to cover any claim and so you want to have insurance on the property fire casualty, right? You want to have a personal umbrella policy of insurance covering your home and your autos because I think that's the biggest risk out there is a horrific car wreck, right. Do you need that umbrella policy, a commercial umbrella policy over your various rental properties, maybe I had a part such a policy for a while but here in Reno, it got pretty expensive and so I just have regular insurance on the properties. I have regular insurance for my home and autos and I have an umbrella policy for me personally and so you get in that horrific car wreck. There's enough insurance money for the attorneys to get at. They know how to get at insurance monies, they get a percentage of what they collect and then if everything else is held in LLCs you know you'll have a an LLC if you own a property in Oregon, you have an Oregon LLC on title, you own a property in Utah, you'll have a Utah LLC and tie on title and then those two LLCs are owned by one Wyoming LLC. That's how we like to structure things and the attorneys are going to have a tough time collecting from a Wyoming LLC and so they leave you alone on the LLC. Do you have enough insurance to pay the claim and they'll leave you alone on the LLC is that's how we recommend our clients structure things. Michael: Okay, and why Wyoming LLC because I know you made a very deliberate point of saying where is formed, what's the point? Garrett: There are three really good states out there and they compete against each other to be the best which is good for us. Instead of having one federal law that applies to every single state. After the American Revolution, each state wanted their own corporate law and so now we have each state with their own corporate law in Delaware, Wyoming and Nevada compete against each other to be the best. You know, the filing fees every year that come in are pretty good. It helps fund the government. So the reason I like Wyoming over Nevada and Delaware is all three protect the owner of the LLC the charging order is the exclusive remedy and all three, but in Nevada and Delaware the annual fee is $350 a year and in Nevada they list your name on the state website. In Wyoming the annual fee is $62 a year and your name does not show up on the State web site. So Wyoming offers lower cost, better privacy and equal protection. So a lot of our clients set up Wyoming LLCs. Michael: Yeah, okay, well, I'm sold. So being a California guy, though, this is what I've heard and would love your insights. So I've been told that California they want their piece of the pie. So I've got to register any LLC that I own. In California, because I'm a resident here, I live here, even if it has not doing business, because the way California defines doing business is basically me living here. So if I do I own property in Oregon, I own it with an Oregon LLC, that LLC is owned by the Wyoming LLC, but then I gotta register both of those here in California? Garrett: No, you raise a very good question. So in our example, we had an Oregon LLC and a Utah LLC and if those were owned by you, as a California resident, we'd have to pay 800, twice, once for Oregon, once for Utah, by having the Wyoming parent there, the Wyoming LLC, and we qualify that one to do business in the State of California. You don't have to pay the 800 for Utah, or Oregon. So that's a way to save the $800 for all the title holding LLCs yes, one of them has to pay right $800 to the state of California and you know, California has gotten a little bit looser, you don't have to pay the 800 the first year, that $800 is a credit on the first $50,000 in profits. So it's not like it's wasted. So, you know, I've had people move from California to Nevada, because of that $800 fee. It's just infuriates people. But there is if you love living in California, there's a way to work it so you have protection, and you don't have to pay $800 for every single LLC you own across the country. Michael: Okay, fantastic and then in going back to that example, if I've got the I've got to register the Wyoming LLC here in California, do I lose out on any of the anonymity that Wyoming affords me because now it's registered here in California? Garrett: Yeah, you'd have to list your name in California. Michael: Okay, all right. Yeah, maybe I will think about moving, who knows? All right, Garrett, in your book, and I want to get really nice here for a minute, because I've got you. You talk about quitclaim deeds versus warranty deeds and I think a lot of our listeners out there have utilized this practice, or have heard about this practice because if you go get a conventional loan from a traditional bank, they won't lend to an LLC. So you go get the name the loan in your name, then transfer the property title to an LLC after the fact, right. In the book, you talk about quitclaim deeds versus a warranty deed, can you give us a little bit of insight into what the difference is and why someone should think about using one versus the other? Garrett: Well, the warranty deed or the grant deed says, I warrant that I own this property and if I don't, if I transfer it to you, and I don't own it, for some reason, you can sue me. All right. So it's a more powerful deed. The grant deed, the quitclaim deed rather, says, I don't know what I own. But I'm transferring whatever I own to you and the title companies go, well, he quit claimed that property and so that severs the title insurance, right because he didn't know what he had and so we're not going to cover him on it on a quitclaim deed and so and too many people pronounce it quick claim. Michael: I know, I know. Garrett: You know, and it's the same deed with a couple of different words in it. But you really always want to use the grant deed or the warranty deed because in many cases, you sever the title insurance, when you use a quitclaim deed, okay, and that's…. Michael: Okay and that's even if you're going from yourself as an individual owner to an LLC that you own 100% of? Garrett: Right, yeah, just ask for the grant deed. Also, if you're buying property from someone, you want to insist on a grant deed or a warranty deed, because if they don't deliver the title that they've promised they are going to deliver, you have the ability to sue them for failure to perform. Michael: Okay, super good to know, super good to know, Garrett, as people who are just getting started on their investment journey, I mean, what's the appropriate time to set up an entity because I've heard people say, I'll do it later. I'm too small. It's too expensive. You know, what are your thoughts there? Garrett: Right at the start, you know, it's just not that expensive. We do not charge a lot of money to set up LLCs for people. It's very affordable. It's a business expense, you get to write it off. But I'll give you an example Michael and I I've told this story 1000 times, but I was in San Francisco at an event and I gave a talk about asset protection and this lady comes up to me and she goes, Well, I'd like to transfer title. I just bought a duplex and I'd like to transfer title into the name of an LLC. I go, that's a great idea. I go in California, it's $800 per year per entity and she goes, oh, I can't afford that and so I'm giving a talk in San Francisco again and she comes up to me and says, I've been sued by a tenant, I'd like to set up that LLC now. Well, it's too late, right? You know, the tenant rented from you, in your individual name, UX, they have a claim against you as an individual, and they can reach all of your personal assets as a result and once you've been sued, or even threatened to be sued, it's too late to set up an LLC. I mean, you can't put a seatbelt on after the accident. Yeah, right. So you really want to set this up right at the start and I've heard CPAs say, oh, well, you know, just set it up when you can and that's bad advice. I mean, you know, the joke I tell is that CPA stands for can't protect assets. It's just, you need to set this stuff up right now. Michael: Yeah, yeah. Okay. I think it makes a ton of sense and I love the seatbelt analogy. I think that really hits home for a lot of folks. So as someone that's getting more sophisticated with their investing strategy, what like tools or strategies should they be aware of as they're starting to scale up and they're investing? Garrett: Well, I think having that Wyoming, LLC is the parent holding LLC is a good strategy. We talked about an Oregon LLC and a Utah LLC owned by one Wyoming LLC and that Wyoming LLC is passive. It's not going to hold real estate, it's not going to do business with anyone, because if someone sued the Wyoming LLC, they could get at Wyoming at the Oregon and the Utah LLC. That's what the Wyoming LLC owes. So that Wyoming LLC is passive, it doesn't do business with anyone because we don't ever want it to be sued. All right. So that's a key strategy in protection. Now, if your clients are holding brokerage accounts, right, bank accounts, gold and silver stock brokerage accounts, in their individual name, the same rules apply. If they get sued personally, and they have all these assets at a Charles Schwab account in their individual name, someone can very easily get those and so what we do is we set up an LLC for the paper assets for the bullion and if you get sued, and that horrific car wreck, they're in an LLC, it's much different, much more difficult for an attorney to get at those because the exclusive remedy in Nevada and Wyoming is what's called the charging order and that is a lien on distributions in the state of California if you own an LLC that owns a piece of real estate in California, the law in California is that the car wreck victim can go to court and the judge can say yes, you've been injured, you can set forth the sale of the duplex. All right, and that is not good asset protection. So we like Wyoming and Nevada where the court says, okay, you have a claim. But here's the remedy that we offer in our state, you are entitled to distributions that come through the LLC, you can't barge in and force the sale of the real estate, you have to wait for distributions to come and that's not a good use of the attorneys time. You know, monitoring if distributions are made there on a contingency fee, they get paid when they collect on the insurance monies. So their time is better spent going to the next case that has insurance. So that Wyoming LLC that offers the charging order remedy, not where they can barge in and force the sale of the real estate but where they have to wait and monitor distributions that go to you. It's a much better system for protection than choosing a weak state like California, Utah is a really weak state, New York is weak. So we have to understand which states are strong and weak and structure your plan accordingly. Michael: Yeah, interesting and Garrett, talking through all this kind of makes me beg the question of in our Utah, Oregon, Wyoming, California LLC example where the Wyoming LLC owns the properties. There is a holding company rather, if the tenant in Oregon falls and Sue's sues the owner. I mean how far Is this go and where is the court date held, how does that all work? Garrett: Well, if you, if the tenant has is renting from the Oregon LLC, that's or they're in contract with, so the claim would be tenant would sue the Oregon LLC, the lawsuit would take place in Oregon, right? That's where the property is. That's where the tenant fell. The action stays within the Oregon LLC, it doesn't give the tenant a right to go down to the Wyoming LLC, which is the parent, it doesn't give the tenant the right to go over to the Utah LLC. That's a separate business entity. So the key here is that if the tenant sues, you want to get notice of that lawsuit as soon as possible, right, you want to turn over this claim to your insurance company, so that they can assist in settling the case. Too many people, Michael have this idea that if they use a land trust, where no one will ever know who the owner is, and no one will ever serve you is just nonsense because you want to get notice of the lawsuit as soon as possible. In the Land Trust scenario, they say, well, geez, no one will ever find out who the owner is. Well, what happens is they go to court and they say, Look, we tried to sue the land trust, we couldn't find out who the owner was and the court says, okay, well published notice in the newspaper. So they published it little two point type in the newspaper that We're suing the Oregon LLC, or the Oregon Land Trust, rather and you don't get notice of that either. They go back to court and say we tried to serve them, we published notice in the newspaper, and no one ever showed up. The court says default judgment, meaning the tenant has won and then when they're trying to collect, you know, you find out that you've been sued, the insurance company can say, Well, look, you should have had notice of this lawsuit, we could have defended you, but we're not covering you now. You didn't give us the proper notice and so this whole idea of a land trust and privacy is just nonsense. You want to get notice of a lawsuit, so you can turn it over to your insurance company. Michael: Yeah, that makes no sense. I guess it's kind of like the ostrich approach like if I stick my head in the ground, I don't see it. I don't hear about it. It's not a problem. Garrett: Yeah, it is a problem. Michael: Interesting, okay and Garrett talked to us about some of the different entity structures that are out there. Because there's the C Corp, the S Corp, the single member LLC, multi member LLC, like should we as real estate investors be thinking about utilizing some of these different corporate structures or is really the LLC that that kind of 45 of structures. Garrett: Pretty much the LLC is the way to go, if you're going to hold real estate, you in some cases, the limited partnership can work. If you're syndicating real estate and you want to absolute control, the limited partnership can work, you're not going to hold title to real estate in a C Corp or an S Corp or any other kind of corporation, tax wise, it's just not the best way to go. So the LLC is pretty much I mean, 98% of our formations for real estate are LLCs. The other 2% would be LPS for syndication purposes, or, you know, for estate planning purposes where mom and dad with an LP, the general partners, which would be another LLC can own as little as 2% and have absolute control over the property. So mom and dad through their LLC have 2% ownership, the limited partnership has 98% ownership owned by the kids as limited partners, and the kids can't force mom and dad to sell the property. So there are cases where the limited partnership works but in the vast majority of cases, it's the LLC that is on title to the real estate. Michael: Okay. Good to know, good to know. I had another question for it and it totally escaped my mind. Garrett: Well, how about fail not fail the new book? Michael: Yeah… Garrett: You know, people have these promoters out there just say that most wrongheaded stuff about LLC. I mean, they say that you don't need an operating agreement- wrong. They say that you never have to issue stocks or timber membership interests certificates- wrong. So you you'd need to treat your LLC, like a corporation whereby you have to follow these formalities. You have to have the annual meeting, right and the idea that you never have to have a meeting is when you get into a court of law, you're in front of a judge or a jury. I want you to have a minute book with the minutes of every yearly meeting in it and these promoters say, well, you never have to have a meeting. I want you to walk into court and tell the jury, yeah, I ran this property for 12 years and never had a meeting. It just doesn't work. Michael: It's not going to fly. Garrett: It's not going to fly. So you know, the reality is, when you're in a courtroom, the reality is not when you're in office with a promoter telling you don't have to do anything to maintain your LLC. It's just not accurate. Yeah, so that's why I wrote the book, because there's so much misinformation out there about corporate formalities. So with a corporation, you need to follow the corporate formalities and with an LLC, you need to follow the corporate formalities because someone suing can pierce the corporate veil on a corporation, they can pierce the veil on an LLC. It's very, and the rules are not hard to follow. They're really easy. It's just if you don't follow them, they can go through the LLC and reach your personal assets. Michael: Yeah no, that's such a great point and also, Garrett, I mean, to that point, if someone listening is thinking about reaching out to an attorney for help with forming for entities or restructuring entities, I mean, what are some questions they should be asking and things they should be looking for, with an attorney that they want to put on their team? Garrett: Well, does the attorney invest in real estate? I mean, I think that's a good question to ask because, you know, I invest in real estate, I've been through the wars and so it just helps you appreciate what the client is going through to have done that yourself. You know, I think some attorneys specialize in personal injury. In contract cases. I mean, you want someone who really knows the ins and outs of LLCs, and appreciates that we have good states and weak states, and that you have to put the combination together to fully protect the client. Michael: Yeah, that makes total sense and we're recording this, let's see September 2022, what is like the reasonable cost to form an LLC, and then what are any kind of maintenance fees associated with maintaining the LLC? Garrett: Well, we charge a flat fee of $795, in that, and then the filing fees are on top of that. So Wyoming, for example, is $100. That 795 includes the registered agent for the first year. So you're not paying any extra for that. We also have a system whereby we keep all your documents and if you have lost your operating agreement, we give you a portal where you can go on and download your documents. So we kind of have this backup service for you and then so you pay the 795, the first year, and then the second year, it's already formed, so everything drops down, you only pay 125 to four, the registered agent. Now we give you a book that shows you how to do the minutes because you really should do the minutes every year and even though we give you the book with the forms in it, a lot of people don't do it. So we offer a service where for $150 a year, we'll make sure that your minutes are done and we want to keep you in good standing, we want you to have those annual meeting minutes in your file, just in case you don't want to be in a courtroom and say I never had a meeting. Michael: Right, it's too late, then like you said, Garrett, this has been super informative and people want to reach out, continue the conversation, take advantage of your services, what's the best way for them to get in touch? Garrett: Well, they can go to https://corporatedirect.com/schedule/ and set up a free 15 minute consultation with an incorporating specialist that you'll work with this person all the way through the process and they'll give you a quote for what our services entail and you know, just see if there's a fit, we're happy to talk to you and so we set up entities in all 50 states, maybe you're you set up your entity already, it's an LLC, you don't have an operating agreement, you haven't issued the membership certificates. Don't tell anyone but we can clean it up for you. We also offer a registered agent service in all 50 states. So if you've got one company here, one company there we can be your one company to serve as the registered agent in all 50 states. So we'd be happy to help your listeners Michael and you know, have them call corporate direct or go, go visit the website, corporatedirect.com and there's plenty of information and articles there and kind of tells you what we do. Michael: Amazing. Well, Garrett, thank you so much for that. One final question before I let you out of here. We've said the term a couple times. But for anyone who maybe isn't familiar, can you bring them up to speed on what a Registered Agent is and what the importance is? Garrett: Well, the Registered Agent is someone in the state where you set up the entity or where you're qualified to do business and the idea is that instead of having someone who's trying to sue you search all over the state of Texas for you, right? The Registered Agent is an address where someone suing, you can go and serve the registered agent with service of process. So it's just it's kind of an efficient way for the justice system to work. It's one place where you can serve an LLC or a corporation, and then they're responsible for forwarding that on to you and so you want to use a reputable registered agent service that knows the importance of a lawsuit, if we get a notice of a service, we're on the phone immediately to our client, because you've only got 30 days to get an attorney and answer that complaint. So you don't want a mom and pop that is going to go out of business or doesn't appreciate the consequences of being served with a lawsuit. So it's an important function and if you fail to pay the Registered Agent, they're going to refuse service a process and then they're, you know, the person suing us is going to go back to court and get, you know, authorization to publish notice in the newspaper, and again, you're not going to get noticed to this cert of the claim. So you want to have that registered agent on your team at all times. Michael: Yeah, yeah, super great point and the Justice Department looking for efficiencies. That's not something I maybe I've ever heard before. So really exciting stuff. Garrett: It's something that does exists, so… Michael: Oh, Garrett, thank you. Again, this was super informative, and I definitely would love to have you back on once your book comes out in November. Garrett: That sounds great. Thanks, Michael. Michael: You got it, take care. We'll chat soon. Garrett: All right. Michael: All right, everyone, and that was our episode a big thank you to Garrett for coming on. Definitely take advantage of that. 15 minute free consult if you're interested. As always, if you liked the episode, feel free to leave us a rating or review. We'd love to hear from you all and we look forward to seeing on the next one. Happy investing…

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"I SERVED IN PRISON WITH DAVID BERKOWITZ" - 7:20:22, 6.31 PM

Reason for Truth

Play Episode Listen Later Jul 21, 2022 10:20

A man by the name of Michael Love who served with David Berkowitz for years in prison submitted on a comment on our YouTube channel. I read Michael Love's comments to give a confirmation testimony as to the authenticity of David Berkowitz faith in Jesus Christ! You don't want to miss this! MAKE SURE TO "SUBSCRIBE" and SUBSCRIBE to: StevenGarofalo@Locals.Com for more exclusive content!============RESOURCES: www.ReasonForTruth.Org-------------------------------------------------------------------------

How much time and money can an investment mentor save you?

Play Episode Listen Later Jun 30, 2022 34:25

Rich Fettke has a passion for helping people improve their businesses, grow their wealth, and live more fulfilling lives. He is the author of The Wise Investor, Extreme Success, and the audio program Momentum. Rich is also a co-founder of RealWealth®. Since 2003, the company has helped over 60,000 members improve their financial intelligence and acquire cash-flowing income properties — so they can live life on their own terms. As a licensed real estate broker and an active investor, Rich was selected as a Rich Dad Author for his expertise as a Wealth Mindset Expert. The real estate industry is not easy for everyone to jump into. If you have just gotten your real estate license and feel you need extra support before getting your feet wet, or if you are an experienced agent looking to take it to the next level, you may decide to get a real estate coach. Rich who is a coaching mentor and investor will discuss the value of having a coach and mentor and what you can expect to find in his new book. Episode Links: https://realwealth.com/ https://realwealth.com/the-wise-investor-book/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Rich Fettke, who is an author, investor, coaching mentor, surfer, among many other things, and Rich is going to be talking to us today about some of the mistakes he seen investors make the value of having a coach and mentor as well as what you can expect to find in his book, which is soon to be released. So let's get into it. Rich, what's going on, man? Welcome to the Remote Real Estate Investor. Thanks for hanging out with me. Rich: Good to be here. Great hanging out with you. Michael: Super excited. So before we hit record here, you and I were chatting a little bit about some sports where you both share in common, but I would love if you could give our listeners a little bit of insight into who you are, where you come from and what it is that you're doing in real estate today. Rich: Sure, absolutely. My name is Rich Fettke and yeah, interesting. The way we got into real estate investing, I'm an I'm an investor and my wife and I also have a company that helps investors but that was what really got us into it was despair. It was about it was exactly 20 years ago, I was on top of my game, I had a book deal, just signed with Simon and Schuster. I was a business and personal coach had a thriving coaching practice, I was giving keynote speeches all over the country. It was like I was just crushing it and I felt so good. I was 37 years old and then I was diagnosed with melanoma, which is an advanced skin cancer but that's not the biggest deal is that they thought it spread to my liver. So they had me do a CT scan and ultrasound and it kept showing these masses on my liver and so I met with an oncologist and he said, you know, it looks like you got about six months to live and we had a 10 year old daughter. Yeah, it just rocked my world, I had a 10 year old daughter, a three year old daughter. My wife is amazing but she was a stay at home mom and so she was freaking in the sense of what am I going to do financially if Rich dies and so she started to she had a as a coach, we were doing things together, she was also a trained coach and so she had this small radio station in San Francisco that she used to do a radio show on about all areas of life being your best self and personal development and all and she said I gotta figure this out. So she started to help people on that were financially successful, and was interviewing them about how do they create wealth and how do they create financial success and most of them turned out to be real estate investors. No surprise, so she came home all excited. One of them was a mortgage broker and he said, if you get your license, you can come become a mortgage broker. This is about 2003. So you know, things were still the mortgage world is pretty easy back then. So she went and did that. In the meantime, we figured out I had a PET scan, which is the most advanced scan for cancer, and it showed me cancer free. So it was just it was a false diagnosis. It was just hemangiomas little clusters of blood vessels on my liver but that was enough for me to go for those three months of not knowing if I was going to be alive, it was enough to give us the kick in the butt to get out and, and make things happen. So Kathy, and I see after that after I was healed, we started to invest together. We bought a bunch of properties in the Dallas, Texas area and it just took off from there and then Kathy started to help other investors with their mortgages. We had a bunch of friends and family saying, tell us how are you doing this? We you know, how are you doing this out of state investing and so we started we formed a group that we thought would be just a small group of family and friends and people that listen to the radio show. We thought it'd be a couple 100 people and today it's over 64,000 members now at real wealth that we're helping invest. Michael: It's pretty amazing. Richard, good for you guys, so I I'm curious in your coaching business before you got diagnosed, did you ever come across real estate investors? Rich: That I coached? Yes. Yeah and my mindset was, I want to invest in real estate someday when I have enough money and so and I was thinking I needed, you know, several $100,000 you know, to buy that first rental property or first investment, not realizing the power of leverage and how much banks love to lend money on real estate and so that was that was the eye opener for us. Michael: Okay, I love it and what made you go remote? I mean, you're in California and your wife live in in San Francisco. Why did you pick to invest outside California? Rich: Actually Robert Kiyosaki. It was she because Kathy was on the San Francisco radio station she was and it got bigger and bigger or she was able to attract some pretty big names and then this guy who had just written a book called Rich Dad, Poor Dad, not long before that, and he had this cashflow game that he was promoting and we had a friend who was his distributor for crypto cash flow game back in the day and so he was on the radio show, and he warned Kathy's listeners to sell their overpriced California properties and to invest in Texas and so we took his advice. Not we didn't sell all our expensive property, sadly, because 2008 crushed us with our California properties but it was, you know, he just saying for cash flow and what's going to happen, he was currently kind of calling out what was going to happen in 2008-2007. That's what sent us out of state. Michael: Love it. So you also recently have written a book, haven't you? Rich: Yeah, I just finished my second book. 20 years later, well, I have an audio program back then, too but yeah, it took me 20 years to write my second book and it's called the wise investor and it's a lot different than my first book that was mostly coaching focused. It was a nonfiction, basically a personal development book and this book is a modern parable. So it's story forum, and it tells a story of creating financial freedom and but also living your best life. Michael: That's awesome and why did you decide to write it? Rich: Interesting process, you know, I've had my own coach, to walk the talk to over the last 25 years now, I started coaching 25 years ago, and this coach that I that I still talk to every week, or every other week, now, he kept kind of he had read my first book, so he's always kind of knocking on me saying, when are you going to write your next book? When are you going to write your next book and I was like, I'm too busy running this company, you know, we have 27 employees and but then what we did is we applied story branding to our company. Are you familiar with that story branding? It's a guy named Don Miller. He wrote a book called Building a story brand and it's all about basically telling the hero's journey, Joseph Campbell's work, using the hero's journey, just like great movies, do great books do weaving a story where your customer is the hero, and you are the guide. So the company is the guide, you help your customers and so we changed everything on our marketing around that, and how we served our members as being the heroes and I just got into this whole storytelling thing. I'm like, this is fascinating the structure of how to write a story, a compelling story that engages people that elicits an emotional change all that and so one day when in a coaching session, I said, you know, if I was going to write a book, I'd probably tell a story and then he heard that and you just like, What do you mean, tell me more and then that was the spark. So then then I get obsessed with it and I'm like, I could write a parable about what I've learned over the last 20 years as an investor, what I've learned in the last 25 years as a coach, yeah, and kind of weave them together into a story. Michael: How cool and without giving away too much of the book. I mean, what could people what should people expect to find when they when they get a copy? Rich: Basically, it's about this family, man, his name is Ryan Brooks and he's like a hard worker. He's got a wife, he's got a couple kids, and he's making a decent six figure income maxing out his 401k but he has no time for his wife or his kids or even his life and he's not investing. He's basically what we call today, Henry, right? A high earner, not rich yet. So he's… Michael: I love it. Rich: Yeah, they're out there does a lot of people you know, especially in California, where I'm based, and that make a lot of money, make a good income, but they're not rich, they're not wealthy, and they're not investing their money. They're spending it on things and so this guy is, is in that same trap. So he just starts to learn from he meets this new friend and mentor, who takes him out on adventures. Of course, it takes him out climbing takes him out mountain biking in in the sessions, when they're having fun together. He teaches him about investing about how wealthy people think, how rich people operate, and how and how poor people operate and think and he really goes over the difference between, you know, truly wealthy people, and people with a lot of money. He even says, you know, I know some people who are so poor, all they have is money and I see that in Malibu, you know, where I live there's a lot of has a lot of money and some of the people are really stoked and really happy and getting the most out of life and investing their money at some of the people are grumpy and miserable and, you know, that's rich in money but not in life. So there's a lot of lessons about helping Ryan Brooks and his mentor walks them through this on how to invest how to how to really look at life through a different lens. One of my favorite things a mentor says to his mentor is about assets and he just kind of puts it in a different frame. He's like, you know, assets is are anything that will provide you income, or better health or happiness or two time and liability is anything that detracts from your income, or your health or your happiness or your time. So it's kind of a cool that type of perspective is this mentor is like, he's the me I hope to be in the future. He's that in that wise investor who's you know, he's got it all together, he's got this sage advice. He's very stoic, but he shares these lessons. So it covers the journey of five years of when they first met, and Ryan Brooks is struggling and just doesn't know what to do and it shows five years later, what happens and how he becomes wealthy in more ways than just money. I love it in money, too. Michael: I love it. I love it enrich. Where can people find the book? Rich: It's on Amazon, all major booksellers, published through Rich Dad advisors. So Robert Kiyosaki wrote the foreword for me, which I'm very grateful for… Come full, full circle, right. Michael: Totally. Rich: Yeah. So it's on Amazon. It's called the wise investor. Subtitle is a modern parable about creating financial freedom and living your best life. I got the cover right here. So it's out on eBook. This is what the cover looks like. Perfect. So it's out on eBook. But the printed version, the hardcover and the audio book won't be out until August and it's because of just like real estate supply chain issues. There's not enough paper at the printers, so it's a long wait six, seven months now to get a book printed. Michael: Holy smokes… Rich: Isn't it wild? Michael: Yeah, okay. Well, I'm interested, get your order in now, because it might be a while. Rich: Right, yeah. So hopefully it all comes out in August. Hopefully it comes out earlier in August but yeah, and the audio book was, that was a fun challenge for me. Big goal, because, you know, it's a story and there's 10 different characters, females, older people, young kids, so I had to become, I had to learn some voice acting skills over the period of a couple of months and really practice it. Oh, how can I think I pulled it off, we'll see how the reviews are. Michael: Right on. That's great. Well, Rich, I'm curious to get your opinion on something because you're a coach, I will also work as a coach and there are folks out there that say you can take the horse to water, but you can't make him drink and so thinking about kind of the Henry's out there, and I think a lot of our listeners might find themselves in this boat, too. They have friends, family, folks around them that don't get real estate investing, right? I have a six figure job, I got a great job, why would I bother investing, I can make more money at my job. So what do you say to all those people and really, how do you position investing in general or real estate investing specifically to the people that think they haven't really good as things stand? Rich: Yeah, I mean, first of all, you know, as a coach, I'm going to help point out what is good first, you know, this is the way I coach, the gratefulness piece and, you know, it's like, well, you know, be stoked on that six figure job, or whatever it is and it's about creating freedom and so many people don't have that freedom and that's what the Henry's don't have. If they have a short runway, if they stopped if they lost their job, which we've seen happen, they don't have many months left of cash flow, to be able to live their lifestyle, or any type of lifestyle. So that's the biggest thing would be that, do you want to create freedom for yourself, and not have the stress of losing your job, or wanting to move to a different job, if you're not loving what you're doing, a lot of people stay trapped, struggling, just trapped in their jobs, because it's like, this is my income, this is the way this is what I need to make ends meet. So that's the biggest thing, it's really about having your money, make money, so you can create freedom in the future freedom of time and everything. I think that's the biggest one and then so then flipping on the other side, there's something too about America, in the world that we are preprogrammed. When we think invest, we think stock market and you know, I have nothing against it and Kathy and I are and my wife and I are invested in the stock market, but our major focus and the big aha, back through that story is, you know, we were doing that we were contributing to our IRAs and, you know, doing everything we were supposed to do investing in the stock market. But when we learned about leverage the power of leverage and how you can like 5x your money, just through the power of leverage. I mean, that's a standout and that's one of the lessons the mentor goes over in the book. He, he has Ryan compared to say, say you have $200,000 to invest and you invest 200,000, and gold, you put 200,000 and you buy, you buy maybe 400,000 in the stock market on that, you just leverage it and then you invest that same amount into real estate and then he kind of plays it out over five years, and over 10 years, sorry. So he's like 10 years later, and he said, so how much would the gold be worth at the same appreciation that's gold has been at and they look at that outcome and he said, oh, now let's look at your stocks and he looks at that. It's like good, he's got a decent return. Another investment, you know, he's got home and he's like, almost tripled his money but then the real estate, he looks at it, and he's 5x his money and more and then he's like, and that doesn't include the cash flow. It doesn't appreciate all the depreciation write offs and the tax benefits. So it's kind of like an eye opener to be like, oh, wait a minute. Now I see the, you know that the angels sing about investing in real estate and all those amazing, amazing benefits. Michael: Totally, totally. Yeah, that makes that makes complete sense and curious, rich to get your thoughts on when looking for a coach because I think that that's something that some people have trouble wrapping their head around, it's like, oh, I you know, I don't have a coach in life and so I would never be inclined to go get a coach or pay for coaching and so if people are inclined to do so if people are okay, accepting that, what are some things they should be looking for when selecting a coach, or a mentor or whatever, you'd have someone to help walk them through their journey? Rich: Yeah and that's a great question. It's like, I'd actually like to start step back a little bit, because you said what if they want to coach I would even go as far as there's a lot of people that I meet who say, Why do I need a coach, you know, I can hold myself accountable. I, I know how to set goals. I know how to go after what I want and everything in so why would I… Yeah, like you said, Why would I even pay someone or do anything like that and it's, you know, it's that age old metaphor or an analogy of an Olympic athlete, right? Did they get to the Olympics without a coach? No, you need someone to point things out. So for me, I know the power of coaching has been incredibly amazing because I have a coach to basically hold up the mirror to ask me the questions that I'm not asking myself, to help me look at myself and be like, you know, asking those tough questions. How are you operating? Are you being your best self? Are you, where are you getting in your own way? What's that inner Gremlin in your head saying to you? What's your limiting beliefs and what are you going to do here, what and look at new perspectives, new ideas. So there's a power in that, that it's called, I'm certified in CO active coaching, which is two people, you know, when you come together, you come up with ideas that you neither would have thought about their own? So that's another powerful piece of coaching. So that's, that's the first part of my answer and then the second part is, when you're looking for a coach, I think it's really what you're looking for. So are you looking for a mentor, which is I think, different than a coach, a mentor has kind of been there, done that, just like the mentor, and in the book I wrote, he's been there and done that. So he can say, if you just do what I did, you will be where I am, which is awesome, and very valuable and that's a mentor and I think some people are looking for training and consulting, where they sign up for a coaching program. But it's more about teaching to learn a specific skill and that's very valuable to so and then the third one would be looking for a coach who's more like that coactive approach where it's someone who I first shared, and what I've gotten from coaching is someone to ask the most powerful questions, someone who's intuitive, someone who can really help you shift your mindset and be your best self and operate at your best self. So that would be a another type of coach or a peer coach in my eyes and sometimes it comes together, you know, I'll say to my clients, do you mind if I throw on my consulting hat right now or my mentoring hat? So they know that I'm stepping out of that coat peer coaching role and be like, you know, I've invested in real estate for a while I can give you some advice here, I'm not going to have you, you know, go and search it and try to learn it elsewhere when I've got it right here, and I can share it with you. So I think that's it, it's like looking for what is it that you want? What are you looking for and that would be the first thing and when I was interviewing for a coach and looking for I've had several coaches over the past 25 years, when I interview a coach, I'm always coming from the place of like, what's the vibe? What's it feel like to be coached by this person? Do they? Do they ask powerful questions? Are they really hearing me and are they into my vision? You know, I think the biggest thing would be connecting with that coach, and really, really noticing, like, is this coach, really seeing my vision? Do they really get me who I am and what I want what's going to help me be fulfilled in my life, and in my career, and it's just a sense thing. So you can get that sometimes you you're talking to a coach, it's like, oh, this guy's or gals just coaching for the money, you know, just looking for another client. Sometimes you talk to a coach, it's like, wow, this person is really like, wants to coach me on their ideal client and so you can sense that Michael: Interesting and how should people be thinking about it for themselves? If maybe they're not sure if someone is just getting started out in this journey, they know they want to invest in real estate, that's the goal but they don't know how to approach it to the to coaching and mentoring a consultant. I mean, what are some questions that they could be asking or things they could be thinking about, as they're starting? Rich: That process gets great, I mean, experience, I would ask for experience and you know, I think it's great, you can find you can definitely find a coach, you know, or whatever they call themselves. They might call themselves a mentor, but it's like asking those questions. and talking to that person, just you know. So here are some of my goals. I know that you invest in real estate, can you tell me about your real estate background? What's your investment, investment philosophy? What have you invested in and I would even ask the coach, you know, what's been your biggest challenge your biggest failure as a real estate investor, you know, get see how vulnerable and real they are and if they're willing to, you know, to share that, and what's been your biggest, you know, what's been your biggest win as a real estate investor and what's your greatest strength? So I would ask some of those questions of a coach and then also like, what's, where do you I mean, real estate investing so broad, right and so it's like, what do you specialize in? What do you know best? When it comes to real estate investing? Michael: Yeah, I love that. You mentioned tell me your biggest failure, biggest flop. I had a mentor back in the day, and he said, I don't trust anybody without a limp. Yeah, because like the people that have only had successes don't know how to do save no right to ship when things go sideways, and they will go sideways. Rich: They will, they will. Yeah, I know that people who got into real estate in 2010-2015, who are just, you know, knock it out of the park, and they think they're, you know, superheroes. Sometimes I'm like, oh, careful, careful Michael: We are all superheroes in this, you know, the last decade. Rich: Exactly. Yeah, yeah. Michael: So Rich, talk to us a little bit about what you've seen. Some of your coaching students or mentees get right and what have they gotten wrong because you really we have the beauty of hindsight now… Rich: When it comes to investing, specifically? Michael: When it comes to investing specifically… Rich: Yeah, wrong and it's the same mistakes that Kathy and I made too. And it's that you try to talk people out of it and it's like buying an overpriced property in a non-landlord friendly state that is maybe slightly negative cashflow, or just breakeven, and they're looking at and say, but look at how this is appreciating in five years, it's going to be worth this much and it's like, no, so honestly, that's the biggest mistake I can see and I can see it in single family all the way up to multifamily. You know, just speaking at these conferences and meeting with a lot of people are doing multifamily. They think they're superheroes. They're doing this short term, short term lending short term loans, and bridge loans and really dangerous stuff at this time in the market because it's what's worked in the past and they think that they just like, Well, yeah, it's like, I know, this is a I know, it's only a you know, 2% cap rate, but that's okay because, yeah, just a one in three years… Yeah, exactly, so there's something there's something about, there's something about that. Yeah, it's just it's fundamentals, I think that's what it is, is comes down to investing fundamentals and that's what we preach at our company. It's how we help our investors, it's just really coming back to the fundamentals. Make sure you're doing it right. Michael: Yeah, that makes sense and what about the other side of that coin for the folks that you've really just seen knock it out of the park? What are they doing and you can't say the fundamentals, you have to pick a different answer go? Rich: That's great. I love that. Agreed, yeah, what value is that? Really, it's the people who, what I've seen, it's the people who take the long term game plan to the boring investors, the ones who are not trying to do this rapid growth, and trying to 10x their portfolio or 20, exit, or whatever it is. So it's keeping that long term perspective and just, you know, making sure that you can control the properties through any type of downturn and so the lessons learned that that, you know, being going through the whole recession, the Great Recession, and the whole mortgage meltdown, and all that big lessons came from that and so that it's the people who take out long term, continuously reinvesting to so it's like, you start this small, small portfolio, whether it's passive or active, and then you just start expanding and expanding and expanding it and I would say, it's the people who focus on the overall cash flow, not just I mean, brink weaving into appreciation, but looking at it, like five years from now, this is what my portfolio will most likely be doing based on everything, even if there's a recession, or whatever and then looking out 10 years and looking at it 15 years. So it's that big picture and then reinvesting. The opposite of that would be someone who's I have some friends who were only flipping, so very transactional, and they had to find the properties either flip it and that's where their income was coming through into constantly flipping it and they adjusted the wise ones and the smart ones adjusted and switch to the bur stead strategy and so they started to find these properties, fix them up, but then they would hold them and rent them out and now they're the ones that have amassed a good amount of wealth, whereas the other people who are flipping are still in the transaction game. Michael: Yeah. Ah, that makes sense, that makes sense. Okay. We've had a pretty good debate on the show over episodes about something called an alligator, which I don't know if you know Michael Zuber at all he's an author of one rental at a time. He's a good friend of the podcast, but in his definition alligators any property, that's negative cashflow, you have to feed it every month to keep continue owning it. So as you're talking about big picture, are you okay? If you say for instance, take out a cash out refinance a property to make that property a go negative, but to buy property B and now your global cumulative cash flow is greater than that a property a alone. Rich: I'm in the camp of no, don't, do not no, no negative cashflow and negative cash flow and I'll be completely honest and transparent that the house at Kathy and I were in in Malibu before this, we bought it, we fix it up, we bought it for $747,000 in Malibu, which is rare, hard to find, it's like unheard of. Yeah, it was like it was a one bedroom, one bath built in 1927 and we had to completely gutted it and rehab and we put about 300,000 into it and then we didn't get permits. So we got busted in that process and now there's still a lien on title from LA county building department and so we can't sell that place and we can't even get a refi until we get those liens off title and get it all permanent everything which is a, that's a whole different stories… Michael: Trying to get us to do an entire podcast series… Rich: Coastal Commission and all that stuff. So oh my gosh, so we have a tenant in there and it's slightly cash negative cash flow. So that's like 150 to 200 a month negative cash flow. So being completely honest, we do have a negative cash flow, it drives me crazy and that house has gone up probably $400,000 over the last couple of years in value. So we could look at it that way. But we can beyond that everything that we hold is positive cash flow, even if it's just like $100 a month positive. That's fine and if we're going to do a cash out refi we make sure that it's appreciated enough where we can do that cash out refi and not have the loan payment, PTI go over what we're gonna get for rental income. Michael: Yeah, makes sense. Well, I appreciate you sharing the misstep and the vulnerability here on the show but it wasn't intentional, that was just a series of consequences. That hadn't be negative. You wouldn't you would intentionally do that. Rich: Yeah, we did bring it on ourselves and but yeah, wasn't intentional. We didn't want to get caught. Michael: I've played that game before, too. It's a risky one. Rich: It is. Yeah, so you're always looking out the window and yeah… Michael: Who is coming in, roday gonna be the day get caught o maybe tomorrow? Rich: Exactly. When we were almost done. We were building the final deck in the back and all of a sudden, this building inspector shows I'm investigating you because one of your neighbors called… Michael: I was gonna say but it's probably one of your neighbors. Rich: Yeah, because it would make the cut and concrete and it was so loud or for the whole week. I think it just drove this neighbor crazy and so it is what it is. Michael: As soon as a quick aside one of the other hosts on the show with me, Tom he, one of his neighbors called on him he was adding an offer a small prefab office in the backyard of his property. neighbor called he gets in trouble. Same thing didn't pull permits. So now he's going through that whole rigmarole. But the funny part is the neighbor that called Tom found out that their fence is on Tom's property, it's on the wrong side of the property. He's like, thanks for calling and alerting me to that little fact. Michael: Unbelievable. Rich: So he's, he's playing that game. How do I how do I want to you know, play my next hand? Rich: The revenge game… Michael: That's it, that's it, best served cold on ice. Okay, Rich. Let's wrap up here. I'm curious to get your thoughts. We are in this very unique time in our economy in our market in this country and I'm just curious to kind of get your thoughts on what are you doing, personally as an investor and what are you doing in your business and what are you telling your students to do, as well? Rich: Absolutely, yeah. I have the benefit of being married to Kathy Fettke, who has been around for a while she's on the on the market podcast on Bigger Pockets and so she's constantly doing her market updates every year, she does predictions and has done that for the last 15 years and then at the every quarter, she doesn't investor update and at the end of the year, she puts herself on the line says okay, here's what I predicted back in January. Let's see how accurate I am and yeah, and she's been really good. She's like almost 95% on her predictions, which is awesome. So I just listened to her. You know, she's always interviewing experts and she's connected with like John Chang from Marcus and Millichap and so many just, you know, experts, as I said, with Kiyosaki and all that. So what she's saying I'll just speak, you know, because I get to hear through her office door when she's doing all her interviews and everything she think He said interest rates are not going to go up that much more, maybe even dip a tiny bit for mortgages, and then maybe level off. But even though the Feds gonna keep raising the rate, the lender and great mortgage rates can't kind of withstand that going up too much. So she thinks mortgage rates are going to hold around where they are and then there's such a glut in such a need for properties and not enough inventory. It's like a whole different world than 2008-2009. So yeah, I think we're, it's estimates are between three and 5 million homes shy right now, for housing units. So inventory still low and also, there's that whole thing where people are locked into these amazing interest rates, so they don't want to sell. So they just, it doesn't make sense to sell something and when you got a 3% mortgage or lower and go into a higher mortgage, so the real estate is gonna hold strong is what she's predicting, it's even going to increase a little bit rents are even going to increase a little bit surprisingly, even with, with the economy and inflation, rents are still gonna go up a little bit, that's her prediction and then a recession will hit well, most likely, sometime around late 2023, early 2024 but it will be a mild one, just kind of more of a correction that that's needed. Michael: Okay. Okay and does either her or you think that there will be any kind of pullback in demand as folks go back into the office or are we going to be seeing remote work kind of indefinitely, which I think was a big driver of that single family rental demand? Rich: Yeah, that's a big one. Yeah and the cool thing is like, we have teams that are like the boots on the ground. So there's different 15 different property teams in our company that find properties and so and we just did a mastermind with them in Tampa, Florida and we spent two days and we really talked about all this exact same stuff. So it's, it's something around not like a big hit on it. There still will be some availability, but not much different than if you look at today's current market right now is not going to be a lot different than that over the next year and a half. Michael: So for instance, we don't expect there to be much pullback in terms of demand. Dude, because we're expecting people to continue remote working basically… Rich: There's definitely a return to the office. There's there are definitely companies that are saying no, it's time to come back now that we want to look over your shoulder, we want to hold you accountable and all that stuff. It's so funny, because it's like the surfing lineups are getting a little bit lighter thinning. So funny. Go Oh, it's like why are so many people surfing? Oh, they're supposed to be orange. They think they're working. Their bosses think they're at work right now. Yeah. So I'm seeing a pullback there. So that's my gauge. Michael: So funny. Rich: Yeah, but not as much. There's definitely, with so many people how they've learned to use Zoom and GoTo Meeting and being remote and all that stuff. It's we're in a new world, there's no doubt about it. So I think there's going to be a slight pullback on buyers and transactions and all that. As far as the rate, but it's still not going to it's not going to drop to like dismal levels. Michael: Okay, sweet. Well, we will definitely have to stay in touch and see how you do how you and your wife do on those percentages. Rich, this has been so much fun, man. Thank you again, if people want to learn more about you want to learn more about real wealth, where can they do that? Rich: For the book? Like I said, it's on Amazon or if people want to learn more, before they buy it, just go to https://realwealth.com/the-wise-investor-book/ and then our website is just simple, real wealth: https://realwealth.com/ Michael: Perfect. Alright, thank you again and I'm sure we'll be chatting soon. Rich: All right, man. Thank you, it was fun. Michael: All right, everyone a big thank you to Rich for coming on. Super, super insightful. I know I learned a ton as a coach myself in what to look for in a coach and mentor going forward as well. So as always, thank you so much for listening, and we look forward to seeing the next one. Happy investing…

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How to purchase homes for the price of a car with Pam Hill

ITRBoxing Radio Boxing Podcast

Play Episode Listen Later Jun 15, 2022 28:43

Pam Hill is a Harvard and Dartmouth-educated entrepreneur and CEO of a multi-million dollar real estate company, a business and money expert, a former Fortune-500 executive, and the founder of My Smart Cousin. Her main goal is to help people understand money, increase their accountability and build generational wealth. Today, Pam shares her story of how she became a professional real estate business owner, how she purchases homes for the price of a car and how you can start your real estate business. Episode Link: https://mysmartcousin.com/tag/pam-hill/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by a very special guest, Pam Hill, who's talking to us about my smart cousin, and how she purchases homes for the price of a car, or maybe sometimes even an expensive bike. So let's get into it. Hey, Pam, thank you so much for taking the time to come hang out with me today. I really appreciate you coming on. Pam: Thanks so much, Michael, really looking forward to engaging conversation. Michael: Oh, my gosh, me too. So, Pam, so excited to have you here. If you could give us a quick intro bio about who are you? Where do you come from and what is it you're doing in real estate today? Pam: Absolutely. So I'm Pam Hill with my smart cousin. The nifty name comes really from family coining that for me, because I am that smart cousin at family reunion to always follows up make sure that folks do what they say they're going to do on their finances on their real estate and that, of course, is now brought in to my clients as well. How I got into real estate was about 10 years ago. So during the Great Recession, my husband at the time we were dating, he was looking for his first home and he was looking in Wilmington, Delaware, and we were stupefied at just how cheap there's, there's not a better word inexpensive to the wrong word, cheap houses were in Wilmington, Delaware to the tune of 20,000-25,000. In perfectly rock solid working class neighborhoods. Once I saw it, I definitely could not unsee it and that's what led me down the real estate rabbit hole since then I've bought 21 houses totaling 25 houses totaling 31 units, and have loved every step of the journey. Michael: That is so cool and so Pam, were you living in Wilmington, Delaware or was this something that you were doing from afar? Pam: No, so I was living not too far from Wilmington, Delaware in a suburb and so I was used to six figures and not 100,000 as in six figures. But in fact, what the average price of real estate is in the United States, some 321,000, I think I've read is the average price of real estate across all 50 states. So I was used to seeing those kinds of numbers. I had already owned real estate before as a homeowner and I really couldn't believe that there was this whole other world and once I saw it, I became committed to helping others who are looking to start their real estate investment journey and feel like they just don't have enough coin to get there. Or those who are aspiring homeowners and thinking the same thing that it's got to be a generation, three decades, 30 years slog My goal is the number of fingers you've got on your hands, 10 fingers 10 years or less. That's when the house should be paid for and everything is cream after that. Michael: I love it, I love it. So was it just a function of where the economy was at that point in time that you and your husband were able to find houses for that price point or were you doing something different or looking in a different way than everyone else? Pam: Yeah, no, it's a great question, because it kind of begs whether that opportunity is still there and very much still is. There are hundreds of houses listed on any given day that are maybe not as cheap as what I got them for that takes a little bit of digging, although they are that cheap still to just not in Wilmington, Delaware. So my cheapest house was 2500 in Jersey that included the all four walls. Michael: …a roof.... Pam: Yeah, absolutely. Goal number one is don't buy anything that is best addressed through the services of a wrecking ball company. So only things that maybe they're going to take a new furnace, okay, a new furnace, but not a new every single thing you can think of and my most expensive house was 35,000 and that includes I'm really kind of a an adherent of eating your own cooking. So that includes the house of my husband and I live in the house we bought in a suburb of Philly was $35,000. So and that was in 2016. So it's still there and there are many homes in states like certainly New York, Wisconsin, Michigan, quite a number of homes that are in that 60-50-40 neighborhood and even multi families and small commercial, that price point. Michael: And so I mean, I've got to imagine at that price point the homes are in really rough areas or need tons of rehab. Are you finding that to be the case or is there something there's something that you know that that we don't? Pam: Right, so the homes are in areas, how would I think about it. areas that aren't so rough that no one at all lives there, I've yet to find a neighborhood that that is on livable, I suppose everyone needs a home that it's just a flat out the truth and so there are really three things that any person who's renting is looking for one is the neighborhood. So they aren't going to be concerned if crime, for instance, is a big problem and where it is, for some of my houses I work closely, you know, first thing I do is find out who the police captain is, and introduce myself, I asked the tenant to let me know if there's any kind of roughness going on, so that they don't have to feel like they're the one making the call that I can be the person making the call. If there's a car that has sat abandoned in front of their house or near their house, I call the licensing and inspection agency, so they will tow it. So those are the things I do to make the neighborhood better than how I found it. Then the other things that a renter is going to look for, is going to be the landlord as well as the house itself, those two things I can absolutely control. So I control the neighborhood, only at the barest of margins, but the house and the landlord, absolutely within my scope. So that's what I do and to your question of where are these houses? I think that the I think that the issue is that most folks don't look from the bottom up, they look from the top down. In other words, they're used to asking themselves or allowing their bank to suggest to them that they start at what they have qualified for and what you have qualified for is probably far more than you have to pay. So if your salary and such qualifies you for that average price of a home in the three hundreds, first thing you should do is tell your real estate agent, only show me houses that are 60 to 100,000. In fact, don't even give them a range. I don't want to see anything. That's more than six figures. If I do if it's more than $99,999, you're fired and they will quickly show you the houses that meet that criteria and that way you accustom yourself to that to that look and you tell the realtor, just a look where the neighborhoods makes sense for you school district wise and so on. Michael: Interesting. There, I've got so many questions. There's so much there to unpack, Pam but and Vicki about the price point, if someone goes to buy a $20,000 home, are they able to get financing on that home right? Pam: Going to be difficult, that's the honest truth. The easiest source of financing, if they buy a house like that is going to be if they are also looking to be a home owner, and really a multifamily home owner. So for a person who tells me, they really don't have much, much in the way of savings, but they want to do something now and moreover, they're not too satisfied with where they are living as either a renter or possibly as a homeowner, then I would help them find homes, let's say in that lower price point of that 20 that you mentioned or 30,000 that are in the areas that they are okay with, we would look at the land banks listings, for instance, sometimes there are more than 200 land banks across the US. So sometimes a land bank will have a house that is in terrible, terrible shape, but it's in a good neighborhood, that house is going to qualify for some financing that can help the homeowner if it's not that kind of house, and instead, it's something owned by Fannie Mae, by Freddie Mac, by US Department of Agriculture by Veterans Administration, all these wonderful government agencies that you didn't know we're in the real estate business, well, then that's good news because they can now become your lender, in addition to selling you the home. Michael: Interesting, okay, so someone can just google or your online search for the local land bank and whatever market they're interested in living or investing in, and it'll pop up with listings, just like the MLS. Pam: That's exactly right. Just type in name of your state. If nothing comes up name of your county, if nothing comes up name of your city. So try it in that order and if nothing comes up in your county, then look at the surrounding counties. I would also just type in something like land banks, United States map sometimes, you know, some set of words like that and then that should uncover all of the line land banks and help you see For your state, for instance, if you're in New Jersey, what are the land banks in New Jersey and then find it that way. Michael- Interesting. Wow, this is so cool, Pam and so you are you self-managing all of your properties that you own? Pam: I am, so when I first got started with this, I was working in a really demanding job in corporate America as an exec and that was not feasible to be self-managing. So I worked with a property manager and perhaps someday I will go back that route except this go round, of course, creating my own property management company. But right now, I'm right in the thick of it. So all of the units are self-managed and that includes units that are two family, three family and even four family, again, all bought for 35,000 or less. Michael: And what are the rents that you're seeing on these types of properties? Pam: Yep. So for a house, that's a four family that well, that particular one is all studios. So of course, the rents there are going to be a lot less, so that's 850 each for a house… Michael: Wait, wait, wait, wait, sorry, timeout back one second, 850 each on per unit on a four family that you bought for 30 35,000? Pam: Yeah, for 26,000, yes, that particular one. Michael: I've been thinking about people talking and saying there's you can't find properties that are the 1% that meet the 1% rule. This is like the 678 percent rule. Pam: And that's why I encourage folks to come to come to my smart cousin.com where I will hold you by the hand and help you not only find these, but much more importantly than just like, hey, that one there? How about that one? But to really evaluate them and see, does it meet? What I hope is a set of criteria that you've given some thought to? So for instance, you asked me a really important question, which is do I self-manage? That's a question that anyone should think about, do they have the ability to self-manage and moreover, do they have any interest in self managing or do they think that's going to lead them to hate all of humanity and… Michael: A one way ticket… Pam: One way ticket straight to? Why am I already 30 years of my life before I was headed downstairs? So that's how they're built. Don't do it, don't do it, turn it over to someone else, pay someone else to 10% 12%, even 15% to do the property management. But if you're built for it, then go ahead and do it. So that's one. Second is are you looking at long term rentals, which is what I do? Are you looking at short term rentals, meaning the Airbnb ease of the world? If so, well, then we need to look at a different set of properties. Are you looking to have something have tenants essentially under your feet, in other words, a to family where they're next door to you or underneath, right underneath you? So those are the kinds of questions to think about before you just run in and buy the first thing that you say. Michael: Yeah, that makes a ton of sense and such great tidbits and advice, but I'm so sorry, I interrupted you because I would just like my mind exploded. You have to forgive me. I hope it didn't get too much on the screen here. Pam: Oh, no, no, not at all… Michael: So, that was your for family lower rent at 850. A unit studio? Let's get that. Let's jump back to other side…. Pam: Yes, right. Okay, so probably the standard size is going to be your three bath, three bedroom, one bathroom, right and so that I have a lot of those and I suppose the lowest cost one is 1025 and there I just keep it there because it's, you know, a great family. They've lived there a long time and I'm not interested in changing anything for them. But I have another one where someone just moved in and that's 1500. Michael: So that you bought for 28,000-30,000? Pam: Right, that I bought for that one within a paper that one 345, 345. So yeah, it's a it's good pickings right now, but like anything, you just have to stay strongly tethered to the ground planning for other variabilities that could occur in the market for the two family that I have there. That's two beds, one bath, and that rent is 1000 for each. So I guess I just say that to say that in the north east. Generally the rents are going to be higher however, prices I mentioned a couple of states earlier, I mentioned Ohio and I think I mentioned Michigan and so certainly the Midwest is many, many more houses for the price of a car prices for rent are lower. But that said, Certainly you would target I think, the Midwest for a good solid multifamily, perhaps a three family that you might buy in that 40 $45,000 neighborhood. This is and then it won't hurt as much to have those lower rents. Michael: Right, this is amazing. Pam, what are some of the risks or the downsides that either you've seen or learned about that folks should be aware of and hope to help mitigate? Pam: Absolutely, so the risks, certainly one risk. You mentioned this earlier, when you asked about obtaining a loan and I would say more broadly, the risk is ensuring that you have sufficient cash to whether all of a sudden something is needed on that house, oops, I thought I could just put something to repair this roof and in fact, what do you know the roofer went up there, he said, it's like an eight layer cake made of asphalt shingles and so now I've actually have to replace that roof at a large cost or some other thing. So that's one risk is that you need to have the pocketbook, or access to a home equity line of credit or some other string to pull on. A second risk is how you start. I don't advise anyone to start in the deeper end of the pool, deeper and meaning, let's say auctions, auctions are site on scene, you are not able, at least not legally to go into the house and see it… Michael: I think it might be a story there… Pam: …And see it, it is Buyer beware. So I would never advise someone to do that as their very first house. Start instead with you mentioned MLS, lots listed on MLS, start their land banks, they will allow you most of them anyway, to go inside and bring someone with you to tour the home. I'd say another one, I suppose if I had this to do over again and so like a 2020 hindsight, it's think about when you're looking at homes, if something is in a much better neighborhood, or has some other vein of silver running through it, for instance, it is in a commercially zoned area. But maybe it costs a little bit more not a ton more. So for instance, it doesn't costs 55,000 Instead of cost 65. This thing that's a little better, I would have, I would say to young Pam Hill isn't worried. Those are what you should target the ones where you've got to spring for a little more and the reason why is even though that 10,000 or 15,000 will seem like a lot in the moment, the appreciation value is significantly higher. So that is something I would suggest to folks as well, to not just pick as many as you can dollar store style. But to instead look at where it makes sense to go a little bit higher, and that includes more multi families. 2-3-4 families are always going to be a little better than a single family because that is just one piece of infrastructure in the case of the roof. In the case of the sidewalk in front of the house versus two, I've also found that with multifamily is oftentimes the person who is living in unit one, as soon as unit two becomes empty, they refer you to a friend of family or someone else for unit two and that way you have a self-reinforcing mechanism for rent being paid by both parties because neither wants to see the other get into the terrible shape. Michael: That is very interesting, that's very interesting. Pam on the property that you purchased, and I think I know the answer, but I'm going to ask it anyhow. What has the appreciation been like because as investors we talk about cash flow or appreciation, it tends to not be both or that's what kind of land somewhere in the middle. So what have you seen with your properties thus far? Pam: That's a great question and it even gets back a little bit to the other question around the risks. So I would say First answering the question, the appreciation is not as high when you are buying for the price of a car and thus that is also the risk. If you are looking for a flip opportunity, you would do better to buy your standard $200,000 home, for instance, that is in a $400,000 neighborhood and needs $80,000 worth of work, you are going to be able to obtain, maybe not from a percentage perspective, you might not think, gee, that's returning as much, but absolute dollars are what matter in that example, not the percentage. So percentage wise, my houses have all appreciated quite a lot relative to others to the tune of two or three or even four times as much but think how low the base is. So those houses are really two things. Thing one is cashflow, thing two is lottery ticket for appreciation value. So as a for instance, the houses that I own in Wilmington, Delaware, I would imagine that when the Joseph R Biden library is built, I'm presuming that is going to happen in Wilmington, Delaware. Given President Biden's long experience there as a senator, that neighborhood is going to see some significant appreciation value. So that's where I see the upside, should there be a cash sale as it were of these houses. Something else that you can consider this is more of a risk. But it is something that you can consider when you buy a number of houses that have a common macroeconomic theme to them, like house for price of car, you can think about either a real estate investment trusts, so putting them under a REIT, or putting them under a hedge fund and for those investors who are interested in that higher level of return, you mentioned the 1% versus the six or seven, those investors kind of like low, low investment grade high yield bonds, might have some interest in that kind of portfolio and that can be another way to both obtain cash flow, or certainly to, to get out of the market as it were all together without selling them off one at a time. Michael: Interesting and this has been so eye opening and so insightful. We chatted before we hit record last time we spoke about some of the things that you're doing to be an advocate for some of your tenants and people might hear that and think well, how can I be an advocate as a landlord and also have a tenant relationship? It seems almost counterintuitive, so can you speak to a little bit of the work you're doing? Pam: I'd say first is that I do it, I do it because I feel driven to do it. In the same way that the community that I focus on mission wise is black and brown people, women, but certainly there's room under the tent for everyone. But I think about who has been disenfranchised, certainly by FHA and others, some many decades ago and still there's some of that rattling around in our system. So as I think about tenant rights, there are two in particular in Delaware that I'm passionate about. One of them says that you should not be able to discriminate against a tenant, because they receive a Housing Choice Voucher. In other words, because they receive section eight, it is legal to do that to advertise your home and say I do not accept section eight. That strikes me as a very strange, legal rule, since it is not legal to discriminate for other reasons, including economic source, I certainly couldn't tell a nurse your money doesn't spend here, missy, where are the firefighters? That's who I want. So it strikes me as the same with that and so I am advocating for that. A second one is a right to paid representation for very low income tenants who are facing eviction. This is a one year pilot of sorts that Delaware is looking to implement and that I approach from a perspective of fairness. It seems only fair, that folks who more than likely cannot afford not just a lawyer, but even a day off work to come to the eviction hearing in the first place. It seems only fair that some sort of representation for them just the same way that it's within my scope, should be available and second is from a landlord perspective, my hope is that with that representation, and usually it would not be a lawyer, it would be some sort of legal advocate. But the hope is that, that gives the tenant someone else to listen to, rather than thinking, Oh, Pam Hill, you're just talking your book, I do not want to listen to what you have to say, I'll just take my chances in front of the judge. But by hearing another person, look over their case and tell them, You owe the grant. It's just that simple. Let's work out an arrangement to make a payment. I think that that could help us both, so that's the reason that I am behind these. Michael: It makes so much sense and it is so interesting, and frankly startling to hear that these laws exist, and it does seem so punitive to the tenant and so I really applaud you and thank you for being such an advocate for your tenants and I'm sure that they appreciate it as well. So keep up the good work. Pam: Yes. Thank you, thank you. Michael: Absolutely. Well, Pam, this as I've been saying it the whole show, the whole episode has been so interesting, so insightful. So much fun. Thank you again, for coming on. If people want to learn more about you want to learn more about my smart cousin, where's the best place for them to do so? Pam: Come to my M Y, smart S M A R T cousin C O U S I N.com. Certainly follow me on instagram or twitter with the handle @mysmartcousin. If you go to my site, you'll be able to see a couple of things. One is a free eBook. Second are free webinars that I do and then third, paid courses. So look forward to seeing you there. Look forward to helping you on this journey. Please take action, even if you listen, and then tune out from any sort of hand holding from me or anyone else as quite alright. Just get going on your slice of this American Pie. Michael: Love it. Pam, thank you again. I'm sure we'll be chatting soon. Take care, alright! Pam: Thanks so much, Michael. Michael: Okay, everyone. That was our show a big thank you to Pam super, super interesting story and pretty amazing what she's been able to accomplish at the price points that she has really amazing stuff and really cool work that she's doing being a Tenant Advocate where she invests locally. As always, we would love to hear feedback from you all on things that you'd like to hear future episodes on and the reviews are really helpful for us. We look forward to seeing our next one. Happy investing…

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Episode 611: Devin Haney Is The Undisputed Lightweight Champion W/ Guests ITR Staff, Bernard Hackett, Abe Gonzalez of NYFights.com, and Jesikah Guerra

Play Episode Listen Later Jun 5, 2022 144:50

We start the show talking about Devin Haney becoming undisputed at lightweight, a little a bit about Stephen Fulton's fight as well, (00:41:00) Bernard Hackett, the father of Mayweather Promtoions' Jalil Hackett joins the show to share expert insights, (01:19:40) Abe Gonzalez of NYFights.com previews next weekend's fights including Nonito Donaire vs. Naoya Inoue, Edgar Berlanga's next bout on ESPN, ShoBox on Friday, as well DAZN's Friday card in Mexico, (01:54:00) Jesikah Guerra joins the show with her coach Michael Love to talk about turning pro. -----------Want to support the show visit companies that support us Save 125% on bets made up to $2,500 at BETUS when you use the promo code"ITR"link to the site hereYou can subscribe to ProBoxTV here for $1.99 a month or $18 a year to get live boxing monthly.ITRBOXING LINKS FOR MORE CONTENTThe websiteLukie's newsletterYouTube channel

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AMA – What to do when your first rental is operating at a loss

Play Episode Listen Later Jun 2, 2022 15:35

In a recent Roofstock Academy webinar, we got an interesting question that we were unable to address during the session. The audience member asked for words of wisdom on the topic of being a beginner and your first property is operating at a loss. When is enough enough, and when should you cut your losses? --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by my co-hosts… Tom: Tom Schneider… Emil: and Emil Shour… Michael: and today we're gonna be tackling one of the questions we got from a webinar we did recently, as part of the Roofstock Academy recently did an AMA, which is an ask me anything, and we kind of re labeled it and ask Michael anything webinar, it was a lot of fun. If you missed it, we missed you and look forward to seeing you on the next Roofstock Academy webinar. But a question we got that we didn't have time to answer during the webinar is words of wisdom to share for the first year or two, when your rental operates at a loss. How do you know when to cut your losses? We saw the question, we're like, man, this is a killer question. So Emil, I am just going to farm it out to you. Because I know you got really excited about it. What do you say to folks out there that have this experience or are thinking about investing in a property and this is a concern that they have? Emil: All right, so I got excited about this because it's basically what happened with the triplex, right, I bought it in November. So the first year, November, November of 2020, most of 2021 was spent rehabbing the property, because I knew rent was under market. So you know, it's kind of in the middle of COVID, a lot of vendor issues just took us a long time to get everything done. So 2021 major loss, but now we're, we're good, we've got good tenants in there, I had to get a new property manager and we're at rents that actually, I think a little bit higher than the pro forma I had when I bought the place. So my first year too, was operating at a loss and now I feel like is going to be the true test of does the property perform. So that's my long winded way of saying, I guess it depends on how you bought it, like if you bought it turnkey, and it's operating at a loss for the first couple years. Maybe that's not the greatest time but if you bought it knowing, maybe you're gonna have to update things, you know, you knew like the roof was gonna go out sooner, some something where you knew these expenses, were going to come along, and it's fine, you know, it's going to be a loss originally. But then, hey, you're not gonna have to pay for that thing for a long time, right? You replace it and now you got a brand new age back or roof or kitchen or whatever it may be, so my answer is it depends on those factors. Michael: Love the clear cutness, the directness, Tom, your thoughts man jumping in. Tom: I think in making decisions, like you should try, like as much as possible to like, have it like already kind of like set up in advance. So perhaps there's like thresholds, you can kind of set on expectations? I mean, this might be a little bit like unrealistic for this scenario. So I'm gonna change my answer, I'm gonna say, I think, like, strategy wise, like, are you planning for like a longer, longer term buy and hold? Like, if that's the case, you know, the initial kind of like, upfront expenses, perhaps it's stuff that we're going to happen anyways, like, it was kind of like aging, what not. So I think it's, you know, having that kind of like, plan upfront of like, what your ultimate strategy is, like, let that inform these kind of decisions in the moment. I like that I kind of got two different answers there. Michael: Yeah, I guess. Okay, so as a challenge to that, Tom, if I'm someone I'm buying turnkey, like Emil mentioned, and I'm planning, I plan and identify as a long term, buy and hold investor, but the first two years, just don't go my way. Don't you know, I have a couple more expenses than anticipated, so I'm operating at a loss. What should I do? Tom: I think there's like a little more context. So like, where, where are your where's your value relative to? Or where's your, like, buy price versus the current, like, where are the values that like, could kind of go into that, I'd say probably a mistake. You need to also factor in like transaction costs, like let's say you were to like, sell and then ribeye like that should go into the calculus of like, what you're going to pay, you know, on the agent side, and just the friction of selling. So I think like that should go and count, so it's like there's, it's sort of a a lot of different colors to this painting of a decision and as detailed as you can be like of these different considerations should go into the process of you know, do you sell it or do you buy it? I mean, this is is like a great answer, because it's like kind of like asking other questions. But I feel like a lot of times like the best answers for this kind of stuff are asking additional questions that you should be kind of unearth before making that decision. Michael: Makes a ton of sense, makes a ton of sense. Emil, I love your point about like, oh, is it turnkey or is it known that there's expenses that are going to force you to operate at a loss? Even if all of the things went well, like, you'd look at the numbers, you still put more money into it, then you got out of it? So that by definition, like it's a loss. Emil: It's like, what are you expecting, right? Like, you know, I almost don't look at it as a loss on the renovation, it's almost part of my upfront investment. So let's say I spent 20, I probably spent about 20- 25k, repairing it, I'm not really looking at last year as a 25k loss, even though that is how it is on the like, profit and loss, whatever you want to look at it. I'm more looking at it like okay, here was my purchase price. I had add 25k, now, what is my return on that going forward? Michael: Yep, I think that makes a ton of sense. So how do you think about like, knowing when to cut your losses? If you anticipating, hey, I'm gonna get this thing up to the triplex is a perfect example, hey, I'm gonna get this thing up to market rent, I spent the 20 25k on the renovations. I'm having trouble leasing it, I'm not getting the market rent I thought I was, do you say, well, let's cut our losses and run, I mean, how long are you going to hold on to that for? Emil: That is a very good question and I wish I had a really good answer for that very good question. It's hard. It's like, are you in an appreciating environment, right? Like, like Tom kind of mentioned, if your property values going up, you're making money in a indirect way to potentially be able to sell later? Are you in a environment where the value is going down? Do you bought I don't even know if you're, if you're, if it's going down? Do you sell it then like or do you say, you know, right, I think in 10 years, I guess it really just depends on like, you're at this, this sucks and real estate investing, but like your gut feeling on what you should do, like, do you have a bad property manager? Do you not feel really good about the market? If you have a good property manager, and you feel really good about the market long term? You know, maybe you have more conviction and just kind of weather the storm and hold on for longer and see, like, how does it perform in years, three to five, instead of just determining you know, one or two years? I don't know. Michael: I appreciate like that concept and I agree you to an extent, but I'm going to push back a little bit. Because I'm afraid that too many people's gut feel when you're in the thick of it is all doom and gloom and so when your renovation went over budget, and your property manager sucks, and, you know, your your property has been in foreclosure because you didn't recognize that your loan didn't get auto paid, like all these things are bearing down on you. I think it's really difficult, even if you're an appreciating killer market to see that you're carrying all these all these things on your shoulders, or on your back or wherever you're going to carry them and it's so hard to hold your head up high and see the greater good and so trusting our gut, I think can oftentimes make us lead us down the to make incorrect decisions. Emil: Yeah, yeah, that's a good point. Tom: Yeah, I guess to my original point, like humans are notoriously kind of can be very bad at making decisions. So like, as much as you can bake sort of a decision tree like upfront. With regards of like expectations on what kind of ranges where we hold cut bait, like, I think that's like a really interesting exercise, just so kind of in the heat of the moment, you don't have to put yourself at risk of needing to make decisions that could be like potentially a little bit emotional. Michael: Yeah, I have this buddy and this is kinda like a stock market analogy, he set a stop loss limit on his stock at like the super low price and because he didn't want to lose any many more than that. So for anyone who doesn't know, basically, a stop loss limit is at the stock hits a certain price drops a certain price, it'll automatically show sell either all the shares or the amount of shares that you determine or $1 value determined. So that way, you kind of hedge your downside. Well, he did that and the stock price dropped one cent below, sold all his shares, and then skyrocketed back up, like way above and beyond where it was starting at the day and he was like, oh, my God, like this sucks. I'm like, yeah, dude. Like, why would you do that? That's not a that's not a thesis that I believe in. That's not something that I would ever do. I'm like, man, I'm going all the way down, if it's gonna go down, down, down into the ground, and I've done that before I wrote stocks to zero, which someone could say that probably wasn't the best decision but that's how I invest the stock market. In any case, I think that so often we have these kind of dips like these, these lows and these highs in real estate is no different. Like, things can seem like they're really down in the dumps and they're going terribly and, and just sometimes you have to write it out and if you have the wherewithal like the mental fortitude, the wherewithal, the financial backing to be able to do that great, because the one thing we don't want to do is sell out of necessity, or have a fire sale because now we're being forced to sell. If I could recommend that anyone sell at any given time, it would be when it's ideal for them, or when they've set the kind of, they're able to dictate the terms under which they are selling. I think that puts you in a much more powerful position. I'll share an example just for my personal like, portfolio, I bought a property back in the day, it was an eight unit in the Midwest, I bought it for 305,000. The rent in place rent at the time was like 4850. So on paper, just like killer property and the expenses were just through the roof, a lot of deferred maintenance that I wasn't aware of a lot of like death by 1000 cuts type of ordeal, or just one thing after another after another after another was going wrong and the repair dollar amounts were stacking up and I'm like man, should I sell this thing should just get rid of it, I kept it and today the in place rents are like 7500 7400 over like a four or five year period, the rents are going up $3,000 a month and so now there are still some of these kind of miscellaneous erroneous pain in the butt maintenance items. But the rents have gone up so much that it really takes care of itself and so I think, Tom to use an analogy that you often say, real estate so often is going up into the right, from a value standpoint, and from a rent standpoint and so I think if you can hang on, even if you are operating at a loss for a couple of years, and it doesn't change your lifestyle, like it's not a massive, massive, massive loss hanging on can often get you through the worst of it. Now that's not to say never sell that's not to say never cut your losses and run but oftentimes, I think it can make sense to really hang on, especially just getting started because you might not know how beneficial that real estate investment could be over time. Tom: Yeah, conservative underwriting another yeah, good takeaway and yeah, I totally agree that that's like I think like a short story, I like yours a lot better. But you know, I had a friend who bought and he like had a few issues like with, you know, rent collection were just delayed or in some, like maintenance came up and he like, kind of like panic sold and I was like, man, like, why did you do that? Like yeah, anyways, but yeah, fortitude. I like I like that and be kind of prepared for the for that kind of stuff in your underwriting, yeah. Michael: Yeah, I guess that reminds me of like my very first property I shared it on on prior podcast episodes, but I just got absolutely hammered with my very first tenant, exiting, like leaving the property that to evict them, they smear human feces on the wall, but small claims court, like it was just such a whole ordeal and I remember, like one of the guys asked me, well, why did you keep investing and when I was too stupid to know any differently, I was like, I didn't know that it could, like that isn't the norm that those kinds of things can happen. But that's not traditional and so I think if I had stopped investing, or I had sold that property, I would have been definitely bummed because I actually just sold that property recently in a temporary one exchange, and it had doubled in value over the course of I don't know, eight, eight years, nine years, something like that. So I'm super thankful I held on to it, I'm super thankful I was too dumb and too green to know that I should have sold and so I think Tom, you made the point to think about the selling costs associated with selling the property and you're gonna pay like 6% to an agent, probably if you go through so I'm gonna pay 3%, so just for the agent costs there are often other costs and fees associated with it. So even if the property has appreciated, you still might be selling at a loss because of those fees associated with selling so I think you got to think long and hard about it versus what the potential upside is and talk to other people like talk to other investors in the area what they're seeing because like we mentioned it can be really hard to see the benefits and the upside when you're down in the in the thick of it. Emil: Way better to like feel good about a property it's been doing really well and then you're like I think I'm ready to sell this then like you've just been you know, you've hit the hard part and you're like selling into that right before it potentially is just like going to do well for you. Tom: This is another kind of shout out for like mentorship is like another big thing because like you know you might have like subjective getting some like subjective outside stuff like I mean I love that I can bounce this stuff off of Michael and Emil. So like getting mentors you know is up there I'd say like you know, making sure you're underwriting conservatively and then getting a second pair of eyes is really helpful. Michael: Totally! What was, was't it Gandalf who said like it's always darkest before the storm or like or before the day I don't know something like you're again before the storm, like I get off impression… Emil: Yeah, really good. Michael: With that, let's get out of here. All right, everyone that was our episode. Thanks so much for hanging in with us, especially towards the end there was kind of touch and go. If you liked the episode, please feel free to leave us a rating or review. We love answering ama type questions. So if there's something that you want to hear more about or get answered on the podcast, leave us a note in the comment section and we'll try to get to it on episode. As always, we look forward to seeing you on the next one. Happy investing. Tom: Happy investing!

covid-19 god loss midwest ama operating rental emil gandalf roofstock michael yeah michael love tom yeah michael hey remote real estate investor

Here is what investors should know about the Tampa Bay real estate market

Play Episode Listen Later May 17, 2022 30:20

A Florida Native and graduate of University of South Florida, Jeff Wills is an accomplished Tampa Bay Area agent who brings a strategic yet personable approach to the home buying and home selling process. Drawing from years of experience as an agent in the Tampa market, he has built a solid reputation for himself as an industry leader with a solid track record that specializes in attention to detail in commercial and residential transactions. Investors are buying homes in Tampa at a record rate. Between July and September 2021, one in four homes that sold had an investor as the buyer. According to a report from the Tampa Bay Times, Tampa Bay ranks as the 7th hottest metro area for investors nationwide. Today, Jeff talks about the Tampa Bay market: neighborhoods, price to rent ratios, economic drivers, geographic considerations, and more insights that investors will want to know before making moves there. Episode Links: https://sefair-inv.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and joining me today is Jeff Wills, our certified agent out in Tampa Bay, Florida and Jeff's gonna be talking to us today about all the things we as investors need to know and should be aware of, if we're investing in that market. So let's get into it. Really quickly, before we get into the episode today, I want to encourage everyone to go check out roofstockacademy.com. Roofstock Academy is our one stop shop for real estate education, independent of whether you're just getting started or a seasoned investor looking to scale up or get involved in a different asset class. We've got lectures, we've got coaching, we've got one on one slack access forum and a plethora of other financial benefits, as well as money back on your marketplace fee credits. If you're transacting on Roofstock. So come check us out at rootstockacademy.com look forward to seeing you in there. Jeff wills thanks so much for taking the time to hang out with me today, man really appreciate you coming on. Jeff: Absolutely, man. Love to do it and thank you for having me. Yeah, of course. So Michael: Yeah, of course. So we're just gonna like jump right into it and we're talking today about Tampa Bay, Florida. I want you to give all of our listeners why Tampa why now. Jeff: So why Tampa why now honestly, I've been hearing that a lot. However, it has been very, very popular as of late. A lot of the big things that people are hearing, actually, just yesterday, Goldman Sachs bought 305 units in downtown Tampa for 168 million, setting another record price per unit and a crazy valuation for cap rates right now and so there's just there's a lot of synergy. The biggest thing behind it has been Water Street water streets about halfway through its 10 year growth plan. They've got phase one out of the way, phase two starting, and that has really brought a lot of life and vibrance to Tampa that was kind of growing and burgeoning there prior to COVID prior to all the popularity we have now, but I think it's really hit its peak and honestly, it's probably got a good you know, 10-20 30.50 years stride to soon looking like Miami, although personally I hope not. I'd like there to be a little bit less people and, and keep the enjoyment that we have here and honestly, you know, Tampa is a big town, it's a big population. But it really does have an extremely small town feel with the micro communities inside the neighborhoods inside the certain you know, sectors and where we are on the map and near the water and so I think Tampa has a lot to offer, both from an investment standpoint, from a long term hold appreciation standpoint, and especially, especially a rent gross. I don't know what that's gonna look like now, just because you know, kind of has hit a very, very high mark. However, we're not seeing any vacancies. We're not seeing, you know, any kind of rent concessions. I was just talking to a very big property manager yesterday for a different reason. But they were saying, yeah, we're barely giving written concessions. We're hitting full market rent. Everything's at 95% occupancy or above and there's no signs of stopping. So I love it, I I've always thought Tampa was a hidden gem before COVID and before things got crazy, but you know, kind of very lucky to be here now and enjoying every minute of it. Michael: Right on, Jeff, that is that's super interesting. So I'm wondering, what was that cap rate that they got for the Goldman Sachs purchase, do you recall? Jeff: Honestly, I don't have that in front of me, I can almost guarantee it was probably sub four. Even after tax adjustment, it's crazy. I actually lived in that building. When it first opened, I got a I snuck in with some written concessions and realtor bonuses and stuff like that. So I kind of skated in a bit but I mean, it went through a lot of challenges. I mean, management was horrible. Two years, they had the same management then fired that one and then fired another one and they've had problems left, right and center what that building just knowing because I've got friends that live there and stuff still and it's still selling for that price given I mean there's a bar across the street that has so much drama tied to it. It's insane, that the publicity from that sale has anything to do and so backing up from that Goldman Sachs has long been rumored to be taking a very, very big piece of the pie in the Waterstreet office space and so while that hasn't been announced Goldman Sachs buying that building to me just sounds like corporate housing instead of them having to go and give all their employees stimulus, oh, we'll give you a 5000 monthly allowance. They'll say hey here, we've got a block of rooms, pick one enjoy yourself. It's paid for and I think that might be how they're skating that market rent because some of the stuff and water St. Tampa is going up. Actually, I just talked to my friend yesterday 966 square feet with a big balcony 5000 a month and it's it was exactly what I did you have 550 a square foot. Yeah, um, it's, it's insane and I mean, once you set that, once you set that standard, I mean, they do. I mean, okay, the Heron is the best multifamily building I've ever seen. But I mean, setting that precedent, all people have to do is just be nearby and just enjoy the overflows, people who can live there and by the way, they have zero vacancy, and they have a weightless for that unit. That's coming up down hole, it's crazy. Michael: Holy smokes. So Jeff, you clearly an expert on the area, give people a little bit background, who you are, where is it that you come from and what is it you do in real estate today? Jeff: Absolutely, so I grew up about an hour north of Tampa and a county called Pasco, a very small town and to me growing up, Tampa was a big city, a really big city, I had been there three, four times the aquarium a couple of times, and I just every time staring at the top of the skyscrapers and that was just the biggest thing to me and growing up, went to college, didn't really know what I was doing there. When for finance, I was like, yeah, let me kind of figure stuff out. My dad one day was like, hey, why don't you just, you know, pop into real estate, see what's going on? I'm like, yeah, sounds fun, should be pretty flexible. I like people, like, give it a go. Seven years later, here I am and it's just been, you know, from top to bottom, you get to help people with something that's extremely difficult, extremely stressful, and very nuanced and I mean, you know, from deal to deal, there's always something different. There's always a different backstory a different why and even growing up prior to all that I've always kind of felt that I was a good listener. You know, I, of course, I have my own, you know, opinions and desires and stuff. But I was always able to kind of peel back, what is somebody looking for? What does somebody want to do? You know, what they're, they're telling me one thing, but what do they actually mean and I've always, you know, of course, ask them, hey, you know, you're saying this, but what do you want this, and it's just been very enjoyable and, you know, the client feedback is the same, I've got a ton of referrals, a ton of repeat customers, and it's just, it's very, very enjoyable for me to be able to, you know, simmer it down to its the parts that they can control and make sense of, and then I just handle all the other legal mumbo jumbo stuff on the back end and it's just been very, very enjoyable. The first three years, I was very retail focused, you know, end user not very investor friendly, and kind of got bored with that and I was like, you know, I, I've always enjoyed numbers always been pretty good at numbers, like, why can't I get to the investor side of things and that's when I joined my current brokerage see fair investments and from there, it just kind of skyrocketed. Our offices set up extremely streamlined and efficient, to the point where in the past 13 months, just me and my broker together have done about 137 million in business, and 98% of that was investors and we're just, we're just masterfully efficient, fine-tuned and, you know, we know how to strike valuations from, you know, Jacksonville down to Fort Myers, it's, you know, it's a few things we know how the appraisers operate, we know what a tenant is going to do to it as far as evaluation what people are paying, because we've got 30 under contract that we can look at and say, oh, you know, hey, a cap rate is this based on this or like, we just have a ton of insight and ability to help our investors and you know, even just last week, you know, we have, you know, I guess it's kind of our, our secret sauce, but it's very simple. Every Friday, all of our clients get an update, regardless of status did nothing happen, hey, nothing happened today, you know, that just wanted to let you know, have a great day and yet again, I had another client last week said, hey, you know, honestly, we haven't even spoke on the phone. Once. It's been all email. I just wanted to say thank you. You were exemplary and you know, he even brought up the Friday things like every Friday, I had an update, I didn't need an update. I didn't you know, I didn't ever had a question about what you were doing, how the property was going and so while those compliments don't always come, I mean, it's always 9 to 10 with that, we haven't had very many upset people at all and they always bring us their next listing or, hey, I'm trying to buy in here and buying has been very challenging right now. So a lot of the investors are on hold being patient, seeing what rates are doing. But all in all, it's been really, really great, especially on the sales side, and we're just, you know, happy to help people while we can while the market is doing great. Michael: Right on. Well, it sounds like if you ever transition careers whenever you're done to be ready to be done with real estate, you'd be a great therapist. good listener. Jeff: Oh my gosh, I joke about that all the time. I tell people sometimes like, man, I've done so much marriage counseling, I'm good to go. We need to like do one deal. You'll know you'll get one and I'm saying, oh, that's pretty, it's, it's a lot, but it's just very easy. You know, I mean, the end of the day, people want a couple of things. They want to be comforted, they want to be, you know, they want to know that you're honest, and they want someone reliable and if you can fit those buckets, while being a joy to talk to and to interact with, I think that's really all I needed to do. Michael: Love it, love it, love it. Well, Jeff, let's dig into the kind of meat and potatoes of the Tampa market a little bit and give listeners some insights into other than this Goldman Sachs transaction, which set new record highs and the buying being a little bit difficult. Let's educate people about the Tampa market. So who are some of the major employers in the market and are you seeing people moving to the area or maybe moving out of Tampa? Jeff: Definitely a massive influx, I'm not sure the exact daily rates, but I know Florida, pre COVID was about 1200 people per day. After COVID, we're at about 2400 to 2600 people per day from out of state moving to Florida and while that's not always Tampa, that really is the only place that has had affordable housing, affordable rents, especially compared to Miami. Compared to Orlando, Orlando is a relatively higher price than us just because it was more pocketed it was hard to find an actual community over there. While there are a handful. It's very spread out and sprawling, and Tampa is extremely concentrated. Some of the larger employers in Tampa are, I wouldn't say there's one or two, the majority are a lot of health care providers, hospitals, doctors, stuff of that nature, a very big presence with attorneys and then honestly Tampa is becoming a very, very big tech hub. Reliaquest is a very big cybersecurity firm, they signed in Waterstreet for the top of their class, a class A office tower and so it's been rumored I've seen a couple articles that Tampa is the next Austin as far as a tech hub and you know, we're tax friendly. We don't have any state income tax, we have homestead, there's a lot of things that were already here and then now as other states like California are being, you know, more tax even more stricter on a lot of things. It's just it's increased that flow and I don't think that stops for a long, long time. Because Florida has so much land, we have so much room for stuff and while you know, even though you might not be right in the heart of Tampa, a 3540 minute drive is no big deal and you are close to a million different things inside that span. So just you know all of those things and then one underlying factor too, that I like to tell that nearly no one knows that I mentioned is pre COVID. I haven't checked these numbers after the Port of Tampa. Probably Never heard of it does 3 billion in revenue every year, if not more and so that has been a very silent provider. Actually, one of the biggest companies in Tampa is mosaic. They own right over 400,000 acres, and they're a fertilizer company. So they are huge in Tampa, as you know, from ground all the way up to politics and everything else. So they are very big employer and advocate for the port and everything else that's going on there. Michael: Right on and Jeff, you give folks a sense of like, what is a traditional typical three, two, single family home cost and what would the rent look like and maybe you can give people an idea of some of the different neighborhoods in which they could be considering? Jeff: The median home price now is right around 335,000 today, and we have about less than two months of inventory, scroll back to 2019, we had about six and a half months of inventory. So we've reduced that by about 300% and days on market, three to five days max, if it's even close to move in ready and that that median price. I mean, I'm looking at the chart now it's almost it's very, very close to 350,000 as of today, and it's just it's very, very challenging, but some of the better neighborhoods. So if you're in Tampa, South Tampa is really where you want to be, but those price points are honestly million dollar homes for a three two and so those rents and cap rates just won't sweat. They won't crack the code for what we're looking for and what honestly any investors should be looking for. So that's not really where we want to be. But I would say that Brandon is a great area. It's just outside of Tampa. It's about 30 minutes east, very sprawling tons of land, tons of nature, tons of trees and that area is a great neighborhood. Same very roughly same median price per square foot, you'll probably be able to get rents around anywhere from 1900 to 2200 for that size home depending on the condition and that's honestly a pretty savory return. Of course, you're now seeing foreign 450 be the norm there too but the rents are following. You know, I mean rents for those are 26 to 2800, all day long and sometimes that makes the cap rate, it maybe the cap rates a little more compressed and the overall return, but the cash flow is higher, and you know, the appreciation is going to be there. Another and it's really hard to find a great cap rate neighborhood right now, because it's just, it's getting nipped up so much. If you go west of Tampa, north to the west Chase Oldsmar area, that's a great little area to that has very, very, very, very quickly start to price up as everybody's moved there, to where they couldn't afford South Tampa to where they couldn't afford north of Kennedy and West Tampa and so that's an excellent little pocket there great schools, great golf courses, you've got all ages that enjoy that area, which is, in my mind, for somebody that's looking for a renter, always, that's a good market to be in and then if you go north of Tampa, you've got Carolwood up there and greater Northdale. So all that area, there is also a great pocket of Tampa, the price points are going to be pretty high on average as well. But you can still find that starter entry level home and if you can get it at a good cap rate buy it, the every growth that I've seen is coming north of Tampa, in waves and this cheval Lutz area all the way over to Keystone in an East Lake. This actually has the highest concentration of wealth in the Hillsborough County so it's actually not in South Tampa. It's not in downtown, it's not on Davis Islands, which is a phenomenal honestly the best part of Tampa but a home there's you know, 4 million for 1500 square feet so those prices are crazy, but this area is excellent very equestrian, tons of lakes, tons of lake homes, tons of golf courses, nature trails preserves, an excellent up and coming area to be in and then one last area I'd like to highlight is the Ybor City and Seminole Heights area. So this area is directly north of downtown Tampa and if anybody on here is familiar with St. Pete and fourth Ave, fourth Ave, stretches out of downtown St. Pete and goes north and that stretch is probably a 10 mile stretch of the most golden real estate I've ever seen retail shopping centers, storage homes, but that's been there for 20-30 years and then north and east where you see that Columbia restaurant is Ybor City, historic Ybor ton of culture there a ton of background ton of history, an excellent place to be but it is very, very pocketed and very hard to find land there, but would be an absolute killer. The next best spot is going to be Tampa heights and Seminole heights. If we see the Hillsborough River here, that's kind of the cutoff point for Seminole heights and then everything south of the Hillsborough River to about 15 Street is both terminal, Tampa heights and Seminole heights. Those areas are fantastic. People love to be there. There's a whole bunch of you know, farmers markets and pop up shops and just cool boutique II stuff that is not you know, another McDonald's and Taco Bell that people are bored with. So this that's another great neighborhood, and that also sprawls out into a sea wells wood, and then West Ham over here by the airport. Michael: That's a super great overview. Jeff, thank you so much. Jeff: Absolutely. Michael: I'm so curious if you can give people an idea of how property taxes work, because I think that can often be and I'm sure as you see, one of the biggest maker breaks of a real estate deal. So give folks a walkthrough in the Greater Tampa area. Of course, it varies county by county, but how should they be thinking about property taxes? Jeff: Excellent questions. So obviously, we all know taxes based on a millage rate, every county, like you said is different county by county. But based on that, I mean, there's really not much else we can do to kind of guesstimate and or further understand it besides going to the Property Appraiser website. But plugging in the property and estimating the taxes. A good rule of thumb with that though, is that I found is anywhere between 85 and 90% of the purchase price, and then take the millage rate, then we can kind of skip the step of you know going in there and directly estimating it but that is that will get you within 99% accuracy of the taxes when they become reassessed after closing and so again, that's 8085 to 90% of the purchase price. So if it's 400 it's gonna be about you know, 375 380 and then take the millage and then that'll be your that'll be your new annual tax roll. And that is very, very, very, very important to take into account because I've seen a lot of investors in the past, go into a property and just pull the current taxes without any idea that they're gonna go. If that person's owned the home for 30 years tax you're going to have Got 1000 a month on a $400,000 home after you close, they're going to be closer to about, you know, five to 6000. So that that alone can easily skew a deal. So you always want to make sure that the taxes are, you know, properly at least estimated going in and then double checked while you're going through the process. Michael: Jeff, you said 1000 a month for that 30 year old 30 year old hold, but I think he made 1000 a year, right? Jeff: Correct. Yeah, absolutely, 1000 a year for sure. Michael: Okay, okay. So is there like a good rule of thumb, if someone doesn't know the millage rate like 1% of the sale price, or one and a half percent of the sale price, Jeff: I would I would inch to one and a half percent of the sales price because I'm seeing more and more than a $400,000 home is any anywhere between 5500 to 7500, depending on their tax district and while it is county by county, there are some overlays in some certain neighborhoods and CBDs that we'll have some effect on that. So I would I would definitely lean to one and a half percent and then if you want to be real conservative, just go 2% and then it'll always be below that. Michael: Okay, right on. Now, anyone who's ever listened to the news ever, or who follows any kind of climate or weather has heard about that Florida has hurricanes. Talk to us a little bit about some of the weather and climate, things that are unique to Tampa that someone from California might not be aware of. Jeff: Right, well, I will say anything that you've seen from not being in one, it's always way crazier, that are way less crazy than what they say it is obviously… Michael: People hanging on the palm trees, you know, getting strung out. Jeff: Oh, yeah. All, all extremely oversaturated. In my opinion, the biggest thing with Tampa Bay is flooding. And that really only happens in South Tampa and waterfront properties. So honestly, I would say any investor in Florida should really avoid waterfront properties because of hurricane insurance and flood insurance. They're just too high and they're gonna kill your returns not on not including any liability insurance you have. For the tenant that's there, I would say waterfront would work excellent in a short term rental, because that's kind of a hotel experience. But a long term tenant really is not going to do great there. I would certainly avoid it. Overall, if you're in the mainland and not in the low lying area, hurricanes aren't gonna do just about anything to you. As long as the home is up to code and you have a you know, Hurricane Preparedness step do you have the metal covers for the windows and just, you know, it's simple Google search will show you how to get hurricane ready, but it's really, it's really way more than they hype it up to be. Michael: Okay, awesome and that's a really good point that you bring up. If the house is up to code, you expect it to withstand a hurricane or not became a drone? How should people be thinking about older housing stock or does Tampa even have older housing stock, like in California, we've got a lot of 1950s built ranch style homes. That's just a lot of the bulk of the inventory, what are you seeing there in Tampa? Jeff: Exactly the same, the bulk of the inventory is probably going to fall in the 1970 range, a ton of homes and that 1950 to 1980 and then honestly, in Ybor you'll see a whole bunch of homes in 1912, 1915, where the area is very, very old, and has a ton of homes with crawl spaces. So what you want to avoid is homes on a crawlspace. If it doesn't have a slab Foundation, honestly, just avoid it. Can you get around it? Can you figure it out, can you have a foundation inspection? Absolutely but those are all things they're going to tack on to the cost and your whole period. If you're a five year holder, maybe it's not a big deal. But if you're at 1015 20, you are going to be dealing with foundation issues, at least at some point and it is not cheap. So that is one thing I would avoid with the age of the inventory and then one other special thing that kind of gets talked about a lot in Florida is sinkholes and so sinkholes are extremely common. They're not as bad as again, as you see on the news 99% of the time. But what happened back in, I would say 95 205 a couple people had a sinkhole that was relatively bad, you know, the home was falling in and unsafe living conditions and then insurance companies and engineers that were working with them came into the entire neighborhood and said, oh, you've got settlement cracks. This looks like a sinkhole and so you'll see 85% of homes maybe even higher than that that have had a sinkhole remediation done with no significant repairs or need for that at all and once the sinkhole home has been remediated with either a chemical grounding a underpinning or a another. They actually insert concrete under the home once you do either of those three things. Your risk for a sinkhole after that is slim to none because once you solidify all the Lime Rock and silt that's under the home you're done, there's nothing to worry about, just check for warranties, and make sure that engineering report gets to your insurance provider and I believe there's still only two insurance providers in the state of Florida, that will insure a single home. So it's going to be a little bit more expensive as well. So just keep that in mind. Michael: Okay, good to know and, Jeff, I just want to go back to the foundation, you said that to avoid slabs or avoid crawl spaces? Jeff: Avoid crawl spaces. I mean, you don't have to avoid them at all costs. But if the house looks a little wonky, even on the photos, just go on to the next one. I've seen 95% of every home that I've been that has a crawlspace has some sort of issue, you can drop a marble in the kitchen, and it ends up in the living room every time. It's just Florida. I mean, Florida with sinkholes, and still homes horrible mixture and there's not a ton of those. But you'll see him a lot in Ybor City a lot around some of the older areas of Tampa, but just stick to the easy stuff, you know, slab on frame or slab on block and you'll 9 times out of 10 you'll be good to go. Michael: Okay, right on and from a kind of hurricane perspective, what are your thoughts and what should people be looking out for in terms of roofs? Jeff: You want as long of a life expectancy on the roof as possible, um, shingle roofs are great, every roof made in the past, I think from 2010, or maybe even earlier, since we had that one bad hurricane that came through all of the code is updated. The majority of the roofs have roof strapping that straps the trusses down to the block and that helps tremendously during hurricanes and just about every home has that and when you get an inspection, you do your wind mitigation and that is a very, very, very big piece of the pie to save you money on insurance, especially if you're considering hurricane coverage. So I would say maybe one out of every 100 to 200 clients gets hurricane protection. But it's available and honestly, you really just want to make sure that it has up to code roofing and those standards and it'll be just fine. Michael: Right on and kind of in the same vein as insurance. What are you seeing or do you have a good kind of ballpark estimate for clients and listeners about what insurance costs are in Florida? Jeff: Absolutely, to keep it simple, like we did with the taxes, I would probably say that's very close to the 1% rule and probably even a little bit below that, a $400,000 home. I've seen quotes anywhere from 2800 to 3800. So if you use the 1%, it's going to be less but you know, as long as you're not in a flood zone and don't you know don't have any hazard or wind additional add ones, then that should be a perfect, perfect metric to keep track on. Michael: Right on. Jeff, this has been super awesome, man. Any final thoughts, things tips tricks that folks should be aware of as they're investigating the Tampa market? Jeff: Absolutely don't wait, don't sleep if you want something, get it now get it while it's hot, because it's only going up. I think we've been undervalued for a very long time. I think we're at market value now. But I think the you know, honestly, the 10 to 30 year window and long range gross of Tampa I think is going to pay massive dividends for whoever can get in there. Michael: Right on and I guess my last question you, are you seeing stuff go over asking or are you still seeing things come under list price or how are you seeing that? Jeff: The market right now is very weird. Only because I've been used to just stuff flying for 18 months now. With the rates kind of adjusting the way that they have been everything has slowed to a tolerable level instead of 20 offers on a home we have three to five, so it's still chaos, but it's controlled chaos and something we can all deal with a little bit. But yet if you're not offering asking, you're not getting the house, if you're not offering 10 grand 15-20 above the house, you're probably still not getting it if somebody else's cash. So it's, it's extremely competitive. You have to be willing to push that cap rate on your own and be ready for the appreciation and the rent growth next year to kind of float you to where you want to be. Michael: Okay, so good to know, Jeff, our certified agent out in Tampa, and folks have questions for you want to get a hold up? Where's the best place for them to do that? Jeff: Absolutely. Um, you can visit our website at any time https://sefair-inv.com or feel free to reach out to me directly. My cell phone and email will be left in the podcast notes and I'll be happy to do whatever you like. Michael: Right on. Thanks so much Jeff, can't wait to hear from you to chat soon. Jeff: Absolutely, buddy. Have a great day, thank you! Michael: Thanks, take care. All right, everyone. That was our episode A big thank you to Jeff for coming on and hanging out with me. It was a lot of fun, super interesting and clearly he is jazz about the market. I think a lot of us should be too. As always, if you've liked the episode I would love, love, love to hear from you all check out some ratings or reviews from you all and just hear what you have to say about the show. We look forward to seeing on the next one and happy investing!

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Find deals that work for you and invest with confidence w/Tamar Hermes

Play Episode Listen Later May 10, 2022 31:32

Tamar Hermes is a full-time real estate investor and educator. After building successful businesses in the retail and entertainment industries, she turned her attention to real estate with a mission to get more women to become investors and continue to build her portfolio. Tamar has been investing for over 20 years with a focus on appreciation with buy and hold single-family homes and duplexes in Los Angeles. In the past few years, she has expanded her portfolio to include passive multi-family investments across multiple states, private lending, and Airbnb properties. She bought her first duplex when she was 28. She always had a knack for saving money, but it took her years to discover there were other ways to earn income besides working a 9-5 job. Today, Tamar will talk about how financial freedom is possible through real estate and the importance of knowing how to allocate and invest your money and protect assets is a critical piece of sustaining financial independence and creating a legacy. Episode Links: https://www.themillionairessmentality.com/ https://wealthbuildingconcierge.com/ https://quiz.tryinteract.com/#/60bd0792decf1d00177af595 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey everyone, welcome to the Remote Real Estate Investor. My name is Michael Albaum, and today I am joined by Tamar Hermes, who is an author, investor, coach, an all-around awesome person and she's gonna be talking to us today about what it's like to get started, as well as some of the different avenues that investors can take as they're going down their investment journey. So let's get into it. Hey, everyone, just a quick note, before we get into the episode, today, I wanted to give a shout out to the Roofstock Academy, which can be found at roofstockacademy.com. It is a one stop shop for your real estate investing education, independent of where you're starting from whether you're just starting out trying to get that first deal done, or a seasoned investor with a sizable portfolio, looking to get involved some other asset classes, or maybe streamline your investing. We've got stuff for you. It's comprised of on demand lectures, so you go at your own pace. Some of our programs have one on one coaching access to private Slack channels, forums and group coaching sessions. So come check us out at roofstockacademy.com. Look forward to seeing you in there. Tamar, thank you so much for taking the time and joining me on the podcast. Really appreciate you coming on. Tamar: Thank you so much for having me. Michael: Oh, my pleasure, so I know a little bit about your backstory. But I mean, you're an author, you're a coach, you're an investor, give us the little background of who you are, where you're come from, what it is you do in real estate. Tamar: How long does this podcast? Okay, in a nutshell. So my background is similar story, as a lot of investors that start out in real estate, I was looking for a way to lower my expenses and so I bought a duplex over 20 years ago and the rest is history, I realized that I could get other people to pay my mortgage and it was very exciting and I went on and did more of it cut to I did grow up without anything. So I wanted other women to realize the opportunity in real estate and that's when I started wealth building concierge. I recently wrote a book, the millionaires mentality to teach women how and men too actually should say, how to invest in real estate and the many ways in which you can do it and the many ways to build wealth through real estate. Michael: Oh my god, I love it. Well, there is a ton here to unpack, we'll see how much we get through in today's episode. But so the duplex that you bought, you obviously bought it locally because you were living in it, and your future investments and kind of proceeding investments after that were those local or those remote? Tamar: So when I first started investing, many years ago, in Los Angeles, I was living in the duplex and so I bought there, and I continued to buy there because we didn't I didn't have the resources that we have now and I didn't realize the opportunities of investing out of state. Over the years, I have investments across the country now and I also invest in both passive and active meaning that passive that I give money to partners and they do all the work and I get a piece of the pie active where I do the work and I take advantage of the real estate professional status and get to enjoy all the perks of controlling my own asset. Michael: Love it, so on the remote real estate investor podcast, we've often done showdowns between single family versus multifamily passive versus active investing and we try to take a stance and defend both positions having done both, which do you like better and why? Tamar: I will say that I enjoy both for different reasons. I enjoy both passive and active. I ultimately like passive better because passive is where you're on the beach in Hawaii, drinking a Mai Tai while you are collecting checks, so that kind of trumps everything. Although active gives you tax advantages, it gives you more control over your investment and it is a way in which you can also learn a lot more about real estate investing because if you're passive, you need to learn a certain skill set in terms of looking at analyze a deal and how to vet a sponsor. However, you don't need to know all the ins and outs of how the property management works and the ins and outs of negotiating, finding the deal. Dealing with the tenants all of that those aspects. So there's a different, it depends on what you want to accomplish as part of my whole platform, where I feel like right now we're in a time where real estate investing is very popular, which I'm so grateful because there's enough for all of us, and we can all make a lot of money have owning real estate. What I do get concerned about is that there's not a lot of thought or strategy around what we're buying. So a lot of investors now they might say, okay, I want to buy Airbnbs and the goal is to cashflow 10,000 a month. Well, that's a great goal and that's wonderful. However, what is the big play in terms of the Airbnb and where are you really going with that and what then is the property appreciating or is it just in a market where it doesn't appreciate? What happens if the market changes and will that place still rent as well or do you have to turn it into a long term rent and can you can it? Can it take the that strategy? So there's a lot of pieces that I like to think about in terms of mitigating risk, and in terms of wealth building in terms of how do we build a portfolio where we have passive income, where we have certain assets, performing in certain ways and other assets performing in certain ways. And I'm also in private equity deals, I'm in crypto, I like a diversified portfolio. Michael: Love it, love it, love it. So if someone is just getting started, they are trying to get their legs under them invest in their first deal and they're getting kind of overwhelmed with the amount of stuff that you have to learn and do to get involved into an active ownership deal. Do you think passive is a good place for someone to get started or do you like people to see, go the active route, get their teeth cut, get an education to understand what goes into the back end stuff around the passive deal? Tamar: That's a great question. I think it really depends on one big factor, which is how much time do you have, if you are a busy professional, and you are working or running companies, and you're not really that interested in real estate, but you want to benefit from the profits that are available to you, then passive is certainly the way to go and then I would I would do is focus on that dive deep into meeting the right sponsors, finding out about how to look at the deals and learn about certain deal structure and the benefits and that is a great way to go. If you are someone who is young, you've got time you're interested in real estate you want to be in the game, get your hands dirty, then you want to be asking yourself, what is the most appealing aspect of real estate in terms of do you like and Airbnb, a lot of a lot of people don't like designing, they don't want to deal with all of the nuances and the expense sending up an Airbnb, Airbnb is expensive, there's not a lot of way around that if you're going to furnish a place, you're going to have to put money into it. So those are if you don't have that resource, then that might not be an option for you right now. Granted, if you're able to maybe do a get a property where you can get a low enough deal and get enough appreciation into it and do sort of the burr then you have the opportunity to do the option of Airbnb and because maybe you have enough money in the deal there or maybe you take a partner. So those are just examples. A very simple way to get started is even with Roofstock, you do a great job of providing turnkey properties where people can go on and figure out where they want to buy and then do a purchase and start learning that way. That's another great way, keep it simple. Michael: Tamar, I think that's such great insight and I know that you've done all kinds of investing, you've implemented a ton of different strategies, kind of throughout the country. So I would love if you could give people just a taste of some of the things that you have done and then I'm curious to get your thoughts on what your favorite has been. Tamar: My favorite investing strategy is passive investing and I'd say that as a general because any project that you can get in on where you are making mailbox money is a good project and especially when those projects exit, you get another bump and you're looking at interest returns of close to 20% generally annualized when it when it all shakes down when once a project exits. So granted, you have to remember it's it an investment, so it could vary and even if I'm making 14% annualized, I'm pretty happy. I think that's a pretty great return for doing no work and putting my money in. Now my favorite investment strategy for if you are just starting out is a little different. I would say right now my favorite investing strategy for starting out is probably the Airbnb model and I think I'm not alone and that's why it's become so popular because you can cash flow properties and buy in appreciating areas, which is sort of unheard of in the past, when you would buy in Los Angeles. Well, Los Angeles is a bad example because they have terrible laws for, for tenants. So that's not a good example. But let's say Austin, where I live now, Austin is a great city. So it is possible in Austin or San Antonio to buy a place if you if you are savvy and you can buy it right and get a great opportunity, then you can move into an Airbnb structure. Now, I should say, though, in Austin, there are regulations, so you need to go outside of Austin, but certainly San Antonio, there's a lot of places where you can do it and you can actually buy in an appreciating area in Florida and Georgia, there's a lot of places and I just think that's a great strategy for a beginner, you do need some money, like I said, because you got to furnish the place and it is harder to buy in an appreciating area, because prices are higher. So if you don't have as much money, it makes it cost prohibitive. But there are a lot of labor areas that you can go in Texas, in Florida, in Georgia, in Idaho, where you can make money and do well. Michael: Love it, so I think what's hard for so many beginning investors and curious to get your thoughts if you see the same is that there are so many different things, so many different rabbit holes, an investor can go down, oh, I want to learn about wholesaling and go through that I want to go learn about burr investing go to that I want to go into fixing, flipping, go do that and so it's can be really overwhelming. And so if someone is interested in buy and hold, or in Airbnb, I mean, how do someone stay focused when they're just learning and they're just getting started? Tamar: So that's a great question, it can be very daunting and you can also get into analysis paralysis, where you want to buy the best deal and make sure that it's the best one and you make the most money and a lot of times getting a base hit is better than getting a home run on the first go around and sometimes you're a seasoned investor and you end up with a base hit. It's happened to me, and it happens to the best of us because we can't control all the variables. So there are a couple things you want to look at if you're just starting out one is where do you live and do you live in an area where you can actually invest and it makes sense and if you do, I always think don't go to another state. If you live in a perfectly good state. If you live in South Carolina, don't go to Texas to invest in South Carolina, it's a great market, you don't need to make your life harder. So the first thing is deciding on the area. The other thing is, then you need to decide what strategy now strategy a lot of times comes down to how much money do you have and how much time do you have and how many partners can you get if you need money to Terez for a deal. So if you're just starting out, you don't have a lot of money. Wholesaling is a great option because you can get a deal and you can make a really quick profit, and you can start building some profit in there. Now you're not owning the property, so you haven't quite built your asset column. Although you're doing a great job in terms of bringing income in and building that that nest egg, well, not a nest egg, but an investor egg that you can turn into buying properties working capital, working capital, exactly, you have working capital and so you just look at where you are and I think you really the numbers are pretty basic. If you're not going for a huge deal multifamily aware, you have a lot more metrics that you need to be looking at. So if you're just a single family, it really isn't that complicated. You just need to look at how much it's how much the expenses are going to be. What can you rent it for? Are you in an area where people are moving? Or are you in an area where people are moving away? That's a consideration. What kind of markets are in the area or is there just one industry like it was in Detroit, that was a huge problem. When the industry fell apart, and then a lot of people were leaving their homes and there was no one to buy those homes. So those are the kinds of things that you want to ask yourself and don't get caught into wanting to retire from real estate investing next week, because unless you have millions of dollars that you're playing with, you've got to build that and chances are you're not going to build it on the first deal. Although if you keep moving you will ultimately get there you have to stay in it and you have to do the work and be diligent and just believe in yourself a little bit. You can look at other people who have done it and you know you can do it especially when I speak to women, which is who I coach and who I serve. We are looking at what we can, what we're looking at what we can do, how we can get an action, how we can focus and diversify and create portfolios and with, with clarity and confidence so that you can actually get past that part of the of the gate where you're just looking and wanting to dive in and actually diving in and being on the other side of actually, oh, my gosh, I own property. Michael: Yeah, no, I think that makes a ton of sense and kind of continuing in that thought vein, have you ever had a deal a bad deal or a deal go sideways that you could share? Because I think so often, especially on real estate podcast, we're talking about the wins the highs, the best of the best and people are like, I could never do that. I could never be where Tamar is I could never do what she's done. So give us a humbling experience that you had in real estate. Tamar: Yeah, sure. So I can talk about a deal recently, that wasn't really a horrible deal. But definitely the numbers were not what I expected and I did, I never think that you actually I don't like to say you ever lose money in real estate, unless you sell at a loss, right? It's just like the stock market. It's the same principle. If you hang on to the property, and then the prices go up, and then you sell then you made money. But if you sell at a loss, then you that's the only time you lose money. So recently bought a property in Arkansas, and I had boots on the ground. That was the other thing I was going to talk about that if you want, let's say you don't live in a great area, like you live in Los Angeles, you might need somewhere where you have some people in place that can help you find the property and facilitate the, the rehab and manage the property for you. So those are things you think about. So in Arkansas, I had boots on the ground in this area and I purchased a little lake house that I wanted to Airbnb, and the margins were terrific and my boots on the ground were very seasoned and I had done other deals with her before and I kept asking, hey, is the Airbnb regulation an issue and she said she really didn't think it was and that other people were air being in the area and that we just had to go through a process with the with the city and with the with the gated community that I bought in, and that it would be fine and so I went through with the deal and we started buying furniture and I did it very hesitantly because it's, it's expensive to furnish an Airbnb and I kept thinking, well, I want that to go through the regulations to make sure we're not stuck and at the end of the day, we did get caught in some red tape, we were denied by the city, there was a big political issue. We're actually in this area, we're actually going to court now not just me, the whole community of Airbnb, Airbnb homeowners that are upset about the regulations and feel like it's not good for the community and that it's not, it isn't diplomatic at all and so what I ended up doing was I ended up renting it for six months to a guy that was actually building a lake house, and I am covering my mortgage, and I'm making a few $100. So it is cash flowing a bit. But it definitely wasn't the few 1000 that I thought I was going to make in the area. So that's a story where it wasn't like the worst thing in the world. But it certainly wasn't the best I use my resources, I expected a certain return and I didn't get it. But I just pivoted, and hopefully in six months in a year, if the regulations change, then I believe that my property will not only double in value, but I will also be able to start Airbnb being it. So sometimes it takes a little longer when you're doing an investment. Michael: Yeah, okay. Oh, that's interesting. So maybe you didn't get to make lemonade today, but you made like lemony water, and next year, you'll be able to hopefully make the full fledge lemonade. Tamar: This is part of the reason why I like a diversified portfolio because you can't control all the variables in real estate and that's part of the reason why people don't ever get into it, because they are uncomfortable with the fact that you can't control the variables. They think that when they invest with a financial advisor, and the financial advisor puts them in stock, somehow that financial advisor is protecting them and protecting their assets for the one and a half percent commission that they're making. The truth is they don't control the stock market. So it can go down just as easily. You're just as vulnerable. In fact, I think a lot more in the stock market than you are in real estate. Michael: That is such a good point and I just want to kind of touch on that again, because I think it just I had an aha moment for myself. I think when people get involved with other people that can talk the talk or that have experienced doing whatever it is, they get this illusion of say see, and to your point, exactly, the person who's selling you the product or placing you in a product has zero control over the market or the company into the stock that placing you and so I think that's a really great point to hit home. Tamar: I mean, they certainly have knowledge and they are certainly doing the best they can, although we know historically that it's volatile, and then ultimately, they don't control it. Michael: Okay, Tamar. So getting back to kind of having a bad experience I showed on a prior podcast, I just got my lunch eaten on my very first deal, but I was too green, too naive to know to stop. So I just kept falling forward and I was like, well, this is progress. When people hear those types of stories, like whoa, like, I don't want that to happen to me, I'm gonna do my research, I'm gonna get educated, I'm going to do all the things I need to do in order to do this responsibly. How should someone think about being ready, because you could very easily say, and I'm guilty of it, too. Oh, one more podcast, one more conference, one more book, one more coaching session, whatever it is you're doing to prepare yourself if you're just getting started. So how do you take that leap and know that yeah, I'm doing it responsibly and I have enough information to proceed without getting without, you know, being overloaded with information? Tamar: I think you need to be honest with yourself. And I think you need to look at what's really happening for you. So there is a point where you are educating yourself and you do feel like, okay, I want to have my ducks in a row, I want to be pre-qualified for a loan, I want to have a certain amount saved. So I can buy this property at this amount. Or I want to educate myself in a certain strategy and then there's also a certain point where you are just in analysis, paralysis, and one of the things you can do that really helps is one to set a deadline, just decide to say, okay, I have two months to do this and after two months, I'm going to do this and when you do that, one, you're making a commitment to yourself and also in your mind, you're making a commitment to that action, the other thing you can do is get an accountability partner and say in two months, hold me accountable. I said I was going to do this. Now, you mentioned coaching, I'm a huge fan of coaching, I have coaches, I pay a lot of money, for support for guidance for collaboration and I think that it's very important to look at yourself and see if you're the kind of person where you know what, I need somebody to take my hand and look at this with me and say this is okay. Now granted, you could have a mentor, and sometimes you could go to meetups, and you can meet mentors for free and a lot of people are super generous, and they will be able to support you. So you couldn't even get that support for note paying no money and I would also say there is a huge benefit in being in a group being in a private coaching, really looking at what you're doing, and having someone support you in that deliberate way. Because we do pay attention to what we pay for and it's just the truth. So sometimes when we get it for free, maybe somebody gives you some great advice, but you don't pay for it. But then as soon as you pay for it, you think, okay, I just gave that person money to tell me for the value of their knowledge and they told me to do this, this and this, I'm going to do it because I just pay money for that and I want to get the I want to get the benefit of that. So it does work pretty well and the trick is to really know yourself, and to make sure that you are moving forward and don't be afraid. The other thing that happens is we have this attachment to money, we have this false attachment that if we hold on to our money, that we're safe, and that we are building wealth, and that we're secure and the truth is, is that we don't build wealth by keeping it in a bank account, where in fact right now with inflation, we are most certainly losing money. If you want to use the rule of 72 and seven years your savings is gone at this point with the inflation rate we're at. So the truth is that that money needs to be working. I can't tell you how many clients I've had where they have hundreds of 1000s in the bank, and they're just paralyzed. They just don't know exactly. I'm not sure what to do. I don't want to make the wrong decision. I don't want to lose money and I don't know exactly what direction to go in and they are so happy once the money starts moving. I had a client she ended up buying a house that really suited the next move for her. It's an Airbnb, but also her family can use it. So it kind of tied in really nicely with her desires, which is also important and then right after she did it, she made a big sale and some money came in. I mean, it was crazy. Once you start moving the money, money starts moving with you and it's amazing how that works and that's why I really think that the false attachment to money can really also hold us back from the real estate investing and we need to be careful about that because if you fall into that trap, you will just be hoarding your money and it just won't be working for you and you also won't be reaching your goals because you can't buy anything unless you're willing to give somebody some money to buy the property. Michael: All right, that makes a ton of sense. For those that might not be familiar to mark, you just touched on what is the rule of 72. Tamar: So the rule of 72 is you multiply how much percentage you're making, by the years that it will take to double your money. So in 10 years' time seven, that would be 72. So that would take you at 7% 10 years to make that money at 10% inflation, it would take you seven years to make that much money. Michael: Perfect, perfect. Thank you for the clarification. Let's shift gears here and talk about your book. I know you said who it was for it and why you wrote it. But I'm just curious, how did you get the inspiration with so many real estate books out there? How did you want to set yourself apart? Tamar: Yeah, that's a great question and I think this is really at the crux of everything that we do, because we can look also at all the people that are involved in real estate, wait, where's my space? How do I fit in? Is it is the market? Is it too late for me? Those kinds of questions. So for me, right, what I think is a great place to come from is to think about your why and think about why you're doing things. So for me, the book was about me sharing with the world. So I wasn't thinking about everybody else and how saturated the market was, and that there wasn't a space for my book, I was just thinking, You know what, I have this knowledge, I have an idea I want to share who I am and how I got to where I am, I feel like I have a message that I really want to share. I feel that I have knowledge that I want to share and so I just shared… Michael: …and people were clearly receptive to it. Tamar: Yeah, yeah, absolutely, a lot, a lot of women are and men are reading it too, and getting a lot of benefit out of it. So it was really about what it's really all about and everything that that the listeners are do is about what is it that you want and what do you want to put into the world and how do you want to live and if you want real estate, by golly, just figure out a way to get it, you know, other people are doing it, why not you? They're not you're gonna, we're all just humans, we're all just people. The only difference between me and you is that I've done it a lot. So I have amassed a certain amount of wealth and you might be at the beginning or at a middle stage, it doesn't matter. It just you're on your journey. I'm on my journey. But you can still find properties. Michael: Yeah, yeah, not so good. Someone once told me and I forget if it's a famous person or a quote, but you know, you look at someone that's really accomplished. The only difference between them and you as they've made a ton more mistakes than you. It's like, oh, yeah, like they've gone, they've gone through the stuff, right? It's true. Tamar: That's true and most of the people just so that, you know, that I ever speak to, and that in the circles that I'm around where we're a lot of us have accomplished a lot. We have come from nothing. We have worked really hard, we have made a lot of mistakes, we continue to make mistakes, we continue to put ourselves out there. It's just working that muscle and just be willing to be in the world and create the life that you want. Michael: So good, Tamar, it's no secret that the world of real estate investing is like oversaturated with dudes, it's like it's ridiculous and we've really tried to make an effort here at rootstock to highlight the women voices that are out there that are doing it. So what can you share with women that are out there who are wanting to get invested, but are feeling overwhelmed or nervous? Because it is such a male dominated space? Tamar: Yeah. So it's, I think we're still 30% women are investors and we're, we're making strides and I would say, embrace the men embrace the good men and don't feel like it's us in them, just because they've been in the game a lot longer. Historically, we couldn't even buy property, it sounds insane to even say that, because none of it makes sense. Although it's true and we haven't had as much time in this arena. I would say I think the women that struggle more or any woman that starts thinking, oh, those guys, they did this they did that they're hard to work with. I have tons of partners that are men, I adore them as much as I adore the woman and that I work with that I partner with and I believe that if we all embrace what we want, and as a woman understanding that we have skill sets that men do not have and that there's place for us in the real estate investing arena, then we will continue to flourish and to make strides. Michael: Love it, love it, love it. Tamar, this has been so much fun. Where can people get a copy of the book and how can they get a hold of you if they want to learn more? Tamar: Yeah, awesome. The book is called The Millionaire mentality of professional women's guide to building wealth through real estate and you can get it just by going to tamarbook.com. It's T A M A R book.com and then also, I'd love to share my real estate investing personality quiz, which is also at the beginning of my book to support beginners and learning. How do you decide what area of investing you want to go into and that you can tamarquiz.com. Michael: Amazing. Thank you so much and if people want to reach out or learn more about you, is there a good place for them to do that? Tamar: Yeah, absolutely. You can visit my website at wealthbuildingconcierge.com or you can also send an email to me and my team at hello@wealthbuildingconcierge.com. Michael: Amazing and we will link to those in the show notes. Well, thank you so much for taking the time Tamar. I really appreciate you coming on and I'm sure we'll be chatting soon. Tamar: Awesome, thanks for having me. Michael: You're welcome. Take care. Alright, everyone, that was our episode, a big thank you to Tamar for coming on. Really, really great insights. Love the piece about the financial advisor that she talked about. So if you missed that, definitely go back and give it another listen. As always, we love hearing from you all with episode ideas, comments and feedback. So feel free to leave us a rating or review wherever it is get your podcasts and we look forward to seeing on the next one. Happy investing…

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What do you think people are searching for in life? What role should the church play in finding it?

church bible prayer executive director jews muslims searching sheriffs senior pastor national day kirsten powers judson university michael love

Play Episode Listen Later May 5, 2022 56:34

(00:00-12:02): Today is the National Day of Prayer. The national temperature seems to be running a little high. Kirsten Powers posted on Twitter: "If you think abortion is wrong, don't get an abortion. It's not ok to impose your religious view on others. Why should a Jew or Muslim, for eg, have to live up to your interpretation of the Bible? If you don't get this, please don't ever use the phrase ‘religious freedom' again." (12:02-21:59): Social Media Water Cooler: What was your first job? What did you learn from it? (21:59-30:38): Natalie Rodriquez is the Executive Director for Hopeful Beginnings. She joined Brian and Aubrey to talk about the work Hopeful Beginnings does supporting women through the challenges of pregnancy and parenting, and creating stable families through adoption. (30:38-39:35): Some churches seem to be growing more conservative while others are becoming more progressive. If this is the way more and more churches will go, what do those of us who aren't open and affirming as church leaders do? think? lead? How do we disciple with wisdom? (39:35-49:06): Michael Love is the Senior Pastor for Trinity Baptist Community Church, co-chair of the Fox Valley Spiritual Council, Executive Chaplain of the McHenry Co. Sheriff's Dept and serves on the Board Of Trustees for Judson University. He joined Brian and Aubrey to talk about the 2022 Community Prayer Breakfast at Judson University on May 11th. Visit JudsonU.edu for more information. (49:06-56:33): What do you think people are searching for in life? What role should the church play in finding it? See omnystudio.com/listener for privacy information.

State of the real estate market 2022 with Gary Beasley and John Burns

Play Episode Listen Later Mar 31, 2022 49:43

John Burns co-authored Big Shifts Ahead: Demographic Clarity for Businesses, a book written to help make demographic trends easier to understand, quantify, and anticipate. Before founding John Burns Real Estate Consulting in 2001, John worked for 10 years at KPMG Peat Marwick—2 as a CPA and 8 in their Real Estate Consulting practice. John Burns founded the company to help business executives make informed housing industry investment decisions. The company's research subscribers receive the most accurate analysis possible to inform their macro investment decisions, the company's consulting clients receive specific property and portfolio investment advice designed to maximize profits. Gary Beasley is CEO and Co-Founder of Roofstock, the leading online marketplace for buying, selling and owning single-family rental investment homes. Recognized as a leader in the future of real estate, Roofstock was featured on Forbes' 2019 Fintech 50 list. Gary has spent most of his career building businesses in the real estate, hospitality and tech sectors. After earning his BA in economics from Northwestern, Gary ventured west to earn his MBA from Stanford, where he caught the entrepreneurial bug and still serves as a regular guest lecturer. Immediately before starting Roofstock, Gary led one of the largest single-family rental platforms in the U.S. through its IPO as co-CEO of Starwood Waypoint Residential Trust, now part of Colony Starwood Homes. In this episode, we discuss the current state of the real estate market and the economy more broadly. Gary and John share their thoughts on what has been happening year over year in the housing market; what 40-year highs of inflation, rising interest rates, and geopolitical unrest mean for real estate investors; and highlight some of the risks that investors are faced with today. Episode Links: https://www.realestateconsulting.com/ https://www.linkedin.com/company/john-burns-real-estate-consulting/ https://www.linkedin.com/in/gary-beasley-956647/ https://www.roofstock.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have two very heavy hitters in the real estate space. John Burns, CEO of John Burn's real estate consulting, and Gary Beasley, co-founder and CEO of Roofstock. So without further ado, let's jump into hearing their thoughts and opinions around what's been going on in today's real estate market. John Burns and Gary Beasley so happy and excited to have you both back on the podcast. Thank you for taking the time to hang out with me today. John: You bet. Gary: Hey, Michael, great to see you. Michael: So I of course, know a little bit about both of your backgrounds and who you are. But for those of our listeners that might not be familiar with who you both are, if you could give us a quick two minute, two second intro of who you are, where you come from, and what it is you're doing in real estate and John, if you want to go ahead and start, that'd be great. John: Okay, I'm the CEO of John Burn's real estate consulting, I founded it back in 2001, to figure out what's going on the housing market for a lot of people, mostly big companies and that's what we do. Michael: Love it and Gary? Gary: Sure, I am Gary Beasley, I'm the co-founder and CEO of Roofstock and we've been at this for about six and a half years now. Building out really the complete ecosystem for single family rental investors and I've known John now, I think, John, since about when you started the company, it feels like we've known each other for a while we when we I think when we met we we both had dark hair. Remember that? John: It's been a very long time. Michael: That's great. Well, I wanted to chat with you both around a lot of things that I've been getting questions about, and I'm sure that the two of you have as well and that's just kind of what's been going on with the housing, market and economy over the last couple years since the pandemic started. So I would love to just jump into things get into the meat and potatoes and get both of your thoughts on really year over year, what's been going on at the macro level in the housing market. John: Well, I guess I go first, if you let me go back maybe three years, so but pre the pandemic because I think it's relevant. The housing market was extremely hot. We have a different view than a lot of people on on how undersupplied the market was, we don't think it was I just applied at all actually until about 2019, then it started to be under supplied and with interest rates. So damn low everywhere in the world, people had figured out that single family rental housing was a great investment just to get some yield and we were seeing a lot of investors come in to the market, then COVID hit so you know investors are very volatile. They stopped for a few months, and then they came back very strong and probably the biggest difference in the last year is the fear of inflation has piled in on top of the need for yield and it's double the reason to invest in rental homes. So we're seeing money from all over the world focused on housing in America. Gary: I would agree that clearly the residential market has been booming and I would say despite a number of factors that you would have thought might have slowed it down. We went through a global pandemic, and housing chugged right on through and we could talk later perhaps about why some of those things happen. But the reality is really kind of across price points and geographies. You've seen robust demand for housing and if you look at price increases year over year, John, I know you track the SFR space really closely and it kind of mirrors what's been going on even if you look at owner occupied sales, but home prices have been going up call it 15 plus percent, year over year, pretty consistently. That's a big number, when you think about historically, it's been about 4%. If you go back 40 years on a compounded basis. That's how it had been up until fairly recently. So a lot of you know in rents have lagged that a bit but you've seen high single digit to low double digit rent increases as well in a lot of these markets and so in oftentimes, I feel rents are a little bit of a lagging metric because especially a lot of the mom and pop owners don't raise rents every year don't raise them, really even to market so we're seeing a lot of homes come to market today that have rents that are 10 or 20%, below where the markets are today. So, so you've got just a lot of demand for the product and, you know, we're at an interesting time now, and I'm sure we'll talk about, you know, some of the current dynamics in the market, interest rates have moved up quite a bit in the last, you know, month to six weeks, we've got a lot of interesting things going on geopolitically, we're not yet seeing that impact, demand or pricing. One would think that those factors should that have an impact over time. But for now, I think just the supply demand dynamics very, very much in the favor of demand over supply. Michael: Okay. Interesting and I'm curious to get both of your opinions on this, I mean, we are at such a unique time, kind of in history and curious to know your guys's thoughts on do you think that real estate investing fundamentals have it all shifted because of where we find ourselves today? John, I'll let you go first on this one. John: I don't know if the fundamentals have shifted, because I've seen this game before. But what is different is that by investing in rental homes has become a very easy thing to do, thanks to Roofstock and others. I mean, prior to 2012, you couldn't get on your computer and figure out exactly how much a home was worth and how much it could rent it for in about five minutes, you can now there's all sorts of vehicles where you can invest in funds and completely passively invest in housing and I think it's become an asset class that really was very illiquid, and pretty lumpy before that now has become more liquid and I think that is a permanent change in the market, doesn't mean things can't go down. But I think it's actually had a permanent positive increase permanently on home prices. Gary: I would agree with John, I don't think the fundamentals, I don't think the fundamentals of real estate investing have changed. But I would say perhaps some of our maybe preconceptions or assumptions about how it would perform is I kind of mentioned earlier, or maybe a little bit challenged, and that there's just so much demand for the product and in the pandemic. You know, it was almost counterintuitive that home prices would go up and rents would go up. But when you think about the fact that people really demanded shelter, safe shelter, and there was an exodus of from a lot of the coastal cities to secondary and tertiary markets drove a lot of that demand. So but I think still, the fundamentals of real estate are very much about location and supply and demand. Those things, those fundamentals I think are true. I think one of the things we're seeing though is perhaps there are different things get that can drive, demand and pricing for different types of real estate assets. So if you look at for example, housing, and industrial, which have done quite well, throughout the throughout the pandemic and the aftermath, and then you had some real estate asset classes that really suffered, because you look at office and retail and and REIT in hotels, things like that. So it's it. I think real estate broadly can be influenced by different things. The fundamentals of each have to be examined, but certainly for housing. It's been it's been very strong, despite what might you might have considered some some headwinds. Michael: Okay, interesting and you both touched on inflation in the conversation thus far and so I'm curious to know, how much of the demand do you think is being really driven by inflation? And do you think that folks are right or wrong to be considering real estate investing as a hedge or as a defense against inflation? John: People's expenses are going up and your investments should beat inflation and nothing in the treasury market does it in fact, nothing in the high yield bond market pretty much does it now too, I don't know how you earn returns. But this was going on pre COVID and that's why I mean that there was a surge of money coming into the market pre COVID. We at our conference at the end of 2019, we had Bruce flat, the CEO of Brookfield asset management, who at the time manage more than $500 billion was fundraising all over the world and he literally said that this is the most significant thing he seen in the last 15 years, is everything that produces cash is gonna go up in value, and that was pre COVID and so that this this has just got even more accelerated because inflation wasn't even part of the equation. Now if you're now if you need to beat inflation in your return and inflation is right now the latest print is seven 8% where you're going to get seven or 8%? And so housing, if wages go up which they are, you can raise rents, if the cost of the structure going up is going up, which it definitely is, every single component in the house has gone up, their cost of construction has gone up at least 10% in the last year. That's an inflation hedge too, because nobody's gonna replicate what you own for the same amount of money. It's very much an inflation hedge. Gary: Everything points toward continued inflation, in my view in the housing market. Now, that being said, interest rates going up, you would think should moderate that. That's an offsetting influence, but the cost of the inputs, the labor and the materials, clearly upward pressure, everything that's going on in the world, disrupting the global supply chain, and the cost of transport and all that putting upward pressure, Pete wage inflation to keep people in their seats, and to hire people. That's allowing people to have more and more money to spend on housing that's also pulling pricing up. It's hard to see how much that's going to, in an absolute basis reduce the price of housing, I do think that we will see some moderating of the rate of inflation of homes over the upcoming quarters and years, I think that 15% is gonna come down naturally. But I don't see, I don't see it coming down to the point where it actually reverses and you see absolute price declines, like we saw in that really unusual time in the Great Recession, which was, arguably a once in a generation adjustment to housing prices there. I think, a lot of fundamental differences between what we're seeing today and and what we saw back then this is not a credit bubble. John: So I agree with everything you said until this is not a credit bubble. I mean, maybe you meant a credit bubble on housing, because I agree with you. Gary: That's what I mean, I mean that there's a lot of embedded equity, as opposed to people, you know, having 3% or less equity in their homes, they've got 20 plus percent equity. Now, you can talk about the I wasn't speaking to the global kind of free money, credit bubble, but… John: Well, that's a I think there's a credit bubble going on in the world on pretty much everything else. I mean, Dodd Frank, made it impossible to do it on a mortgage going through a bank. But people are lending against crypto, it's the highest borrowing and stock prices ever. We're seeing deals even in single family rental that well, I would say are being done with pretty much no due diligence, because it's a mess piece. So there's a little bit of equity in front of me and what I worry about is a recession caused by a credit bubble outside of the housing market, which impacts housing demand and you know, that's when housing was struggle, but I think everything else in the world would struggle at the same time, maybe even more, so. So I'm not, I'm not saying get into stocks or bonds, because it's just that, that that's what caused the great financial crisis, and it was housing last time. I think it's other stuff this time. We were seeing flip flipper loans are being securitized on Wall Street. I mean, there's, you know, I see that in my business, one of my clients is lending against crypto balances. You know, I think another famous person just came out and said, if you've got if you can put up crypto, I'll give you the value of your crypto to make a down payment for a house, that there's some different stuff going on. That concerns me but not on buying rental homes or Roofstock more concerning on the economy. Michael: Okay and so curious, John, just, you know, personal thoughts. What's a good defense? John: You know, normally it would be cash, but holding on to cash it goes down 7% in a year. So I think Howard Marks who's a famous investors calls this an everything bubble. We're in an everything bubble right now and how do you invest in an everything bubble? I have no idea. That's why I run it… Gary: Maybe maybe negative interest rate German bonds don't seem so crazy. Michael: Yeah. John: Well, no, exactly. So, so if you're, if you know, in the coming world, losing 3% is probably a good deal relative to everybody else if that's if that's how that plays out. Michael: All right, well, keep both you keeping your eyes and ears peeled and let me know if you hear something great for hedge against the everything bubble, I'd appreciate it. John: Well, it's it's still specific. I mean, that that's what the smart people aren't doing. They're just, they aren't going to do just a sector. They're looking at everything carefully and in this industry, if you don't have a lot of competition going around where you're making investments, that's a far safer place to be if there's some great job growth in your conference. In a job growth because those employers are profitable and making money and going to be there all the time, that's a different story than the job growth being in a sector that's currently losing money, for example. Michael: That makes total sense, that makes total sense. I'm curious if we could take a step back and understanding that neither of you work for the Federal Reserve, but I'm curious to know your thoughts and kind of get some insight into? I mean, you talked about the wage growth going up, and then the cost of goods and services going up? How do we not get into this upward death spiral? And I know, Gary, you mentioned, you know, raising interest rates could curtail that, but it seems like there's just so much money out there how to, how do we kind of ease down from this? Gary: Yeah, well, I think there's it I don't know, if there's been a tougher, it's never easy being involved with setting Fed policy, but you have a lot of things to balance here. This is a tightrope act. So you want to slow the economy here, enough to curtail inflation, yet, not necessarily throw it into a big recession, you've got a lot of things going on overseas, that should you could argue are already going to cause things maybe to slow a bit because of what's going on over there. So do they need to pump the brakes as much here. So maybe that means that the Fed doesn't raise as aggressively here and what that may mean is, you know, rates grow a little bit more slowly and maybe the economy tends to overheat despite the global weakness. So it's a really, really challenging balancing act, I think that the Fed is under enormous pressure to curtail inflation and so I think, despite that, we'll probably err on the side of pumping the brakes a little bit heavier, even though that may mean we're risking recession. That would be I'd be curious, John, if you have a view. But if I had to, like on the continuum of what they're more worried about right now, normally, they're, you know, I would say that they've been historically more worried about not wanting to put us in the recession. But we've never, in a long time had these sort of inflationary pressures and in particular, where I think people feel it, it seems to be at the gas pump, right? We're always talking about fuel prices people feel that very deeply and there's a lot of political pressure, even though the feds, in theory, a political, political pressures tend to work their way into those decisions. John: Yeah and my 30 plus years of paying attention to this, I've never seen the Fed more politically tied than they are right now. They frankly, they seem to me to be puppets of elected officials. I mean, the fact that Powell had to announce for months and months and months, they were going to raise rates, but never raised them once until he got reappointed will tell you something. So I mean, I always honestly think it seems to me like elected officials are calling the shots right now and I think the ultimate fear is a recession or we want to get inflation down, because inflation isn't good either and then, you know, the way I think about this, too, is there's, if you really talk about people's true costs, there's a huge variation in inflation. So if you're a homeowner who owns your car, you know, your your housing costs haven't gone up at all, maybe you got a little bit of a property tax reassessment, you haven't had to go back and purchase a car or release a car and if you are close to work or working from home, frankly, your cost of living might be down over the last year or two. If you're somebody who's commuting to work, Rance had to you know, really your lease was up had to get another car. I mean, your cost of living can be up to 15 to 20% and the Fed seems to be focused on those people, rightly or wrongly. But that that's how I'm thinking about this is it's a huge difference in what's actually happening depending on what you are, and then the wage growth. You know, if you're in the hospitality sector, you haven't seen anything. But if you're a construction worker or a truck driver, your wages are up dramatically. So and those are the ones I that we're seeing that are buying homes, renting homes, people that are affluent, able to work from home, hey, I can I can now go out to the suburbs and rent a really nice house and my housing costs are gonna go down, not up because my boss says I only need to come into work twice a week. So it's it's very complicated story on picture painting here, but that's exactly I think how the Fed is looking at it. Gary: Yeah. And then you also have, obviously those who own assets versus not I mean, this is similar to what John was talking about, but not only can you have the cost of living impacted a lot, a lot less if you own your assets. But in fact, John, you may know this figure I read it, I think last week, some fairly sizable percentage of the US population made more off of their homes this year than they did from their jobs. The power, the power in an inflationary environment of owning assets, it's kind of hard to overstate it. That I think one of the reasons, I think we're seeing more and more kind of first timers wanting to own their first investment property, even if they aren't in a position to own the home they're living in right now. Going to some of these lower price markets, and getting on the ownership bandwagon and just writing that asset appreciation. It's, you know, it's a powerful force. Michael: Yeah, absolutely. John: I think you were going to say, it's a powerful drug. Gary: Well, some people do become addicted to it… John: We're starting to see that. So people are taking the $200,000 in price appreciation of their house with a refi out of their investment, and then using it to buy three or four more homes, right, that that's what's going on right now. So it is it is addictive. Michael: Yeah. That makes total sense. Gary: Yeah. Well, it's been it's been a, a tried and true, a tried and true way for real estate investors to make money, right is to buy that first property, refinance it, take that money, buy more properties and build. But I think, John, to your point, what's happening is, a lot of people are doing that with their primary home equity to get started, as opposed to being more of the intentional investor who just started to do that, I think more and more people are doing it with, you know, equity in their homes, which I think in many ways makes a lot of sense from a diversification standpoint, rather than having so much of your wealth, personally tied up in a single property address, where you happen to live, where you're really subject to the vagaries of your local real estate market, local job market, all that kind of stuff, because that's where you tend to work to diversify into other markets and other assets, I think does make a lot of sense. Michael: John, would you agree? John: Yeah, no, diversification makes a lot of sense. I just, I also think it makes a lot of sense to watch how much leverage you've got and to make sure you've got the cash flow, you know, just in case something bad goes wrong. And I think people that are investing like that, and doing exactly what you're saying, are going to be great. But last time, what we saw was, people just were ignoring that and then you lose your job, and then you lose your tenant, and you're your host. So you got you got to be careful here and I think the more I'm a generalized a little bit here, but the more mature people that have seen this before doing that, and I'm sensing the younger people only think home prices only go up and I are more willing to take more risk than I would recommend. Michael: John, kind of to that point. I'm curious to get both your guys' thoughts if someone is taking out equity their home, because interest rates are so low, and they've seen the value go through the roof and they're going to go buy investment properties. What's the harm? What's the risk there? I mean, and how does someone know if they are over leveraged? If their cash flow is covering their mortgage payments? I mean, if the value dips, nothing really changes for them from a payment standpoint. So how should people think be thinking about being over leveraged or how much risk is too much? John: I mean, that's a very personal decision for folks. You know, confidence in your employment situation is probably the most important thing and depends on what you do. Gary: Yeah, I think, Michael, I mean, to your point, as long as they think it is an important point, in a rental home portfolio. Yeah, even if prices drop of that home and you've got a fixed mortgage, your payments don't change, right and unless rents come down, which they traditionally have not, they tend to be more sticky in single family rentals than say in apartments. We followed a lot of that data over time. So you should be okay. Even if on paper, the value of your home, your rental home has gone down. But I think in the primary residence, which is where John I think was going is if you let's say you have you know, 60% equity in your home and you lever it up to 90 through various means, then all of a sudden, you may be at a point where if you lose your job, and you don't have the reserves, you may be in a little bit of a tougher spot because you don't have that home equity to tap, which historically has just been a really nice thing to have as as a safety net and so when that if that were to happen you might have to sell some of your other properties or you have your equity elsewhere and it's not like you can't necessarily get at it. But I do think in times where you do have some uncertainty, some global uncertainty and some things like that, having some reserves, make sense, not being over levered, make sense, play the long game, I think that's one of the things that we talk to people a lot about is, this is not a, you know, get rich, quick fix and flip, you know, strategy when you're buying investment properties? Michael: Are you serious? Gary: So over the long run, Michael, you're going to do just fine. But you have to be patient. So no, but there's plenty of there's plenty of ways you could make bats to win quickly win or lose quickly. But that's generally not what people are doing with us and I think there's times when people are more risk on is a lot of confidence to maybe lever up and things like that, I think this is a time to be more a little bit more thoughtful about all about leverage ratios and so yes, you give up some levered return, potentially. But if you're in a, I would argue if you're in a place where home prices are going up at such an extraordinary rate, you don't need as much leverage to get a phenomenal return. Even if you're only 50% levered, and your home's going up seven or 8% a year, that asset level, you know, obviously, you're doing much better than that, and the return on equity level, so I would say just don't get greedy. It's a long game and you know, make sure you're, you're around to, you know, fight another day, in case there's any sort of corrections. Michael: To play the end of the game. John: I mean, that that's the perfect, that's how I see it, too, is cut the long game. And that's how everybody who's been doing this for decades will all tell you that that's exactly the way to play it. I am I am seeing and hearing and running into 20 somethings who aren't listening to Gary's advice and I have no idea if that's 1% of the market or 40. But they're out there and fortunately, they're not getting loans from banks that 90% LTV, at least that I can find, so that's, that's good. Gary: I mean, Michael, you talk to a lot of people all the time, what is what is your assessment are people do you think people are thoughtful about this? Do you think that is? Do you agree with John, that people who might not have seen a down cycle might be overly optimistic or do you think that they're better informed? Michael: Yeah, you know, I think it's really a mix of the two, I think that there are two big camps. One camp says this is going to go on forever and that tends to be the folks that haven't seen a recession before and then there's the folks that say, you know, we're it's got to come down at some point and so let's just kind of see what happens and those tend to be the more seasoned folks. So I'm curious, I'm curious to get your guys's thoughts on for those two camps and someone who's just trying to get started trying to get their foot in the door? How should they be thinking about that, is this something that they can kind of catch on the upswing or is do they really need to be a bit more timid and reserved and say things are maybe a little bit too hot right, now let me let me just take a seat on the sidelines and see how this all plays out? John: So we've been calling this the high risk high reward the part of the cycle now for 13 months. So I would have told you 13 months ago to be cautious and the person who would have taken a lot of risk what I made far more money than the person who listened to me so but that's how these things play out at the end at the end of the cycle. When you take a lot of risk you should make a lot of reward right? But you know, you also need to know when to take some chips off the table you know, unless you believe we're never going to have a recession again which I don't believe that and then also what Gary said has been very true for single family rental rents. The rents have been very stable over time compared to apartments because there's basically been very little construction of rental homes forever and there's always been a ton of construction in apartments and that's when you get hurt killed is when you know three huge apartment complexes open up down the store down the street totally empty and have to lease up 500 units you're done that even though billed for rent is growing pretty significantly in Phoenix right now it's still a lot smaller level of supply than apartments. So this is a more stable investment than comparative some other rental classes for sure. Gary: Yeah, it's it's really we like to say it's a lot easier to go up then sideways because if you could you go vertical with apartments and it takes a lot more land and it's typically much more difficult to add the single family rental supply and then over time, you also have more than one on exit on the on the rental homes because you could you could exit to a yield investor or ultimately, an owner occupant. So that's I think one of the things that I've always liked about single family rentals is you've got built in optionality. It's very rare in a real estate investment, to have two very distinct buyer sets on the back end, right. You have an office building, you're going to sell it to an office investor. Same with a hotel, they would, but so this is, you know, I think a unique aspect of single family rentals, which gives, you know, it kind of gives investors a bit of a of a hedge. Michael: Yeah, that makes total sense. Curious, what do you tell investors who come to you and say, John, Gary, you know, I can't seem to break in, all my offers are getting outbid by all cash offers that are 10 to 15% above asking, I can't go that hi, how can I get my foot in the door? What should I be doing? What tactics should I be using? John: I mean, I might be the wrong person to ask because my clients tend to be very large companies, and this is for their capital partners, this is less than 10%, or maybe of what they're investing in the spectrum of certainly less than 20%. So they may be all in in this industry. But it's it's not, what you're alluding to, is maybe somebody with 100% of their net worth or 80% of their net worth getting in. That's, I don't advise on that, I mean, people are building rental homes, with the appropriate amount of leverage in good locations. That's where we're coaching people to go, there's also people building rental homes, with a lot of leverage in tertiary locations, right, where there's a lot of other construction going on and that that would be to me a higher risk scenario. I think I think there's room for 100 unit rental community, brand new built in every city in America of size, because you can pull it there's 1000s of people that rent ratty old homes with lousy landlords, and there's a percentage of them that would really love to rent something new. Well, and what's your biggest fear is the tenant that said, they're going to sell the house you live in it, you're gonna have to move out? Well, you know, if you're in a rental community that's owned by a public REIT, they're not selling the house, you know that that fear is gone. They may charge you a little more, because it comes with better service and other things. But I think that's a tremendous long term opportunities to build rental homes. Michael: Interesting perspective, Gary? Gary: Yeah, well, I would say, people should do their research, and be patient, be opportunistic, but but not be afraid to act with conviction when they find things that make sense for them and so I think, what we find is, on Roofstock, a lot of times people will come and they will look at properties for months and months and months and talk to people and kind of develop their strategy and eventually, something is going to hit your radar, that's going to check most of the boxes and in this market when that happens, as long as you've done enough work to kind of know this, then be ready to act, you know, I wouldn't recommend somebody come and buy the first home they see because then you're not you just don't have enough data. But when you see where these things are trading and all that, and so that's why I say you know, be disciplined, but also act with conviction, when you find something that does work if you do want to get exposure. Otherwise, you could sit back and just sort of watch things. But you can also wait a lot of times with stock market, also people want to buy on a dip and just wait, maybe there is a little bit of a correction and that could be a time for people to want to wade back in. The challenge with waiting for a dip is, as John pointed out, there just hasn't been even throughout COVID there's been no dip, it's just, you know, been up into the right and, and so, you know, I don't recommend people just, you just buy because of the momentum, right? You want to, again, you want to feel good about the markets you're buying in and the home that you're buying. But also, it's really hard to time a market. It's just it's almost impossible. So heard that that's why overtime, we recommend people not, you know, even if you're only in a position to buy a home now once but, you know, have a design to own a portfolio of them over time and buy them at different points in the cycle and over time you get that market exposure. It's just, it's hard to time your ins and outs perfectly. Michael: Yeah, yeah. Okay, cool. Well, I'm curious now to get your guys' thoughts and opinions looking forward, which I know is always a dangerous thing to do, but I'm going to ask you both take out your crystal ball and in talking, John, you mentioned about new newly built homes built to rent communities and so I'm curious to hear your opinions around, if the housing starts that we're seeing, since COVID, are going to have an impact, you know, several years down the road 8-10, you know, 5-10, eight years down the road, kind of like we're seeing now, as a result from the 2008, lack of home starts. John: Yeah, we've done more research on that than anybody else. There's a couple people with some very simple analysis that says we're short, about five to 6 million homes. I think we're short about 1,000,007, which is still a lot of homes and that's not the same shortage in Buffalo as it is in Dallas. So you know, this is we've got the numbers by market. But at a high level, if we're short, 1,000,007 homes, there's 1,000,007 homes that have brand new homes that have paid for our permit that haven't been finished yet. So we've got all of that under construction and it's taking about nine weeks longer to build a house for the best production builders in the country. So this is taking a very long time, so it's going to be at least a year before we satisfy that, because there will be some growth along the way, too. So I'm not what is different about this cycle is the lack of construction. But what I want to point out is there's this notion that the low level of supply just means that this is almost a sure thing and I think the most important thing for housing has always been job growth always, even rates can go up dramatically. But if everybody's got their job, okay, we're, you know, maybe prices will be flat for a while, but we'll be fine. It's when you see massive job losses that we cycle down hard. So that's why I was I was bringing up earlier the whole credit cycle issues. You know, know, if we if we knew exactly how much debt every company had in every industry had and how much they could cover their cash flow, I think I'd have more certainty. Some analysis I've seen is there's quite a few publicly traded companies that aren't currently generating enough cash to pay their debt service. That makes me concern they're not in the housing industry. In fact, the homebuilders have never been better capitalized like, they're amazing. They have the lowest debt levels ever and the bonds that oh, yeah, and the bonds they borrowed, they don't mature for like four or five or six years. So I mean, the homebuilt talk about a safe play, in terms of going through the cycle, I think it's the builders. I'm not recommending stocks, because I don't do that for a living, because I think all of this is priced in. But I'm telling you, publicly traded home builders are very, very strong, right now. Gary: Yeah. You know, it's interesting, because John does such good research. So I have no reason to doubt the million seven. But I have seen, you know, estimates between four and 6 million homes deficit in in. So I don't know what the right number is and I'm sure that the method, there's methodologies that but but it's still, it's a couple of at least a couple million homes. The question is what, you know, what does that mean, going forward? Do we catch up as quickly? Can we catch up in a year or two? That's, I think, optimistic. I think it'll be interesting to see if we do. One of the things that John mentioned was job growth, and that historically has been a real driver. What I think is so interesting now is jobs are so distributed and because companies are adding jobs doesn't mean the jobs are going to be where the companies are located and that kind of makes everyone's head explode. If you're trying to forecast, what's the impact of job growth, it really comes down, arguably, more to population growth. So local jobs are one thing and some things have to be localized, right? If you're going to work at a hotel, the hotel is in a particular place, if you're going to be a software engineer, working for Apple, you know, maybe you could be anywhere or any of these other places and so it's a it's a different calculus than I think it was 10 years ago of treatment, trying to forecast job growth from companies and then okay, well, people are going to need to live within a 30 minute commute or 45 minute commute it that's all upside down. So I think it does bode well for some of these secondary and tertiary places that have seen disproportionate growth. But then you also have these places like in Austin that continue to explode and arguably housings no longer very affordable but they keep building more houses and people keep buying them and keep renting them and there's plenty of land in a place like Austin and so I think almost looking at where taxes are low, and people can still get relatively affordable housing almost seems to be more powerful than local job growth. But I'd be curious about, you know, John's view of that. John: No, he's right. There's a there's a large sector of the economy where you can live wherever you want and I mean, we, we've been doing this since before COVID, as I was never, never believed that all the best people to hire on the world, we're always within commuting distance in my office. So we've been hiring in good locations, and but you got to get the right person who can do that and companies have figured that out now. So your it is about a great location, it is about where I can get a lot of house for my money if I'm a tenant, or if I'm a homebuyer or I can pay lower income taxes, or I can have better weather. So it's really the same place as people were moving pre COVID. It's just more people have been given the permission to move. So you're right, the job growth. It's pretty correlated to the metro area. But I would say the more outlying areas should see more price appreciation, and they are seeing more price appreciation right now, because more people are being allowed to go there. Michael: Okay. Gary: Yeah and it's almost interesting. It's a little bit like the job, the jobs are almost coming with the people. So you think of a place like Boise, Idaho, where people move there not for jobs, necessarily, but because they could bring their jobs with them and they all had all this embedded equity in their homes for more expensive markets. So now you have all these people moving into a market like Boise, and you get incredible growth in the prices of homes in Boise. But now people are working from Boise. So are those jobs created in Boise are there jobs that now exist in Boise because it was inexpensive, and it's a nice place to live? Michael: Yeah, I was gonna ask John, does that make it kind of squirrely to nail down that job growth metric because of this new phenomenon? John: Yes and no, so there's two jobs surveys, there's one where they call the employer and said, how many people did you hire this month? That's based on where the employer is located. But the one where they call people and say, are you looking for work or not, that comes up with the unemployment number, that's where you live. So actually, we always triangulate the two. So I'll use my example. So we perfect example, I'm in Orange County, California, we hired somebody in Boise, but she could live anywhere. She's showing up on my here in Orange County on one survey, and she's showing up in Boise and the other, so you just you need to look at both the sample size on where the company's located is higher and better and the unemployment number at the Metro levels more volatile. So you got to look at a trend over time and not just overreact to a month or two. Michael: That's super interesting. Okay, and great to know, too. So, the last question I have for you both, and I think I already know the answer. But for everyone listening, I'm gonna ask on their behalf and your guys' opinions, have there been asset classes that have become more valuable and less valuable as a result of the pandemic and if so, what, in your opinion, are they? John: You can handle crypto, Gary. I am not going to touch that one. Gary: Why don't you start then? John: As I as I said earlier, I think new technology which was not around prior to 2012, has allowed the single family rental business to just blossom permanently And it's, it's now gonna be a permanent part of people's portfolio passively investing in real estate And that has already pushed up prices more than it would have been going forward. Whatever price appreciation would have been otherwise, it'll probably push it up a little bit more. The only thing you have to concern to certain yourself where there is, you know, the government doesn't like that And they tend to be pro homeownership. So you gotta watch regulation. I am seeing a lot of our clients tend to avoid California because they're afraid of rent control. So and there was just a Bloomberg article that 12 Different states have had rent control proposed because of all of this. So you just got to keep your antenna up on on that side. But the rent control is being proposed seems to be more reasonable. It's at the rate of inflation or maybe 1% higher than that, that you can raise rents. It's not, you know, zero or something ridiculous. Michael: Okay and what in your opinion has been devalued or become less valuable, if anything? John: Um, I can't think of anything that's become a …Cash! Gary: It's it makes sense, right? I mean, you're you're losing. I mean, John, John mentioned, if you're literally if you have money sitting in your checking account, right now it's point 001% and we've got 678 percent inflation, that's how much you're losing by sitting in cash and so that does create a risk incentive to put it somewhere. And you know, I would say, Michael, I mentioned this earlier, but I think housing and industrial, which is driven a lot by distribution for E commerce, a lot of those have been really darlings of, of, for investors, they've become very much in favor and I do think you're still seeing some challenges with in some questions about office space demand and you know, not that there aren't always office investors, and there are always going to be people in offices, but there's probably structurally some percentage of less space that companies are going to utilize and so that puts maybe some uncertainty into the minds of investors, if there's another I think, I think a lens people investors are looking at today is okay, there's going to be another pandemic someday, what are the likely implications of this and, you know, office, retail, traditional retail was hurt by the pandemic, but it was also being crushed just by Amazon, right, and so you, so that's, I think, got its own challenges. And then hospitalities is very cyclical anyway, if people stopped traveling, you know, they didn't travel for a while. So those those I think are, you know, maybe a little slightly more challenged than housing, which is, which has proven to be much more resilient than, than I think most people thought and, as a consequence, you have a lot of a lot of investors, not just, you know, traditional or not just individual investors or institutions from here. But yet people from all over the world saying, well, US housing looks pretty interesting, relative to other places that they could invest. Michael: Yeah. John: There's something we take for granted here called Title laws that don't exist in other countries. I mean, people in other countries don't want to buy real estate there, because the government could take it away from them. You know, and I hear that from foreign investors. That's one of the things that they love about investing in America. Michael: Pretty scary notion if you had to be overseas John: …Or get I should have mentioned everything that Gary said to I mean, there's a lot of huge funds, pension funds, who like to put a percentage of their assets a 10% in real estate all the time, and it would traditionally go into retail and office and hotel. Do you think they're ever going to go back to the same percentage of retail hotel and office? Probably not, it's going to be far more in this business. Because retail is now industrial. I mean, it's a warehouse and in line, you know, the best retail centers are all going to be fine in the best locations, but they're in line space is dead. So, so you're right, that's gonna push more money into our business. Michael: Okay, well, guys, this was super informative. I know I had a lot of fun. Hopefully our listeners did, too. If people want to learn a little bit more about each of you, where's the best place for them to do that? John: Oh, we've got a website https://www.realestateconsulting.com/ I post pretty regularly on LinkedIn. So you can look up John Burns on LinkedIn and get some free stuff every day. Gary: I love the free hoodie that you got right there, Michael. John, I know you've got a Roofstock hoodie as well. I don't know if you ever wear it. John: I do, I should have bought it today, I'm sorry about that I should. Gary: So yeah, I think I would just encourage people, if they want to learn more about what we're doing at Roofstock just come to https://www.roofstock.com/ you could also follow me or hit me up on LinkedIn, I post pretty regularly there as well. But yeah, and keep checking out the podcast I know Michael's been doing a great job along with Pierre and the rest of the team here trying to get they couldn't get any interesting guests this this time so they got John and me but I know they've been otherwise doing getting some pretty interesting folks and doing a great job. John: Well I saw that you're then the one of the top 1% of podcasters in the world. Hopefully we didn't push it down to 2%. Michael: A filler episode though this this was great you guys. Thank you so much for taking the time and I very much looking forward to chatting again as we continue along this crazy trajectory that we're on. Alright, everyone that was our episode, a big thank you to John and Gary for taking the time out of their extremely busy schedules to hang out with me and chat about what's been going on in the real estate market and where we might be headed going forward. As always, if you liked the episode, feel free to leave us a rating or review wherever it is you get your podcast, and we look forward to seeing on the next one. Happy investing…

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Is it smart to invest in single-family rentals before multi-family?

Play Episode Listen Later Mar 12, 2022 17:53

A lot of real estate investors start out with single-family homes and soon realize that multifamily helps them scale much faster. But multifamily properties can come with more complications and many investors appreciate having learned the ropes in the single-family space before taking on this asset class. So is it smart to start small and work your way up or just dive into the deep end? In this episode, Emil and Michael share their experience on this topic and point out the pros and cons of either strategy. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by my co-host… Emil: Emil Shour Michael: …and today Emil and I are going to be chatting about does it make sense to start with single family or with multifamily? So let's get into it. Alright, Emil, how's it going, man? It's been a minute. Emil: Good dude. How you doing? Michael: Hanging in there hanging in, I got a couple of refinances that just close today that I'm working on for a long time, so really excited about that. So I'm going to be redeploying some capital here to some short term rentals. How's, how's the triplex sailing all smooth? Emil: Yeah, I haven't, I haven't received an email in weeks. So that's my favorite kind of news is no news for my property manager. Michael: It's a good sign. Yeah, oftentimes I would say. Emil: Yeah, yeah… We've got tenants in place, you know, they're all fresh, no bad news. So fingers crossed, it keeps staying that way. Michael: Sweet! Well, today, Emil and me want to talk about if it makes sense to start with single family or multifamily as you're just getting started. And you are someone that started with single families, right? Emil: I did! My first investment property or actually any property I purchased. It was an investment property. It was a single family in Jacksonville, Florida in 2017. Michael: Okay, and now you're a seasoned investor, you've got six units, I think, you've done some multifamily. Emil: Yes sir. Michael: Should you have done differently? Emil: I am happy I started with single family. I think starting with one tenant, one home one unit, is the ideal way to start. I don't think, I don't think this is like one of those. There's a better or worse way. I think it's what is what is your appetite for pain? Do you do want to like learn really fast and deal with a lot of craziness at first or do you want something slow and steady and just like an easy on ramp? So for me having a full time job, at the time, starting with a single family was perfect. It was like, I got to learn how to manage a property manager different things that can go wrong. It was just an easier transition for me and I'm happy I started that way. Michael: Yeah, it's funny you say appetite for pain. I think we just want to be careful to not give people the impression that single families can't be a highway on ramp to pain because you know, my first, my first investor was also a single family and it was like the most painful one ever. So I think it's, it's you can have you can have it either way. You can have horrible experiences with single family, you can have amazing experiences of multifamily. So it really just depends, I think how the asset is structured and where you're buying it. Emil: Yeah, but you could… let's say you bought a quad Plex, right? You had the same thing, but times fours. It's just like your percentage. No, actually, I don't know, you could look at it either way, you could say, well, I have 4 units, my likelihood of 100% pain is much, is much less likely than so I think personally it's just easier to go with one, learn the ins and outs. Again, you're learning, especially if you're remote investing, you're learning how to do that, you're learning how to deal with a property manager. I think overall, it's just easier with one. Michael: Okay, and let's dive a little bit deeper. I mean, talk to talk to us a little bit about like, when you say learning the ins and outs, what does that mean? What did you learn from investing in that single family that then better prepared you to invest in that triplex and what was totally brand new? Like what caught you off guard with the triplex? Emil: That's a good question. I think it's just, you know, if you never if you've never owned your own home, there's all these moving parts of a home that you're not really like, I don't know how an H back works. How does plumbing work? What's uh, what's the main line? What's all these things? I've even forgotten already, as we're on this podcast, but like all, all these bars, all these parts of a home that you just you don't really know. I think that's one just getting more familiarized with all the moving parts. Michael: Does it matter that you didn't know how an H back works? I mean, you don't know how a car engine work. I mean, I assume I don't want to I don't want to put words in your mouth. But do you know how a car engine works? Emil: Here's the difference. A lot of things go wrong with your property. I don't say a lot, but things go wrong, right? And it's on you to know, how much does it cost to get that fixed, right? Like if someone said, Hey, your condenser broke? We're gonna replace it for $10,000, how would you know if that's accurate or not? Michael: I gotcha, I see what you're saying. Okay! Emil: So that's that's one thing. Michael: But it's the same thing with car if you take your car to the mechanic and they say, oh, you're continuing to trance function or is broken. We're gonna turn into $1,000 to fix it. So our concept, right, I guess you have to you have to chat with other people… Emil: Well my first car was a $6,000 used car. So I would just say, okay, you guys keep it, I'll go get a new one, you know what I mean…? I mean, it's like, it's, it's also, in most cases, less less dollars in, right. So a multifamily is going to be more dollars in your learning on more dollars versus single families less dollars in potentially, so less dollars you potentially have on the line to learn. Michael: All right, all right. I will, I'm gonna I'm gonna take a… alternative position on that one and push back, I think that you can actually find multifamily in particular markets that are as inexpensive or less than some single family. I mean, they're single family all over the place in the 2,3,4- $100,000 verse multifamily, you can find properties that are less than so I think that's a very common misconception that people fall into is oh, multifamily is automatically more expensive and I don't know that that's necessarily the case for every market. Emil: Yeah. But then you're putting you're potentially putting the cart before the horse, right? You're saying I'm going to go find a market where it meets this versus you should find a market that you like, and then look within that market? Michael: Hmmm… Yep. So you're letting the deal dictate the market or letting the market dictate the deal? Emil: Right! I think it's like some people will just I started that way, right. I said, okay, this is how much I want to spend, which markets kind of fall into that, which is one way, but I don't know if that's the right way. I don't know if it's the wrong way. But I would, I would rather if I could start it all from scratch, say like, what is the market I want to really invest in? And then secondarily, who is the property manager, I want to invest with? Michael: Oh, that's very well said. And so you're someone that wants to kind of cluster their investments in the same market? It sounds like…? Emil: I would yeah, I think I've said that, like on previous episodes being scattered across couple different markets, I think finding one market you like, you're finding good deals, you have a good property manager, again, to me, that's the key is finding a property manager. It's tough, it's like how do you find that good property manager without trying several markets, right? Michael: If you get some perspective and you go other places, you realize, oh, man, my manager was amazing, or well, my property manager kind of sucked. Emil: Right, right. Well, that's the value of I think networking and talking to other people who are doing real estate investing rather than just going solo. Michael: Totally, totally. And I cut you off before to go down this rabbit hole but you were saying, you were talking about what the ins and outs were that you actually learned that prepped you to be ministers as a multifamily investor. Emil: I don't think I'm a successful multifamily investor. I have one drive legs and that's been a big learning experience. I don't know, it was just it was a different learning experience in that I had multiple tenants leave at the same time. You know, single family, you're not paying a lot of the utility bills, right. So you're learning on the multifamily, like, what are my actual expenses? What do I cover? And how much are they each month? So it's like, yeah, you can estimate and talk to people, but like, it's just things you're going to learn by doing and buying? I don't know… Michael: Yeah, I think it makes a lot of sense, I think it makes a lot of sense… Emil: Those are of the things that come to mind. Michael: Yeah. Emil: And then, you know, how long does your average single family tenant stay versus multifamily? Like, yes, their stats online, but it's to me another one of those things you learn by doing? Michael: Yes, very much so, very much so. See, it's so funny, so many of the points you brought up for single family, I agree with and I think are valid, but I have like the opposite experience and I experienced those things with multifamily. So I actually have another episode too, like my first two investments were single family. I had the tenants leave every single year, they did a ton of damage on the way out and had to go to small claims court. So I was like, oh my God, this sucks. So that's ultimately kind of what led me to multifamily, I was like, oh, I gotta do something different. This is not this is not working out. So had much better luck with multifamily and that's where I've been focusing on since. Emil: For the record, where are your single family, those two single families you bought? Michael: They were both in California, in Southern California. Emil: Southern California is a tough market for landlords, man… Michael: It very much is… Emil: That I think probably played some into it, potentially for you. Michael: I think so, I think so. But also I mean, like given that I've also purchased I purchased two flip properties. One was in Birmingham, Alabama and the other in Kansas City, KC Mo, and that's been those have been paying to the butts too and so I think it's it's not a one size fits all like you were saying and it's it's very much personal preference. Emil: Sure Michael: But some takeaways that I had from investing in small multifamily, so two, three and four units is, as he touched on earlier, was the likelihood that you have both tenants or all of the tenants having issues or vacancy or causing damage, the Cisco likelihood just goes down. And so that's why a lot of people buy multiple properties because if you have one property, the likelihood of having one vacancy is fairly high if you have two that goes down, so on and so forth as you expand your portfolio. And so you can do that and acquire more units and increase the statistical likelihood of success. Success in this case, meaning not no vacancy and less repairs, with fewer transactions and so it just becomes, easier from a management standpoint and easier from a mental capacity standpoint, when you're thinking about, okay, I've got one address to worry about, these are all the things going on there as opposed to these five different addresses to keep track of and so I think for from a small multifamily perspective, like, again, those two to four units, it's fairly similar from a how to own and operate perspective and I think you nailed that also talking about like the expenses and so from that perspective, it can be a little bit different, and your expense load and what your operating costs look like, and who pays what and how often you might have a turn. And but the cool thing is, the financing is the same. So if you go buy a one single family or a two to four unit, and you're getting conventional financing, that's the same, which is really, really cool. It's not until you make that gap into that five plus unit space that it changes into commercial financing. Emil: Right. And that's probably something important to consider here as well, if you're like thinking about multifamily or single family is, well, if you have less time, let's say you wanna invest real estate, but you have less time, right? Multifamily, we know is valued on how well can you make it perform, it's more like a business, tather than, you know, one to four unit, you're kind of writing the ups and downs of the market to value it right. It's all sales comps. So maybe if you have more time, and you can you feel like you can manipulate the NOI on that property, get it valued higher to do those things. Maybe multifamily makes more sense for you and then but maybe if you're you know, super busy and you want something a little bit more passive, I've just found that my single family has been more passive, my attendance stay longer. I haven't done the triplex for a ton of time. It's been a year and a half. But my tenants stay longer, I hear less things overall, is what I've is my personal experience with, very limited units, so… Michael: Yeah, I think you've made a great point talking about time, time perspective, I would just add to that, that if you're just starting out and taking on a multifamily investment, finding something that's that has a value add component might be tough. And it really comes down to like, I know, I was way in over my head with my first multifamily deal I had. Because I just feel like you don't know what you don't know and so you're jumping in, like you mentioned, to this multiple unit situation where all of these things are new, versus trying to figure it out with one tenant and one property in one door, where everything is still new. And so I think that there it's it's often an easier pill to swallow. But if someone is super gung ho and wants to take risks and has the financial wherewithal to back it up, and is like yeah, I know I'm gonna I'm no, I'm gonna learn lessons, but I want to learn lessons hard and fast. Multifamily can be a really great way to do that. Most value add now layering that on top of that is another way to learn even harder and faster and more expensively. So if someone's just starting out, I think and they're gung ho about multifamily, I think a turnkey multifamily can be a really a really great way to go. Emil: Yeah. That's something interesting you kind of bring up their trauma to me not trauma, but like recollection of my this, this triplex my first multifamily is when you're wrong on your calculated repair costs and all that it compounds, right. So if you have three units, you got a turn, and you think it was 5k each and you were wrong, it multiplies faster than oh, the the kitchen on my multimeter and my single family, I thought was gonna be 5000 ended up being 6000, right. Like, you just multiply it if you're wrong multiple times. Michael: Yeah. No, it's such a good point, it's such a good point. I wholeheartedly agree. Emil: Yeah. But it's good. That's a good learning experience that, you know, people should go through. Michael: Yeah, well, I would argue I would have preferred to have someone else go through it and tell me about it and then I could learn from their mistakes, which is why we started the Roofstock academy. By the way, we talked about, hey, this is purpose built for investors, by investors for all the crap that we had to go through that we wish other people had told us ahead of time. Emil: True, true and it's also valuable in that, like, your cost will change from market to market, right? So having other people in the same market you invest in, it's just so valuable. Michael: Totally, totally. And oh, I forget who said it. I don't know if it's a famous quote, or it was someone I just heard talking, but they're saying like, not every dollar of rent is created equal, in that in every market you go to, just because it looks attractive on paper doesn't necessarily mean that it's going to be, you know, a rosy walk in the park and so be very particular and do your due diligence around okay, what is the market do? And what is the market doing? And why is this thing, both single family or multifamily, the price that it is both from a rental perspective, as well as a cost perspective. So if you're like, holy crap, I can go buy these $200,000 property rents for five grand a month. Why is that? You know, what, did you find a unicorn? Maybe? And let's, you know, go figure that out, just because it's so good. It shouldn't scare you but you should definitely put up a red flag and say, okay, well, let's investigate this further and find out why this is the way it is. Emil: Right. Michael: Awesome. Any other points Emil, before we get out of here? Emil: No, I think I think we actually cover this one pretty well, in terms of our individual experiences, pros and cons of each thing and it was well covered. Michael: Love a good humblebrag… Awesome, let's get out of here. Emil: More so by you, you're just grilling me and I'm like, uh,… I still remember Michael, it was four years ago. Michael: You tried to block it out of your mind? Forget about it. Emil: Yeah, I'm like, I don't know. I just it's kind of one of those things where you're like, you just put one foot in front of the other and you know, you're drinking from the firehose, so… Michael: Totally. Yeah. Well, but real quick, so last question, before we get out of here. How has that investment panned out for you, that first single family? Emil: My first one? Michael: Yeah. Emil: So yeah, it's been a cash cow and if you hear crying in the background, that's my newborn baby in, shout out in. Michael: My baby boy in… baby boy… Emil: Baby boy… So when I bought it, I think the rent was somewhere around 900 and we've just had steady rent increases and the same tenant for four plus years now. So I think now it's at like 10350 or somewhere like that. Yeah, and just having the same tenant is so valuable. I love it. It's so nice. That's my favorite thing was single families. They seem to stay longer. Michael: Love it. So what was probably a good deal at the time has now turned into if you saw it today, a great deal, it sounds like… Emil: Yeah, I think it was a, if I'm being objective. It was a decent deal at the time and now it's become a pretty good deal for me. Michael: Love, time, compounded with like good decisions. That should be like an equation time. Time plus good decisions equals, I don't know, killer deals. Hey, everyone… Emil: Michael Einstein, the Einstein of real estate. Michael: So dumb… awesome. Well, let's get out of here, Emil. That was our episode, everyone. Thank you so much for hanging in there with us through all those rabbit hole side tracked conversations. As always, if you liked the episode, feel free to leave us a rating or review wherever it is you get your podcast, and we look forward to seeing the next one. Happy investing. Emil: See you later.

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Quitting the corporate world to find freedom as a real estate investor

Play Episode Listen Later Mar 3, 2022 29:41

Mike DeHaan is an electrical engineer-turned-real estate investor in Spokane, Washington. He began his business in early 2018 with the goal: Everyone begins with to have passive income and fell in love with the process of improving the neighborhoods in his hometown. Since he began, he had been a part of over 60 transactions either through flipping, renting, or assigning the contract. He didn't come from a Real Estate family. The growth and development of his business have come entirely from self-education through podcasts, books, mentors, and a ton of trial and error. His goal is simple, he wants to be a driving force in the growth and reparation of the Inland Northwest. When he first moved to Spokane in 2009, there was more run-down neighborhoods than thriving ones. Over the past decade that's changed, but there's still a lot left to do. In this episode, Mike will share with us his extensive experience in real estate investing, and how he became an engineer to a full-time real estate investor. Episode Links: https://inwproperties.com/ https://music.amazon.de/podcasts/ef9a0c7d-eb7f-4725-b7b0-72387434d143/collecting-keys---real-estate-investing-podcast? https://collectingkeyspodcast.com/ https://www.instagram.com/mike_invests/ https://mikeinvests.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Mike DeHaan, who's got a really interesting wholesaling business and he's gonna tell us how he got there and what it is he's doing today. So let's get into it! Mike, what's going on man, welcome to the show. Thanks so much for taking time to hang out with me, I appreciate it. Mike: Yeah, absolutely thanks, Michael. Glad you have me on. Michael: Oh man, my pleasure. We're gonna have a lot of fun today. I know a little bit about your story, your background, but I would love if you could just jump right into it and share with our listeners. who you are, where do you come from? And what is it that you're doing real estate today? Mike: Yeah, absolutely. So I live in Spokane, Washington, so east side of Washington state, it's kind of the forgotten side of the state up here. Everyone always knows about Seattle, but people never really seem to remember Spokane. Michael: No love for Spokane. Mike: No no, man. Like get a little bit of love a little bit of hate, you know, once a year during the basketball tournament because the Gonzaga University's here. Michael: Oh yeah, if you felt like crap talking. Mike: Yeah, exactly. Everyone always says we're the, the overrated teams. We haven't won a championship yet, but we usually do okay. Michael: Good deal… Mike: But, uh, yeah, so right on Idaho border. Um, I grew up out in Montana and then I moved here to start going to school at GU, I moved out here to go to school at Gonzaga, I kind of went the traditional route when got an electoral engineering degree, you know, parents super proud, got a good degree was very hirable. Going through that process, it never really sort of fit my personality, I guess. But I was sort of, of the of the viewpoint that, you know, once I graduate, I'll find a job that I like, and then I'll sort of create my passion from there. Michael: Well, the fact the fact Mike, that you and I are sitting here having a conversation means that you shouldn't have been an EE to begin with, so… Mike: Absolutely, yeah. You don't have to have my head define myself a little bit first, I guess. But yeah, right, right. After college, I went and got a pretty good job out in the Seattle area. I'm working at a consulting company for two years. And then I worked at Boeing for a few years. I really, you know, but Boeing was, was kind of a tough one because it's like a dream job for so many people. And I just hated it, like, from the first day I walked in, I was like, oh, no, what have I done? This is absolutely not what I should be I wish I should be doing. Michael: What did you hate about it? Mike: Just like the whole corporate bureaucracy, you know, I realized pretty quickly that I'm not cut out to sort of be a number, and just sort of go through the motions of this giant machine and also inefficiencies right. And all the time through my career in jobs. I'd always had this issue where I would get assigned a, a project or whatever and I would figure out the most efficient way to do it as quickly as I could. And it was always just being, you know, before the before the deadline, right? So I had six weeks, I forgot how to do it in like a week. And then I would be like, can I need something else to do and all the other engineers back, no, that's not how it's supposed to work. You're supposed to take the entire six weeks, you know, so I immediately just wasn't cut out for that. And that was a really big problem. And I was at the consulting company two weeks they sell time. Yeah, you know, so I got me slapped pretty hard. Anyway, fast forward. I left Boeing, I moved back to Spokane to work at the utility here for a year. That was my fourth job, including my college internship in a matter of, I guess, what, four and a half years. And at that point, I was like, alright, this this career path is not for me, I need to do something different. So at the end of 2017, I guess being in 2018, I decided enough is enough and I just quit being an engineer. Everyone thought I was silly. My you know, that was probably the hardest conversation ever had to have in my life was calling my parents to tell them that hey, you know, that fancy degree I got I'm not going to do that anymore. So yeah, it's funny, everyone I was asked like, what my wife and stuff thought and honestly, she was just like, well, if you're not going to be a miserable prick anymore, I guess it's okay for you to… Michael: Step into the right direction. Mike: Exactly. Even though we were losing 70% of our income, you know, it was, was worth it to take the risk. Yes, that was yeah, that was early 2018. I spent the next I guess like four or five months, trying to find myself you know, reading a lot of self-health books, business books, my wife and I travel a little bit. We went down to New Zealand for about three and a half weeks and traveled around and just did some soul searching. I, you know, originally wanted to get into tech sort of dabble in that and realize how huge that bear entry was, the actual development side of it, I was able to sort of grasp but you know, living where I'm at, you know, you being in the Bay Area, you can probably sympathize to how important connections are. And we don't necessarily have those here. And that's why people move to places like the barriers to be around people that are doing that. So anyway, as a side note, I started getting into passive income and generating wealth. And that's what led me to real estate, which is, is brought me to kind of what I'm doing now as a full time real estate investor. Michael: So I've been I love your story, it's an I think it's one that a lot of people can, can, can relate to, and that they get into this role that they think is going to be awesome and then it just turns out not to be at all what it is they're looking for. And you tried that, you know, like you said four times, and none of it was working out. So how did you get involved with your first deal, with your first real estate investment? Mike: Yeah, so, you know, I spent the first little bit when I decided I was going to invest in real estate, I guess, backtrack a little bit, I had a local friend section on my business partner who was dabbling in investing. So that kind of planted the seed. And, you know, I spent the first little while just listening to every podcast, every book, you know, everything BiggerPockets pretty much that I could sort of start with, that's kind of where everyone starts, I feel like and, you know, I was like, okay, cool. So actually did basically just go and start offering on properties. But at same time, I was like, a little bit risk averse, I don't want to do a whole lot of work, like, what can I find that would be easy? And so I found actually, right around the corner, from where I live, there was a new development going on where they were building new construction ranchers. And friend of a friend, I was able to connect with the builder and I basically came into an arrangement of, hey, I'll pay, you know, $200,000 for each of these ranches, owned by two of them, and I was getting the money, I basically liquidated my corporate 401k and I was like, that mean, I paid all the fees and everything. It's funny, in hindsight, it was kind of a rash decision but I was how like, deep down, I was kind of like, I need to separate every part of this coast, this corporate past life that I hated. Michael: So you're drawing a line in the sand…You're burning the boats. Mike: Exactly. So I paid massive fees to plot this money. But it was a pretty generous amount since I had been out to get South couple of years, pull that out, use that to buy these two properties. And it's funny, like, in hindsight, in hindsight, when I signed the dotted line, they weren't great investments, right because I kind of had the mortgage payment, and I basically went like: Okay, so the mortgage payments gonna be $1,100 a month on really renting for $1,500 a month. You know, I'm gonna, like, cashflow $14 a month, you know, right. But of course, that's not how it works when you account for vacancy, maintenance, all that sort of stuff. Michael: Oh, you mean there is other expenses… Mortgage payment. Oh… Mike: Exactly. But I also looked out too, because I kind of signed up for these properties, I signed documents for them, while they're still being built, they were still holes in the ground and then by the time they actually closed, they were worth about 20- $30,000 more each than I paid for them. Michael: Wow, that went well… Mike: I accidentally walked into some equity there. And then, as they, they continued to sort of increase in value over the next little bit, I was able to actually cash out refinance some of that money as well. This helped me rebuild that nest egg. So pure, dumb luck, I'm not gonna lie. But I mean, at the same time, dumb luck comes from taking massive action and that's kind of how I got started, so… Michael: Totally, okay. And so you learn from the, you know, those two deals, and then went on to do some other stuff, tell us about that. Mike: Yep, exactly. So I learned from those ones. After that I had kind of had my confidence up a little bit. So I'm like, okay, I'm gonna do like a value add sort of deal now, like you hear starting like the proper first strategy, not the I got lucky with the first strategy. So I went and I bought a fixer duplex. Me and my wife, we fix that up ourselves, cash out, good amount of our money, then that was like the end of 2018. Then going into early 2019. I was like, hey, I need more capital, so I started flipping houses. I didn't have a huge amount of experience and money. So I basically was like, hey, find someone that's experienced, that has money and just basically doesn't want to do any work but doesn't mind telling me what to do… Partnered with a couple that was local here and we flipped a few houses together and would split the profits 50/ 50. So got that going use those profits to buy another property, which is a triplex. And then after that, it started to get more and more difficult to find opportunities, both with the partners I was flipping with and for myself, so I decided, hey, I need to start sourcing my own deals. You know, especially I started to connect with wholesalers and like other people that were marking their own deals, and I was like, you know, they're obviously doing something. There's no reason I can't do that. So at the, I guess, January of 2020 I officially started the business of what I'm doing now, which is a full time off market real estate investment business. Michael: So good. Mike: And then, yeah, so that was feeding 2020 survive through COVID, that sort of stuff took us a little bit to get going. But as of right now, we've done… total off market about, about 85/ 86 deals since being a 2020. Also sourced off market and I have nine, nine staff that worked for me, so three of them that are local to the US, and then a handful of virtual staff that handles a lot of our more administrative processes in cold calling, all that sort of stuff. Michael: So that is amazing, Mike. And so you know, of those 80 deals that you've done, are those all deals that you're doing, or you're taking on the ones that you like, and kind of wholesaling, and outsourcing, you know, passing on to the other ones you don't like? Mike: Yep, so it's kind of a mix of, you know, keeping the properties that we like as rentals, predominantly a lot of the multifamily as we keep. So our total portfolio now is I think, 43 doors. So that's across, like 20 to 22- 23 properties, the rest of them, we've either been wholesaling or we've been flipping, it really just sort of depends on the scale of the work that's involved in the neighborhoods, and also the needs of the business at the time. You know, sometimes there's one that would be great to flip, but it makes more sense to wholesale them and you know, make half as much money. But that's like a 20 day transactional process instead of a three month transactional process. Michael: Right, so okay and where is your geographical footprint? Mike: So we have done predominantly in Spokane, and Spokane area, Eastern Washington in northern Idaho. But we also started doing some stuff remotely last year, just for scale. So last year, we did eight deals that were all over in Knoxville, Tennessee, that we did completely virtual, one flip and seven assignments and those ones, we would, we did all the negotiations and closings, virtual, and we would just work with a local runner on the ground over there to go and verify the conditions and grab photos and all that sort of stuff. Michael: Awesome, and are you do you have I said on any other markets in the near future? Mike: Yeah. So that we recently brought on a professional sales manager to start helping us optimize our sales process in our teams. And working with our sales guys just to learn how to do the full sales process themselves, because… How we kind of built it cuz we bootstrapped this whole thing is, you know, we kind of hired and built systems as you know, need arose for them, right. So it wasn't a very holistic process. So we kind of have like a lot of like patchwork things in there, you know, for like, how we run us… around appointments, right, or like how we make offers things like that there wasn't a good cohesive process, it was almost lead by lead, which made it extremely time consuming for people for all of our sales guys. So we're working with him to iron those out and then once we have that process more streamlined, I mean, we should be able to drop in any market that we want and do pretty well. So yeah, we're looking there, we're looking at we have Knoxville, we're looking at the outskirts of Chicago right now. We're looking at a few places in Ohio, we're looking at a few places in Texas. And really, as long as you're able to find the staff, we have the marketing systems out down and once you have the sale system, if we can find a good sales guy should be pretty much copy and paste. So that's kind of what we're hoping to do this year. Michael: That's so awesome. Mike what I love about your story is that you've done like so much of all of the things like all the real estate investing things, you started very traditionally a single family than multifamily than flipping then burr you know, now you're wholesaling. What have you found to be the most fun? Mike: Yeah, so I love I mean, engineering is mine, I love building the marketing system and like solving the strategies of some of the more complex, you know, deals that come through, like the ones that the ones that we come in, get a contract signed, we close it our assignment and goes all smooth, those are awesome, like, you can't complain about easy money. But the ones that I find the most fun are like, okay, so we have a deal that's kind of tight, you know, we got to like work with the seller to solve their needs, you know, that means, you know, helping them find a place to go like working with attorney stuff like that. They're really sort of deep dive into some of these complex deals that are, you know, they require like an investigation, I find those to be really fun, and they're more satisfying when they're completed. Even if you do sometimes make less money, it's just like, it's more interesting. You know, I…we've started doing a lot of stuff like subject twos or we have one that we're signing, we got sent around today actually, it's a Novation agreement. So basically, we're partnering with the owner of the house to flip the property and then we give him like a baseline sale price. Everything above that will collect his profit. Michael: Oh my gosh, so cool… Mike: So we've never done one of those before and ultimately, that came around like he's a rational seller, he's willing to work with us, we were off by about $18,000. On our what we could mat ask what we're willing to pay versus what he was asking and we did the math, and we're like, well, that gap is, you know, still less than what our total loan costs would be. So what if instead, we just like met in the middle, gave him some extra money, we were still close to where we needed to be. And we don't have to go get a hard money loan, we can instead as part within the flip the deal. So working, strategizing, things like that. And, you know, one of the biggest things we found is that if somebody is willing to sell their property, there's almost always a mutually beneficial arrangement, you just have to work with them to solve their needs. You know, I think that's one of the biggest things that people don't understand or they kind of discount with, you know, off market real estate is it's not a real estate company, honestly, it's a marketing business, people business. And if you're willing to listen and get creative with people, and build that trust, and, you know, just like, think outside the box, there's opportunities that can be found everywhere, that are, you know, oftentimes even more lucrative than just like a cash offer, which is what everyone else shows a look for. Michael: Totally, totally. Wow, that's so cool. That's so cool. Mike, I want to ask you, because you did something and ran into a problem that almost every real estate investor that I've spoken to, either inside the academy or outside of the academy comes up against, and that's, I'm running out of money, or I've now run out of money. And so you mentioned taking on some business partners, we need to start doing some flipping, but what advice, what recommendations would you give to people that are kind of hitting this wall? Where should they be turning? Mike: Yes, so if you're brand new, it's gonna be a little different than if you're somebody that's trying to scale. So for when I was brand new, I was able to find that money by finding people that, you know, had more money than they had time. And I basically created the time that they needed, right? And I put in the hustle, and I, you know, did what I would do what needed to be done to do the deals and at the end of the day, there was people with the cash that wanted a more passive income opportunity. Michael: It sounds so mafio, I did what needed to be done, you know… Whatever it took… Mike: Off market, sometimes it's like that. Michael: It's great. Mike: But, uh, yeah, so if you're getting started, I think that's kind of the easiest way to go and especially if you show that you have some level of organization and commitment, like I mean, if you show up in your kind of grungy, and you have literally no expansion of nothing about real estate, you're probably not gonna be able to get that. But if you show up, and you're like, hey, I put a lot of thought into this, I think I can pull this off, this is what we're going to do and you come up with a strategy to somebody with money, they'll give you a shot, you know, so even the guys that work for me, now, they all want to get into flipping their own houses, like cool, you're showing that you can work you're showing hustle for me every single day, you bet that when you want to flip this property, I'm going to be happy to partner with you on it, you know, and you're going to go and you're going to make your money, I'm going to make my money and they're going to be able to get off the ground. If you're more established, where we've started to get cash. I know a lot of people look at like raising money from private investors, and those sort of things like how funds are, are those arrangements. We haven't necessarily look towards that instead but we've honestly relied on like lines of credit that are leveraged on the properties that we've accumulated. And surprisingly difficult to get those when you're trying to scale a business until it's funny until you kind of get your first one and like once you find the first credit union or bank that's willing to give you a line of credit on your, on your property, the other ones seem to be like, oh, well, you know… Michael: They gave… Mike: Mainstreet bank or whatever gave it to you like you must be okay and then they sort of build that way. And that is slightly risky, because they contend technically call the debt and things like that. So I wouldn't use that to buy like an entire property. But it does allow you to bridge the gap with like, you know, hard money loan down payments or renovation costs, things that you're going to have a quicker turn time on. And yeah, those are those are kind of the main methods that we've used, I know other people, other people raise private money, but we just haven't necessarily gone down that route yet. Michael: Yeah, no, that's great, that's great. And then another question, I get from a lot of the folks I speak with are, how do I figure out what's a fair partnership arrangement or a fair Partnership Agreement? Do you have any thoughts there? Mike: Yeah. So I think the biggest thing is being explicitly specific about what the roles and conditions are, of your arrangement. So how me and my business partner we've basically divided our roles is: Everything before, like we close on a property that's kind of my world. So I manage the sales team, I manage the marketing, you know, I manage the day to day sort of operations. Once we close on a property, that's his world, right. So he handles the contractors, he handles the renovations, he handles, you know, make sure the mortgage payments are paid all that sort of stuff, and having that firm agreement and that complete understanding that he's gonna do what I need to do, I'm gonna do what I need to do. It works out very well, because there's never any, you know, head butting, there's never any conflict. And also too, it's, it's allows us to scale very quickly, because we kind of each have our own business distributors, like reliant on each other, right. And so we're not trying to manage two very separate roles. We're not like really double dipping in anything. So that I think, I think that is very, very important and whether, you know, it doesn't have to necessarily a split like that, but whether you know, one partner is the sales guy, one partner is the marketing guy, like, just be super explicit on what that means and just try to stick to your roles as best you can. Michael: Love it, love it. Totally shifting gears here, Mike, what kind of properties are you targeting for your personal portfolio? Are you doing more flipping? Is it long term buy and hold, is it multifamily? Talk a little bit about that. Mike: Yeah. So our favorite for holds is like small multifamily, duplexes, triplexes quads. We have some single family stuff. But I mean, the cash flow that you get off of like duplexes, triplexes, and quads you really like, we really prefer those as right now, as opposed to like larger multifamily, just because it's so easy to get financing, and there's so much more liquid. You know, if you have a duplex that you decide you want to sell, it's a lot easier to offload that than like an 18 unit apartment complex. And, yeah, that's kind of what we're, we're targeting everywhere that we're going right now for our own portfolio. And then the half in terms of like renovations and flips, we're kind of looking at everything, we've, we've flipped everything from mobil homes, to we flipped a seven unit apartment complex, so you know what we'll be willing to take on anything like that but… Michael: That's awesome, that's awesome. Having done so many different things and start, you know, at different stages in your journey, what do you recommend people get started with? If someone's brand new real estate investing? Like I want to do real estate investing, everyone's talking about it, I have to do this thing, where should I start? Mike: So I would say if you're really serious about it, honestly, the best thing you could do is find someone that has a business like mine and go work for them. Michael: Hmm. Are you hiring? Mike: Oh, well, we are hiring sales guys, we're looking to go into new markets. Michael: What's the website called Mike? Mike: Yeah, so like, ehmm to reach out to us? Yeah, if you go to: https://inwproperties.com/ , you can send me a message on there for our business. But uh, yeah, I think that that would be the like, if you're really, really serious that you want to be a professional real estate investor go work for people that are professional real estate investors, you know, ideally in a role where you are getting to be a part of the deals and the negotiations. You know, I think that big sort of asterix there, when you're talking to people like that, make sure that they are actually walking the walk themselves. Because there's a lot of people that will be looking for cheap labor to kind of do like the, you know, the bottom of the barrel work they don't want to do, but they're not actually having that much success themselves. So you might not have that much knowledge to gain. I know, we are one of our most recent employees, who's our he was our transactions, our transaction coordination, or dispositions. It's like a 23 year old guy and he said, he talked to a handful of different people before he found us. And he's like, yeah, I kind of went in and found out they were only doing like, seven or eight deals a year and that wasn't like going to give them enough chances at bat, sort of like learn what they're doing. But yeah, and I'd say, if you want to be super serious, do that. If you want to be more of a casual investor, and you have a WT that you like, or you have a job that you like, honestly start going to meetups and just meeting people. And not only go to the meetups, meet people, but identify the key players at those meetups and follow up with them on a very regular basis. You know, and try to bring them value in some way. Because so many people, they go to those meetups, and they never reach out to somebody again, or they never actually try to bring value to any of the people they meet there and then surprise, it doesn't actually lead anything. Michael: A deal didn't fall in my lap, it sucks... Mike: Exactly. Yeah, that's what they're thinking, you know, you go and you find that heavy hitter at the real estate meetup and you, you know, call him every once in a while send him attacks, like you know, just try to engage and try to build a friendship, opportunities will come to you at the end of the day. You know, even if you do I'm a little bit crazy in the middle, they're eventually going to warm up to you know, the average person is gonna do that. Michael: You can wear them down. Mike: Exactly. Honestly, though. Michael: Oh, I love it. And I'm like, I agree with you 1,000% like find ways to bring these people value. I think for so many listeners who are just getting started, like, that's sounds like Greek to them and so what are some ideas? Or maybe like speaking for yourself what would you be receptive to if someone came to you as like, hey, I'm new, I'm trying to get started, this is what I'm going to help you with? And what are some actionable steps or some ways that people can actually bring value to some of those heavy hitters? Mike: Yeah, so it mean, it can be things as large as bringing them a deal, bring them an opportunity. It can be things as small as like making connections, you know, so you like, let's say, you meet with one of these, you know, larger investors, and they're like, oh, you know, I've been, I just had this big, like, roof job. And one of my properties, you know, it was a real pain, whatever and then it's like, okay, so maybe what you do is you go out, and you find them a better alternative for that in the future. And you say, like, hey, I remember you said that you, you really overpay for this roof, you know, I met this guy, um, you know, I talked to this guy, he has a similar, here's a business that could do that, probably for cheaper, right? Something like that. Or it can be as simple as you know, doing day to day work in one of their transactions if they need it. Like if someone's complaining about a tenant, or you know, somebody who's residing in a property they're working on, maybe offer to do the cash for keys conversation for them, see, if you if you volunteer to go and pay that person to leave for them, and just relieve some of their headache, like anything that you can find that could make their life a little bit easier, especially if they're a full time investor, and there's busy as a full time investors are, they'll remember that, and that will carry a lot more weight than you think it would. Michael: Totally. No, those are both great suggestions, I love that. I remember hearing um, one of the BiggerPockets podcast, it might have been Brandon Turner, David Green, one of the hosts know, like, if you're trying to get someone help you like, don't go ask them like, oh, what do you need help with? Because then that means they have to spend their mental capacity thinking of other things that you could do for them, as opposed to you coming to them saying, hey, I heard you had this problem, let me help solve it for you. Mike: Exactly. I mean, it's a people business, like I said before, you know, the other investors are people too and even when you're finding your own deals, when you're looking to wholesale those deals or pair that, you know, pair them with other investors, listen to what the investors want, I guarantee you'll make more money. If you find the deals that that specific investor wants, you know, and same thing, if you want partnerships, you want to find private lenders, you want to find contractors listen to their needs as a business. Everyone always thinks about money and a lot of times it is but everyone always has a deeper route than just pure money, you know… Michael: We hope… if they you know, some people, maybe not. Mike: Yeah, that's true. That's true. Michael: Mike, this was awesome, man, thank you so much for spending some time with me today. If people want to learn more about you, take advantage of your wholesale business, you know, off market deals, what's the best way they get in touch? Mike: Me and my business partner, we started our own podcast, I guess about four or five months ago. It's called: Collecting Keys - Real Estate Investing Podcast. It's kind of like a in the weeds sort of podcast about how to be a full time investor and sort of like the ins and outs of running a business like ours. So we get pretty in depth about different marketing strategies, things that have gone right with our business, things have gone wrong with our business. Our most recent episode that we just released, as this one came out was talking about a… oil spill that we had in one of our Airbnbs, or an oil furnace exploded. Michael: Oh, you're not talking like olive oil? Mike: No, no, no, no, this is yeah, this is Diesel fuel that flooded one of our properties. You know, so we talked about, like how you deal with that situation, which, you know, you have enough properties that eventually going to happen… So you can go check me out there. You can reach out to us through that website at https://collectingkeyspodcast.com/ . You can also hit me up on Instagram, which is @mike_invests, people feel free to shoot me a DM on there, I love to chat with people. Between those two things, you will get a pretty deep insight into what being a full time investor is actually like without all the fluffy stuff that you necessarily hear everywhere else. Michael: Love it a day in the life. Mike: Exactly. Michael: That's great but Mike, thank you again for hanging out with me. I really appreciate you and I'm sure we'll chat soon. Mike: Awesome. Thank you so much, Michael. I Appreciate it. Michael: Alright, you take care. Alright, well, that was episode, a big thank you to Mike for coming on. We definitely look forward to having him back on the show to do a deep dive into how to…: behind some of the strategies he talked about in the show today. As always, if you liked the episode, please feel free to leave us a rating or review wherever it is you listen to our podcasts, and we look forward to seeing the next one. Happy investing…

How we'd invest $50K, as a beginner and as an experienced investor

The Infinite Kaleidoscope from BFF.fm

Play Episode Listen Later Feb 26, 2022 21:30

Investing $50,000 in real estate can go a long way toward creating a diversified rental property portfolio that generates strong cash flow, provided that you do it right. Today we are asking each other the question how we would invest this amount of cash. In this episode, Tom, Emil and Michael share how they would invest $50,000 in real estate if they were just starting out, and if they know what they know now. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Emil: Hey, everyone, welcome back for another episode of the Remote Real Estate Investor. My name is Emil Shour and today I'm joined by… Tom: Tom Schneider Michael: and Michael Albaum. Emil: And on today's episode, we're going to be talking about how each of us would invest $50,000 in real estate, and we're gonna frame it as what we would do with that 50k when we were first starting out, versus how we would approach it now, so let's hop into this episode. Well, I can't ask what's on your guys's mind? Because we just went through that so, huh… Hmm. You know, I used to have this boss that every every meeting every week, he would come in and just ask some random question to avoid the like, so how's everyone doing? That was like, it's a good way to kind of start a meeting, get like really random answers from people. Tom: You got an example of one? Emil: He would honestly as a really weird, he's like a weird dude. But like funny, weird. Yeah, probably not suitable for this show. The ones I remember. Michael: There was a my, my wife loves David Sedaris. And he does a masterclass and he talks about comedy. And one of the questions he loves asking people was, so when was the last time you touched a monkey? He asked him on this and they were like, oh my gosh, like, can you smell it on me, I was working with him earlier at the zoo today? And he was like, no way and it led to him like being able to go play with the monkeys at the zoo. Like and that's why you should always ask random questions. Emil: He had asked like 400 people, and they all I never spoke to him again, but that one person… Michael: The one was a big one. Emil: Then he finally got to meet a monkey at the zoo. Michael: Yeah… Tom: Bad news man, getting a baby monkey and then growing up a lot of sad stories about …like ripping arms off. Anyways, sorry… Michael: That's a… go hard left fast… Tom: Yeah. Emil: All right with that we're gonna hop in and talk about real estate. So the topic today is how do you invest 50k? I think this will be interesting. If Michael ever gets it together here. Michael: Oh man… Emil: How would you invest 50k If you know what you know, now, but you're just starting out. So take yourself back to you have your current mind, you're going back to when you first started. So how would you invest 50k? And then we'll talk about you're at where you're at currently, you're 50 grand, you want to invest in real estate? What do you guys? What are we all doing? So who wants to kick off? Going back to the past with 50k? Tom: So, Tom's gonna go first. I would… So me with real estate investing, I really enjoy real estate investing, but I also really enjoy the kind of passive nature of it, more probably more than Michael and Emil, I think they're like, way more active. So I think this is going to be a good diverse range of responses to this question. So what I would probably do so I'd say there's there's two options, right For me, as I also really like single family off of multifamily, just a little bit less to do plus less turns plus XYZ. What I, I would see this as two options, I can either go to, to pick buy two properties in more kind of class C markets, not not as in like, negative, but like smaller markets, right? Talking about like, maybe Birmingham or buy or like Memphis? Emil: We'll call it Tier 3, it's classy… Tom: Sure, sure. Sure. Sure. So the my options would be to that or to buy one property in like a Class B area, you know, maybe a, you know, Atlanta, Raleigh, you know, Dallas, one of those guys and where I am right now, if I had 50k, I'm still trying to deploy as much capital out there. I would get debt for sure. I would, I would max out my debt on it. You know, I … we know well, being conscious of not getting over my tips, making sure that my income could support my debt coverage. But I would probably, I'd probably got two properties in one of those smaller markets. But you know, I might have a old fishing pole in the water on some of those larger markets. If something were to come up, I'd cast a wider net, you know, it's a busier acquisition time. So that's why we deployed by SFR, I would look at those smaller markets max, loan to value most of it… That is what I would do, went a little bit long didn't it… Ehmm, yeah. Done… Michael: Love it. Would you buy… Would you buy both in the same market? Do you think it would use spread them out? Peanut butter spread, as they say… Tom: I would probably buy them in the same market. Again, like so important to that to develop a thesis when investing in me is a little bit less overhead. So just using a single property manager, you know, doing that work and finding the right property manager, maybe having them help me out on the acquisition side, as far as evaluating neighborhoods and whatnot. So yes, it's a market. Good question, Michael. Michael: Love it, love it, love it. Emil: So, Michael, what would you do? Michael: I think I'm taking that 50,000 and like Tom gonna go get some debt. But I am probably going to go buy a multifamily building, something a little bit bigger that I could, you know, really, really scale with. And it's probably going to be a little more turnkey, because having done the whole multifamily value, add thing, it can often be a lot more expensive than first anticipated. So something that's, you know, relatively easy, stable. That's why you may go to but in close second, what I'm also going to be considering is going and using a 15%, down DSCR loan and going to go purchase a short term rental, which would probably be a single family out in one of those vacation markets that are out there. But I think it can be a really, really, really great use of cash to generate quick income to then go to buy additional properties. Emil: Michael, for anyone who doesn't know, what is a stable multifamily property, what does that look like? Michael: Yeah, it's something that has, it's really good question. First off, it's something that has probably already been rehabbed, either extensively or lightly, doesn't have a whole lot of deferred maintenance, rent is probably going to be pretty close to at market rent. So I'm not going to feel the need to, to get new tenants in place when their leases are expiring, because they're already up at market rent. Just something that has been taken care of, or well maintained. Doesn't need a whole lot of CapEx. Tom: Short term rentals are interesting. How do you find your overhead as an owner relative to your multifamily single family versus long term versus short term rental? Do you find it pretty similar? I would imagine that there's obviously range like there's variants with each of them, but just general ality generally speaking… Michael: Yeah, it's a big range and it so depends on like my older vintage multifamily, it's gonna be a little bit even less than some of the expense ratio on that just because that has a lot more maintenance, regular, recurring maintenance type issues. On newer single families, comparing across the board to long term versus short term, short term is definitely more expensive from an expense ratio standpoint. But the income generated is still stronger. And so from a cash on cash return, it's it's still performing quite quite well. Tom: I bought this as a metric, number of times you as an owner, you have to like make a decision or get involved. Michael: Oh, see, short term versus long term? Tom: Yeah, yeah, I would think I mean, I would assume short term rental, like there's a little bit more overhead as an owner. Is that wrong? Michael: Yeah, I don't think that that's, I would say that there is more on the front end. So like we were involved in the decorations and decision making process around what amenities to include, but from a day to day… Tom: … FF&E and OS&E those are some acronyms, Michael… Michael: What's a OS&E? Tom: Oh, OS&E is operating supplies in equipment, and FF&E is furniture, fixtures and equipment. Michael: Ahhh! Tom: No big deal, just drop an acronym… Emil: A unit count into, what's going on here? Michael: Yeh, sounds like an accounting term. Tom: I know about luxury man. Michael: You're just steeped in luxury. But no, I would say other than that. It's pretty much about as hands off as as long term if not more. So. I've really I've made very few decisions, I've been involved in very few of the conversations, we're looking at converting the garage into additional space so that of course, there's a lot more involvement in but that would be the same as if I was doing some kind of rehab work on a long term rental. Tom: I heard a great story a description of short term rentals as comparing them to fire trucks and that they're constantly getting turned and washed like a fire truck has been around but oh, it gets it gets a fresh wash every time it goes out. So like while you might think it's a you know, getting beat up a lot it perhaps it is but it's it's getting a lot of Washington. It's like a fire truck. I don't know. I like that. Michael: Yeah, I think I mean, I think so and it's getting eyes in it every turn. So the festering kind of long term deferred maintenance stuff tends to not be again, for my experience as big of an issue because there's people constantly putting eyes on stuff. And if there's an issue you'll hear about it immediately. Like these tenants are going to tell you because they're paying good money to be in these places. Hey, this is an issue you need to fix it. Emil: Are you is your short term rental being professionally managed, do you have a property manager? Michael: Yes, yeah, I'm a full service property manager, I definitely pay for it. But I'm not. I'm not at the point where I can set, you know, neither myself or my wife or I are at the point where we have enough time to be able to learn how to do that remotely for this particular property. And you know, if anyone listening is interested in learning more about short term rentals, we did a podcast episode with Avery Carl, which was a phenomenal episode, in my opinion, where she talks all about the short term rental market, and short term rentals in general and things you need to be aware of, if you're going to get involved in this space. Tom: Did you pencil… Emil needs to give his answer, but just really last question I have on that… Did you pencil it as a longer term rental as well, just to like, see what… Michael: I did. And it doesn't work. And so I had to always take in the opinion that it has to work as both because if something changes, I don't want to be stuck holding the bag. And after extra chatting with Avery about the short term rental market, this is out in the Smokies. She was like yeah, but the thing of it is, is the regulations aren't going to change out there. Like it is such a through and through short term vacation rental market, that she is not concerned with it being the next Santa Monica or Santa Monica, city regulators come in and say I can't do Airbnb, because it's always been short term rentals. So that's given me a lot more comfort to say, okay, I'm okay, kind of taking that leap of having it only makes sense as a vacation rental? Emil: Well, I had one final question. I asked Michael about the third party property manager because I, what I really want to know is how does your time commitment with a third, like you have property management and on a long term and a short term? How does your monthly time commitment in terms of speaking with your property manager being involved? Like how, how much more time is it with the short term compared to long term, if any? Michael: You know, I have probably spent less time with the short term manager than I have with long term management. I was so impressed by this company, they've been awesome and they're just like really good at what they do. And I think that universally speaking, that's kind of what I would expect in the long term world as well, I have my that one of the best property managers I have is up in Alaska, I hear from him, like once a quarter, unless we're just calling to check, you know, checkup and chew the fact sort of thing. So if a property manager is good at their job, you really shouldn't hear from them, in order for you to make decisions, they could update you and tell you what's going on and this and that. But from a decision making standpoint, if I have to hear from you and talk to you regularly, like it's probably not going very well. Right Emil how would you spend in those 50 G's? Emil: For me, if I'm just starting out, and I want to invest in real estate, I'm, I like single family as a first starting point. And we can debate this later on a showdown. I think single family is a good way to get started, I think having one tenant, one unit to worry about just a lot less hectic. And so I'd start with a single family, I would want to do a tier two city, somewhere where the climate isn't so severe, right? Like I have properties in Indianapolis and every winter, I'm like, man, our pipes gonna freeze and explode. You know, you hear all those stories. Usually, if you have a tenant who's there, like they're running the water, and that doesn't happen. But you know, if you have a turn in the winner, always think that could happen. So I choose something with a little bit less harsh climate, just because it's going to keep everything solid for a little bit longer. And I'd probably just use it on one property to get something a little bit better, ewe just talked about on a different episode, six things we wouldn't do, again, six mistakes and for me it was buying a really cheap property on the… in the beginning, I get something a little bit nicer, less headache, you know, newer build, that's just going to be an easy learning process for me, because the first one isn't going to be the make or break. It's really you're just like learning how to deal with real estate how to deal with the property manager all this stuff. So having it be something that's going to be better long term is what I would prioritize. Michael: Are you okay, accepting less cash flow? Emil: I wasn't in the beginning and on the other end of it now, yes, you should like it's not going to be a huge difference. You think it will be and you know, excel math will tell you different but it's a different story. I think when you get into it. Michael: How much cash flow, how small of a cash flow are you willing to accept and still consider it cashflow positive? Emil: For me like even like if you're being conservative, right, like not going oh, best case scenario, right? You're ending up with like at least $50 of cash flow a month right? I think that's a good place to be at least obviously, I… Tom: Got to beat inflation, got to beat inflation. Michael: Beat it back with a stick… Emil: We don't, you know, we're just talking about cash flow and again, these this isn't going to be a make or break for you. You're trying to learn and you're trying to grow. You also have equity building right in a better property that's going to be more dollar like appreciation. 10% appreciation on something that's $250,000 Verse $100,000, you're gonna make more than that equity anyway, right? It's appreciating, it's a higher appreciation. Michael: So you're sticking to one, one property… One more expensive property? Emil: Yes, yeah. Michael: Alright. Emil: Not even just expensive to be expensive just better quote like a turnkey, nicely done property that I'm not going to have a ton of headache right out the gate. Michael: Well, there you have it, ladies and gentlemen. Tom: It's been a few seconds on zero scape, just installed some fake turf on my backyard. It's killer man. Michael: Is it good? Tom: Yeah, yeah. And then like if leaves come on it you get the power washer. And just like my my own little zen… Michael: What about dog puppies? Tom: That's a thing. But you know, that's where the power washer. And also that's where gates like preventing the dog to go out there. Come in… Emil: Anyway, anyways, you could also have a dog like mine who we have we have turf in the backyard too. It's like turf in concrete. And he is afraid of it doesn't like walking on turf. So he makes us take him out in the front yard where there's real grass to go. So that's fun. Tom: He is natural… Michael: Some… double apply. Emil: He's a purist. He's got a good taste. Tom: Good for him. Michael: So Tom, are you saving some of that 50,000, so you can install zero scaping in this investment property? Tom: Yeah, probably. I mean, the right warranties are in place with the Zero Escape. You're like basically making money when you install it, so… Michael: Are you, are you working on zero escape installation side hustle? Tom: I am yeah, I got a, I got a, I got some, I got some hints. Michael: You need a guy, I got a guy… Emil: Probably not that awesome on a rental property. Like the ROI on that is, is not great. Tom: Nooo, problem. Michael: Depends on who is paying this utilities though… Emil: Yeah… Michael: If you include these utilities in your bill… Emil: It's your tenant. Tom: Oh…There could be markets Emil, before you jump the gun. There could be markets with it makes a ton of sense, Las Vegas, Arizona… Emil: I prefer talking generalities, we're not getting into nuance on this on this podcast, sorry… Michael: I thought you only spoken absolutes. Emil: That's it, that's it… Michael: Now you're speaking in generalities. Man pick one Emil. Tom: Yeah. Emil: Ehmm, absolute is what I met. It's not... Moving on. Alright, what do we do with $50,000 now? If $50,000 is now, in your investing career, what are you guys doing? You're not a beginner, you're at your stage now, so what's next? Tom: I am making the transition to getting some multifamily, you know, I don't know, I don't actually know short term, Michael's got me hyped up on some learn a lot more about short term, I don't know. I'm all over the place right now. This is what I'm gonna do, this is what I am gonna do actually, I'm going to set up a coaching session with Michael and we're going to go through some options and get to the root of it. I swear to God, that's like the real answer, right. Emil: That is actually a very solid strategy. Alright, Michael 50,000, I feel like I know where you're, where you're putting money, but if 50,000, where's it going? Michael: Yeah. Now in today's world, I'm probably splitting that. Truth be told I'm probably do you like for sure a short term rental 50% down DSCR loan, and then I'll probably wait half or two thirds and then I'm taking the other half and I'll probably park it in a syndication to be perfectly honest and just kind of enjoy the passivity that syndications provide. It's, we've been doing a lot of podcasts recently and had a lot of passive investment experts on talking about benefits, pros cons of passive investing, and I'm like, huh at this stage of my career, it's definitely sounds interesting. My back's already, you know, a little tired from from caring so much. So I'm ready to slow down a little bit and just kind of enjoy the fruits of the labor. Emil: Nice, yeah. I'm sagging into what I'd do, I'm right there with you. So I like that I have nowhere near the amount of units like you, right that I own directly, I have six units. I think that's perfect for me and where I'm at right now, I would put $50,000 honestly, either in a REIT or yeah, in a in a private deal or something like that. Something where I'm going to be completely passive. Just given we've got two little kids, we got the six units again, that we own directly and that takes off takes up enough time and you know, business I started a year ago that's taking up a lot of time as well and attention. So I'd be looking for something passive to pocket. Michael: I love the fact that Emil, you mentioned that you have like little kids and so you're kind of at this stage in your life where the active hands on direct investment isn't a great fit for you. But that could easily change and so you go park your money and one of these indications. Hopefully it doubles or better in a couple years' time and then you get it back and you get to decide okay, well what I want to do next I want to continue the passive route now maybe the kids a little bit older, you have more time on your hands to do something else. So I love it. I think it's, it's such a good point that there's like seasonality to this whole investing thing. Emil: Yeah, it's not like, I'm done direct investing. It's, I'm done direct investing right now. Like, we have what we have, we're good, we're not getting rid of those and it's time for a different strategy. But you know, life changes, maybe you have a windfall, whatever, and you're like, now I'm bored. And I want to go do something more challenging and I'm gonna go do some, some value add stuff myself, maybe even like, in a market closer to me, or what did you know there are just so many different ways you can take this and it's not like those strategies you start with is going to be the strategy you end with. Michael: Mike drop Emil out. Emil: Don't listen to me, I don't know what I'm talking about. Michael: That's great, man. I love it, I love it… Should we get out of here? Emil: Yeah, let's do it. So thanks, everybody, appreciate you tuning in for another episode, hope you got some value out of this one. And as always, please leave us a review or subscribe if you're watching on YouTube. We love seeing that number go up, it boosts your ego and it keeps us coming back every week. So we'll catch you all in the next one. Happy investing. Michael: Happy investing.

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Michael Love Michael: Musician, Writer, and Activist from New York City

Play Episode Listen Later Feb 16, 2022

Michael Love Michael is a musician, writer, and activist from New York City. I first learned of their music from a gorgeous collaboration they did with…

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Black History Month: Past, Present & Future

RISE Urban Nation

Play Episode Listen Later Feb 14, 2022 53:41

In this Rise Urban Nation Episode, my brothas Ronald Preston Clark, Jordan Harrison, Eric Morison Smith, Michael Love, and I reflect on how our nation celebrates Black History Month, also called African American History Month. This annual observance commemorates African Americans' achievements and honors their central role in shaping U.S. history. Join us as we discuss African American contributions through art and creative expression, discuss topics impacting Black communities, and imagine the possibilities of what can lie ahead.Learn About Our GuestTo learn more about our Guest in this episode, please visit our website at: www.riseurbannation.com.Start Your Brand & BusinessTo get your discount with Tailor Brands, go to www.tailorbrands.com, build your logo and enter RUN30 - and it provides a 30% discount.Take the RUN SurveyComplete the survey and enter to win a $50 Amazon Giftcard. Click here to take the survey!

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Ep. 20: Couple's Privilege with Michael Love Part 1

EMPOWERED POLY

Play Episode Listen Later Feb 10, 2022 41:07

#ethicalnonmonogamy #polyamory #relationshipcoaching #coupleprivilege #hierarchyinenm #healthyrelationships #autonomy #unicornhunting This was such an awesome interview with Michael Love (co-host of the ENM Talk Podcast and co-admin of the Ethical Non-monogamy FB group) that we had to keep going and ended up creating 2 parts! We discuss what couple's privilege is and how it impacts relationships, how you can work toward more autonomy and why you may want to, and what hierarchy is in this context. And in part TWO we get into veto power and unicorn hunting! You can find Michael Love's ENM Talk Podcast here on YouTube: https://www.youtube.com/channel/UCPfgHA1i6Zrh6I05f-rkFxQ as well as anywhere you like to listen. And if you'd like to join his Facebook ENM Community group you can find it here: https://www.facebook.com/groups/199655087914476

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Ep. 21: Couple's Privilege with Michael Love Part 2

EMPOWERED POLY

Play Episode Listen Later Feb 10, 2022 52:02

#ethicalnonmonogamy #polyamory #relationshipcoaching #coupleprivilege #hierarchyinenm #healthyrelationships #autonomy #unicornhunting #vetopower This is the continuation of our interview with Michael Love (co-host of the ENM Talk Podcast and co-admin of the Ethical Non-Monogamy FB group) because we had so much to chat about! In Part 1 we covered what couple's privilege and hierarchy are and how we all found autonomy in our relationships. In THIS episode we discuss veto power and unicorn hunting. You can find Michael's podcast ENM Talk Podcast on YouTube here: https://www.youtube.com/channel/UCPfgHA1i6Zrh6I05f-rkFxQ as well as anywhere you like to listen. And if you'd like to join his Facebook ENM Community group you can find it here: https://www.facebook.com/groups/enmgroup

couple privilege michael love

And just like that we are BACK! This episode is packed with an exclusive interview w musician Michael Love Micheal, a review of episode 1 of Colin in Black and White, field pieces and a BRAND NEW theme song executive produced by Dai Burger. As always, teen made content for the world. Podcast Production Crew...

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These 10 states have the lowest property taxes

Nope! We're Not Monogamous

Play Episode Listen Later Dec 18, 2021 18:27

We recently did an episode on the 10 cheapest cities to buy property in so we wanted to follow that up with a look at property taxes across the country. We pulled up a list compiled by Business Insider on the states with the lowest property taxes. In this episode, we go through the list and comment on what this means, and point out potential shortcomings of a list like this. This episode will answer questions, but it is really a starting point of where to do your own homework on this topic. And like Michael always says, "make sure to call the local county tax assessor". --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Etsate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Emil: Hey, everyone, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shore. And today I'm joined by Michael Albaum, Pierre: Pierre Carrillo Emil: And today's episode we're going to be do some similar as we did on a recent episode, which was the if you guys remember the episode 10 most affordable states to buy a home, we're actually going to be covering the top 10 states with the lowest property taxes and this will be 2021 data that we're going to go over to help you you know, as you're looking for markets looking for states invest, hopefully all this data will help you in that journey. So let's hop into this one. Alright guys, so we are sans Tom today. But we got we got Michael and Pierre, which Dynamic Duo here. Very excited for this episode. Last time, we did some fun where I have the list in front of me. And you guys guessed, I think you each took three guesses and see if you made it in the top 10 list. So let's follow that same style. Pierre, you get to start this time. So we'll go we'll go back and forth. So Pierre, you'll go one, Michael, you'll go one and we'll just flip flop back and forth. And I will tell you guys, if that state is in the top 10 list of lowest property taxes, Michael: Love it. Pierre: All right. Michael: Good luck Pierre. You're gonna need it. Pierre: Yeah, I'm just trying to remember all the different agents we've had on over the over the last year so definitely not Texas because they don't have income tax. Emil: That is correct. Pierre: I'll say Alabama because that was one of the reasons we chose Alabama because… Michael: Dirty dog Pierre: Man was it low. Emil: Alabama. Ding ding ding That is correct. Michael: Nice. Emil: Alabama is one of the top 10 Lowest property tax states good job Pierre. Alright, Michael, what you got? Michael: All right. I'm gonna take a flier here and I'm going to go and say Tennessee is going to be in the top 10 Emil: Tennessee… Eeen. Tennessee is not in the top 10 Lowest property tech states. Sorry, Michael. Michael: Ah, swing in a miss. Emil: Pierre looking good, dude. All right. What you got for your second guess. Pierre: Can Kentucky Emil: Kentucky is not on the top 10 list. Sorry. Pierre: Oh man. Michael: All right. Michael: Virginia. Show me Virginia. Emil: Show me Virginia. EEEn. not on the list. Sorry Michael. Pierre: Oh man we're strugglin. Emil: Mike you're struggling. You guys did so much better on the other episode. I feel like it was you guys were doing really well on that one. Come on guys. All right Pierre. Michael: Alabama, Arizona Arkansas, California Colorado. Remember that fifth grade project the state's project and school you have to remember every state every capital. Emil: Yeah. Those are some… Pierre: Oklahoma Emil: Oklahoma final guess. Oklahoma is not on the list. Alright Michael chance to tie it here or just go down in terrible blaze Michael: Of glory. Like a like a phoenix rise from the ashes of embarrassment. Show me Mississippi. Emil: Ding ding ding Mississippi. Michael: Yes. Eat it Pierre. Emil: Redeems himself. Hold on you guys. Pierre: Just not Jackson, Mississippi. Emil: You guys died. Good job. One a piece. You know, you have 33% You both failed. But you both at least got one on the board. Michael: I went to engineering school 33 is passing for sure. Passing like that's like the highest grade oftentimes. Emil: I get it. Yeah, if it's based on a curve, you guys both pass. Michael: Sweet. This is a list compiled by Business Insider. And again, this is for 2021. Michael: So top 10 states with the lowest property tax. We'll start at number 10 move our way to number one, or so like this is 10th least expensive. Number one is going to be the least expensive in the country. Right? How this list works? Emil: Yes. So counting number one will be the lowest on a percentage basis property tax. Starting with number 10 We got New Mexico at 0.55% of assessed home value. Michael: I just gotta say already this list is garbage. Because the way homes are assessed is so different in every state. So I guess that's just something to highlight and point out is like, look to understand and every county does differently, by the way. So like understand how your county that you're interested in purchasing property calculates property taxes. So is it assessed value is it sale price, sometimes those two numbers are the same. So it's really important to go do a little bit more digging after this episode. And these 10 places can be a great place to start. But I just had to get I had to get that off my chest. Assessed value is a bunch of garbage like they two assessors for different states who like the same property, and it says it differently. So whatever that's worth. Emil: I've been the beneficiary of this on on my triplex in Missouri, the assessed value they gave was insanely low. So I've been the beneficiary of that. But yeah. Pierre: You're just bitter that you're a veteran that tied with a newbie here, so. Michael: Looking for any excuse to just to claw back some knowledge, some knowledge share. Michael: What's number nine Emil? Emil: I'm curious, Michael, if you know this so assessed home value, is that literally the structure? Does that include land? Does it not include the value of the land? Do you know how that works? Michael: It's usually broken down between land and building is how I've seen it. Emil: Yep. Michael: And then I think oftentimes, the assessed value is the sum of those two. And so you're not depreciating the land on your taxes. But I do believe that the land is still taxed, because if you just go buy raw land, I think you'll still have property taxes to pay on that. It's going to be significantly less than but that's, that's my understanding. Emil: Okay, so that's interesting. I just really quickly looked up an article on what is the assessed value of a house. So I'm just gonna read this. This is from a website called Value penguin by lending tree. So it says officials review other relevant information such as neighboring property values and the sales history of the property to determine the assessment value. This estimate is generally made without actually inspecting the home which can lead to an inaccurate valuation, which is a testament to what you were saying, Michael. If the assessed value is higher than the fair market value, the property has most likely been over assessed by the town and the owner is probably paying too much in taxes, which is one reason you know, you can actually fight your property taxes. The assessed value of a home usually lags in comparison to the market since the valuations are only adjusted annually. While market values can change multiple times per year, the home that has recently been resold tends to be closer to the assessed value than a home that has not sold in a long time. Depending on the area's legal restrictions. Most assessed values cannot increase more than certain percentage each year. So interesting. Okay. Michael: And I mean, that's another question to ask your cat like local county assessor is how often is the property reassessed because there are some jurisdictions where it's like once every three years or once every regular, some kind of frequency so it's not always an annual thing? Emil: Yep. Yeah, I remember when I was recently buying that treeplex, triplex I just mentioned in Michael: The treeplex! Emil: You know, what, we have a new kid at home, I'm allowed to have brain farts like that. I called the assessor and they gave me like, the Calculate the formula that they use to calculate it. So a lot of times again, if you're looking anywhere, you can call the county assessor, they'll either give you the formula, or they'll give you a breakdown of how they kind of calculate these things. But anyway, back to our list. Number nine, we got Mississippi which is 0.52% of the assessed home value. Good old Mississippi, and. Michael: MI SSI SSI PPI. Emil: You like geography, didn't you? You're getting geography class, Michael: Dude. I love geography. Yeah, I really like geography. My wife and I will sometimes play the geography game where she'll you know, we'll go back and forth naming countries and you gotta name the capitals. The good fun brain brain game. Pierre: Have you guys ever played the National Geographic board game? Emil: No. Tell us. Oh, it's, it is awesome. So I found this at the Goodwill. The Goodwill here has an entire row of board games. So we went there. And they're like, 3.50 each. So in board games are like 50 bucks each sometimes. So anyways, this is like a game from 1986 or something. And it's anyways, you build a globe flat out. So you have a bunch of hexagons and you you build a globe, and then you answer things about markets and people, geographic or planet planet Earth and you have like four categories and you get points based on it's a real fun game. So as a geography lover, you might really enjoy that game. Michael: I'll Check it out. And that's cool that you build the earth flat because that's how it actually is in reality, so I mean. Emil: That's right. Pierre: Yeah. Well, because you make it flat you can make 4 Earth's because it's like when you unpeel an orange peel, it doesn't lay perfectly flat it leaves up open surfaces. Anyways, National Geographic plug right there. Emil: Nice. There's, there's this app I downloaded a couple years ago and it like helps you learn continent geography so it'll pull up Europe and you know, it'll have the outline of each a bunch of countries and then I'll like list 10 And you have to like tap where you think that country is. So it helps you like are there in different continents. So it's cool to alright, that's cool. Number eight. Michael: Back on the rails. Emil: Back on the rails number eight, we got Arkansas at the same as Mississippi 0.52% of assessed home value. So we got to a tie between Arkansas and Mississippi. Moving up the list. This is a very popular hot state for for Mark for rental property and investing right now South Carolina at 0.5% of assessed on value. Michael: Interesting. All right. All right. Pierre: Yeah. Interesting, because we've had both Jackson, Mississippi and Columbia, South Carolina, Columbia, South Carolina, right. Yeah. And those were both very high in taxes. So this is just kind of an average of the states. And no necessarily those metropolitan centers. Emil: Correct. Pierre: Or metropolitan. Michaela: Right cause every county can do it different. Emil: Alright, moving up the list we got I think somebody mentioned Virginia but number six on the list was West Virginia. Michael: Ooo man. Emil: Was that you Michael? Michael: That should totally count Yeah. Pierre: If that counts, Kansas counts for me. I'll just the add the Ar! Emil: On Jeopardy. What is Virginia would not be the same as what is West Virginia. Sorry, Michael. Michael: Alright, seems reasonable. Emil: 0.49% of assessed home value on West Virginia. Michael: West Virginia was actually I think the number one state that was on the top 10 list of most important places to buy. That's interesting. And get a cheap house and pay very little property taxes. Emil: There you go. Alright, moving up. We got the District of Columbia DC at 0.46% of assessed home value. Obviously, homes are very expensive there. So you're still paying a lot in terms of nominal dollars, but percentage wise on the list of top 10. Alright, number four, Delaware, we got 0.43% of assessed value. So business friendly, right. Some people like incorporate a lot in Delaware and then looks like low property tax there as well. Number three, this was Pierre's guess Alabama 0.33% of assessed home values. Tiny. Michael: Nice. Emil: Go Alabama. Number two, this one was surprising to me. Hawaii, Hawaii 0.26% of assessed home value. Michael: What? That I guess I figure you're paying so much for the purchase. You're still giving them like you said a lot of nominal dollars. Emil: Exactly. And then number one, can I get a drumroll please guys? Louisiana 0.18%. Nothing's 0.18% of assessed on value. Crazy. Piere: Beautiful. Michael: Makes total sense. Emil: And that is our top 10 list of states with the lowest property tax. Michael: We should do another episode ranking the best school districts or the best school systems in the country and see if there's any any over overlap or direct correlation or parallels we could draw between high property tax states and very good school systems since that's so much of what those dollars go to fund. That's I think, like looking at the property tax breakdown, that's often the biggest portion of the bill in terms of like dollars and percent goes to the school system. Emil: Right. It'd be interesting, though, because again, even though you could have, like California, I think is probably the bottom third, or it's definitely in the lower group, the bottom 50% In terms of percent, I think, but just because home values are so high here, again, like just so much property tax revenue. So I wonder if it's like, you know, this percentage matter? Does it just matter of like overall dollars being pumped into the system? Michael: That's a good question, too. So for California, it's I think it was Prop Eight, I think I'm talking. Emil: 13 Michael: Prop 13. That's it, where you have 1% of the sale price at a minimum Emil: Forever and then never gets reassessed. Michael: Well, it does it goes up with time. But like your base value, your base assessed value is at 1% of the sale price. And so Emil: I thought either prop 13 in California was like your basically your property tax never changes. I thought that was the whole thing behind prop 13 is like once it sells it's calculated that value forever. I thought that was the thing with Prop 13. Otherwise, you know, you have someone who bought a home in California 30 years ago. And now their property taxes like astronomical compared to when they bought it because their values have gone up so much. Michael: Well, I think it goes up nominally every year like, look at your last two years of property tax payments on your house. Like it will have likely gone up a nominal amount. Emil: Okay, yeah, you're okay. So proposition 13, declared property taxes were to be assessed by their 1976 value and restricted annual increases of the tax to an inflation factor, not 62% per year. Okay, you're right. Pierre: And don't some areas charge more on property taxes based on whether or not you're going to be investing or whether or not you live in the property? Emil: Yes, I have a home in Indianapolis and you pay a higher rate if you're an investor, rather than if you're a owner occupant buying that home? Michael: Yeah, I think it's like point 2% of the assessed value versus 1% For investor versus owner occupied. So like doubles? Emil: Yeah, I think that's right. There's a there's a exemption to in California homeowners exempt or a home homestead exemption. It's pretty, it's pretty minimal. It's pretty nominal. But in other markets, it can be pretty impactful. Emil: Yeah. Pierre: Do you know if any of the states that we covered on this list are subject to that? Michael: I don't. Pierre: Okay. So that might be something to look into. You know, you might think it's the lowest place but then you go to invest. Emil: That's right? This is only a starting point. We're leaving our our listeners with a lot of homework. Michael: Yeah, well, it's just I think it's such a good place to start. And especially if you go listen to the other episode and overlay. Okay, where are their affordable homes to purchase and also affordable property tax rates? Could be a new new market for you. Pierre: If you listen to more than two episodes, you will have heard Michael say more than more than five times call your county tax assessor. Emil: Michael “call your local county tax assessor” Albaum. Michael: Well, it's just one of those things like people are like, Oh my god, I totally burned by the property tax. It's like well, you didn't do the one thing that you should have done. It's so easy. Emil: Raise your hand if you fell victim to that on like your first or second property. That's me. Michael: Yeah, see? Pierre: I heard it. I heard it too a million times. Emil: Well, that's when was more so like the home in Indianapolis? I didn't again I didn't call the tax assessor I just looked at okay, what is it as a percentage? And I didn't look into Oh, for an investor it's higher so it's like you know during escrow I figured all that out. All in all still fine. Indianapolis is been a solid market could appreciate all those things. But again, you know, just got to go in eyes wide open. Michael: Yeah, it could have not been. Emil: Exactly It could have not been. The the joys of a bull market. Make Mistakes Michael: Still win. Emil: Feel the impact of a lot less. Alright, thank you everyone for tuning in. Hope this was a helpful episode for you. And we will catch you all on the next one. Happy investing. Michael: Happy investing. Pierre: Happy investing.

25. Origins Panel: ft. Rudolf Hammerli, Aaron Cheak, Jeremy Johnson + Poetry Reading by Michael Love

Mutations

Play Episode Listen Later Dec 8, 2021 93:59

Please enjoy the audio from this year's Origins: A Cosmo-Local Gathering conference panel between Rudolf Hammerli (Swiss Gebser Society president, Novalis publisher), Aaron Cheak (former US Gebser Society president, Rubedo Press publisher), and myself. During the panel, Rudolf Hammerli shares his memories of Jean Gebser and additionally distills "four pillars" of Gebser's integral philosophy, with commentary by Aaron Cheak and myself. The segment concludes with a poetry reading by Michael Love, introduced by former Gebser Society president and panelist Dr. Dave Zuckerman (see his talk, Transforming Outcomes as Sacramento State). Please see here for more information about the 2021 Gebser Conference. Episode Notes: Origins, a Cosmo-Local Gathering (2022 Gebser Conference) Support this podcast + join the Mutations community Mutations homepage + blog --- Send in a voice message: https://anchor.fm/mutations/message

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The Spectrum of Non-Monogamy Ep 12

Play Episode Play 60 sec Highlight Listen Later Nov 4, 2021 41:50 Transcription Available

In today's episode I talk with Michael Love. He is the former publisher of ENM Magazine and PDXScene Magazine. Michael fancies himself an ambassador and advocate of Ethical Non-monogamy. Together with his nesting partners, they run a thriving online ENM Support Community that embraces all forms of Ethical Non-Monogamy, and host the ENM Talk Podcast show. We talk about the spectrum of non-monogamy, what it's like to be able to celebrate your partner's relationships, and our journeys to Ethical Non-Monogamy.

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Igniting passion for nature through film

Central Coast Voices

Play Episode Listen Later Oct 14, 2021 57:55

Host Fred Munroe is joined by guests Sue Eisgauirre, Founder and Executive Director of NatureTrack and NatureTrack Film Festival, and two festival filmmakers, Michael Love, and Sarah Koenigsberg. They will discuss the goal of the upcoming NatureTrack Film Festival, the important work of the NatureTrack Foundation, and what is in store for film festival attendees.

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The 7 Dollar Millionaire's Guide to Personal Finances

Play Episode Listen Later Aug 19, 2021 49:56

Author of Happy Ever After, The 7 Dollar Millionaire, joins us again to shed light on the complex world of personal finances. He shares tips on getting started, saving money, and aligning your goals with your family to work your way to financial peace of mind one step at a time. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, and welcome to another episode of the real estate investor. I'm Michael Albaum, and today I'm joined by my co host, Tom: Tom Schneider. Michael: And with us we have a very special repeat guests, the 7 Dollar Millionaire, if you recall, he wrote a book that we had him on chatting about Happy Ever After. And today, he's going to be talking to us again about personal finances, some things you can do to get started, as well as how to talk to your spouse or significant other or partner about personal finance. So let's get into it. Michael: Awesome. Mr.7 Dollar Millionaire, thank you for joining us again, we so looking forward to recording with you. 7 Dollar Millionaire: It's a pleasure. Thanks for having me back on that says, this is a first for me. No one's ever invited me. Michael: Well, hopefully the first of many. So how have you just curious how are things out in Singapore? 7 Dollar Millionaire: Things are just improved. Yesterday, we had like a mini re lockdown. So they call it circuit breaker here for about a month. Because there was a bit of a spike in cases. But that ended yesterday. The big change is very little apart from Oh, you're now allowed to go to restaurants, their restaurants are all closed. That's pretty much it. Gyms are kind of reopening slowly, that kind of stuff. But yeah, that was that was nice. It's nice to kind of go and get a meal somewhere, you know. But otherwise, it's you know, as with a lot of Asia, they're taking that kind of minimal risk approach to it. So I mean, even when there was a spike, it was like 100 cases a day. 5 million people, right? I mean, it's still a very low number. Michael: Yeah. But everybody in your world is healthy and safe. 7 Dollar Millionaire: Oh, yeah. Thanks. And you guys are on good. Michael: Yeah, we just chatted with some family friends of ours yesterday, and they are double vaccinated. But she and her daughter just got his tested positive. So she had a breakthrough case. So she's feeling pretty crummy at the moment. But I'm hoping that she's hoping she's not going to go to the hospital or anything like that. So the breakthrough cases don't seem to be as severe as the unvaccinated stuff. 7 Dollar Millionaire: Fingers crossed. Yeah, fingers crossed. touchwood. Right. That's that's the big hope. As long as it stays like that we can live with it. Right? Tom: I have a friend who had a breakthrough case who's also vaccinated. And he's got a wife and three little kids and his wife and three little kids didn't, didn't catch it. So he's hanging by himself. And you know, I feel much more for his wife, who's managing a house full of Toddlers and Babies versus him who's just hanging out at their their lake. Well, he's men. He's on the men. He's feeling much better. But it's Yeah, really. 7 Dollar Millionaire: Did she get did she get like a second opinion on that? Right. Yeah. Michael: Thank goodness. Tom: Yeah. Doing recovering. Well, good, good. Michael: Well, Tom, it's it's funny as the wrong word. But interesting. This kind of segues nicely into what we want to chat with the 7 Dollar Millionaire about today. Again, circling back and talking some more about personal finance. But a question that I have is, so often people have these target goals in mind, and whether that's net worth or cash flow monthly annual basis. But that's so often based on today's needs, for their whatever family is currently in the picture. And I've got to imagine that changes over time. And so as someone who doesn't have kids, I don't have a really good sense of what kids costs, it could be 20 bucks a day, it could be 100 bucks it you know, I don't have a good sense for that. So how do you recommend folks think about not only their cash flow needs for today, but also for their future selves, as they continue to age but also as additional family members may enter the picture? 7 Dollar Millionaire: Yeah, I mean, it's a it's a there's no right answer, right? Michael: I mean, I mean, oh, well, then we can we can we can cancel the show. We're done here. 7 Dollar Millionaire: There's just no single one right answer. I mean, the first step with the first answer to this is actually just taking the first step start actually doing some work, right. I think I was working recently with talking about how you make all the progress in personal finance. And a lot of people are discouraged because they think they can't come up with an answer. And it's like painting, right? The first blob of paint on the on the canvas doesn't look like the painting You can't expect it to you go put it on, put it on, put it on. Only after a long time does it actually start to get to the real picture, and it's the same, it's exactly the same with this. You just got to start doing the work. And starting doing the work is actually working out what you want your kids to be like, what kind of life you want to live with them where it's going to be, and the kinds of expenses you're going to have. So you can roll that stuff out pretty easily. I mean, so For me, because I was an expert, I had to put my kids in international school, there's some serious education expenses. You know, it's like the, for me, when my kids went to college, they got cheaper. I mean, that doesn't happen very often, right? My kids got a lot cheaper when I was paying for them to live in a foreign country, flying them backwards and forwards and paying college fees, they were cheaper than the local education costs for me. So that's how individually these things can be right? I mean, you just have to do that. So you have to look forward and you think, okay, and I'll give you perfect opposite example, really good friend of mine used to live like five floors below where I had seen the apartment block right here. He's got for various reasons, he ended up with like, kind of one of those joint families who so like, five kids under the age of five, you know, bizarrely, and really bonded, situated, Tom: Yeah, Brady Bunch situation. 7 Dollar Millionaire: And he's, he's like a, he's a fund manager, based in Singapore. And he worked out that he could actually, it made sense for him to quit his job and move back to California, because paying for five kids in local education system here, when you know, that, and everything else, it's cheaper to move to a place with a good free education system and have a normal job rather than trying to have a high paid job and pay those kinds of costs. So that's how individual all of these kinds of decisions get to be. The first thing is just to sit down and, and dream a little, right, exactly. Who do you want your kids to be? And how do you want to live with them. And because a lot of the costs, like your actual food costs, it's not a big deal, it's really not going to be an enormous deal. So the basic, you know, adding one bedroom to the house may or may not be a big deal, depending on on where you're at. And then after that is things like education and flying, holiday is right, they do cost literally an extra person on every single thing you do, when you start and that's times 20 years, right? So there's, there's some, there's a lot of extra costs on that kind of stuff. And it's really just sitting down and working out those kinds of things, and those kinds of budgets. And then as you move closer, closer towards the end, you'll realize exactly what is going on, you'll get a much closer impression. But as always, it's just start, just sit down with a piece of paper and just go, Okay, I think it could be this, and then find out the extra information that you'd actually need. Because it can be a scary amount, or it can be really, if someone for someone like me, that was having to pay man it was 15 years of 14 years of school fees. I don't want to think what that was, you know, really, I definitely don't want to, you know, PV it, I mean, that's just insane amount of money. But you know, had to be done for In my case, if you don't have that you don't need to put it in. Tom: I love that analogy of the paint, and it just kind of evolving a little bit over time. As far as, you know, practically getting the paint down, would you recommend a model where, say this is in Excel, and each row is like a year, and then, you know, perhaps there's some different sort of expenses within the different rows, or it's just like a really kind of basic form of that is that sort of a rough construct is, and I'm sure it's you know, could be a little unique for everyone. But that's immediately where my mind goes is seeing in that sort of a model. 7 Dollar Millionaire: That's definitely where I think you move it, I actually like to do a pen and paper to start with, I think there's a, there's kind of a free flow, when you're actually kind of sit down with pen and paper and just as scribble stuff out. I've even tried doing it on my iPad with you know, like the sketch but it doesn't work as well, there isn't that sort of connection, which sitting there with a piece of piece of paper and a pen for 10 minutes, and just sort of scribbling out the bunch of the cost because we're all prepared to be kind of messy on a piece of paper, right, and we can just draw in things and loop them around, that connects to that, scribble that out and need this. And then once you've got probably only 10 minutes in, you can move that to a spreadsheet, seven or eight lines, seven or eight lines is going to get you most of the way to the kind of things you're thinking about. Michael: And Tom, I'm curious not to put you on the spot here in the hot seat but having a young child is this an exercise that you went through with your wife and was this conversations that you had prior to the little one arriving? 7 Dollar Millionaire: You know, I was actually so I'm in my mid 30s now and when I was in my mid 20s and early 20s actually was way more active about kind of performing out like 20-30 years in advance so I actually had to pull back the old spreadsheets pain analogy I think it's probably time to have another round I love these interviews with you 7 Dollar Millionaire I literally after our last call that we had I went and totally redid all my you know auto deposit into my investing and I already have some immediate action items from from this one. So just to kind of go back I was I not not so much with these with with my current kid but I think it's an exercise to go revisit some work that I did in my mid 20s. 7 Dollar Millionaire: It's always good to know right? It's also good to know how good you are at modeling. Where you make mistakes and modeling, I mean, we we professionally we do that. And it's you know, you can be miles out. But if you actually, I mean, there's a company modeling, we're actually modeling like an investment will have various inputs that we can that we can change them to go back and you look and go, Oh my god, I was miles out, but then you realize that one of the inputs was x, y, zed, which turned out not to be remotely true. So you can, okay, then change that. And sometimes it kind of comes back to closer to reality. So all these things are really, really important to actually just understand how well you model because it's not like you have to stop modeling, or you never stop acts. And modeling is like, it sounds like it's too specific to what we do. But we're all forecasting all of the time. Now, my favorite analogy for forecasting and how we're all forecasting all the time, is we all pretty much expect chairs not to break when we sit in them, right? I mean, even some of my weight, I don't expect the chair to break when I sit in it. But I pretty certainly if you if you sat on three chair, three different chairs in a row, and they broke every time, that fourth chair, you'd be like pushing it scratching it thinking, Okay, is this thing solid, you'd have lost all your trust in chairs, that's just forecasting. It's just natural forecasting. We do it all the time. And so knowing if you're good or bad at it is a is an amazing life skill. Tom: Do you find that most people are overly optimistic when forecasting I guess you could apply this to business or to kind of personal? I'd love to hear your kind of thoughts on, I guess human nature and in applying forecasts and ways to beat yourself and be better at it. 7 Dollar Millionaire: Yeah, I honestly, unfortunately, it really it is really bad answer. But 50% of people are better than average. And there's no other way of looking at it. I think the key is most of us aren't doing it particularly consciously most of the time. And so sense of like actual aware forecasting and awareness of how optimistic or pessimistic we tend to be. Pessimists, I mean, pessimism is one of the reasons that overcaution is what keeps a lot of people out of the markets. Right. And because they think of it as markets, right, they don't think of it as I'm working. I'm living in this economy, and not being in it with my capital is essentially an enormous risk that this economy is going to crash and burn. I'm literally taking that investment option. And not seeing it that way keeps them out because they view it as being very, very high risk and pessimistic because they don't understand it enough. Let's throw some analogies around that's just like being in the dark, right? It's just being in the dark, you can walk out into your hallway with no light, and you can't find your way along the hallway anymore. Right? That's, it's it's still there. Everything's exactly where I was people without the education. I mean, we're moving back into financial education, right. It's what keeps people out. It's they're unsure, they're in the dark. And that's why I think creates most of the pessimism and overcaution around it. Yeah, there's a bunch of people who, too, you know, too optimistic, too. But that's what I mean. I tend not to mind it when when investing, I don't engage over optimism. But when I'm doing things like a little bit more entrepreneurial, then yeah, I shoot for the moon. There's just no point right? or shoot for the stars even then you get the moon there's no point not being no point starting an endeavor without thinking it's going to be amazing. Michael: Yeah, I love that analogy about being in the dark. I wonder though, your take on, when people have gotten out into the hallway realize that it's not that scary. Or maybe they've gotten a little flashlight, it a little bit of education, they understand. And now they think, Well, I know everything. And so how does that that little bit of education, a little bit of knowledge, not get overblown, and a bit turned into overconfidence, where now you are taking risks, well beyond your your light beam, so to speak. Tom: Great point, Michael. 7 Dollar Millionaire: Yeah, it, it's it's actually why I think it's so important. This gets taught in schools. And, you know, there's, there's a bunch of different sides on this. But it's, that's why, you know, why are we confident reading? Right, we're confident reading because we've been taught it at such a young age, right? This is this is how we have that kind of confidence. Why are we not confident in a foreign language? Because we weren't taught it. We don't know any of the words, we don't know how this thing's put together. And we need that it's, it's about having that broad underpinning to what we do, and it's why it needs to be taught in schools because any other way, you're coming in at some random entry point, right? So some friend tells you the you know, you should trade options on Robin Hood because I made x, y, zed and then you kind of get in there and you learn a little bit about it. Maybe you have like some Beginner's luck and you do quite well. That's now your little wheelhouse. It may just may be a good wheelhouse for you. It may be a terrible one. More likely the second option, right. So that becomes your think that's what you need that we need the education to make sure we get a little bit of light in all areas. I mean, I'll give you a perfect example for this. I so the CFA exams Chartered Financial Analyst. I'm not one I did level one.I got way too busy to do levels two and three, my first daughter was born like immediately after getting level one. And level one even just shows you the entire spectrum. So you kind of you get like a beginners entry level on everything. And that's like, you kind of you know where to come back to later. Right? If I need to calculate a bond price, I can't do it off the top of my head, but I know where to read. I know where to look. And then I'd know how to do it. And that, obviously, that's a little bit specific for most people. But that kind of general entry level stuff is I think, you know, what's needed otherwise, you do end up with the flashlight, or moving from analogies. Under the under the street lamp looking for their keys, right? You know, the stories like, you know, and the guy's looking for his keys under the street lamp and a piece of wedge, you lose them over there. So why are you looking here? Well, this is where the light is, right? That's it's so important to just have like a basic level of light. Tom: To know what you don't know. Definitely. Michael: Yeah, that's Yeah. I'm curious to know, in your opinion, if someone is looking to invest in the next 12 months, they're looking to get educated and wanting to get involved, whatever investment class they deem is in their wheelhouse, where should they be keeping those funds? Should that be something that they're investing the whole time labeling? And, you know, dollar cost averaging? Or should they kind of wait till they have enough funds to do something with curious to get your thoughts? 7 Dollar Millionaire: Okay, well, always dot dollar cost average, unless there's like a ticket price that, you know, makes that unavoidable that you have to go in single level, like, like some kinds of property, right, where you have to have a certain amount of downpayment, and that's the minimum you can get involved. The great thing about other asset classes is you can dollar cost average in the tiniest amounts. And you always should, I mean, cuz, you know, you can't predict the future, you don't know if it's gonna go up or down, right. So you should try and remove as much of that risk as possible. And dollar cost averaging is the is the free way of doing that. Michael: Right. 7 Dollar Millionaire: So right, so always dollar cost averaging, I think there's a one thing that I quite like is what I think of it in my head is like a reverse ladder. So you know how you have ladders on fixed deposits, time deposits, whatever they call them. In the US, you know, where you can get kind of get like a little bit more return, if you lock the money into a deposit account for longer, let's say three months, six months, whatever it is, and you stagger it in. So you put in like a sixth this month and a six the next month, and then you do that over six months. So you got the money, you got access to six of the money every single month, you can put it put it into those and then actually dollar cost into the thing you're putting it into. So you can sort of you're still making a little bit of money doesn't have to sit as pure cash. Right. Michael: So so go get six CDs. 7 Dollar Millionaire: Yeah, exactly. Michael: on six month intervals. And okay, gotcha. 7 Dollar Millionaire: Yeah, exactly right. And then you can just plug it straight in. And you might only be making like an extra, like a few bucks. But this is how you make money, right is by it's like that little extra, which for no risk, right? That's always the key a little bit extra, no risk is better than a lot extra for a lot of risk. So just that just that small, those small moves are always useful. But I think also one of the other things to do is depending on the asset class, if if what you're doing, if the cash you've got is a long way away from the asset class, then it does make sense to have some kind of hedge if it's possible. So I mean, I think one of the things often is say, like, being able to put some of the money into a REIT in advance of buying a property. So let's say if there's like, if you're going to buy property in New York for some reason, then there's a new york rate, if you can do enough analysis around that read to understand it's like, oh, this is, this is pretty similar, this should go up when my property goes up, it should go down when my property goes down, you can at least put some of the money as you're building towards that downpayment into the REIT and then hedge out a little bit of that extra risk. Because, I mean, the risk on property is nearly always, everywhere in the world, the government prints more money, right? I mean, properties actually don't… Micheal: Inflation. 7 Dollar Millionaire: Yeah, well, yeah, properties don't often go up in value, your money goes down in value in terms of property, right, that's what actually happens. So actually, removing that risk is is is useful. So I'd always think through these ways, rather than thinking, yeah, just chucking money in now. Just steady push it in steadily as it's just if you can, if you have the patience. Tom: That's a that's a good discipline. I mean, it kind of related as an act of discipline I can think of like going to a, like a kiss going to Las Vegas or something and playing blackjack and it's like, oh, do I push it all in on one hand or do I slowly and you're gonna have a better time to her a little bit slower. I guess that kind of really kind of relates to having fun at the casino versus having fun at. 7 Dollar Millionaire: It is a good point because I do the exact opposite. I really don't like being in casinos and when I'm forced to go to them, I put it all in on one hand and literally Michael: Walk away. 7 Dollar Millionaire: Just like get this over and done with either make a lot of money on one hand, or we are I'd leave and have a better time than I would do by sitting at a blackjack table, losing money steadily. Michael: I love how you knew kind of exactly where I was going with the question with regard to property investment. Because I mean, Tom you were in a similar situation with regard to you had some cash or cash out refinance, you were looking to deploy it. And in the meantime, you were thinking about putting it in the market, and I think you ultimately did. And then there was some fluctuation in the market. And you're like, Whoa, this is not this is not feeling good. So you pull back a little bit, right? Tom: Yeah, yeah, just, I think like within, there's more, like risky allocations, and then safer allocations. And I think, being cognizant of kind of which risk profile I was investing, versus the strategy I initially did was go running up to the blackjack table and throwing it all down. And, you know, thankfully, didn't get getting didn't get burned too bad. But, you know, stepped back away and left the casino and invested in a nice asset allocation that was comfortable for the time horizon at which I wanted to spend it. So.. 7 Dollar Millionaire: That's I mean, that's, that's, that's also the other point is actually nothing wrong with taking a second most important thing of investing is actually understanding your own psychological needs, because you can't invest against them. It's really, really hard to actually invest in a way that you don't think is correct for you. So taking too much risk. And just I mean, I don't have sleepless nights with what I do for a living. Because I don't invest in a way that is wrong. For me. I actually feel like I understand what I do. Whenever I hear people like they have sleepless nights like that's because your style investing does not match what you actually believe. I mean, that just can't be. That can be the only reason I think what you did, there was smart. So the only way I've done this in the past is that I buy I bought properties in the past in, in foreign countries I have bought in Singapore, once I buy in the UK, I bought in Japan, I bought in Australia, one of the things when I know I'm going to do that is I immediately switch the money into that currency. If I think it's cheap, I think it's expensive. I don't. But I try and you know, work because current currency, and I do sometimes take a view on the currencies. So you know, but that's it's that kind of move. So for example, I think I kept I think I kept just cash in a deposit in Sterling for about three years before I bought a property there because I wanted to take away because it was cheap. And I wanted to remove the currency risk, that it would get more expensive at that particular time. Basically, the moment Brexit happened and the pound and the pound collapsed, I put money into Sterling, because I knew I'd be thinking about buying a house not long after, Michael: I think I've mentioned this to you in the past, Michael, but I really took it on the nose with the currency exchange because I bought a place in Portugal. And it was right around February, January, when we were looking at doing a transaction and the dollar against the Euro was like 94 cents. And it has just continued to climb and climb and climb. And so this is going to be great. This is going to be an equal transaction, by the time I go to actually pull the trigger. And so I waited, waited, waited and then COVID hit and the dollar just tanked. And I really got taken to the carwash on that one. So I think that makes sense is if if you if you know what it is today, that's worth something and how you feel about it, I think is also important, but also a bird in the hand is worth two in the bush. 7 Dollar Millionaire: Well, it's it's actually a lot of these things is understanding future liabilities, and not just your existing liabilities, but your future liabilities. And that's one of the ones like with kids, right? You're going to have these are future liabilities, you've got costs down the road. And if you know that you've got, you want to have a place in Portugal, then if you think the currencies pretty decent, and you know, you don't have a view either way, you can just put that money into into euros immediately and just remove that risk, right, there's no risk now. Right? If that money wa s just gonna sit, and you could have it in euros doing something else, I mean, you can still take another risk on top of that, but at least you've closed off that currency risk. And currencies, they move around a lot. I mean, there's, you know, within like a two or three year timeframe, they can really shift. And that's a risk that's nice not to have or even potentially gain you can make rather than, you know, taking that huge risk. Tom: So backtracking Just a minute, a little bit ago, you were talking about if you were to evaluating buying property in New York, and you know, parking it into a REIT in that space. I never and then you know, you can research that read I never thought of that, because they're sort of there's this is, you know, primarily single family rental investors. There are single family rental REITs out there. And is the idea to maybe to to learn more about that specific REITs that you're going into that asset class like to benchmark what kind of returns you what are my totally hearing this on a different? 7 Dollar Millionaire: I think you know more about the US property market than I do. So I'm, uh, yeah, you're probably hearing things I don't know, all I mean is is as close as you can remove risk, I'm not talking about actually Tom: Sure getting as close. 7 Dollar Millionaire: Yeah, the closer the asset thing, the asset class you're going to buy, you're removing as much risk as you possibly can. So if it's in similar geography, in a similar asset class in a similar geography, it still may not correlate, and there's nothing you can do about that there may be a problem with the REIT, and there may be a problem with a manager and maybe a problem with something else. But if you're going to buy commercial property in New York State, if you can find a commercial property right, in New York State, yeah, then maybe maybe there'll be reasonably correlated, and you're taking a risk there, that, you know, there's no reason for cash to be correlated to it, there's definitely no reason for any other asset class to be correlated to that thing. So just a little bit of work and probably find you, okay, what's the new what's the New York State REIT, which ones are similar? Bang, okay, that one might reduce my costs and reads tend to pay pretty good dividends as well. So you actually could get paid out while you're doing it. So the return could be stronger, while being more correlated. And that's kind of all you're aiming for. with that. But I mean, I'm gonna say as well, I don't know, if I mentioned on last couple of one of my it's a small family single, you know, real estate, is actually just such one of the best asset classes to be in as an individual. Just because it's not not something that big corporations do particularly well. And that's where it's sort of maybe steer clear of big corporations tend to do big properties very well, right. It's just like one guy making a decision pushes a button, and then the whole building does x, y, zed, right? Whereas when you look at what we all live in, so small fixer uppers, those single unit setup takes an enormous amount of management to run as a business. So that's one of the reasons I love real estate as an asset class is because the world's capital is not trying to jump into this, right, it's just individuals doing the thing they do. So we can have an advantage. But within the REIT, maybe less if you get too specific, too granular. And I just sort of aim, you know, and the other thing would be to not get into to smaller thing, right? You want it to be liquid, you want it to be well traded, you know, one reasonably well known Tom: That makes sense definitely. Michael: Makes a ton of sense. I'm curious, Michael, do you have generic guidelines or principles when you're teaching, you know, financial education to folks around how much of someone's paycheck or how much someone's net worth should be broken down and spent on the different typical categories? So housing, or transportation or food entertainment? Do you have a pie chart that you that you utilize? 7 Dollar Millionaire: No. I mean, there is one, right. There's the 50 30 20, that is commonly used. And it's a great starting point, I actually think the 50 30 20 is a great starting point. But I think there's just too many examples of people who do way better than that, than I do. You know, you don't want to set the goalposts too easy, right? You know, you just come across people who are saving half or even three quarters of their of their income, and you don't want to tell them, You should save 20 it's similarly right, you know, it's just like, but the only one I really use is like, never go above like a third of your income on property. And I think if you can keep it below that number, pretty much everything else starts to slide with it. Right? You start your cut, a lot of other costs are gonna be I mean, so in the book Happy Ever After I use 50 3020 as a starting point, but then say, Well, yeah, you know, but what if you could do 30 30 10? Right, you know, 30 30 30 30 30 40, because it would be, because 30 30 10 doesn't add up great. But if you can keep those costs down, all of those extra the 1530, way below those numbers, you're adding up to a much higher number on the 20. And that's the thing, I think, to use that 50 30 20 is a great thing to say to someone who's saving zero, or 5%. Tom: Sorry, just to clarify the 5030 is 50% is your needs housing, grocery grocery, all that 30% is the ones and 20% savings. Is that the? 7 Dollar Millionaire: Yeah, that's right. Yeah, that's, I mean, it's not that I didn't invent that. I think that's a standard financial personal finance tool. And, you know, as as with the glob of paint, right, it's a great job of paint, unfortunately, it's kind of it sounds to 20 20% is gonna have you if you did it from the age of 20 20% is going to have you retired somewhere in your 60s. It's not amazing, right? That it's it's, it's better than not, but it's it's not amazing, and that's where I wouldn't want to see it to see us as I try to use it just as a general this is dob of pain. 20 is great, but if you want to do better, you should aim for better. Michael: Yeah, that makes tons of sense. And I think that's great. I love I love that dob of paint analogy. I think it makes so much sense. I'm a very visual person. So that that resonates with me. 7 Dollar Millionaire: Cool. That's good. That's really good. Because it's because I wrote it for for a new book I'm working on. So I'm glad it works. I'm trying it out with you guys. Michael: Are you really writing a new book? 7 Dollar Millionaire: Yeah, yeah. This is actually the first morning in about three weeks I am, I've got up to talk to you guys instead of getting up to write. But I've been writing to non stop for last three weeks. Michael: Awesome. Can Can we get a little preview as to what it's about? 7 Dollar Millionaire: Yeah, it's it's an attempt to combine Zen mindfulness practice and personal finance. So I'm trying to map I'm trying to get that Venn diagram. I feel at the moment, those Venn diagrams are like, here, I'm just trying to merge them. But in many ways, I feel that they merge really easily. It's like, you know, it's what is tracking what is tracking your spending, if not being mindful of what you're doing? Right. I mean, you sit down and journal but journal your expenses, right actually know what you're doing in life, I actually think they they align quite neatly, I just haven't seen anyone do it before. And, and I, one of the things I've realized more and more about personal finance is that the SEC, the same five or six things, we all need to know how to do the basics. But we need to approach every person in a slightly different way to get those five or six things in. Once you're in, you'll learn them really fast, but you need to get in. And that's why I sort of just occurred to me will be a fun thing to do. So yeah, I need it to be fun. As well, I need to actually want to be able to, if I have to get up at six in the morning, I have to want to Tom: Yeah, big, big mindfulness fan, I try and do have a personal retreat every year. And man, I can just see how a lot of those concepts of just being present is so relevant. And you can basically apply it to anything and it's so natural into, you know, the currency that, that our resources that we live off of its camp can't wait for it to talk more about it and for it to come out. 7 Dollar Millionaire: Cool. Well it come at it. Well, if I finish it, it should come out next year. That's exactly what it is. I mean, it is this sense of in every place in our finances, if you're not aware, they take control of you rather than the other way around. And if you can be aware and mindful of what you're doing. So even to the standard market to you over emotional, are you under emotional, you know, how are you what's actually going on in you, that is making you do things that are not to your benefit and understanding those things are such important drivers and in the in the space. So addressing all those things. Equally, what's quite nice is I feel like I can recycle the some of the Happy Ever After book as well, because the middle of the middle bit of this book is a man being the same steps mission, money income saving, spending, investing, owning now those steps. And so rather than to using sort of like the fairy tale, we sort of really creating a path. And as with so many things on sort of mindfulness, this is a path, you have to understand the path and now you hear whether the dob of paint was coming in, right? Don't get upset that you don't know where you're at, you're just putting a dob of paint is just the first dollar painting this will build. And that's Yeah, that's why I'm so happy like the analogy cuz it's right up the front. Michael: Oh, this is great. I'm very excited to read the book. I want to shift gears here a little bit. And I'm curious to know if you have any tips or tricks or guidelines for folks to have these types of financial, personal financial conversations with a spouse partner significant other, because so often I hear in the Roofstock Academy is Hey, I'm all on board for real estate, but my husband isn't, or my wife isn't or my partner isn't interested? How do you bring them in in a productive way? 7 Dollar Millionaire: Yeah, it's hard. And you know, you, it's okay, we're gonna get back to the mindfulness, but just for a second, and I'll come back to this, right, because Tom: It's all part of everything 7 Dollar Millionaire: You have to know is that you, you can only affect yourself, you can't create change outside yourself, you can only create change inside yourself. So you, you can't force a partner to come up to your speed when you want them to. So that's the number one understanding. So you got to be ready for them to not be prepared to do this. The second thing is, it's why I wrote the book is for the original one happy ever after it was to outsource a lot of the conversation with this time, but that time with my daughter to paper, get her to read it. So I don't have to go through an enormous amount of the background of how this works, right? It I can just imagine it. When I realized my daughter didn't know anything about money. I was like, I've got a teach her this stuff. I don't want to spend every weekend for the next year having daddy daughter money lectures, because that's just you know, it's wrong. Right? So but if I write her book, she can read it in their own pace, and we can have those conversations and she's already up to speed. Right? So to get some level of outsourcing so to encourage, could you read this book, have a look at this, what do you think about this, and then let the person do it in their own time. So they'll come up to speak because again, we go back to that you can only change you they have to change themselves on on their timeframe. I think the other thing is too, sometimes it's useful just to have like a group budget as a track as a family exactly where all the money goes. Because that That, to me is like, is the starting point we're spending money on on these things. And you know, if there's any dispute, it's like, let's get the, let's get the receipts out, this is actually exactly where all our money went in the in this period. Because I think that's the, I think it's very difficult to jump from an investing mindset. Jump to it, without going through saving. And you have to warn you that that requires understanding your spending. So those two things combined to be like, okay, we understand that what we're saving and what we're spending, okay, now we can invest our asset class, we can we can move on to as you said, How do I get my spouse to think about real estate, they're probably not thinking about it, because they're not probably not thinking about the saving and spending, the moment you think about your, I'm going to give up this spending to save the money, you tend to get a lot more interested in how much money that money is going to make for you. So you tend to get a lot more interested in the asset class. So I that's why I do see these things as being a 1234. And then you can get them interested in the asset class. Tom: Maslow's hierarchy of conversations to have with your significant other. Yeah, it's, so this is a one would be, I guess, spending, saving, and then more offensive investing that I understand this kind of triangle correctly. 7 Dollar Millionaire: Okay, I will never allow spending to go in front of saving savings by okay. It's in the dictionary in the book in life saving comes first, right? Get the saving done first. And the saving is how you top up your yield. So the safe spending is cutting down on your spending is how you top up your savings. Right? Did you put the put the savings away first. But yeah, and then once you've got savings, you need to do something with them. And so the thing you do with them is what asset class and then you can have those conversations. But if the person isn't engaged in the saving, right, then they're probably saying I don't want to invest in real estate, because actually, I'd rather be spending the money on a car. And you've got to move the people have got to be with you on those steps. And it's, if then if they haven't got those fundamentals like Well, yeah, we could buy the car, but these savings will double in 10 years time and quadruple in 20, et cetera, et cetera. And then we'll be setting we can have as many cars as we want, if that's your thing. But let's just actually understand our priorities today, and where we want to be with that. But I do think it's really important not to make that a face to face conversation too often, unless you're both open to that and let that someone like me, let an author let a book, let a TV show, do the heavy lifting, right? I mean, and then then have the conversation subsequently. Michael: So for anybody listening, needing to broach this subject with a partner, spouse, you can either go get Happy Ever After by 7 Dollar Millionaire, that's great. 7 Dollar Millionaire: I couldn't have said it better myself. Love it, love it. Michael: I know you're not really familiar with the US system of Roth versus non Roth, but we can talk about it in a higher level discussion. And so in the US, we have Roth and non Roth retirement accounts. A Roth is simply you pay the tax on the dollars that you invest on the front end, and then you get tax free growth and distributions on the back end, versus a non Roth is you get a tax benefit of reducing your taxable income today, it grows tax deferred, and then when you go to remove those dollars, it gets taxed at that point in time. Do you have a sense for pros cons, how people might be thinking about this? 7 Dollar Millionaire: The only thing that go into there is I'm assuming there are some other sub clauses in terms of what your access to the money in the intervening periods? Right? So I'm guessing from what you've said, that the one where you get, like, you pay tax now and you'd be don't pay tax on on the eventual money. You can only take it out on a certain date. And if you take it out between those dates, I'm assuming there's some kind of penalty as the as the price of actually getting a tax tax, tax free later on, are tax exempt. Whereas the other one sounds more like well, if you know, you're actually if you're not being taxed on the money that goes in that's probably fairly similar. But I'm guessing it's probably a little bit freer money in terms of you can probably access it at any point in time. Tom: The big gating factor between the two is there's limitations on who has access to use a Roth, this one that's taxed up front, and that your income needs to be under a certain level. Michael: But the access to the funds are fairly similar in that you pay a penalty on both if you remove them before your retirement age. Yeah, yeah, I mean, I think if you can afford it, you probably want to put the money away that you can take it out later tax free. That to me sounds like you know, because then you, hopefully if it's a long period of time, and it compounds reasonably well, that's a bigger number than the money you're putting in. And that's how the only thing I could think of that. Honestly, these things is weighing me up. I people make tax codes way too complicated. It's just like they make tax codes complicated. And then don't teach financial literacy in schools. The idea of this is beggars believe, right? The problem with making them complicated is very often, it tells people like, it's like, we go back to a dog with pain, right? We go back to our dob of pain, someone is telling you, I need you to paint the Mona Lisa, and you've never painted before, you're scared to put the first piece of paint on, you won't, you'll just, you know, you'll have you'll kind of you'll have like a punk rock moment, and you'll toss the canvas and break it on the wall and walk out the room. That's what everyone does. Everyone's just like, this is too hard. I'm not doing it. And so you stop people actually getting involved. So I am going again to run again, all of these systems are way too hard. The correct answer is save them money, one of those will be doing deep, it will be better than none of them and don't over stress it. Personally, I probably go to have the tax deferred later. Because I want the money to compound my age, that's probably wrong. Because I'm you know, I'm probably begin taking the money out in 10-15 years, so might not compound that much. And I might be better off actually having more money now. And I suspect that's where the differential is. That's probably where, you know, that's where the delta is on that. But God, I mean, that's just way too hard. Sorry, not telling you off it. But it's way too hard a question to put to someone who probably has very minimal financial literacy, I could probably work out what the right answer is with a spreadsheet. That means it's a really bad policy to be offering people. Sorry to criticize your country. Tom: I like it. 7 Dollar Millionaire: Okay, good. Tom: My wife's a tax attorney and keeps keeps busy. Yeah, moving tax code. 7 Dollar Millionaire: Oh man. It's actually it's actually also one of the reasons why, you know, the financial literacy thing is so important, because you can't trust governments with this stuff. In the we all think that everything we experience from childhood has been around forever. The reality is, before the Second World War, most people were dying around 65 70, they did not get a pension because they didn't need it. They were literally going to last maybe four or five years after they after they finished work, they would expect to work to death. And only after the Second World War, do we get this mass input of pension schemes? And which is why in lots of countries, they're just paid out of government revenues. And I'm not saying that's necessarily a bad thing. But it does. What it means is it's not necessarily going to be around forever. Tax codes aren't around forever. And it's one of the things that I worry too much about putting too much time into worrying about tax codes. Because by the time you take the money out, you'll have been through five different tax codes. It will all have changed so many times that if you try to think long range about tax, you're doing the wrong thing, because the risk on that is enormous. Michael: That's such a good point. I think so many people hear about Taxco changing scramble to do whatever they can. And then next president next administration comes around things change scramble to do what we can and then you know, over and over and over again. 7 Dollar Millionaire: The people that make the money are Tom's wife. They make all the money! Tom: She is just there, interpretating whatever, whatever comes out. Yeah, 7 Dollar Millionaire: Yeah, exactly. Tom: It's good for the Schneider family. It's good for them. Michael: That's great. Well, I think we just got to wrap this up, Tom, any other questions for the 7 Dollar Millionaire? Tom: No, I love it. I think of all of our podcast guests. I never have more like impactful like meaningful, like things that I go off and do after the episode. So I really appreciate you coming on super excited about the book coming out. 7 Dollar Millionaire: Yeah, thanks very much for that. It's, it's, um, I'm really excited about it, too. It was the publishers Wiley to appeal to published happy ever after. And they, they asked me when I kind of that they were actually publishing happily ever after they said, do you want to do a follow up? And I was like, No, no interest. The and it because I took that to mean that did they want me to write teaching my daughter how to invest properly, and not as a cop out? That's just too complex. You know, the reason I write what I write is I'm interested in getting people off the ground up to being able to understand other books. I'm not interested in the other books, those are all great. They've already been done, you know? And then, you know, while he was coaxing me and saying, Well, no, we have this book series called “The Little Book of“ Series, which like the Little Book of Common Sense investing is written by John Bogle. And I'm like, kidding, right? I get to write a book in series that that goes in. And actually the bigger one for me was actually The Little Book valuation is by Aswath Damodaran. Who, I don't know if you guys know him, but in my industry, he's a god. Aswath Damodaran book bbout this thick on on, it's just got damodaran valuation. And it's got every way of valuing everything ever. And it's the Bible for my industry. Everyone's got a copy everyone's read it cover to cover. It's literally and it I mean, it's dense. He's I think he's a, he's a professor at NYU stern. And just like, super clever guy. So he wrote the little book of value valuation. And they're asking me 7 Dollar Millionaire if I want to write one of those. So I thought I've got to think about it. So just like so thinking about it. And I was like, still didn't want to write a follow up on investing. Now, I did literally woke up one morning, I was like, the little book of Zen Money. And just that the title just runs so nice. I was like, Yeah, okay, what, what can I do with that, and I was like, then the subtitle came to my head was like, okay, a simple path to financial peace of mind. Okay. And literally, I'm writing the thing, first word to last word and like, not how you should write, you should break it up into bits. And Right, right, like the middle first, and then the end. And then the beginning. And I'm literally going from the title. And the last word, all right, will be the kind of the end. And just going that direction, because it just makes sense to me all the way through. Tom: Yeah, it's there already. just pulling back. Michael: Yeah, gotta get it onto paper. 7 Dollar Millionaire: I stay away from the other analogy. But the other analogy is chipping blocks off the stone, right to make a sculpture. That's what I'm doing with this one. It's there. It's already there. I've just got to find it. enough fun. Yeah, I wake up every morning and get at it part from today, when it's fun to talk to you guys instead. Tom: Yeah, I mean, one of the takeaways also for these conversations is like, you know, this 80-20 principle where, you know, you get 80% of your value from 20% of the work and that last 20%, like, that's where it gets, like overly complicated moving targets, you know, anxiety, all that stuff, but just getting up and getting that initial blob of paint? I mean, I feel like I'm probably repeating a lot of the conversation, but it's a really powerful one. 7 Dollar Millionaire: Exactly. I mean, you know, it's it really is that that first move separates you from everyone who's not investing, who's not saving. That's it, right that if you were the stat or last year, it was ended. 2019. Right there, 61% of Americans didn't have $1,000 in an emergency fund. Just having $1,000, that puts you already in the top 39% of the richest country in the world. That is already that that's the 80 20 rule right there. They're taking their money and opening an investing account, bang, you're probably in the top 10%. Right. And taking those actions is what moves you along these things all the time. That's why is is so important. Yeah. It's the problem, as you said is, someone tells you, you should invest. Oh, and you should invest in this. So what you know, that's just way too complex. It should just be you should save, you should invest, and probably, you know, VTI just go there. He can be a while before you find anything else. So you can overcomplicate it later when you're ready to overcomplicate it, but to start with just go there. Michael: Love it. Tom: Love it. And VTi is the vanguard index fund. That's just kind of just blankets. The economy beautiful. Yeah, big fan. 7 Dollar Millionaire: It's, it's the it's the biggest economy in the world. It's the top 500 companies in the biggest economy in the world. You know, when we if you live off grid, you're not involved in the global economy. Fine, right. But that's like naught point naught naught 1% of us that's discussing this properly off grid. The rest of us are buying stuff to live our off grid life anyway, we're in the economy. That's that the most natural hedge just by that. Michael: And the folks that do live off grid probably aren't gonna be listening to this podcast on their iPhone, in the middle of nowhere wherever they live off grid, so I don't think we have to worry about them. 7 Dollar Millionaire: They probably are. Michael: Living off grid with faster Wi Fi than any of us. 7 Dollar Millionaire: Exactly. Michael: Awesome. Well, $7 millionaire Always a pleasure to have you on thank you again for hanging out with us and bestowing some wisdom. And like I mentioned, and I mentioned very much looking forward to the book when it comes out. I know I'll be getting it. We will both be getting it I'm sure. 7 Dollar Millionaire: Excellent. Well, thank you very much. It really it's always a pleasure. Really good fun. Thanks, guys. Michael: Awesome. Take care. I'll talk to you soon. Alright, everybody, that was our episode a big big, big thank you to 7 Dollar Millionaire always such a pleasure chatting with him. Tom, I know you and I get so much value out of our talks with him and after all of our conversations, we have going making some changes to our own personal finance realm. So very excited to do that yet again. If you'd like the episode, please feel free to leave us a rating or review wherever it is just in your podcast. If you're checking this out on YouTube feel, feel free to hit that like and subscribe button. And as always, we look forward to seeing on the next one. Happy investing. Tom: Happy investing.

covid-19 tv love new york california australia babies uk bible guide las vegas japan americans iphone world war ii portugal series jump euro singapore brexit beginners honestly ipads sec bang millionaires wifi dollar robin hood personally tax nyu zen excel gym cds toddlers schneider roth common sense new york state wiley mona lisa equally cfa little book venn brady bunch reits pv reit personal finances pessimists chartered financial analyst can can john bogle vti roofstock aswath damodaran taxco happy ever after michael oh michael yeah tom it michael love michael well michael so tom no michael thank tom yeah tom so michael hey michael awesome

#60 Differential gene expression and DESeq2 with Michael Love

the bioinformatics chat

Play Episode Listen Later May 12, 2021 91:15

In this episode, Michael Love joins us to talk about the differential gene expression analysis from bulk RNA-Seq data. We talk about the history of Mike’s own differential expression package, DESeq2, as well as other packages in this space, like edgeR and limma, and the theory they are based upon. Mike also shares his experience of being the author and maintainer of a popular bioninformatics package. Links: Moderated estimation of fold change and dispersion for RNA-seq data with DESeq2 (Love, M.I., Huber, W. & Anders, S.) DESeq2 on Bioconductor Chan Zuckerberg Initiative: Ensuring Reproducible Transcriptomic Analysis with DESeq2 and tximeta And a more comprehensive set of links from Mike himself: limma, the original paper and limma-voom: https://pubmed.ncbi.nlm.nih.gov/16646809/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4053721/ edgeR papers: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2796818/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3378882/ The recent manuscript mentioned from the Kendziorski lab, which has a Gamma-Poisson hierarchical structure, although it does not in general reduce to the Negative Binomial: https://doi.org/10.1101/2020.10.28.359901 We talk about robust steps for estimating the middle of the dispersion prior distribution, references are Anders and Huber 2010 (DESeq), Eling et al 2018 (one of the BASiCS papers), and Phipson et al 2016: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3218662/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6167088/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5373812/ The Stan software: https://mc-stan.org/ We talk about using publicly available data as a prior, references I mention are the McCall et al paper using publicly available data to ask if a gene is expressed, and a new manuscript from my lab that compares splicing in a sample to GTEx as a reference panel: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3013751/ https://doi.org/10.1101/856401 Regarding estimating the width of the dispersion prior, references are the Robinson and Smyth 2007 paper, McCarthy et al 2012 (edgeR), and Wu et al 2013 (DSS): https://pubmed.ncbi.nlm.nih.gov/17881408/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3378882/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3590927/ Schurch et al 2016, a RNA-seq dataset with many replicates, helpful for benchmarking: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4878611/ Stephens paper on the false sign rate (ash): https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5379932/ Heavy-tailed distributions for effect sizes, Zhu et al 2018: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6581436/ I credit Kevin Blighe and Alexander Toenges, who help to answer lots of DESeq2 questions on the support site: https://www.biostars.org/u/41557/ https://www.biostars.org/u/25721/ The EOSS award, which has funded vizWithSCE by Kwame Forbes, and nullranges by Wancen Mu and Eric Davis: https://chanzuckerberg.com/eoss/proposals/ensuring-reproducible-transcriptomic-analysis-with-deseq2-and-tximeta/ https://kwameforbes.github.io/vizWithSCE/ https://nullranges.github.io/nullranges/ One of the recent papers from my lab, MRLocus for eQTL and GWAS integration: https://mikelove.github.io/mrlocus/

basics robinson mccarthy rna huber wu mccall smyth differential zhu dss eric davis gene expression gwas michael love rnaseq gtex

May 6, 2021

Transforming Education: Leadership Lessons

Play Episode Listen Later May 7, 2021 71:03

(00:00-10:37): Brian and Aubrey reacted to Facebook's decision to extend Trump's suspension and discussed David Leonhardt's New York Times article, “Facebook Ducks the Big Issue.” (10:37-28:43): Dr. Karen Love and Bishop Dr. Michael Love, Founders of the Love Family Christian Foundation, joined Brian and Aubrey to chat about their ministry and the upcoming Judson University Community Prayer Breakfast, which is Monday, May 10th at 7:30am CT. The breakfast is sold out, but will be streamed live on Judson University's Facebook Page: www.facebook.com/JudsonU and YouTube Channel. Karen and Michael also serve as First Lady and Senior Pastor of Trinity Baptist Community Church International in Crystal Lake. Learn more about the Love Family Christian Foundation at facebook.com/lovefamilychristianfoundation.org Learn more about Judson University at judsonu.edu (28:43-36:53): Brian and Aubrey reacted to the news about Bill and Melinda Gates getting divorced. (36:53-44:23): Brian and Aubrey shared their thoughts on Donald Judd and Caroline Kelly's CNN article, “Biden dismisses McConnell's pledge to focus 'on stopping this new administration.'” (44:23-1:02:11): Matt Sorger, prophetic minister, Host of the Glory Living podcast, and Author of “God's Unstoppable Breakthrough: When Your Mountain Doesn't Move, Go Over It!”, joined Brian and Aubrey to chat about his book and his mission to rescue children from trafficking through Rescue1. Learn more about Matt and his books at mattsorger.com Learn more about Rescue1 at rescue1now.com (1:02:11-1:11:02): Brian and Aubrey honored the life and ministry of Marva Dawn. They also talked about her book, “A Royal Waste of Time: The Splendor of Worshiping God and Being Church for the World.” See omnystudio.com/listener for privacy information.

The Young Leaders Series on Purpose and Distraction

Play Episode Listen Later Apr 16, 2021 26:55

Senior business majors, Sutton Derr and Michael Love join this week’s podcast. They review episodes from Business with Purpose, the Andy Stanley Podcast and the Side Hustle Show. They discuss finding a fulfilling life’s work and recognizing the distractions that leaders face. We also talk about the process of becoming a strong leader, which includes having patience with the process, preparing to grow continuously, asking for help and leaning on mentors.To listen to the original podcast episodes reviewed, see:Business with Purpose – Coffee with Purpose EP 231The Andy Stanley Podcast – the Three Villains of LeadershipThe Side Hustle Show – EP 406

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EPISODE 160: MICHAEL LOVE INTERVIEW

Loving Without Boundaries

Play Episode Listen Later Mar 5, 2021 54:38

EPISODE 160: Michael Love is an advocate of Ethical Non-Monogamy who has been actively non-monogamous since 2010. He cohabitates with his wife and girlfriend in a Poly V living arrangement, and together, along with a team of creative contributors produce a wonderful magazine for the non-monogamous community called ENM Magazine. If you get value out of the Loving Without Boundaries podcast, then consider becoming one of our patrons! Not only will you enjoy exclusive content made just for you, your support will also help us continue creating educational content while helping more people have a deeper understanding of consensual non-monogamy and healthy, sex positive relationships in general. https://www.patreon.com/lovingwithoutboundaries

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#51 Black Men In The Helping Professions

The Heart of the Matter

Play Episode Listen Later Jan 10, 2021 118:27

On episode 51, we are joined by Michael Love and Nathan Klein. Michael is a counselor at Irvine City College. Nathan is a counselor at San Diego City College and a private practice clinician. We discussed the need for more men and particularly black men in the helping professions, their experiences being black male counselors, and the value that men bring to the counseling and mental profession.

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21st Annual Ojai Film Festival

Radio Show – Elizabeth Appraisals

Play Episode Listen Later Oct 31, 2020

Filmmakers Matthew Shimmel, John Sasser, and Michael Love talk about their films in the virtual Ojai Film Festival (November 6-15). Also on this show we hear sculptor Christopher Slatoff, featured ... The post 21st Annual Ojai Film Festival appeared first on Elizabeth Appraisals.

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Ep 104. Cassy Judy Interview and music with Michael Love Michael

The Gender Agenda

Play Episode Listen Later Oct 30, 2020 54:15

Rowan and Rebeckah are back this week in the new post lockdown Melbourne. This week we present an interview recorded in the blissful pre-covid world of January 2020, with Cassy... LEARN MORE The post Ep 104. Cassy Judy Interview and music with Michael Love Michael appeared first on The Gender Agenda.

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On Track with Michael Love Michael

On Track with Jon Ali

Play Episode Listen Later Oct 29, 2020 46:10

Jon Ali continues season two of his On Track interview series with Michael Love Michael!As a Black child growing up queer and nonbinary in the Midwest, Michael didn’t always feel encouraged to be themselves. Their emotional sensitivity, effeminate appearance and artistic expression was shunned by those around them, so they retreated into writing and storytelling, and when they finally got a desktop computer at 16, they quietly made songs in their bedroom about their isolation, desperate for a way out of it. As 2020 yields a new revolution for marginalized voices, Michael, having broken free of societal restraints, is determined to use theirs to call attention to issues affecting the LGBTQ community and beyond.On this episode, I dive into what Michael has been up to since the pandemic started, their time working in media, moving to NYC, making the jump to music, the release of their debut album XO, their brand new single “Apple,” as well as their plans for the future and much more.Follow Michael Love Michael on Instagram: @michaelxomichaelFollow Jon Ali on Instagram: @jon_aliFor more visit jonalisblog.com See acast.com/privacy for privacy and opt-out information.

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Going From a Nightmare Scenario on Property #1 to Owning/Partnering on 100+ Units w/Tyler Jahnke

Play Episode Listen Later Aug 13, 2020 38:48

In this episode, Emil and Michael chat with Tyler Jahnke about how he persevered through a nightmare of a first deal to being a part of 100s of unit of real estate. --- Transcript Emil: Hey everyone. Welcome back to another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I'm joined by my cohost, Michael: Michael Albaum. Emil: And we are interviewing Tyler Jahnke. Tyler has become a good friend of ours and is also one of the writers on the Roofstock blog. So you may be familiar with him on some of the content he's written there. And this was a really fun episode. We got to talk to Tyler about the story of his first rental property. He lives up in the Bay area and he talks about investing in the Midwest and some of the painful lessons he learned along the way of buying that first property and how he's grown to be a partner and owner of over a hundred units through syndication deals. All right, without further ado, let's hop into this episode. Theme Song Emil: Tyler. Welcome to the show, man. We're excited to have you. Tyler: Thanks very much. I appreciate you reaching out and getting my attention and allowing me to hop on today and talk with you and Michael. Michael: This is going to very much feel like every day on Twitter when we're always chatting about real estate investing stuff. Anyway, it's just on an audio format. Tyler: A quick little plug for Twitter there, I guess, right? Like most of us I think, met on Twitter and that's been a great platform for both of us or all of us and engaging in and connecting with people so happy. We met there and happy to talk real estate as much as we want. Emil: Yeah, it's funny. I've been on Twitter for years and I never realized there was this real estate investing and money, Twitter corner of Twitter. Like I always just used it for marketing and other stuff. And I was so stoked when I found this little community that's super engaged and loves talking and sharing best practices. So it's been fun, man. Michael: It's funny. This is my first live Twitter interaction coming off Twitter. And I'm so glad to see Tyler and I were chatting before we started recording it. And his personality on Twitter matches his personality in real life, which is always great because sometimes you meet folks. It's like, wow, you're really well written. And I can't stand you as a person, not the case at all here, which is always nice. Tyler: I'll be honest. I was a little worried thinking it just through like seeing you in person, it's like, how is he going to think I come across in reality versus someone who's behind a keyboard or a, you know, a mobile device typing 280 characters. I'm sure there's plenty of people out there that are completely different. And I was like, hopefully I come across similar, online as I do in person. Michael: I think by the same thing, I don't want to catfish anybody. Tyler: Yeah. Now I will mention the first thing I noticed about you and Michael was the longer hair. I'll say that. Michael: For anyone who hasn't seen, the reason they have leveled, they let myself go with the head hair and facial hair department. I'm going out the quarantine cut on, call it. Emil: Cool. So Tyler, before we hop into the good stuff what's going on in your world, what's new. Tyler: Oh, that's I mean, that's a big question. So first things first I work full time still. I am not a full time real estate investor. That's something that I think some people maybe assume that I am. So I do work full time in a sales and business role out here in the Bay area, born and raised in Berkeley, California. My office is in as in San Francisco, clearly we're all working from home right now, but so, you know, a lot of my day is still consumed by that full time job. But my nights weekends are still very much real estate or whether that's analyzing deals, talking to partners, talking to investors and networking, engaging, and then doing a lot of content build out on my platform and then just, you know, talking real estate as much as I can on my nights and weekends. So that's kind of what my day looks like right now. It's, it's becoming somewhat repetitive, but I have enjoyed it. And I do try and get out on weekends and hike and see the outdoors a little bit. Emil: Now that you've mentioned that you live in the Bay, my follow up question is how did you get into real estate investing? And why did you choose remote real estate investing? I think part of the, you answered with you live in the Bay area, but give us the back story. Tyler: Yeah, I guess I'll tackle the question of how I got in first and then we'll go to why out of state. But so I started investing in 2016, so about three and a half years ago now I was working a good job that I enjoyed in an industry that I also enjoy and still enjoy. But I did see myself, you know, kind of the future Tyler down the line, probably having to work another 40 years and reaching that age of 65 and then maybe retiring. So I think in my late twenties, a little bit of self reflection and trying to figure out what I wanted to accomplish in life. And a lot of that had to do with time freedom, which I think a number of your listeners are probably also conscious of right now, if they're thinking about real estate. And so I had to try and figure out ways to bring an income outside of my W2 job and just try and accelerate my growth on the financial side. So through business podcasts, through investing podcasts came along this topic and strategy of real estate, which is abundant and everywhere, but no one really thinks about it. I mean, when I say no one, the majority may not really think of it as an investing opportunity. And so, you know, I saw it as somewhat of a logical step and I guess, strategy just by the fact that you could bring in monthly recurring income through tenants, paying off your mortgage and insurance and taxes, and maybe even letting you cashflow a little bit. And then to answer your question on why out of state for me at the time, it was pretty obvious. I couldn't afford anything in the Bay area. And I also wanted that cashflow and it's very hard to cashflow property in Oakland when you're going to pay $750,000 for it. It's quite impossible. Now I'm not saying it's impossible, but there's definitely challenges there. So, you know, jumping into, out of state investing made sense for me, it was definitely a little scary because you emotionally get attached to these investments. I think as a newbie and you're like, I want to see it in person. I want to touch the front door, but at the end of the day, it's not necessary. If you have the right team on the ground to help you out and really guide you along the way. And so long story short, why out of state, it was affordability and the cashflow potential. Michael: So I want to know Tyler, how did you make that leap? Really, a lot of people call it a leap of faith jumping into this out-of-state market. Having never been there, maybe having never met your team on the ground, walk us through the mindset and the decision making that you went through to end up where you did. Tyler: That's the important part is to make the actual leap. And I think I will admit early on, I was rather naive and I didn't have everything buttoned up from an education standpoint. I didn't really know how to properly run the numbers that actually worked for me. I'm not saying, you know, leap in uneducated. I think again, that helped me initially because I was naive in the challenges and maybe dangers of investing at a state. But now thinking back, you know, over the years, my advice to others that are in a position of, okay, I want to do this, but how do I take the next step? I think it can actually be seen as a quite simple process. If you are educated in a market that you want to invest in, if you know how to analyze property, and if you have, you know, the longterm vision of what real estate can do for you, I think that's enough confidence to make the next step. If you know the market you want to invest in, you know how to analyze property, you have the vision, like it's just going to be a mental at that point. So I don't have the exact advice for people on how to make the next step, because it's completely mental. Once you get those three things down, a market analysis and a vision, once you have that, it's all mental. So it's just going to come down to the individual and some people do it. Some people don't and that's fine. It's just mindset and personality. Michael: How did you find your first market? What did that look like? Tyler: My very first property that I bought in closed in December of 2016, I went the turnkey route and I felt that the fact that I had a full time job and working 40 plus hours a week, I felt that the turnkey route would be the best option for me to at least dip my toe into real estate. I will say the turnkey route is not always the best method. If you don't understand the partners on the ground properly, like I found out later. So I went to Turkey about found the market in the Indianapolis area. So the Midwest, which had high cashflow potential good acquisition to price ratio and had some of the metrics of a cashflow market, like population growth, job growth with higher wages, diverse economy. This could be a whole separate topic. So I apologize if I'm jumping too far ahead on what to look for in a market. Michael: This is great. Tyler: But I'll say that I hooked up with a drinky company out in the Midwest thought I vetted them properly, picked up a property for $37,000 cash back in the day, which is like the cost of a somewhat nice car. But it actually, instead of depreciated quickly, it's actually an asset that would produce income. So yeah, first property turnkey out in Indianapolis. Emil: I read your blog a bunch and I know you've talked about the experience of this first property and it's such a good one. And I'd love for you to share the story of, okay, you bought this property 37 [inaudible] on paper. It looks like it's going to cashflow nicely. I'll let you take the floor. Tell us about the story. Tyler: Yeah, yeah, yeah. So this is the best and worst investment of my life. So best in a sense that it got me in the game, right? I'll keep preaching this, like getting the game, getting the game, getting the game, whether that's a good or bad investment on paper, it's kind of a start that snowball. So yeah, $37,000 cash worked with a turnkey company that I barely vetted. I hopped on the phone a couple of times they started sending me leads via email routinely. Michael: Did you chat with any other turnkey companies or this was the one? Tyler: You know, me, you know, I didn't talk to anyone else. So it was all, I put all my eggs in one basket and that's kind of also my personality too. I'm pretty quick to trust and that's a double edged sword, as we all know, I'm usually pretty optimistic and very trusting. So that's good and bad, good and bad. So anyways, I talked to this company, you know, I started getting leads. I started evaluating the properties and my simplistic formula of figuring out how to actually calculate cash flow back in the day. I remember, you know, the estimated rents at seven 50 a month for a property that costs $37,000 napkin math on that was basically okay. Let's give the property manager 10% and let's account for property taxes and insurance. But you know, in my eyes, seven 50 a month, taking away all those expenses, I could probably cash flow 300, three 25 a month. We'll call it, which I wouldn't even touch anyways. My plan wasn't to actually spend that cashflow. So I was like, okay, if I could get a few of these properties in the next five years, you know, now we're talking substantial numbers on the cashflow side. So I acquired this property and then that's when I decided to fly out. So after I actually close on this property in December of 2016, I decided to fly out to Indianapolis in March of 17. I initially wasn't even going to do that, but my parents were like, Tyler, I think you might want to like meet the people you're working with and just see if that property exists. I was actually kind of reluctant, but now I kind of make it a routine to check on my markets annually. We'll call it pre COVID. So we closed on that property. It takes about two or three months to actually renovate. And it wasn't really a big rehab job. They refinished like the hardwood floors. They replaced a window. They did a little bit of painting. Emil: The turn-key company is doing that for you? Tyler: Correct, yes. So the turnkey company, I guess the term turn-key by definition means it should be easy. There are some good Turkey companies out there and there's bad ones. My advice is just to vet them properly, if you go that route. So it took a few months to really quote unquote renovate it. And there were some red flags that popped up initially. And those were some things that I've, you know, looking back I've learned from if red flags are popping up, that you're not happy with in terms of maybe lack of communication or miss deadlines and timelines, I kind of became ignorant or I guess I ignored them because I really wanted to just close on this property and become a real estate investor. And so I think emotion took over and in some points where I was like, you know, realistically, I should have questioned these red flags up front, but I didn't. Cause I was like, real estate is a thing I'm going to acquire 10 properties and become financially free. So I was too focused on that end goal. Finally got that thing rented. We did have a tenant in there for about 11 months. They paid on time every month, seven 50 a month. I took out, you know, 10% for property management. I made sure I had some reserves for property taxes, insurance. And then I just kind of pocketed that cashflow fast forward to the, you know, as I mentioned that cashflow for 11 months, we'll fast forward to that 12th month. My buddy who's actually in the real estate space as well in the Indianapolis market. He randomly drove by my property just to check up on it. And it was like Tyler, there's a lockbox on the front door. And I'm like, what do you mean? There's a lock box in the front door? Like what, first of all, I was shocked and I trusted him, but I didn't know what that actually meant. So that caused some alarms in my brain, I guess you could say. It was like at that moment I was like, is this real estate thing gonna actually work? Because that was my first real, real big hurdle. And I guess I had to think through from a business standpoint, what would the next step be? So I didn't mention anything to my turnkey provider. I actually kept that quiet to start with. I wanted to get some verification from others. So I then began the process of actually building another team on the ground out there, aside from the turnkey company I worked with. And that was kind of again, why I go back to like this being my best and worst investment. It forced me to overcome these challenges and build a new team on the ground. Michael: So Tyler was this turnkey provider also managing the property for you? Tyler: Yep. They did everything. They sourced the deal. They walked me through the closing process, set me up with insurance and insurance agent. They renovated it. They managed it from a property management standpoint. Michael: One stop shop. Tyler: A one stop shop, everything you could have in one box there. Okay. So anyways, I called a couple of property management companies had them drive out there, pay them a little bit money to help me out and just verify that it was in fact clearly that the lock box on the front door meant it was vacant. I don't know the whole story. Apparently the tenant had left without telling anyone and the property was vacant and I was never notified. And that was the last straw. So I fired the turnkey company, had another property manager, take it over. I know this story is kind of going on, on and on and on. Michael: This is all great stuff. Tyler: We're getting towards the end of that first property. So after having a new company take over management, after vetting a number of them, I really had to make sure that this next hire of a property management company would be right. So I was on the phone, every lunch at work and at night, just talking to people to try and figure out who the best property managers in Indianapolis were finally selected someone. They went out there, cleaned it up, took over management and they crafted a scope of work on what would be needed to get this thing rent ready. Cause my thought was okay, small little blip in the radar. Let's just get this thing cleaned up, get this thing rented again, get it back on the market and get a tenant in there and then start cash flowing again. And then I'll live my happy life. So they go in there, they craft the scope of work. First of all, I'll say the scope of work was probably a little more than I needed, but it was still a bill for $16,000. And I'm like, uh, wait, what? So, uh, so the property cost 37,000 up front. I need to put another 16 K into this thing to get this thing a rent ready. And I was like, there's no way I'm going to do that. Now along those, you know, the first 12 months of me owning that property too, I think I became a little bit more savvy. I actually, I learned a lot more after I had closed on real estate than I had. And so that's when I started really focusing more on the impact of location and obviously like the partners you work with. So my strategy in owning that first property had actually changed within those 12 months. And I decided that buying in better neighborhoods with a little bit less risk and a different tenant profile would be the strategy I wanted to take. So ultimately I ended up selling that property. I did not put the 16 K into it. I did not think that that property would have a good longterm outlook. And I started buying in better neighborhoods. So long story short bought the property for 37,000, sold it for 41 a year later, took a year of cashflow minus closing expenses or closing costs. I probably netted, I think it was like 2% in a year. So I honestly call that a really big win on my part. I was like, if I could just break even on that first property, I think there's just so much knowledge and education and experience you get from that first property. Emil: So why did you decide to keep going? This is, I feel like I've heard so many stories where people, something like this happens and they give up and they're like, ah, this real estate investing thing isn't for me or someone who's new has zero properties is hearing this and is like, I don't ever want to deal with this. Yeah. Why did you keep going? Tyler: I'll give you a couple answers. Some you may want to hear some of you may not. The first answer you may not want to hear is I already had a second property under contract. So by default I had to keep going. Michael: That's great. Tyler: But so I was actually really confident after that first property, given all those circumstances and those challenges, I was like, I know what I did wrong. Like I bought in a bad neighborhood. I hired the wrong people. I just followed, you know, my napkin math. And I touched on this earlier. Like I became better at analyzing properties. So the deals would be better. And then again, like just buying in a better neighborhood with a different tenant class profile, that to me was important. I wanted someone who could afford rent and not be challenged by if their car broke down, that they have to decide between the car repair or rent. I wanted, I guess, a little bit more security. So that's why I started buying in better neighborhoods. But I felt like, you know, after that first property round to the second property, I had learned so much in that first one, I could do it better and I could just get better every time. And so that was, it actually built confidence. And so, yeah, I went through some short term struggles and I think a lot of people will go through that short term struggle period. But if you really think that real estate is something that's going to be part of your life for 40 years, and it's a longterm strategy that one year of education and challenges will just amplify our growth, you know, as you move forward, Emil: I love that. Michael: Such a good story Tyler. I've got a couple of questions for you. And then 11 month period, when you were collecting rent and cashflow, did you think that you were a fricking genius that you had just got a dialed? Tyler: Yeah. Michael: Me too. Tyler: Oh, I was smiling. Every check that came in, the first check that came in, I was traveling with my buddies in Vietnam and I remember waking up one morning and I'm on vacation. Right. I'm on vacation Vietnam. And I got a paycheck. I got a check that came in at like one in the morning and I was like, this is unbelievable. I need to keep buying these as soon as just rapidly. And so, yeah. And it's funny because I started off my journey in the content space by just posting on bigger pockets and I kind of posted my life experience and I love going back online and be like, Hey guys, just want to give you an update. I got my payment, my check came in and I'm good. So yeah, it was definitely all smiles for a solid 11 months until, you know. Michael: Until it wasn't until it wasn't. Tyler: And so that's what got me back to reality. Michael: The learning process that you're talking about and the education process that you're talking about, it seems like that'll happen in month 12. Like that was a massive ramp up for you because for 11 months things were good. So you thought you had done everything right? Tyler: My education prior to closing was not the greatest, but I really started ramping up the education process after I started closing. So that was, I got addicted to podcasts. I got addicted to bigger pockets. I got addicted to just consuming, consuming, consuming content in the real estate space. And that's why I had my second property already under contract. By the time, you know, all these challenges popped up. So I guess I would say I really started continuing that education process, you know, after I closed and I still do today, even though, you know, I've kind of grown in, in the investing space, but it's podcasts, it's books, it's websites, and it's talking to people like you guys. Michael: I think that's such a big takeaway for everybody listening is, Hey, after you've accomplished the goal of purchasing that property, whether it's your first fifth, 10th, or whatever, don't stop being educated. Don't stop getting educated because I think too many folks sit on their laurels and think, well, great. I did it. I know how to do it now. Yeah. Well you did that deal. Maybe the next one's going to be slightly different. And so there are things you can learn in the interim that are gonna help make that next subsequent deal even better for you. So I love that. Emil: I feel dumber now than when I first started. When I first started six months in same thing, I'm laughing, I'm getting checks. I'll just do this 10 times and I'm going to be rolling in dough. And then like reality hits and you learn more and then you're like, wow, I know nothing. The more you learn… Michael: I think it's because we all started so similarly right? Buy one single family house, your purview is no one can see my hands, but they're very narrow right there. It's a very small scope. And then as we grow and expand and learn and educate ourselves, we realize there's this entire investing world out there that is comprised of so many different things. And we know so little about it. So I think that's a great point. And the old that just further goes to illustrate don't stop getting educated. Can't stop. Won't stop. Right. Emil: Rockefeller records. Michael: That's right. That's right. So I'm curious now, Tyler, you, you did that deal a couple of years ago, you know, what are you doing today? Where did you go from there? Tyler: Yeah. So it's been a journey and I don't want to come across as any type of expert. I'll say that, you know, looking back at my timeline, I've been investing for three and a half years now. So started in my late twenties now in my early thirties, I think there's still a long, long, long ways to go. But I will say within that timeline of three and a half years, my strategies have definitely changed. And so, you know, after that first I learned about, you know, the importance of location and really building that team on the ground. So I bought a second property and other single family house I'm in a better neighborhood with a better team. I then kind of tiptoed into we'll call it the journey of scaling, scaling up. And so I bought a duplex that was like huge for me. So I went from like a couple single families to a duplex that was me scaling up. I think from my standpoint, my strategy now has changed because like you mentioned earlier, Michael, the education process, there's some things I do now in the real estate space that I was not even aware of, you know, a few years ago. And so I tiptoed around and investing passively in larger multifamily complexes. That's how I started off in the multifamily space was literally, you know, I come in as almost like a silent partner, we'll call it limited partner, they'd say invest in my cash in these larger deals for some equity. And then through that process, learn more about the larger multifamily value of ad space. And that's where I am now focusing on the value add, but multifamily space, the GP role in these larger apartment complexes. But my portfolio is kind of two prominent we'll call it. We had the cash flowing properties in the Midwest and then the work that my partners and I do in Phoenix on the value of ad side. And like I said, in three and a half years, I've learned so much. And like you said, a meal too, like it's such a massive world out there in real estate. There's so many different techniques and strategies that you can go down into some rabbit holes, but yeah, it's a combination of cash line properties and Midwest plus some value add deals with partners in the, in the, in the Southwest region. Michael: For those of our listeners who don't know what is that LP GP thing called and what are those roles? Tyler: The term is syndication, which has good and bad, I think connotations or I guess definitions, but it's really just, it's a partnership between two groups. The general partnership group is generally a group of individuals that are tasked with acquisition of a property lending up financing, building out the business plan, building up the strategy, managing the actual renovation and reposition, and then really making all the decisions on whether to refinance or exit or whatnot. The LP limited partner side is a bunch of investors that come into these deals with some capital and with the intention of really not being involved in the day to day, it's a passive investment. It's like any business that needs, that requires funding and you have the team that's managing everything and then the, like I keep saying this, the silent partners that come in with capital to help fund the project, that's the basic structure of what a syndication is, but it's almost like any type of startup even, or any type of business that needs capital to close. And then you execute a business plan and hopefully pay off, you know, yourself as well as your investors primarily Emil: I know you're a part of a couple of different indications, your general partner in some where you're more active and your limited partner in some others. Right? Tyler: Correct. Emil: How did you decide to get into that? And which one did you start out with? I'm curious. Tyler: I started out on the LP side after I bought my first two houses and then the duplex, I wanted to experience life, not as a landlord to put it bluntly. There's always going to be some stresses as being a landlord. You know, you're going to have the email from your property manager saying a pipe has burst and we need some money or there's a hole in the roof and we need some money. That's just part of being a landlord. And so I was like, well, you know, at that point in my life too, I was really trying to value my time to one of the biggest things I try and follow right now is kind of, there's a quote out there that says, like start with the end in mind. And I envisioned my life, you know, 40 years down the line where I am selfishly bringing in income without really much active work. That's kind of what my ideal life looks like right now from a freedom standpoint. And so I was like, let's just try out what this passive investing really is. And I know passive is always going to be a loose term, but I felt that if I could hop into a deal passively and try and learn the business plan and a strategy of what value add is, and then tap into the power of multifamily, which is extremely powerful. We're pretty much doing what people call. Like, I call it the big BRRRR. We're finding a undervalued property, repositioning it through innovation and then bumping rents up that leads to additional cashflow plus increasing the value of the property. So I liked that strategy. So I wanted to kind of hop in there, learn from those people passively and then eventually get into those deals more on the active side events. Michael: So in syndications, I've only done them locally, kind of with friends and family, never on a big scale, but when you were an LP on your first deal, and you mentioned several times that you learned from the GPS, were they happy to answer your questions as an LP? I mean, how did you go about learning this business as a quote unquote silent partner. Tyler: It's not like a relationship where you automatically become, you know, the mentee and they take you under your wing. Really what I was just trying to figure out was to slowly get into the game. And that was to begin to just review what a, an offering memorandum looks like, what do these business strategies look like? What do the cost of renovation look like? What are the loan terms like? That was the very first step for me. And as an LP, you get to do that because you're reviewing all of the terms and strategies. So that was a very, very, very first step of me in education. Now, to your point, Michael, there's no way that these GPS are like, yeah, I'll take, I mean, maybe there's some out there, but I wasn't gonna email them and call in and be like, Hey, can you just tell me exactly what to do and how to do it? They're not going to say yes to that. They have much more important things to do. So really it was just being exposed to the industry and the business plans. That was the very first step. Luckily, you know, after that, the second deal. So the first deal I did was in Louisville as an LP, second deal was in Phoenix, which is now with partners that I work with. So through networking, through connections, through some mutual friends, I was able to kind of position myself in a way where yes, I was an LP, but the GPs actually knew who I was. And so that led to further opportunity down the line. I'm really just through connection and through building relationships. But yeah. So I think to answer your question, Michael, how do you learn as an LP? There's some you can pick up just by being exposed to the industry, but again, you're not going to have someone take you under your wing most likely Michael: And hold your hand and say, this is.. Tyler: Exactly. Michael: Okay. Yeah. Cool. Man, So, you know, I am also a multifamily value add guy. I've always done things on my own for the most part. What is it that you look for in these undervalued deals that are right for syndication? If you had to pick two or three things that like, yep, this is going to make a screaming deal. What are they? Tyler: The first thing I will say is I am no master of acquisition. That's not my role, but luckily I have partners on the ground that are, you know, educated and know the market much better than I do. But really what you're looking for is, as you mentioned, is undervalued property. And that in the multifamily space can be something that maybe it's mismanaged. Maybe they have a lack of capital to make any renovations. So, you know, the properties that we're acquiring generally are occupied pretty well in our market, which is Phoenix, but they're outdated. And because of that, rents are lower than what they could command. So that's one area where value add is really, you can take advantage of is just an old dilapidated property that maybe mismanaged, maybe you're not even collecting rent properly. There's just so many different areas in where you can find that value add. So to answer your question, I mean, what we're looking for is a specific type of asset that is in need of a cash infusion because the amenities are not the greatest and can definitely attract a better tenant with a higher rent. Now we're also kind of in areas and neighborhoods where there's actually a lot of class A stuff going up. And so we're, we're buying things that we think we can reposition to be just under class A, to kind of create a little bit of a subclass. So similar amenities, you know, the grant granite countertops, the under Mount sinks, new cabinets, washer, dryer in unit, the dog park, that, all that stuff, right. So we're building a property that's right under class a but more affordable. So we're kind of creating that subclass and that's, I think another way that we're protecting ourselves and being able to draw in that tenant and be able to bring in that rent that we've backed. So yeah. Undervalued property and then creating that subclass is what we do. Michael: Love it. I do the exact same thing, just on a much smaller scale. That's great. Tyler: Yeah. Emil: So you've been on both sides, you acquire properties yourself, you've been part of syndications. Do you have a preference of which one you like, or do you kind of mix and match in both in you kind of see that happening in the future? Tyler: Yeah. I see myself mixing and matching. Like I mentioned, I have kind of two prong attack of the cashflow, the immediate cashflow in the Midwest right now. And that portfolio is small and I still have some time to keep building that thing up. I, you know, I still am attracted to the immediate cash flow of those properties in the Midwest because the bigger deals are great, but they're a little bit more of a longterm play for me. If anyone is familiar with how this structure works, you know, you, as an LP, you get paid out quarterly as a GP. You know, the big pallet kind of comes at the end when you exit. So that side of my portfolio is more of a longterm play. And when I say longterm, we're talking five to seven years, which really isn't super long term. But I think having a combination of both is really a nice way to diversify having that cashflow from the Midwest or wherever your market is in individual properties that I own personally mixed with the passive income on a syndication and then a big pile. Hopefully once those properties are sold and you exit. So I think ideally I continue to keep attacking those two prongs, keep building those portfolios side-by-side and parallel. Michael: So Tyler, something we talk a lot about in the restock Academy is about risk adjusted returns and that, you know, in the more risky areas we should anticipate and expect and really demand a higher return and the less risky areas say for investment, we could expect a lower return where you willing to give up a little on the cashflow or on the return side of things, making that transition over to a better neighborhood or a more expensive neighborhood. Tyler: A hundred percent. Yeah. I don't think I had the specific data on what that would actually look like. Michael: Sure. Tyler: But to me, even just from an emotional standpoint, I was like, I'd rather have an investment in a neighborhood with better schools, less crime, you know, community amenities, a grocery store. Like I felt that I was a hundred percent willing to take less cash flow for a better neighborhood, but also on the flip side, generally in a better neighborhood, you might have better appreciation as well. So it's almost like right to me. Yes. I wanted to get out of that CD class neighborhood, get into that B class, we'll call it on my personal portfolio. I'm already seeing a much better appreciation numbers on that side of things. And it just, there's a lot more comfort in, in, in knowing that you have a property in a, that's not in a war zone, it's not crime ridden. You know, it, it's a good suburban neighborhood with consistent cashflow and, and most importantly, a tenant that's going to pay on time. That to me was a lot more important than the amazing numbers on paper in that war zone. That would cause me more headaches. Michael: Yeah. You bring up such a great point that, you know, on paper and mathematically and physically, sometimes those properties in the war zone pencil out really well and might even perform really well. But there's the mental health side of this business too. And, and I think that's so important so often gets overlooked of, yeah, I can make a killing over here, but I'm gonna make myself crazy and not sleep at night. And so we often say that there shouldn't be emotion when it comes to investing, but there is sometimes is. And that, you know, based on how it makes us how the investment makes us feel from an owner and operational standpoint, I think does need to get factored into the calculation Tyler: A hundred percent. Yeah. I'm all on board with buying, you know, it's not the A-class stuff that, not the D class stuff somewhere in that middle, you know, BC area. That to me is the most safe investment, at least in my opinion. Emil: Right. You see a lot of people, you know, they'll, they'll flash the similar situation, right. 35, 40 K home it's renting for basically the 2% rule. Right. So it will be running for seven to 800 and it's just like, it looks so good on paper, but there's all these other risk factors that you have to adjust for. And you have to have the appetite for like, dealing with messes more often than something in a better class neighborhood. So always important to consider that Tyler: Nice little segue to there on like just evaluating cap rates too. Like people will flash, Oh, I got, I got a 12 cap, right? It's like that's numbers. But like, if you look at it from a perspective of risk versus reward, that's probably going to be a more risky investment than a six or seven cap, you know? So it's been interesting to kind of learn that through the years to that high return on paper, doesn't always mean a high return in real life. Michael: Well, and also what's your time worth. If you've got to go spend 20 hours a week dealing with a 12 cap property, or you can spend two hours a month dealing with a six or seven cat property, you have the opportunity now to go buy more, you know, go buy two or three of those six caps and make us the same or even better returns. Yeah, absolutely. I think that's such a valid point. Emil: So we've been ending a lot of these episodes. We used to quick fire questions. We've been transitioning into… Tyler: Slow fire? Emil: Think about this for five minutes before you answer. No, it was just a random question that we just kind of riff on. Tyler: I'm all about that, man. Emil: I know you travel a bunch. Where's the first place you're going to travel to once all the restrictions are done and like, we can start moving around again. Tyler: I actually had a flight booked to Paris that I got super cheap and my buddy and I were going to go out there and explore the Dolomites in Northern Italy that is still in the back of our heads. And if, and when travel restrictions kind of open up, I think that's where we might go as the Dolomites in Northern Italy. Michael: I was just there in January Tyler. And it's unbelievable. Tyler: Yeah. Michael: Unbelievable. You can go in the winter. I don't know if you're planning on going in winter or summer, but the ski, like the snow sports, they're the snowboarding skiing, snowshoeing is unbelievable. Tyler: The plan was to go this summer actually, but just seeing photos of it is like, we were inspired to just find a way to get there. So that would be the first destination. Emil: I'm looking at pictures now. Cause I had never even heard of it. And it is… Tyler: I hadn't heard of it till recently as well, but yeah, the Dolomites. Michael: They get, I think the most sun out of anywhere in Europe, in winter, they have the most like sunny Bluebird days and yeah, just don't have enough good things to say about it. Emil, where are you going to go? Emil: Well, now that I have a kid makes traveling, you have to think a little bit more. You're like, Hmm, where can we go? That's kid friendly and things like that. Probably a surf trip. I'm thinking Costa Rica, Costa Rica is like one of the more family friendly areas that has really good surf. That's not too far from Southern California. So probably Costa Rica, friends. And I have been talking about doing a trip down there for a while. Michael: Right on. Pierre: Michael can we get your synopsis of Costa Rica since you live there as well too? Tyler: We now have a travel podcast guys! Emil: Hey this is The Remote Real Estate Investor. Michael: Bait and switch everybody. Yeah that Costa Rica is awesome, man. It's a super, like you said, I know it's a super easy, but you've been there before, right? Emil: Yeah, I went there like seven years ago with a buddy. Yeah. Different type of trip. Michael: The surf is so killer. Yeah. You were also Nicaragua. We talked about that to you, right? Emil: Yup. Nicaragua's surf is amazing. Tyler: You've also mentioned Bali to me, Emil as well. Emil: I sound really cool right now. Cause have you guys been there. I've been there, but yeah, Bali, I need to go back to Bali. It is like surf paradise and there's so many good waves and I will probably watch a video on YouTube three times a week of incredible waves there. And I'm just like drooling. But anyway… Michael: Drooling at waves. Emil: That's right. That's right. What about you, Michael? Where are you headed? Michael: I think I have to go back to Portugal. I'm purchasing some investment property out there and sort of do some paperwork type stuff we need to get back out there. Emil: No big deal. Just buying a property in another country. Tyler: Are you going the Airbnb route on that. Michael: Yeah. So it's the Airbnb it's like professionally managed, but actually we're applying for what's called the golden visa so we can get our permanent residency status and ultimately citizenship out there as well to be able to live and work and travel in the EU without needing… Tyler: Awesome stuff. Michael: Yeah. So we're pretty pumped on that. Tyler: My buddies living in Portugal right now and he's just been working abroad for the last year. He did, he actually did Costa Rica for a while and then just flew to Portugal. And he's, he's actually writing a book right now about working from, uh, working abroad. Michael: That's awesome. Tyler: I'll connect you guys with him. Michael: That would be great. That's something that I did last year too, is a lot of fun. I've actually been to Costa Rica, Latin American then all over Europe. Portugal also has amazing surf, has amazing, awesome waves. Pierre, where are you headed, man? Pierre: I was thinking to go to Mexico, but I'm out of maple syrup. So I might have to go up to Canada. Michael: Get up to Canada. Pierre: Yeah. Emil: Can't live without that maple syrup. Pierre: No man. Michael: It's a lifeblood. Pierre: It really is. Tyler: I mean, you even have a piece of bark on your wall back there, it's like yeah. Emil: It's probably a good spot for us to end this one. Tell her before we let you go. Where is a good place that people can get in touch with you? Maybe ask you some questions. Tyler: My website is jump in real estate.com. You can find my contact info. They're always happy to hop on a phone call or even just exchange emails with anyone really, really enjoy chatting with people like yourselves. And I'm sure your listeners as well. So I just love talking to real estate. Michael: Awesome. And Tyler if someone wanted to be an LP and one of your syndications is your website the best place for them to get in touch with you regarding that type of stuff as well? Tyler: Yeah, I would say that's probably the main route I'd want people to kind of route to me is the website. So jumpinrealestate.com. There's an ask Tyler tab. You can just find my contact info there and, or follow me on Twitter at jumpinRE very active on that, which I talked to Emil and Michael pretty much daily on. Emil: Yes, follow Tyler on Twitter. Very good follow. Awesome man. Thanks again so much. Really appreciate you coming on. Tyler: Thanks. Michael: This was so awesome. Tyler: Definitely. Thank you both. Emil: All right, so that's our episode. Thanks again, everyone for tuning in. Before you go and make sure you subscribe to the podcast, you get an update every time we release a new episode and let us know what you think of the show. We're always looking for feedback, leave us a review. Let us know you think what you want to see more of maybe what you want to see less of and we'll catch you in next week's episode. Happy investing!

covid-19 california canada europe man mexico san francisco european union academy turkey portugal vietnam southern california airbnb midwest cd nightmare costa rica owning gps oakland indianapolis bc property pierre louisville bali berkeley mount bay southwest lp gp won nicaragua partnering latin american scenario emil units w2 undervalued bluebird northern italy dolomites jahnke roofstock michael it michael yeah michael love michael well michael so michael how michael one michael okay michael sure michael for tyler you tyler it remote real estate investor tyler oh michael awesome

Ask Us Anything #3: BRRRR, Thinking Through Your First Investment, Making Sense of Inspections, and Evictions During COVID-19

Play Episode Listen Later Aug 11, 2020 32:41

In this episode Emil and Michael answer listener submitted questions on various topics: inspections reports, portfolio diversification, evictions during the COVID moment, advice on approaching a BRRRR, what asset class to begin with and what to do with existing debt. --- Transcript Emil: Hey, everyone. Welcome back for another Episode of The Remote Real Estate Investor. My name is Emil Shour and today I am joined by, Michael: Michael Albaum. Emil: Tom is sitting this one out, so Michael and I will be running point on this episode, and this is going to be our third AMA or ask us anything. So we're going to take a couple questions that people have submitted. We've been receiving tons and tons of questions. So we're just going to keep answering them. All right, let's get to it. Theme Song Michael: Is it a, AUA ask us anything or an AMA? Ask me… Emil: You know what? Just AMA, ask us anything. Ask me anything. Michael splits, hairs. Pierre: Ask Michael anything. Emil: Yeah, there you go, ask Michael anything. Michael: Alright, let's jump into it. Emil: Okay. So our first question comes from Alex and he left this voicemail. So let's listen to this one. Alex: Hey, what's up Michael and Emil, Thank you for taking my question. So my question is around inspections basically after you've gotten your inspection report back as a remote real estate investor, uh, want to understand how exactly you go about determining which items from the report you 100% needed to fix before the transaction goes through, versus which items from the report you could look at fixing over the next few years, once you've taken ownership of the property, versus which items in the inspection report you don't really need to pay attention to. This is my question because of my experience reading an inspection report, even after running through it with my agent is like reading a foreign language. And I think being remote as a real estate investor only adds to that challenge since you weren't able to physically observe any of the items that are called out in the inspection report. So I want to get some color around how you guys assess that. Thank you so much. Emil: Michael, do you want to take a stab first and we'll chime in afterwards? Michael: Yeah, sure. So I read an inspection report. Like I imagine a doctor would read a health report and kind of triage what's needs immediate attention versus what can be put on the back burner. And cost is definitely a factor in all of these things. And I loop in my property manager into the conversation because if there are things that need to be addressed immediately, your experience, you know, leaning on your experience is gonna be very helpful to determine, Hey, this sounds bad, or this looks bad versus, Hey, I know this is bad and I know this can lead to further issues down the road. So I would say electrical problems, roofing problems and plumbing problems just at a high level should probably get attention first and foremost. Heating, you know, things I see called out pretty regularly, our old heating systems for old cooling systems. And that doesn't necessarily mean they're going to fail, but you might want to be thinking about setting some reserve funds aside to replacing those when needed. But if there's electrical things that you see an issue with, or the inspector sees an issue with, I mean, that's the kind of stuff that has potential to burn down houses. Plumbing has a potential to cause tons and tons and tons of water damage in properties and water damage is expensive to clean up. Everything else is, you know, needs to kind of be addressed as that on a, as needed basis with your local property manager. If there are things that are going to increase the rentability of the property or increase the market rent of that property might be worth doing and kind of double dipping, increasing the property value and rentability and addressing an issue that needs to be fixed anyhow. That was kind of a long winded answer of saying, you know, talk with your property manager, talk with other experienced investors, get their 2 cents on, Hey, is this really a red flag? Or are we just making mountains out of molehills? Emil: You know, I love your analogies by the way, mountains out of mole hills, a doctor in triage. Michael: Good, man, I'm glad you like it. Emil: I need to come up with a repertoire of analogies and whatnot. Pierre: You should start piggybacking off of him. Emil: I should right. Michael: What you don't know as I'm on Google right before every episode, Google like cool analogies and also funny jokes. Emil: Alright, secret, secret revealed. Now I know how to do it. I agree with a lot of what you said. I was taken down some notes while you were chatting. I think anything related with water plumbing, anything with like the shower? Right. So I bought a property and there was a couple of tiles loose. I wanted those immediately addressed because water can get in there and do some serious damage. Anything with like wood rot on the outside or would loose like siding or any, any of those things. I want those taken care of again, because again, water gets in that's when the real damage occurs. I think like you said, asking your property manager, Hey, what do we think we can defer versus what should we address right now? One example of something that I've deferred a property, I bought actually ended up selling the siding on the home, which is like these panels that go on the outside of the house. Some of them were a little bit warped and it was recommended that I get those fixed. And you know, it's a little bit of, it's not an eyesore, but it, you can tell like it's warped, but it wasn't. There was nothing in like immediate need. Like there wasn't any gaps or anything where water could get in. And so… Michael: It just didn't look nice. Emil: Exactly. It just kind of looked a little off. So I was like, you know what? That seems like a nice to have. We're going to defer that for now. I actually ended up selling it in the same condition next owner decided to fix it, but they didn't have like a huge issue with it and it didn't really affect the sales price. So Michael: Did that issue show up on your exit inspection? Emil: It did. Yeah. Michael: Okay. The inspectors are consistent. Emil: Yeah, exactly. Sometimes you get two inspectors out there. One will miss something that the other one will point out. So there is like an element of the inspector. Michael: So hope that helps Alex. Our next question comes to us from Guesswork Investing from Twitter and Guesswork Investing would like to know what the real estate equity investments is. A percentage of total net worth are what total leverage we're taking and what size portfolio do you need before you can get rid of personal guarantees. Their understanding is that the bank can chase your other assets. If they cannot recover their principle through a foreclosure. Once you have a large portfolio, can you get a lender to lend purely against your real estate with no look through to your other assets? Okay. A lot of great questions. Emil you want to take a stab. Emil: Yeah, I think I can answer the first two and I might lean on you for that third one about personal guarantees. Cause I don't know much about it personally. Yeah. So real estate equity investments, as a percentage of my total net worth, if you include my primary in that it's probably 80% of our net worth. I would say somewhere around there. Michael: You're playing with fire is a private residence and investment Emil: It is 0% in investment. But if we're talking about real estate… Michael: Real estate holdings. Emil: Yeah exactly, like I'd probably say 80% of my net worth is in real estate. If we're talking about investments and we take out the primary, the primary is a big one. I live in Los Angeles. You know, there's a lot of you put 20% down on the house. So it's, it's a big chunk. So if you take that away and just look at real estate investments, I'd probably say maybe 40 to 50% of our net worth is in real estate investments. How about you? Michael: I'm on the higher end? I'm probably 90, 90, 93% totally invested in real estate. I've gone deep. Emil: This is a good like point we should probably dive into. A lot of people will say you and I are both extremely undiversified and we're all in on real estate and that's risky. And I have my own thoughts. I'm curious to get yours. Michael: Yeah, no, it absolutely. It's a perfect jumping off point. You know, I think that there's such a higher degree of control at the 10,000 foot level with real estate than as compared to the stock market. There is nothing that I can do to effect the price of Apple stock. Try as I may buy all the Apple products, support the company as best I can, there is nothing I can do to affect the outcome or price of the stock. Conversely, there are a whole crap ton of things I can do to affect the value and return I'm getting on my investment properties. Multi-families specifically single family, absolutely up to a point, but multifamily most definitely. And now somebody can make the counterpoint and say, well, yeah, but you can't affect market cap rates and you can't affect economics, market economics, upturns, downturns. That's absolutely accurate, but you know what? My property will never go to zero. I'm confident to say that ever, ever, never, ever, ever in a billion years go to zero. I could sell it for scrap wood and parts if needed, or I could just go live there. If things got really bad, I can't go live in a stock. And I have had stocks go to zero on me. So I'm a very big advocate of real estate. And I think that it can provide a significant buffer between you and ultimate downturn. What are your thoughts Emil? Emil: I like everything you said, the only thing I'll add on top of that is one thing you could say is we're diversified within real estate, right? It's not like we have one building all of our money in there and it's just like, you're beholden to this one property and everything that happens there. So there's some diversification across properties. You and I are both in multiple markets. So that's further diversification for anyone who has that like argument, I guess you could call it. The other thing is it's very hard to get really good at different asset classes when you're an investor, right? Like to get really good at real estate investing really good at stock market investing really good at, I don't know, whatever other types of investing for me, it's like, I want to get really good at real estate investing. And so that's just where I put a lot of my focus and attention. You know, we put a little bit of money, we put money in our 401k, some in the Roth and stuff, and those are just going to like index funds, right? So there's that we're diversifying a little bit there, but really the majority of our investment dollars are going to real estate for the things you mentioned. Like there's just so much more control. You know, other things we talked about on the podcast, right? There's other, you're using other people's money. Your, your tenant is paying down your principal, helping you build equity. And so like, to me, that's why I'm not really focused on like, okay, I only 30% real estate and then 30% of the stock market and things like that. Michael: Yeah. It just, it allows you to control so much more in value. Just like you mentioned using other people's money. You can go control a hundred thousand dollar asset for 20 grand or 25 grand or, you know, whatever it is and get the benefits of the appreciation on that a hundred thousand dollar asset. Versus if you want a hundred thousand dollars of stock, you've got to go pony up a hundred grand, unless you using options or something like that, which is well above my pay grade that I don't understand just because I don't do that type of investing. But so this is, I also think it's simpler. Emil: Yeah. I agree. Michael: You know, in the grand scheme of things, this is a very simple investment and it's very understandable. Anybody can go learn this. I personally feel like the stock market or equities market is just a bit more complicated and to do the research and all that kind of thing is just, it scares me a little bit. It doesn't make it wrong, better, worse, or indifferent. Just not for me. Emil: Yeah. I agree with you. Pierre: And that's not mentioning using a 1031 exchange to avoid capital gains when you want to trade out. Michael: Exactly. Exactly. Yeah. There are so many tax benefits to real estate investing that allow you to keep so much more of the earned equity earned appreciation that the stock market doesn't have. I mean, I don't want to get into opportunities zones or any of that kind of stuff, but that's another way around it. But again, it's an Avenue to get into real estate and out of the stock market. So I just found that very interesting Emil: Fun fact. I actually, I posted on Twitter a couple of weeks ago. The way I bought my first property was I had a couple thousand dollars, right. Couldn't buy an actual property. And so I put it in the stock market, got lucky, started investing in like 2012 and cashed out at around 2017. I mean, everything was going up. You could have literally probably put a blindfold on and just throwing darts at the wall. So I got lucky. I won't pretend like I knew what I was doing, but cashed out and ended up buying my first property. So fun fact there. All right. Next part of guesswork investing. This question is total leverage you're taking. So I have primarily take in 75 to 80% loan to value on my investments. Basically as much as the bank is willing to give me an investment property, they won't let you go lower than 20% for an investment property, I believe. Michael: Yep. I'm right there with you maximum. As much as they'll give me know, grow, grow, grow Emil: For better or worse. Michael: That's right. Emil: The third one, do you know more about like personal guarantee with lending? Michael: Yeah. I can speak to that a little bit. So it's going to be lender specific. So I work with residential lenders. I've worked with commercial lenders, all of them want personal guarantees even on the commercial space. So they're lending to an LLC, but they still want a personal guarantee. What you're looking for, it's called a nonrecourse loan and that's going to be your institutional, your Fannie Mae or Freddie Mac products, which are bigger loan sizes for bigger buildings. Those are non-recourse loans. There are also non-recourse loans that lenders will make to invest retirement accounts. So your IRA is your 401k is that you're investing in real estate. If that's something that you're doing anything that's, non-recourse means they're not going to come after your personal stuff. So it just got to ask the lender, Hey, are these recourse loans with these non-recourse loans? What your portfolio size needs to be is really irrelevant. It's going to be the deal that they're lending on specifically. And so I would go ask those questions of specific lenders. Emil: Awesome. All right, next question. Let's skip down to Michael Fabbrini. Good friend of Michael and I. And he was on episode 24, which if you guys haven't listened to go check that one out, he talks about how he bought, I believe it was three properties in two months or two properties in three months. I forget which, which order, but great episode. So Michael was asking, how should newbies be thinking about COVID and the rent forgiveness and eviction protection that government are offering. as a beginner to investment properties, the last thing I want are homes that are occupied, but not providing any income. Is there anything we can do to limit risk? Michael? You want to take this first step? Michael: Yeah, absolutely. So we're recording this August 4th. The gut additional stimulus is expired, I believe, as of July 30th or July 31st. So this is kind of unique timing for this question, you know, for existing tenants, you know, I frankly just don't think there is a whole lot. We can do. If someone decides to stop paying, there was an, a moratorium on evictions. So we can't evict people. And also now in certain States, there's certain legislation that's coming down about why you can or cannot evict somebody. I've heard that you can't evict somebody for nonpayment during the COVID times, now that courts are reopening, what you can do to limit your risk on the front end of placing new tenants is just making sure that they have a secure job, making sure that they have proof of employment, making sure that they have reserves in the bank to cover rent. If unfortunately they do lose their job. But so to my understanding, if you've got a current tenant in place, there isn't a whole lot, you can do to really protect yourself, try working with your tenants, putting them on payment plans. You know, letting them know that Hey, rent still is do right. Even if there's a moratorium on evictions, you are still expecting to be paid rent because you still have bills to pay yourself. And I think that there's this common misnomer or common misconception that all landlords are super rich and super money hungry and super greedy. And that you're the man, if you're a landlord, which frankly is, I don't think could be farther from the truth. We're people just like everybody else. We're looking to make investments and we're providing a safe and secure place for someone to live. And we also have expenses. We've got mortgages, we've got property taxes, we've got bills, independent of whether or not the rent comes in. And so when you can kind of level with somebody and just really humanize yourself and help them understand that, you know, it's a little business and for, in order for you to be able to provide them with a safe and secure place to live, there are bills that you have to pay. And if you're incapable of paying those bills that might affect their ability to remain in the home, it becomes a much easier conversation and frankly, a different conversation than landlord tenant relationship. It's more person to person at that point in time. Emil: I love that you mentioned that everyone kind of thinks landlords are super rich and stuff. And most mom and pop investors have a couple of properties and that's their income source, right? It's not like they're ballin' and they just have dozens and dozens of properties. Most people own a couple properties and that's their livelihood. So to just the only things I would add lean on your property manager, this is why we tout having such an awesome property manager. They manage a lot of homes in their portfolio or for all these different investors, right? So they probably have someone else's property that they're managing, that's going through the same thing. So they probably have a process for this and how they're managing it, how they're working with tenants. So I would say lean on your property manager, if that comes up. And the other thing, this is why we talk about having reserves, right? It's not just for things that break it's also for things like this that happened that you can't always guess when they're going to come. Right. Michael: So black swans. Emil: Yeah, exactly, exactly, black swans. So it's like, you need to have reserves for rainy day for all these things to protect yourself. And that's why it's so, so important to have reserves. So yeah, that's the only thing I would add. Michael: The best offense is a good defense. So that's how you protect yourself is by playing defense. Emil: Thanks coach. Michael: Put me in coach, just give me a chance . I would say the second part of Michael's question is that he's looking to get his feet wet with a bird project. And for anyone who doesn't know versus an acronym, it's B R R R R, which stands for buy, rehab, rent, refinance, repeat. And he's looking to do that locally, but saying that due to his local market and out a state would yield the best return. What are some of the best ways to find local wholesalers, contractors, and maybe a mentor who can assist? So I'm going to dunk on this here for a minute and just say, if you're looking for any of those things, come to the Roofstock Academy, we provide all of that and more I'm done plugging Roofstock Academy. I think it also has… in all honesty, Roofstock Academy is a great place to come learn how to do BRRRRs, how to get access to a lot of those things you're looking for. Building your team is so important. And your team can also consist of just other investors, you networking in that area, whatever state or market you're looking to go get involved in here's to get your thoughts and know, I find that there's no better way of meeting people. Then just talking to as many people as possible because people in the space talk and people in the space know each other and good people know other good people. I think it's one of the bigger pockets. Jason Green says rock stars and rock stars. So just talk to as many people as you can in whatever local market you're trying to get involved in. And just ask for as many recommendations as you can. And it's going to be a super iterative process of getting recommendations, interviewing people, talking to folks, realizing who's going to work. Who's not going to be a good fit. And then kind of assembling your, was it the goon squad or the tune squad from space jam? Emil: Tune squad. There you go Michael: Assemble your own local tune squad. Emil: Yeah, I think that's the way to do it. Let's say you have your property manager. Let's hear investing in Birmingham. You've found your property manager out there. You really like them, right? You think they're a solid team. And like you said, good people usually know good people, so you can ask them, Hey, do you know a wholesaler? Do you know someone? Who's got a lot of deals who maybe gets more distressed properties that I could talk to? I guarantee you, they have at least one or two people you can chat with, or if they don't, they can refer you to maybe an agent or somebody who knows where to find these certain things. Right? So it's just like going down the rabbit hole and asking each person you talk to, Hey, I'm looking for this. Who can I talk to? Hey, I'm looking for a good lender. Who should I speak with? And just like calling those people those, and you mentioned it. They're not always going to be awesome. You have to do your own interviewing, right? Like try to ask for multiple people, do your own interviewing, see who you gel with. See who kind of seems like they know what they're talking about versus doesn't and just kind of keep going down there. And in terms of mentorship or things out there, there's tons of case studies published online where you can look up out of state Burr and people will talk about the process they used. And then yeah, like Michael mentioned, we have the Academy, that's a great group. Michael's doing this personally. I'm starting to try to do it as well. So hopefully we'll have some experience to share. And there's, you know, there's just groups out there that people are doing this stuff and they can help you. So just go out and join some groups, talk to people, talking to people as you'll learn the most, you could watch a hundred hours of YouTube videos.. Michael: Or read a hundred books. Emil: Yeah. Versus talking to someone for three hours. I promise you'll get more out of the three hours in those a hundred hours on YouTube. I say that from personal experience. Michael: Yeah. Well, my problem is most of the YouTube watching is dog and cat videos. So I guess we gotta specify real estate related YouTube videos. So Ryan from Facebook is asking for the best sources of financing for an asset prior to getting it stabilized, rehab and tenants. So it sounds like Ryan, you might be looking for a construction loan because that's going to be something that'll allow you to do work on the property. And they're likely going to evaluate it based on its ARV. And that's how they're going to calculate the loan amount. But other than that, I mean there's hard money. So you can get money for an asset before it's stabilized. But most traditional lenders like to see stabilization. They want to see the finished products with high occupancy for quite some time. Some are even going to ask for your, they want to see it on your most recent tax return. So that could mean you have it stabilized for a year. Well, if you're trying to stabilize it, that's no good. But so I would just reach out to local folks. If you can, local lenders are typically going to be much more flexible than the big national chains. But if I understood your question, that's kind of the two ways I would go. I would look for local lenders that are going to give you either a construction loan or some kind of interest only loan on the ARV of that product once you have it stabilized. So I hope that helps. Emil: Only two other things I want to add there. Two other options besides a hard money and construction. Yep. First one is, go check out episode number 30 called how private money lenders can help you close more deals in less time. So you can check out there's private money, lenders, people who, you know, not banks or whatever who want to lend money and get a certain return. You can also ask friends and family their private money as well. What else? Oh, the second one outside of private money. I just learned this the other day with a call with a potential partner there's companies who do personal loans, right? For maybe you want to do a home improvement or whatever sofi being the one that we chatted with the other day and personal loans, like they're not verifying what it goes to. They're not like, okay, you have to use this money for this specific thing. So you could get a personal loan saying you're doing some home improvement. Actually go use that for some property investments. So you have to look at the interest rate on those. I think it's pretty high, but that's another route you could go down. There's personal loans. You can go get to do some of these projects as well. Michael: I have two more. I lied. I don't know what I was thinking when I said I'm done. Keep it going. But also think about 401k loans from yourself. They can be a really great asset source of cash to utilize. And there's also HELOCs which if you have a primary residence that you have an investment property that has a HELOC, that can be a really great source of funds. Or even thinking about… Emil: What is a HELOC for people who don't know? Michael: A HELOC is a home equity line of credit, which is basically just a line of credit against the equity in a property. So that can be a really another great source for you. And then the last one I think about too, is credit cards, depending on how you can pay folks or pay for things. And depending on how big of a line of credit you have in your credit card, that can be a really great way to fund things or float things. A lot of credit cards too, I just signed up for credit card has 0% interest for the first 12 months. So if I have an outstanding balance on that, I can basically carry that for 12 months interest free, which is pretty killer. So I think between what Emil mentioned and what I just mentioned, those are some great, great sources of funds. And I really liked that the friends and family ones, I think it's something that a lot of people don't about, but most people I'd say a lot of people know someone that has a little bit of extra cash that they're looking to do something with, but isn't sure what, and after listening to this episode, they're probably not going to go invest in the stock market. And so for more information on HELOCs give episode 29, listen to, we talk about the top four ways to turn your trapped equity into real estate investments. Emil: And yeah, one caveat about friends and family mixing money and family and friends, always hard, right? I would recommend this is just a personal preference. I would recommend you go do a couple of deals before you go and ask friends and family. I personally wouldn't want to be on the hook for botching something, you know, the first couple of year learning, I would not want to endanger those relationships with money complications on my first deal. So personal caveat and warning on friends and family. Michael: Yeah, absolutely. I mean, I, it's funny. I borrowed from friends and family from my very first deal, but I bought it very traditionally and it was turnkey property and we sat down and ran the numbers together. So it was like one of those situations where it was pretty tough to lose and everybody was comfortable with it. And so if that's the only way you can get into it, I would say just be very careful, be very careful to be very aware of what you're doing, because it's one thing to lose your own money. It's something else entirely to lose someone else's money and especially someone who, you know, Emil: And this, yours was your father. Right? Michael: Correct. Emil: In the first one. Okay. So I think immediate family is probably a little bit different. They'll probably forgive you a little bit more than maybe your cousin or like a friend. Michael: Right, right. Emil: But yeah, there you go see, it worked out for you. So not a hard and fast rule on what I recommended. All right. Next question. We have Leslie from Facebook. Leslie is asking, Leslie is Michael's uncle, we just found that out. Michael: That's right. Shout out to uncle Les! Emil: For my first investment property. Should it be a condo, single family, home, duplex or triplex? So this is a good question. I don't think there's a wrong answer. I think it's something we always talk about. It's a theme throughout every episode. It's do the numbers work. I think that's really it. If you can find the condo where you're making a good cash on cash return, that you're excited about go with the condo. If it's a duplex triplex, great single family home, whatever it is, there is something about just starting with one unit single family home condo that I think is an easier learning curve than going out and buying a 10 unit property your first time. But there's people who go and do that. And they're totally fine. Right. Maybe it's a little bit of pain in the beginning, but they learn a little faster that way as well. So.. Michael: Or they aren't. Or they they aren't fine. Emil: Yeah. They, aren't fine. Michael: They go down in a blaze of fire. Emil: That's true. They're like, okay. I took on way more than I can manage and I'm never going to invest again. Okay, I'm selling at a 50% loss. Michael: I think that's a super, I think it's a super great point is that it's got to fit for you as the personal investor. There is no one size fits all approach. And it also depends on what the investment market looks like. If this is something local, I know my uncle happens to live in LA, but for anybody else listening, if you can't invest in your local market and you have to go elsewhere, absolutely let the numbers do the talking. I'm a huge fan of the house hack if someone's going to be investing in their local market. And so if they want to have somewhere to live and invest in property, I think duplex or triplex makes total sense. Even a large single family home or a super large condo can make sense. And for an all of our listeners who might not be aware of how SAC is basically buying a property to live in. So you qualify for owner occupant financing, but also renting out the extra space or rooms. So buying something larger than you need for yourself personally, or for your immediate family or whoever's living with you. So if you buy a duplex, you get to qualify for owner occupant financing live in one unit, rent out the other unit, depending on how the deal flushes out, you might be able to live for free or even potentially be making some money every month. So that's pretty killer. So if someone's looking to invest and they can invest locally, or it might make sense for them to invest locally, or even if it doesn't make sense to invest locally, entertain a house hack. If that's something that's that you're open to, that your family situation will allow for it. Cause I think that is one of the best, what is it Emil a growth hack or a life hack? Emil: Yeah life hack. Michael: To get access to real estate investing in a really safe manner? Emil: I love it. That's a great addition, the house hack. Pierre Hey guys, I have a question. If I have enough cash to pay off my student loans yet I have a very low interest rate on my loans, should I use the money to pay a down payment and use the cash flow from the property to uphold my monthly loan payment? Or should I pay my loan off first and then buy a property? Michael: Love that question Pierre. Emil, I can see you chomping at the bit, go for it! Emil Ooh, that's a depends on the scenario question. I would probably… Michael: Let's preface this with, this is not professional advice. Go consult your tax and legal professionals. Emil: I would probably keep the student loan debt and go buy a property if I had the money to pay it off. Longterm, I think holding that property, having cashflow on it, having a tenant pay down your principal, letting the market do its thing, letting time and everything do its thing like waiting five years, right? Like let's say you pay down your loan and you have to wait another five years to save up to invest. I think you would have been way better off just investing, carrying that loan. Maybe the cashflow from your investment property now pays your monthly student loan payment, right? Like I would probably go invest that money if it's either or. Michael: Either or yeah, I wholeheartedly agree. I think that there's so many people in the financial space that talk about paying off your high interest rate debt first and then going to invest. And at the end of the day, let's just look at the math. Like let's look at the returns. If your interest rate on your student loan is at four and a half percent and you can invest money real estate and get 7% cash on cash on your money. That's a two and a half percent Delta that you just created for yourself. Versus just like you said Emil. If you go by, excuse me, if you go pay off your student loan debt, it might take you another five years to save up for that down payment. Well, at the end of that five years, you'll now have a down payment ready and no student loan debt. If we flip the switch and say, okay, we're going to buy the property and keep the student loan debt. At the end of the five years, you'll have likely paid down a significant portion of your student loan debt. And you'll have had a property owned that has appreciated over the last five years and pay down the interest on it. Is it the principal on it and taken advantage of the tax benefits? So I just think as long as you can make more money in an investment, it makes sense to hold onto debt and use the money you're making from the new investment to pay off the old debt. And that's just called arbitrage. That's what banks do. Banks will lend out money at 5% and only pay 1% on the money that people are giving to them to hold on to. So that 4% spread is where they make their money and then all the loan processing fees and garbage, that kind of stuff. But it's at its essence. Arbitrage is that's just, all it is, is arbitrage. You're making the spread. And I think that it's a super, super killer way to go. But again, just like you said, everyone's got to look at their own personal situation and decide, you know, what's gonna make sense for them. And the low interest rate stuff, it becomes pretty easy, but as interest rates start to creep up, that decision becomes a bit tougher. Emil: Yup. Pierre: So as long as your cash on cash return is greater than the interest rate of your loan, your outstanding loan, it can make sense. Michael: I think so. If you could take 20 grand and put it into a house and make 7%, you take that same 20 grand to go pay off 4% interest. I'd say you're better off making 7%. Emil: That cash on cash also is not accounting for again, principal pay down from your tenant, paying your mortgage and the tax benefits, right? So reducing the amount you owe to the government. So there's all these amazing benefits that we talk about. So Michael: Yeah, the total return of investing in real estate is much bigger than meets the eye. Emil: Yep. Pierre: Cool. Thanks. Michael: Totally, great question. Yep. Emil: All right. I think with that, we're going to wrap up this episode. Thank you guys so much for tuning in. If you haven't already make sure you go subscribe wherever you listen to podcasts, you get notified. When we release new episodes, we're doing about two week right now. Hope you guys are enjoying all of them. If you guys have questions, submit them to us. We're happy to keep doing these AMAs. You can message us on Twitter. So I'm @Emil Shour and Michael's @ Albaum Michael, you can email us. I'm Emil Shore eshour@roofstock.com. Michael is malbuam@roofstock.com and just submit questions and, we'll keep answering them and tackling them on future episodes. All right, happy investing. Michael: Happy investing.

7 Insider Tips to Get The Most Out of Your Property Manager

Play Episode Listen Later Jul 30, 2020 41:08

In this episode, Tom and Michael chat with Matthew Whitaker from GK Houses about what it takes to have effective property management and how investors can set themselves up for successful relationships with their PMs. --- Transcript Michael: Hey, everyone. Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today I'm joined by Tom Schneider and Matthew Whitaker with GK Houses, Matt and GK Houses is one of our preferred property management partners at Roofstock. And so we're going to be talking to Matt today about what it's like to be a property manager. What are some things that we as investors can do to make their lives easier? And give us a little bit of insight into what a day in the life of a PM looks like. So let's get into it. Theme Song Michael: Matt Whitaker. Thank you so much for joining us today. Really, really appreciate you taking the time to be with us. How are you doing? Matthew: Yeah, I'm doing great. I'm excited to be here and excited to do this with you. Michael: Awesome. And you're down in the Southeast, right? Matthew: I am. Yeah. I'm in Birmingham, Alabama. That's where our corporate office is and we're in eight different markets. So we're in three markets in Colorado and then we are also in Birmingham, Nashville, Atlanta, Chattanooga, and Little Rock. Michael: Awesome. Awesome. And for those of our guests who might not know you, can you give us a little bit of background about yourself on GK houses, help everyone get to know you a bit? Matthew: Yeah. I'd love to some, the CEO of GK houses. I started it about 13 years ago during the last recession. And during that kind of, 07, 08, 09 time when the market crashed, I owned about 30 rental houses at the time and had a hard time selling those once the market crashed. Most of those were in the low to moderate income world and the ability to sell that went away. And I started a property management company, converted all those 30 over into rentals and was able to get some of my investor buddies to also let me manage them. So I got up to about 70 houses pretty quickly, and that was kind of how I lasted through that recession through 08, 09, 2010 was by managing homes in about, we also were selling homes. So we were doing some turnkey stuff at the time, kind of original before it was very popular. And, but in 2013 we really started off focusing on the management business. And we decided at that point we managed about 250 homes right here in Birmingham. And at that point we decided that we wanted to get to 25,000 houses under management. And so we've been growing that ever since 2013. And today we manage somewhere around 26, 2,700 homes in those eight markets that I talked about earlier. Michael: Great. And did you have any personal management experience in the real estate arena or did you go straight from owner to manager? Matthew: I always swore I would never be a property manager or a real estate agent… Michael: You're in good company. Matthew: And a lot of companies did that same thing. Yeah. And so never, never say that to yourself, but now I'm a real estate agent and a property manager. And so I managed my own homes. So I had been doing it ever since I first got started, even my first house I ever bought, I still own, and I have rented it ever since. And that was a disaster story. So it's amazing that I'm in the property management business. So yes, I did have a little bit of management experience. I had been in the buying and selling business for about seven or eight years. So I was very familiar with what a manager did. I had some other third party managers that manage some homes for me for some time and found all the things that I didn't like about a property manager. And so I decided to just do it ourselves, with GK Houses. Michael: That's great. I love that. You've got that personal experience that you did it for yourself and then went into business, helping other people do it because it just shows that you understand the business kind of from the ground up, which I think is so huge. And you're able to treat the rentals as if they were your own. Matthew: Yeah. There's nothing that replaces knowing what it's like to have a $500 bill come through, or a $2,000 air conditioning, a replacement come through where you're expecting that cashflow to pay the mortgage. And now all of a sudden you've got to figure out some other way to pay that mortgage. So it definitely gives us empathy for our owners. And that's something that we've tried to communicate and teach to the team members that work for us is, you know, and I'll often say to them, what if on Friday you found out that I was going to pay you $500 less with your paycheck. And they, you know, that would be disappointing to them if it was a surprise. And that is the same surprise that we were calling up from time to time. And unfortunately having to deliver bad news to owners because inevitably things are going to break when an owner buys a rental house they're in business and you're going to have expenses for that business. And so we've learned a lot over the years about having reserves and making sure that you can afford to pay for the lumpy expenses that are in this business, but it still requires a bunch of empathy from our team members when they're communicating with owners and having deliver, you know, have tough conversations. Michael: That's great. Tom: You touched on reserves. I'd love your thoughts, Matt, on, you know, what do you think an appropriate like reserve level is? Matthew: Yeah. If I was in new person getting into the business and I bought a foot, let's call it a fully renovated home. I would probably stay about. And obviously depending on the age or the vintage of the house, I would stay about $3,000 out. So I would keep at least $3,000 available at all times. And then as I got to a bigger portfolio, obviously the per house number would come down because you could dilute that across the portfolio. But getting started, I would say somewhere around two to $3,000, just available to make sure that it doesn't affect your lifestyle. And if you do have one of those expenses that comes through Michael: And in that same vein, most lenders are going to require a cash reserve amount for PITI. Would you consider that a couple thousand dollars to be that same pool of the reserve bucket? Are you saying above and beyond this? The reserve? Matthew: Yeah. I'm just talking about expenses and then capitalizable type items. I mean, I may even start as you started to build a portfolio and this is one of the reasons I always tell people don't buy one rental house. I mean, certainly try it on dip your toe in the water, but it's way easier to own 10 rental homes than it is to own one because you all these expenses start to get diluted amongst your cashflow of your portfolio. And then it doesn't become as big of a deal when you have a $500 bill come through. If you have a rental house, a $500 bill comes through, you're literally writing a check out of your back pocket. Sometimes if you have 10 rental houses and a $500 bill comes through, it's just another number on your statement. And you're just calculating your return based on that. So I think of that in excess of that, I'm just thinking of, in terms of repairs and maintenance, Michael: Tom like you always say peanut butter spreading that across. Tom: Peanut butter spread the risk. I love that quote yeah, 10 properties, a lot easier than one property. Matthew: It is, and absolutely if you're not having to manage all of them, any, even if you are, obviously you're spreading that risk across multiple residents with different jobs and different industries. And if somebody invests through you, they can even do it across different markets. So 10 seems to be the magic number in my opinion. Michael: Great Tom: perfect segue talking about, you know, as long as you're not managing it, and let's talk in a little bit about the roles and responsibility of a third party property manager that you would hire, what are the different things that services that they would provide in the process? Matthew: I really think the services of a property manager fall into two buckets. There is the accounting bucket and the communication bucket. And obviously under that communication comes execution, but let's talk about accounting first. Part of our operations is accounting for our homeowners. We want to make sure that the money comes in on time, that the resident's abiding by what the lease term says in terms of money paid. And so we're going to kind of hold the resident to making sure financially that house is getting taken care of. And then we're going to account for all the dollars that come in and of course paying any expenses that we need to pay out of that money that comes in. And then the other side is just operations and communication around those operations. We're obviously going to make sure that the house is taken care of. One of the interesting things, especially around small multifamily and single family. There's a lot of logistics involved in that. I always say it's a communication challenge and a logistics problem. So it's about, you know, having a one house, one owner or one vendor, you're always communicating with somebody. So you need to be really good at communicating. And our property managers become more like air traffic controllers. They're making sure the vendor knows where to go. What time to be there has the resident's information. The resident knows that the vendor's coming. The owner knows that there's a problem at the house if it exceeds a certain amount of money. And so you're having to keep all of these people in the loop and make sure that the planes aren't running into each other while you're that. And so, again, it just boils really down to accounting and making sure that I's are dotted and T's are crossed and then operations and communications. Michael: Matt, you said something that I want to circle back to that the owner knows if there's a problem, if it's above a certain dollar amount. So from folks who have never purchased a property, what do you mean by that? And why is that important to highlight? Matthew: Yes. So you hire a private manager to basically take care of the problems and you don't want to know that something small has happened at your house. That's not really going to affect your lifestyle. It's just kind of brain damage for somebody to call you over a hundred dollar issue. So we have, what's called a $500 kind of threshold. And if one of our maintenance guys goes out there and he sees that this thing's going to exceed over $500, we're going to contact the owner before we do anything and provide them an estimate. But if it's below that $500, we're generally just going to take care of that issue. And then the owner's going to see that happen. You know, see that payment on their statement. You hire a property manager and you will be circled in on all the big issues, but we want to handle all the small issues. That's why we feel like you hire us is for a turnkey solution, not to have to sweat the small stuff. Michael: Awesome. Thanks for clarifying and Matt, in your opinion, you know what separates the good from the great property managers? Matthew: Yeah. We go back to accounting and communication again, getting the numbers right. Is so incredibly important and you'd be surprised at how many property managers get that wrong. The other, again, communicating, it's so hard in our business to communicate and trying to make sure as an owner. And of course I was in this position. So I know exactly how they feel. If you don't know what's going on, it's not like you expect the best is happening. And so you want to make sure that you're clearly in the loop and you have the confidence and the trust of your property manager, that if something bad is happening, that you're going to be well aware of it. And also communicated with what we call uncomfortable transparency, which means I'm not going to withhold information from you to make it easier to tell you or more palatable or, you know, easier on me really, because I don't want you to get mad at me. So we want to make sure that we're giving our owners the truth. And we call that also entering into the danger and telling them, being willing to tell them exactly what's going on with their house so that they, if it is a big issue, they can make the best decision for themselves. And also try to remain as objective as possible when we're communicating, because money can be very emotional for people. And if we can kind of steer them towards the best solution, then we want to make sure that we're doing that based on our experience as a property manager, you know, we do have the benefit of, and especially in the South right now, it's getting really hot and air conditioners are breaking well. We have the benefit of knowing that air conditioners break and things we've done in the past and mistakes that we've made in the past. So, you know, when it becomes a, should I spend 600 or $700 to fix this air conditioner and it may last another couple of years or a $2,000 replacement or a $2,500 replacement. Well, we can give them kind of some objective advice based on what we've seen in the past. And then the owner can make their own decision based on that information. Tom: That's a great example of being proactive in informing the most decision and using some of the information that you guys have as an investor. We want to get the top dollar. We want to manage the least amount of vacancy as possible. What were some things that you would advise that the owner, the investor can help achieve those? Matthew: Yeah, the biggest expense and investor's going to have is turnover. You know, you can have a picky tenant that calls in a lot of maintenance work orders, or it feels like they're calling in a lot of maintenance work orders, but truly turnover in my opinion is the biggest expense you have. I think of it and you played football, Tom. It is like going in to score a touchdown. And instead of you throw an interception on as you're about to score, and then they run it back for a touchdown, it's like a 14 point swing that somebody moves out because, and the reason I say that is not only do you have loss of rent, so you're not having money come in, but you're also having to pay money out on deferred expenses when that happens. And so it's very important that you keep residents in homes and the way you do that is you do it through good communication with the residents. You do that through handling maintenance work orders. One of the things we found was our residents started staying longer when we internalize maintenance because our maintenance team is not out there just fixing a problem. Our maintenance team is tasked with making the resident happy because they're a GK team member. And so if you think about kind of the change in that, if a maintenance team member thinks his job is to just fix something, well, that's a problem if ultimately in the owner's best interest is that resident staying alone time. But if the maintenance team member is out there with the idea, I want to make this resonant as happy as possible, then it makes the resident happy. It's in the owner's best interest because the resident stays a whole lot longer. Michael: That's great. Tom: Oftentimes decisions, especially those big decisions that you'll make with an investor it's the repair or replace, or do we want to focus on vacancy or rent growth? And I don't know, I guess one of you just elaborate a little bit on those two important decision points that can make or break deals. Matthew: Let's talk a little bit about rent growth, because I think what I've always thought of it, the way I mentally look at it is staying a little bit behind the curve. Like I don't want to be on the bleeding edge and I don't think investors want to be on the bleeding edge of pushing grants. And I know there's some institutions out there that will actually do that for us, I think. And I like to stay a little bit behind the curve because I think it's so important that that a doesn't move out. I don't want that resident to feel like they can get a better deal somewhere else. And so what I like to do is stay a little bit behind, but definitely be in tune with rent growth and be focused on it. In our leases, we have some rent growth built in, but that also gives us the ability to go to the resident and say, Hey, you know, the owners being very generous, wants you to stay another year and has decided only to raise it 1% instead of the three to 5%, which may be in our lease or even better, they've decided not to raise rent. And because, you know, they think you're an awesome resident and normally they would raise it 5%, but they're not going to raise it at all. So it gives us the ability to even if you only raise it 1%, it gives us the ability to basically say, Hey, the owner's doing you a favor because you signed up for three or 5%. Michael: That's great. I think, yeah, like you mentioned Tom investors where they want top dollar and you know, as much as we can push the envelope, we'd like to, but that's really great advice. Cause I think something that I chat a lot about with Academy members is when it comes to pushing rent is do the calculation, do the math for if this tenant leaves and you've got three weeks of vacancy, what does that cost versus what do you stand to make with the 10, 15, 20 bucks a month? You're going to increase the rent. The math kind of works itself out pretty clearly. Matthew: Yeah. I would think if I'm an investor and I am on a number of rental homes, I think in terms of seven to 10 years, how can I maximize the most amount of money over that seven to 10 years? Not now. And this gets into having reserves too, because if an owner is making short term decisions is going to affect his or her longterm seven to 10 year plan then, and that's a problem. If you have reserves, you can make clear objective decisions based on how much, what the best longterm getting the most money in over that seven to 10 years. And so I think as your clients and investors operate, they need to be thinking longterm because this is a, this is not a get rich quick game. It is a consistently make good decisions over the long period so that they can over the course of owning that rental home, whether it's seven to 15 years, then they end up in a much better place. Michael: Tom, Matt set you up so nicely for your T-ball swing. What do you like to say? Be what? Tom: Oh, longterm greedy, be longterm greedu. Matthew: Yeah, that's great. Michael: Matt, I want to ask you a question about property management fees specifically around vacancy. And I get the question a lot in the Academy that says, Hey, you know what? It seems like property managers, aren't incentivized to actually keep tenants in place because of the new tenant placement fee being 50% or 75% or a hundred percent of one month's rent versus a lease renewal is typically less. So what would you say to someone that had that question? Matthew: Yeah, I think it's a great question. You definitely don't want to incentivize your property manager to do something that's not in your best interest. And so when you're thinking about property management fees, what I would tell somebody is make sure that the fees are in line as well as you can with your incentives or with the incentives of the property manager, because you just don't want anybody to have to make this kind of moral decision that affects their income. And so what I would say is the way we look at it is we do need to make money when we're leasing, because we do a lot of work. The way we look at GK Houses is we want it to be an annuity business for our owners and for us. And the way to do that is to keep residents in homes. And that allows us to do certainly we're doing a lot of work while the residents in the house, but as soon as that resident moves out, I mean, it's like a full time job trying to get that home back on the market as quickly as possible. And so we often talk about, and we've structured our fees so that we don't want people moving out. We want to build this big annuity snowball. And so to me, you need to make sure that your property managers fees align with your interests and your interest of being an annuity. So I would say incentivize the manager to renew the lease over a leasing fee. Now the leasing fee may be higher, but what kind of work did they have to do to earn that? I would much rather earn a couple hundred dollars, 200 $5,300 renewal fee that is, that, you know, requires two to three hours worth of work versus the, you know, maybe 20 plus hours of work. I would pour it into a turn. Michael: And can you give somebody who's listening a real high level overview of what work does go into a turn because I think that's such a great point is there is so much work that goes on into placing a new tenant, but that goes on behind the scenes. Most folks don't have any idea. Tom: The Duck's legs under the water. That's another episode where we riffed on that for a minute. So, sorry. Yeah, go ahead. Matthew: Well, we think about this about 60 to 90 days out. So we're trying to renew the resident almost, you know, six to eight months into their lease. We're trying to do it as quickly as possible. And so when they submit their notice and they start to move, you know, we start communication. So we communicate with the unit or, Hey, your resident is submitted. Notice just wants you to know. And then we give them an idea of what we're going to do when they move out. When the resident finally does turn in keys and moves out, we're going to do, depending on the market, we're in, we're going to do a walkthrough. And generally that happens not the same day, but within 24 or 48 business hours of that resident moving out. And we do a full writeup with pictures and it is amazing how many pictures we take, but we really feel like this is part of taking pictures, is communication with the owner. They can see the pictures and kind of feel what the house looks like. And then one of the things that owners forget is we also have a requirement with the resident to account for their security deposit. So we have all these logistics going on and all this communication with the resident and communication with the owner, we send out a statement or an estimate, the owner that basically dumps all the expenses into three categories. One is these are the expenses we want to charge the resident for anything above normal wear and tear. So, you know, if the carpet has been lived on you can't really charge a resident for that because you expect the carpet to be lived on. But if there's a hole in the wall for some sort of misuse, or you can tell that the home has been misused there, we're going to charge that resonant for that. And then there's a column that we say are required repairs. And so required repairs are, there's a hole in the wall and we need to fix this before the next resident moves in. You just can't leave a hole. Nobody's going to rent a house with a big hole in the wall, or then the next column is recommended. So maybe there's a room that is kind of in between. It's kind of in a gray area. May if you paint this room, it's going to run faster or you're going to rent it for more money. But if you don't paint it, then it's not going to keep us from renting. So we divide our estimate into those three columns and we'll send it to the homeowner and the homeowner will either approve the required or add on the recommended on top of that, and then approve whether the resident's security deposit. They're happy with how we account for that. Then we have to basically do the accounting of the resident security deposit and then mail that to the resident. Now, oftentimes sometimes the resident disagrees with how we accounted for that. And the resident obviously did a move in when they, when they, and we did a move in before. So there's some time there's some kind of go back and forth between them and us on it. Was this a definitely misuse or was this like this when you moved in? And so sometimes when we inherit leases, we deal with some issues with that, but we do a really good job of a moving walk through. So we have pictures of the house before it moves in and we can easily compare those to the move out, walk through. Then once we we're done with the resident and everybody's happy there simultaneously, we're going back and forth with the owner on the work that needs to be done to get the house on the market. And to me, owners love speed. And so that's one of the things we try to do is there is an anxiety that happens with an owner as soon as that resident moves out, that money stopped coming in and the expenses start, but it also makes an owner feel better if it gets done very quickly. So we're trying to renovate that house, turn that house as quickly as possible, and then put it back out on the market as fast as possible. And so, you know, depending on how long it takes to do the work, you know, our goal is to get that house back on the market, just literally as quickly as possible. And the only downtime being the time it takes to get the work done. We also start pre-marketing. So we try to start building some excitement. Some of our markets, we actually pre-market even when the residents about to move out, I just kinda made it hard recently with the pandemic, but you know, kind of a normal world will pre-market and we've been leasing a lot of homes. We're starting to use some video tours. We're using a Matterport camera and we've been pre-leasing homes without people actually even walking through them. We've done a really good job with these Matterport cameras. And then again, getting it out on the market and getting as many people through it. One of the things that we found though, is if you take somebody through and the work's not done, sometimes there is a misunderstanding of what work needs to be done or what work is going to get done. And there's some disappointment from time to time. So we like to get the work done first, build the excitement, and then generally your first people through are your best opportunities to rent that house. Cause there's a, they feel that sense of urgency. And then we signed the lease and hopefully they move in as quickly as possible so that we get the rent coming back in and stop the expenses from flowing out. Tom: I had like two questions I was going to, but you kept hitting him. I was, you know, I was gonna ask, Oh, you know, what changes have you guys made with the pandemic? And that's cool. So you guys are doing video tours and Matthew: Yeah, we're using a Matterport camera now, which is basically you set it up in the middle of the room and it allows somebody to virtually walk through the house and it is really cool and it shows it's got a fish eye on it, fisheye camera on. It allows people to really see what it's like to live in that room. And the other thing is it's really a touchless and we're not using leasing agents as much as we did any more. Now, some areas are starting to let some leasing agents back. Colorado's allowing us to use leasing agents again, but it's still a opened the door. Let somebody go through and kind of obviously socially distancing the whole time. But we also use Rently a lot boxes on our homes, which allows a resident to check themselves in with a credit card and their ID. And they can go through the home by themselves without us having to be there. There's some, obviously some accountability and the fact that we have a credit card and we have their ID and we know who they are, we have their cell phone number, but then we're proactively following up. So one of the things that we found in the past, we went a little too automated where we wanted somebody just never to talk to us to the point where they just leased our house without ever talking to us. But now we've found that proactively reaching out and talking to somebody on the phone, right after a showing, is that great way to get somebody comfortable enough to submit an app. And we're receiving right now, somewhere around three in some markets and somewhere around five times as many applications, part of that is pandemic driven. I think there's a move right now from multifamily to single family, just cause people don't want to be on top of everybody, but in part of it is the summer, but we're more occupied right now than we've ever been before. Tom: That's really interesting. Michael: Yeah. Very interesting. Matt a question. I get a lot in the Academy, especially of folks who are looking at Roofstock inspections is I've got all this repair work that needs to get done. Is this something that I have to do that I have to coordinate? Or is that going to fall on the shoulders of the PM? Are they able to assist in helping coordinate that work repair work to be done? Matthew: I can't speak for all PMs, but I love it when we do the work in full transparency. So we do make money when we do the work as the general contractor of that work. But when I can control the process for the owner and I can control the communication and I can control what gets done and I have vendors that know how I work and I can get them in and get them out. I always think of it again, it says value and speed. I can get it done so quickly and there's not a lot of coordination and communication. If you're in a market, you could certainly try to do that because you may have the time, the drive over there. And it makes sure that the contractor is getting the work done. The biggest challenge we have is contractors and relationships with contractors. So for somebody to remotely hire a contractor and get the work done for not only cheaper, but on time and all their work done appropriately to me is just too big of a risk to take. And what ends up happening is they end up putting the burden on the property manager to go make sure that we're gets done. So then it ends up costing them more because we're going to charge them for some of that oversight. So we just say, look, just let us handle it. And we're happy to give people an estimate to get that work done. And then we'll contract it out to the people that are vetted vendors that are insured. And if somebody falls off the proverbial roof, then they're not going to Sue you. And so we just think it's in the owner's best interest to let the PM handle that. Michael: Great. And what would you say the most difficult part of being a property manager is what do you wake up everyday and go, Oh man, Matthew: Not to use another football reference, but I am going to, there is no Superbowl in our world. There's no, we won the super bowl and now we can take two or three weeks off when the 31st hits and we collect a hundred percent of our rent. The first comes the next day and then all our rent's due again. And owners need to know this too. It is a thankless business. The whole point of the job is to deal with problems. And so when you're communicating with your property manager, you need to know that they are doing nothing but dealing with the exceptions, all the problems that have happened that day. And so I have a lot of empathy and sympathy for my team because it is hard. You have to keep them excited and it's hard not to get burned out. And so when an owner gets mad or a resident gets mad at them, obviously that takes an emotional toll. And generally our PMs are not the ones that made the mistake or when something happens and listen, we're people, we're human. We try to execute as well as we can, but we are going to make mistakes. But when an owner kind of takes that out on a PM, because that's the person they see as kind of the face of the company, you know, that takes an emotional toll on people. So the whole, and when you're communicating with a resonant about not paying rent, you're talking to them about their home and the money, you know, money it's, everything emotionally is tied into this one thing that we're doing. So we have a lot of hard conversations. And so that's, what's so hard about being a PM. And I would say, that's, what's so hard about self managing too, you have the ability to be objective in an emotional situation? Going back to the first rental house that I bought, I had a six month kind of agreement with an insurance company on a house that had burned down or somebody's house had burned down and they moved in for six months. The insurance company paid me additional money over above what I was asking. Well, the house person was living in the house. Couldn't afford the house normally. And when their house wasn't ready, they'd never moved out of my house. And so here I am self managing I'm 23 years old, and I need that money. I am very emotional about needing that money. And so I was probably the worst person to be dealing with that situation because I was overly emotional making bad decisions. Here I am. This is my first rental house I got paid for six months. Everything was great. I thought I was a real estate guru. And all of a sudden, now my resident's not paying, I'm paying a mortgage and it's not like I just have tons of money left over every month. And so I was just in an emotional place. And what I would say is, if you can't be objective, you can't treat that relationship like a business or even worse. Maybe you do have a lot of money or the ability to float things. And you allow things to go on too long because a resident may tell you a story. You know, it becomes very hard to be objective in those situations because either you're emotional about your own finances or you become emotional about the resident situation. And it really is like running a business. Well, listen, we do have a lot of sympathy and empathy for our tenants. We're very resident friendly, cause we know we want them to stay a long time. We want good residents to stay a long time, but you also have to be very objective when you're dealing with them. And, and so if somebody can't separate themselves from the situation, it becomes a lot of conflict. You know, personally, you're not going to do the right thing consistently to self manage. Michael: I think that's such great insight into property manager, being a thankless business. You know, I personally am going to make this admission on the podcast. I don't think I've ever called my property manager wants to thank them for a full rent collection month, but I know I've called them and asked why the rent was late. So less than to everybody listening go, thank your property managers for the good stuff. Don't just highlight the bad stuff. Matthew: And we do have some owners that are kind enough to thank us. And we do have some really great owners, but you're right. I mean, the expectation of the owner is full rent collection and no expenses. So as long as that happens, Michael: Right, right. Matthew: The bar is at a hundred percent. Tom: Everybody's good. Matthew: So anything below that is us not meeting expectations, even though, you know, it's not our house. If the toilet breaks, I've never used that toilet. Right. It wasn't you. Right. But I do understand too, that it's kind of funny, like an owner may move out of the house and then a new resident moves in and immediately owners because they are emotional about, especially a house that they lived in and owner will become very well that toll, it never broke when I was there. And I'm like, well, I don't know what to tell you. Michael: I don't know what to tell you! Tom, You got any more questions? Tom: Yeah. I guess, you know, kind of continuing on this theme of, you know, helping this thankless job, how would you say investors could help put their property manager in a better position to be successful? Matthew: One of the things I would say is around communication is a lot of people want, expect like an email to go out and then an immediate email to come back and we do have RPMs or full time communicating. So we do have the ability to do that, but there are times when they need to be a little flexible about how fast we get back to people, because we do have other fires that are raging from time to time that a PM may be very focused on getting another owner's property fixed. So just having a, you know, not an unrealistic expectation around how fast we're able to get back with people. And look, we that's. One of the things that we measure is we do measure how fast we get back with people. So we are getting back with people fairly quickly. The other thing is, again, having reserves really helps us out because it gets us into a situation where we're doing the right thing. We're playing the odds. We're placing good bets with these homes and allowing us to help you manage for the long term. So those are two things an owner can do. And then also when they do communicate with us, I know you're going to get frustrated when something happens bad and look, we're frustrated too, but know, it's every bit as hard to make that phone conversation and make that phone call and just know that the PM has been dreading calling you and telling you that there's this $500 expense or whatever it is. And so just having some empathy for that person that is making that phone call is helpful and being problem solvers together. Let's Hey, we're on the same team. We didn't cause this problem, but we're going to both fix it as teammates Tom: Love it. Michael: It's such a good point about around the communication timing. I was chatting with a student in the Academy. I won't say from where I was just say it rhymes with smooshmork. And they said, you know, I can't deal with this property manager. I said, what happened? He goes, well, I emailed them 20 minutes ago and have her back. I said, well, that, that might be how you're used to communicating, understand that it's different around the country. And so what I was recommending folks is just ask, when you're chatting with property managers, vetting property managers, ask them what their communication style is and ask them what a reasonable response time is, because the expectation should be set on the front end. Matthew: Other thing I would add around communication. If you start to get up to, let's say five to 10 rental properties, what you need to is set up a regular monthly call with your property manager. We have found these calls to be so helpful. Again, getting back into being objective. You really solve problems together for the longterm. There's no emotion around it. There's no surprises when you have five to 10 rental properties and it's worth the manager spending an hour with you and kind of making sure that you're on the same page on a regular basis. It would be hard to have those calls for anybody below five houses let's say. But if you're starting to get up into five and continuing to grow, it makes sense for you to have a regular monthly call. And if you get to a point where you have 20 to 25 houses, it may be a weekly call that you would want to have. But I can't tell you how these regular calls have really helped us with our communication with owners, because you're not just hearing about the bad problems. You're also hearing, Hey, we collected this. We collected that. And you're starting to kind of get a better picture of what your portfolio is doing. Michael: I've got to go set up weekly call. That's a really great idea. Tom: I know. I love that as a takeaway from today's session... Yeah, I love that. That is a great idea. I really like that. Michael: Tom, you got anything else? Tom: That's good for me. Yeah. That's super insightful. Michael: Love it. Awesome. Well, Matt, we've got some quick fire questions. We'd like to end our episodes with, if you don't mind, it's kind of a yes, no one answer to the other. Matthew: All right, I'll do it. Alright. Michael: So high rent growth or low vacancy? Matthew: Low vacancy. Michael: Angry resident or angry investor? Matthew: Ooh, Whats C?. Yeah, definitely angry resident. Although none of those are fun. Michael: Cashflow or appreciation? Matthew: I am a cashflow guy. Michael: Concentration or diversification? Matthew: I am a concentration guy and I think this is an important thing too, is probably a good nugget for the people that are going to be listening to this, become an expert in an area. First, in my opinion, before you try to diversify too much, I have found that when you become an expert in one area like a Birmingham or even a neighborhood in Birmingham, then you are way more successful at buying than trying to diversify and not being an expert in one area. Sorry. That was more than one word, but.. Michael: No, that's super great insight. Super great insight. Local or remote investing? Matthew: I think you can do both with technology today. I mean, I would hate to say one over the other because I think if you have access to all the technology that I have living in Birmingham, so it makes no sense for you living in California or in New York or wherever you're living, not to invest in Birmingham because I have the access to the exact same information as you do. Michael: Great. Single family or multifamily. Matthew: I'm a single family guy. I think, I think the best opportunities and the biggest opportunities to exploit what is still incredibly inefficient market is in the single family world. I think your points about like the pandemic people wanting a little bit more breathing room, like single family, really great way to go. I'm telling you, Tom we're at over 98% occupied. I've never been on. I've been doing this now almost 13 years. Never been that high and never gotten the amount of applications that were getting approved residents. Great residents are moving into our homes. It is really a good time to be in the single family world. Great turnkey or massive project. Definitely turnkey. Okay. Text message or email. I'm a text message guy. My emails, I forgot like 50,000 unread emails. That's a true story. I can, I can show you. Michael: That's great. Last one. Olive oil or butter? Matthew: I'm an olive oil guy. Tom: Love it. Awesome. Michael: Awesome. Well, Matt, thank you so much for taking the time to view with us today. If folks want to reach out to you at GK houses, you know, what's the best way someone can get in touch with you or someone on your staff? Matthew: Yeah. I would say email me, but obviously… Tom: The jig is up! Michael: 50,001, right? Matthew: Listen. The best email to email is support@gkhouses.com and we are monitoring that through a help desk type system. And then that'll get assigned to the right person in our office that can handle that. You can also look us up online and call any one of our offices. So we're a Roofstock preferred vendor in Atlanta and in Birmingham. And am I allowed to say the other two coming down? Tom: Of course, growing markets all the time. Matthew: So Little Rock, y'all are in Little Rock now and we're also a property manager there. And then we had a conversation with one of your team members this week about y'all are opening up in Denver, which is super exciting. So glad we're going to be a preferred vendor there too. So just y'all are growing and allowing us to grow right alongside of you. So we appreciate you so much. Tom: Onward and upward. Matthew: Yeah. Tom: Thank you so much for coming on Matt. Matthew: Yeah. Thank you for having me. Michael: You got it, take care. Michael: Okay. Everyone. That was our episode. Thank you so much to Matt Whitaker for coming on today. Really, really appreciate it. If y'all liked the episode, feel free to give us a rating or review wherever it is you listen to your podcast and we look forward to seeing you on the next one.

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A Deep Dive With a CPA to Uncover All The Tax Benefits of Rental Properties

Play Episode Listen Later Jul 17, 2020 24:47

In this episode, we have Joel Jensen from Tax Sentry explain exactly why real estate is so powerful when it comes to tax benefits. --- Transcript: Michael: Hey everyone. Welcome to another episode, The Remote Real Estate Investor, I'm Michael Albaum. And today I'm joined by Emil Shour. And today as our guest, we have Joel Jensen from Tax Sentry, and Joel is a tax expert and guru, and is going to be talking to us today about what we as investors need to know about income taxes and how to strategize and plan for our taxes so that we can come out ahead. So let's get into it. Theme Song Michael: Joel, thank you so much for being here. Really appreciate you taking the time. Joel: Sure. I love to be here. Michael: Awesome. So can you give all of our listeners a little bit of background about yourself and how long you've been working in the tax space and kind of what you've been doing? Joel: You bet. So I graduated with my master's degree from Brigham Young University in the early nineties. So it feels like a long time ago, but from there I went to work for Ernst and Young, which is one of the, we'll call them the last four large service firms out there. When I was there, they were the big six. Now I kind of call them the final four, but I was with Ernst and Young for about 10 years working on large audits, large compliance, scc transactions, that type of thing. And after doing it for 10 years, the part of the job I really, really liked was working with people, you know, the interactions I had with people, the part I didn't like was feeling like that was just servicing kind of these large companies. So what I decided to do was leave Ernst and Young kind of start my own firm. So I could actually have a significant impact on an individual's tax and financial circumstances where I felt it was much more gratifying for myself personally. And I've been doing that for almost 20 years now, became a real estate investor myself, probably back in 2005. So I've been doing that as well on the side, which I really enjoy some houses, own some rental properties. So since then, I guess I'm in the real estate game, but my full time job is CPA. Great. Michael: You know, it's so counterintuitive that you mentioned that the favorite part of your job working at one of the big six of the big four was interacting with people. Cause all the accountants I know the worst part of their day is when they have to interact with people. Joel: I know there's probably only lasted 10 years, right? I'm like, ah, this isn't for me. I gotta go, gotta get out. I gotta get out now while I can. Michael: Awesome. Awesome. So, and I love too that you're an investor because you drinking the Koolaid too. And so really talking and preaching and consulting on the things that you're also doing. Joel: Correct. Yeah. So I think it helps, you know, if you're dealing with a CPA, for example, that at least they have a working knowledge of what it is that you do. And since I am in the real estate game, obviously I have lots of real estate clients, even contractor clients, anyone, even within the field of real estate, whether they own it or provide services to people who own real estate, that kind of outlines a significant of my clients. Michael: Great, great. So I wanted to jump into the meat and potatoes of this tax discussion right away. And I'm gonna let Emil kick it off in talking about deductions and kind of what those are, what those look like, what people should be aware of. Emil: So the various types of deductions that real estate investors should have on their radar are property taxes, property insurance, mortgage, interest, property management, fees, property repairs, and maintenance, capital improvements, and ongoing maintenance and advertising expenses. So things like the cost to list a rental, to find a new tenant marketing your property for sale. Those things are also deductions as well. Joel: Let me go through maybe the aspect of what it is like to actually own a property. So I go out and I buy a rental property. I'm going to bring that in. I'm going to put a renter in there and I'm going to earn rental income, right? So that's kind of the basic premise of when I own a rental property. Now what's offsetting part of that revenue are some of the standard deductions, like you mentioned. So oftentimes when we buy rental real estate property, we're financing it. So we have mortgage interest, right? We're deducting against that revenue. We have insurance that we have to pay to insure the property that we're also going to deduct against that revenue. Oftentimes it's maybe it's our self, right? Maybe we're managing a property and we don't have a management company that's doing it. Or let's say the property is, I don't know, a hundred miles away from me. So I have to get a property management company involved. So I got to pay them in order to do it. So I may have some of those types of fees, maybe some HOA fees for owning the property that are due, especially in kind of a condominium space, right? Condos or maybe apartments or multi-doors, rental properties, that sort of thing. I may have some of those fees as well. You know, advertising, whether I'm advertising something for a person to rent or whether I'm advertising for maybe a home to sell all those costs, kind of go in to offset my particular rental income that I'm earning. So if you can think of kind of, if I take, you know, lots of people have experienced with their personal homes, right? And they say, look at all these outgoing bills, you know, utilities, interest in my property, taxes, all those things, think of it in those terms, all those same expenses that you have for your personal home, you're still going to have for your rental property. Cause it is still house, right? In most cases, right? So you're going to have those expenses. Now, all of those things that you're paying out for that property become deductions against your revenue. So I would just look at it as kind of all the expenses that are associated with the property. I get to deduct to get any rental income that a renter is paying me. Michael: And that's so different than like you mentioned on our primary residence. If someone has a primary and they have a property tax bill, they don't get to deduct that against any income because there isn't an income, but they don't get to deduct that against them. So it sounds like pretty much everything on a rental property, if it's an expense as a deduction. Joel: Yeah possibly can be, yeah. So let's make it easy. So I got to go change a light bulb for someone because they don't have a ladder. So I go to Depot, I buy a light, I go over to my rental property. I put that light bulb in, I get the cost of that light bulb and I get a mileage deduction for driving down home Depot and for driving over to my rental property and then for driving back to my house. So that encapsulates two actual deductions that I may have going for me to offset some of that income. So I always tell people, look at what it took for you to make a dollar. Let's do it at the bare bones minimum. What did it take for you to make a dollar in conjunction with that rental property? How did you spend your time? How many miles did you drive? What were you buying on behalf of that rental property? What were you buying in order to maintain that property or service that property? For example, you know, renters in there, I managing it myself, got to have a cell phone right now that's cell form becomes a deduction against the rental income. Probably got to have internet if I'm going to list something. Well, now I get to write off my internet as part of the operations of that rental property. So I always say really take a hard look. What did it take for you to make a dollar? Okay, what did it take for you make a dollar and that's probably what you're going to be able to deduct on your tax return as part of that real estate operation. Michael: That's great. Emil: So all those things we just mentioned are those fully deductible or is it only 50% or some partial amount? Joel: Ah, good question. Because of the new tax code limits as personally from our property tax perspective, right? So we can only deduct up to $10,000 worth of state or property tax on our personal tax return. But when it comes to my rental activity, I don't have those same kinds of limitations or I'm deducting property tax in full I'm, deducting my mortgage interest. I'm deducting, you know, the cost of the light bulb in full. Most of those aren't limited or don't have limitations as far as my deductability against the rental property. Michael: So then Joel, is it accurate to say, let's say I made $10,000 in rental income in the year and I spent $6,000 in these various expenses that we just mentioned, the delta, there is four, 4,000. So that I ended up with $4,000. But is that what's taxed? Joel: That is what's taxed. Yeah. It's your bottom line. Sometimes people get revenue. I an accountant right. So I kind of speak in the account language. So sometimes people think revenue, Oh, I'm texting revenue. This renter just paid me $24,000. Now I got to include $24,000 in my income tax return. And that's what I'm taxed on. But in actuality, what happens is you're taxed on the net. Okay. So I take maybe that $24,000 or in your case, the $10,000 I deduct the $6,000. I'm only taxed on the four grand, not on that top line number. Michael: Great, great, super, super powerful. And so that kind of leads in actually to the next point that I want to talk about, which is this thing called depreciation, which I think most investors have heard about maybe not sure how to use or what it actually means. So can you give everyone an idea and a breakdown of what depreciation is and how we can use it to our advantage? Joel: Sure. Now I will say If I own a rental, you must take depreciation expense. It's not something that you can leave off. I've seen tax returns that were given to me after the fact of rental operations for people that wanted me to review it. And then I look at depreciation and there's no depreciation. So know that you have to depreciate a rental property. And what that means is the IRS is giving us basically a useful life. If you will. They're saying that I go buy a rental property. It's useful. Life is 27 and a half years. So I'm going to define the cost of that property over that 27 and a half years. And I get a yearly expense of whatever that number ends up being that yearly expense is awesome because I'm able to deduct that. Let's take back your scenario of 16,000 worth of expenses, like with 4,000, right? But those six thousands were hard, cash, outflow numbers or dollars. I still get to deduct my depreciation that gets that four grand. And now maybe I'm only taxed on $2,000. Right? So depreciation is a wonderful thing because it's also kind of a non-cash item. Okay. I bought the property, it has a loan on it, or maybe it doesn't. Maybe I was able to take the property down in full when I initially purchased it. But I still, even under that scenario, get to depreciate the property. So I'm not paying for the depreciation. It just happens automatically once I purchase it. Michael: And so you mentioned that it's based on the purchase price. Is that right? Joel: Based on the purchase price. That's correct. Yep. Michael: So, In our $10,000 rental example, if we bought the property for a hundred thousand dollars, I did the math really quick, here, Joel: Thank you. Michael: I wasn't going to put you on the spot. And we say that residential property is 27 and a half years. Right? Commercial property is 39 years. Joel: Correct. Michael: And so if it's residential property, we divide the purchase price by 27 and a half. If it's commercial property, we divide the purchase price by 39 years. So let's take our a property. We bought for a hundred thousand dollars divided by 27 and a half years, we get $3,636 of depreciation every year, Joel: Every year until that 27 and a half years has passed. Michael: Got it. So going back to our $10,000 in revenue example, we had $10,000 in rental income, $6,000 in expenses. So it leaves us with $4,000 net gain. But now you're saying we get to deduct an additional 36 36 and meaning our taxable income is going to be like 40 bucks for the year? Joel: Correct? Yep. Holy smokes. Yeah. So that's the power of appreciation. That's why it's so great. So when I buy a rental property, a great position to be in because of depreciation is to be what I call cash positive. Meaning that the revenue that I'm earning is greater than the cash outflow for any expenses that I have. But because I have this depreciation figure, right, I can actually have a loss on my tax return yet still be cash positive in the real world. I mean, that's the power of real estate. So when people say, Hey, I want to go into real estate. There are tons of tax benefits. Oftentimes that's what they're referring to. That I can create loss on my tax return and offset. Maybe my wages, my w two wages from my employer, even though I'm cash positive when it comes to the actual activity of the property. Michael: So what another way of saying that be at the end of the year, I can end up with a thousand dollars in my pocket, but actually offset the income that I've earned from my W2 and get taxed at a lesser Joel: That's correct. Yup. Yup. I see it all the time. Emil: I love that you guys brought this up because this is why people tout the benefits of real estate, right? It's like everyone knows there's huge tax benefits and this is the biggest one where you can actually be making money all year cashflow positive, but because of depreciation, you're showing either no gain or a loss potentially offsetting your personal income, so. Joel: That's correct. Yep. Maybe you have that scenario, loss, cash positive. The other thing that happens with real estate is our gains, right? So our appreciation just to the value of the property over years tends to go up. So when I sell it, I'm going to sell it at a higher dollar than when I purchased it for, and the entire time I'm owning it, I'm showing all these losses, but I'm still reaping these cash, positive cash, positive cash flow numbers that are coming through. Yeah. It's a real powerful game when it comes to real estate. That's why I'm in it, right? Michael: That's right. That's right. Joel: Yup. Emil: Probably a little bit more tactical or advanced, but okay. Let's say I've owned the property for 27 and a half years. Right? I've taken full depreciation now I want to sell it. Right. One strategy we've talked about on prior episodes is using a 1031. So let's say 1031. So I have no capital gains on the sale. When I 1031 will my new property, will I be able to depreciate that one over 27 and a half years or what happens to this amount? I've depreciated all that time. Joel: So it depends on basis, right? And typically what happens in 1031 exchanges, if you held it for that long and then 10 31 to a new property. I mean, that would be a pretty phenomenal thing, but, but what we do is oftentimes people are selling something to get into something that's larger or bigger or creates more revenue. Right? So it depends on my basis. So if I had something that was worth 300,000 and appreciated at all 27 and a half years, I 1031 exchange that and do something that's 500,000, I've already depreciated $300,000 with my basis. So now I grabbed that additional 200 grand and now I'm going to start depreciating that once I own that new property. Yeah. So I don't depreciate the same thing twice. Emil: Okay. Michael: Got it. Got it. And so speaking of depreciation, something that I'm doing actually for the first time, this year is a cost segregation study. Can you share with everybody Joel, what that is and how that might be used to help? Joel: Yeah, that's really, I mean, that's really powerful because we're talking about depreciation, the benefits of appreciating a property now that 27 and a half years oftentimes can seem like a long time. And if you get into the commercial space with 39 years, can you imagine, you know, you're going to hold something through 39 years. That may seem like a really long time for most people. I think that it would be. So what a cost segregation does is it allows someone to go in and start piecemealing the actual individual cost of a property. Okay. So you may have cost for electrical wire, plumbing, drywall, roofing, wood, steel, nails, screws, light fixtures, you know, all of these different costs now. And realistically a life's not going to last 27 and a half years. So what a cost segregation does is it breaks down at home, into all its individual components and then assigns lives to those individual components. So rather than depreciating a hundred percent of the cost over 27 and a half years, you may be able to have a bunch of costs that you're depreciating over five years or over 15 years, you're accelerating that depreciation. You're taking more of it upfront again to maximize that possible loss that you have. So when anyone buys a property, I say, look into cost-seg. I mean, it's a great way to accelerate those numbers, to get a whole lot of loss upfront because oftentimes people are looking at holding rental properties, you know, five years, 10 years, 15 years, then maybe they want to cash out for the appreciation or get into something else. But it allows during those holding periods to take advantage of as much loss as possible, Emil: Are there professionals who just help you do? Like how do you even do that? Joel: There are actually, yeah, there are professionals. You have to do it yourself. I mean, these things actually don't even cost that much. In fact, I had a client who, okay, it's all relative in terms of cost, but he purchased a $2 million commercial building, a $2 million. He did the cost segregation on that study. I think it only costs him about $7,000. And I was able to save him upwards of 60 grand on his tax return. Okay. So that's the power of that cost X study. They're not that expensive. And some peak times people say, Oh, I didn't buy a $2 million property. I just finding a residential home. It only costs me, you know, 350,000 or $400,000. If something still do the cost segregation study, you don't know how long you're going to hold the home. Right? Most people don't hold it 27 and a half years. So go in and do it. Accelerate your depreciation, take a bunch of those expenses up front while holding the property. Emil: Michael, can I ask you, why did you decide, I know you have several properties. Why did you decide to do a cost segregation on this one specifically? Yeah. So it's a great question. I was doing a bunch of rehab, like a ton of ton of ton of rehab on both the properties that I'm doing, these cost segregations on. And it was just reading about tax strategies and things to do with properties that you've rehabbed. And this came up as one of the best things to do, because like Joel was mentioning so much of the rehab is the stuff, the baseboards flooring, light fixtures, plumbing, all that kind of stuff. So if I can get some of those benefits back for the cost that I had to spend to do the rehab, that's huge. And so Joel, did I understand you to say that you can do a cost segregation study, even if you haven't done any kind of rehab, you can just go buy a property. Joel: Yeah. Even if you go buy a property, you can do a cost segregation on that property even without rehab. So I would always tell people know, look at that really, really give it a good look because it's probably going to be worth your while. Michael: That's great. And so we mentioned about how that depreciation is captured and addressed in terms of basis. When we do a 10 31 and step up into something else, but let's say someone's owned a property for 10 years. They've taken depreciation on it the whole time. And then they're just looking at being done with real estate investing. They sell the property, they're going to pay the capital gains. Cause it's been some appreciation what happens to that depreciation? I can't just go away. Right. Joel: It doesn't go away. So it's what we call it recaptures. So the appreciation that you take over time when you sell the property recaptures, or it comes back into income and I'm taxed on it and that's what ends up happening. Yeah. Okay. But it's a good trade off because as revenue is coming in and cash is coming in, I want those deductions. And when I sell my house for the gains that I'm going to make off of the appreciation of that house, that's when I have the cash and it's easier for me to afford then the tax on those numbers right on that recapture. So when I have the cash, go ahead and I'll take the recapture when I'm having that little bit of income come in. I want the expense to offset. Michael: That makes sense. Yeah. I was just wondering, you know, what's the difference if you're taxed on it now or taxed on it later, Joel: That's the cash flow projection. Right. So dealing with my cash flow, I want the cash flow as much as I can right now, you know, and then hit me with it later when I have a big abundance of a onetime cash coming in. Michael: Got it makes total sense. Emil: Okay. I want to shift gears here a little bit and talk about passive income versus pass through deduction. So can you walk us through that, Joel, and what the differences and why it's relevant for people? Joel: Yeah. So excluding capital gains, when we're talking about income from operations, really, I'm just going to narrow it down to two. We call them active and passive. Hey, passive income deals with the rental side of real estate. And the reason people like it so much, it's because there's no self-employment tax associated with it. So in essence, it comes to us as cheaper income. So if I have a retail operation or something where I'm just going out and I'm selling widgets, you know, that I put together, that's all active income. So if I make a hundred grand, I have to pay self employment tax on that a hundred grand, on the flip side with passive income rental real estate. Again, let's say I make $20,000 off of that rental real estate. I don't pay any self employment tax, which is roughly about 15% on that income. And that's on top of income tax by the way. So it comes to me cheaper. It's cheaper income for me to make. So people love it as much passive income as you can get because it's cheaper income take it. Michael: Interesting so if someone just to reiterate, if we got rid of the self employment thing, if I'm making a hundred grand at my w two job and somebody else is making a hundred grand in passive income after all of the expenses, right after depreciation, all that good stuff, that's their taxable income. And my W2 is a hundred grand. The person who has the investment income, the passive income is going to walk away with more dollars. Joel: Correct. Michael: If your head just didn't explode, go back and look that again. Joel: Yeah, that's exactly right. The person with the passive income will come out ahead every time. Emil: I'm so glad you made that point because I think a lot of, when we're thinking about our ultimate goal of how much passive income do I need to be financially independent or whatever, it's actually less than what you'd need from your W2. That's correct. If you're making whatever a hundred grand, 150 grand, whatever it is, you don't need to make that much in passive income. It's actually less because you're taxed differently. Joel: That's right. It's cheaper income. It goes a lot further Emil: Love that. Michael: Love, love that. Anything else we should know about passive income or passive deductions? Joel: No, that's probably the biggest thing. Just the difference between active and passive. I mean, that's kind of the best thing to know about those two. Yeah. Michael: Perfect. Okay. So Joel, now shift to talking about something that we've mentioned previously about capital gains instead of income taxes. And so can you tell us what is a capital gain and why is it important to know about and how has it taxed? Joel: Yeah. So what a capital gain just means when I sell an asset, they have a different tax classification for rates of how I will be taxed on the game that I make from the sale of that asset and rental real estate, when I own a property or rental income during the time that I own that property, when I sell that property, the gain that I make off that sell is based on the capital gains rates. And typically it's much cheaper. Okay. Then ordinary income again, or active income again right now. I mean, there are some beautiful things when it comes to capital gains or capital gains rates. I mean, I can't remember the last time they were this low. Did you know that you actually will pay 0% capital gain if your other income is under $80,000? Now there is a great tax strategy and planning to go through for timing. And when maybe it may make a whole lot of sense to sell a rental property above $80,000 to about $500,000. You're only taxed at 15%. Now this is all based on if I held the property over one year, okay, okay. After one year I get longterm capital gains rates above $500,000. My other income sources are above 500 grand. I'm going to pay 20%. So you have, so it depends on your other sources of income to how much capital gains, how much longterm capital gains you're actually going to pay. So if you're going to sell a property, really look at how can I mitigate some of those other sources of income to ensure that I get the lowest possible longterm capital gains rates, lots of tax planning, opportunities that go into that. And Michael: Is this something new that you mentioned that, that this has changed recently? Joel: Yeah. So it's something new with the whole, yeah. With the, with the new tax change that happened a couple of years ago. It's, you know, they're always kind of fussing about when it comes to capital gain rates and how they want to treat them. This is one of the aspects that came out of it. If you think about just comparing capital gain rates to ordinary income rates where I may, let's say I had, you know, a nice job, I made 150 grand. I sold the property, made another a hundred thousand, that a hundred thousand is only gonna be taxed at 15%. Whereas if I'm married, filing, jointly, my other income is going to be taxed at 22%. Right. Roughly. And so it just comes at a lower rate. So it's, I mean, capital gains rates. I mean, it's so beneficial from trying to put money back in your pocket, especially from a timing perspective nowadays. Emil: So if I was retired and I have a property, so my other income is income outside of the rental property business. Joel: Yeah. Okay. So if of your rental property, so if you look at a 1040 tax return, you look at all the various lines, dividends interest W2 wages, business income from partnerships or escorts, or however that may be. So you look at the total of that. That's how they measure it. So what is your income sources? And that's, what's going to dictate the capital gain rate that you're going to pay. Emil: Got it. Okay. So if I've retired, I have a couple investment properties. I don't have any other sources of income. Right. It's just my rental properties. I go to sell that. I'm not paying, I'm making less than 80K, so I'm on… Joel: Yeah, so if you're under, so if you're married, filing jointly, you're under 80 grand. Yeah. So it also makes for some interesting tax planning as well. If you have a few rental properties and you're going to go, you know, let's say I have four or five and I'm going to go sell one. I may go to my rent and say, guess what? December is free. It's on me. Congratulations. I don't want your money. Right. Just cause I want to stay standard that 80 grand. So that's why I say there's all kinds of tax planning opportunities to do, especially timing wise when it comes to selling a rental property. So I'd sit down with a CPA, go through it, go through your scenario and then, you know, make some decisions. Emil: Interesting. Michael: That is awesome. Emil: Yeah. Michael: Is there a good time or if you know, Joel, you know, if I want to utilize your services. When would it be the ideal time to start planning strategically for their taxes, yesterday? Joel: Yeah. Yesterday and today. Because if you come to me, if you're coming to me now say, Hey, what can I do for last year? I'm going to say, well, you kind of handcuffed me. There's not a whole lot I can do for you last year because we're all cash based taxpayers. So when we report our kind of activity for the year to the IRS and to the state, it's based on January through December, right? So effectively, I need to make all my decisions and spending and do what I need to do between January and December. And when you come sit down with me to do your tax return or the compliance aspect of your operation, then we're just looking back and saying, okay, what did you do? How did things go? Right? That's the easy part. That's just basically reporting. It's nothing more than that. But the actual savings happens throughout the year. It happens throughout the year. Michael: Okay, great. Emil: You can see, obviously when you have multiple properties, it makes so much sense to work with a tax professional. Do you think, even if I'm just starting out, I have my first property, I've traditionally done my own taxes. Should I really enlist a CPA's help. So it's kind of a loaded question for them. Joel: I'm going to self promote myself bias maybe slightly, but okay. But I'm going to give you a real example for this one. Okay. That it has nothing to do with taxes really. I mean really. So when I left Ernst and young, this would have been, you know, 20, some odd years ago. I decided because I'm an accountant and then cheat by nature, right? I mean, most accounts are cheap. You've met us, you've met, you've met my fellow people, right. We're cheap by nature. So I thought that I would save money if I built my own computers rather than going out and buying from Dell, maybe it was only saving a couple hundred bucks, but I thought, Oh, that's a great way that I can set. I can save some money. Then after building my own computers, I thought I was a smart little guy. And I would build my own server, which I did, which led me to building my own phone systems, which I did, which led me to try and to build my own website, which I failed miserably at. But what would happen is during tax season, when everyone was working, we would do our most billing and our invoices words the highest throughout the year. And someone's computer broke. Guess who? The first person they called us, it was me. Hey, come fix my computer. So I leave my desk, go down there. I may spend two, three hours trying to fix their computer. But guess what I wasn't doing during those three hours during the highest billing rates that I have throughout the entire year, collecting money, right? I wasn't billing anyone. I wasn't doing anything that I could collect money. And at the end of the day, it ended up costing me way more to do it myself. Then it was to hire all that stuff out. And I like to call it team stacking, right? So you gotta look at what is your team? How am I stacking and putting all that together? So now I have someone that deals with my phone system that deals with all my it, stuff that I need. I have a lawyer that deals with this I'm in real estate. So I have a general contractor that deals with all that stuff. So I don't have to do it so I can focus on what it is that makes me the most money, which is tax planning and tax compliance, doing tax returns. So I would suggest that as well, to someone even new and real estate team stack yourself, put people in place that will allow you to focus on what it is that you want to do and how you want to make money. Because I can promise you, you will never see as many tax things as I do. You'll never have those discussions or read all those wonderful IRS bulletins that even put me to sleep, right? So you wouldn't be doing all that stuff like I would be doing it. So team stack yourself, focus on what it is that make you money, put all those other things together and let them worry about that stuff. Emil: I fully agree with you. I have a full time job. I'm trying to focus on the actual real estate investing and all these things have a family. I would much rather leave it to somebody who knows what they're doing. Who's living and breathing it all the time, rather than trying to learn it myself. And this is also one of those things where it's a high ROI thing to me, like a good tax professional is going to be able to figure out how to save you more money than you can go figure out into yourself. So I am with you and I have no bias. Joel: Exactly. So the question should be when you go down and sit with someone isn't can I deduct this right? The question should be, how do I deduct this? Right? And then you leave to someone like me to go through and say, give you the house, okay. This is what you need to do. This is the support and documentation that you need to have. And this is how we can structure it, right. That's where tax planning comes in. And that's why it's so important. So even if you're just starting, I would make sure that I get connected with someone who understands the business that I'm doing, understands the real estate game and can start advising me upfront what to do and not making stumble over. Maybe some of those mistakes, someone who tries to do it on their own would find Emil: Absolutely agree. Michael: It's so good. Yeah. I concur with you both. Not nothing like that. That's great stuff. Okay. Last couple of things I want to touch on Joe, before we get into some high level questions, but can you talk really briefly? I know we had another episode of 1031 exchanges, but can you just touch on 1031 exchanges and opportunity zones? Joel: Yeah. So I'll just touch on them really briefly 1031 exchange allows me to sell a property and re-invest all the gains I make off that property into a new one and not pay any tax. So essentially it improves my buying power, right? So I'd say I own something for 200 grand. I sold it for 300 grand. That a hundred thousand dollars worth of gain, I just invest the whole 300 grand into a new property. And it reduces the cost of that property effectively improving my purchase power. So it's a tax deferment strategy that can work really, really well for people. Michael: Great. Joel: From an opportunity zone standpoint, though, that can get really complicated. So let me just, uh, let me just leave you with two points and maybe, and maybe people can remember this. First of all, opportunities zones are for those economic distress communities. I mean, often they are identified and you can find them. You can do searches online to find out where the opportunities zones are located. But what the IRS tries to do is give you some type of benefit. If you're willing to go into those opportunities zones and make investments into businesses, the issue that you need to be aware of is that first 50% of your income has to come from the opportunities zone for that company. Okay. 50% of it has, which means that if you're a manufacturer doesn't work really well. If you want to go into an opportunity zone, however, if you're a real estate investor works really, really well because I can go into an opportunity zone, buy a building and earn all my income, my rental income from inside the zone, which means that if I hold onto that property for 10 years, I get to sell it tax free. Yeah. So that's the benefit. I'm going to give you a benefit when you sell it right when I sell it, because it can be tax free, but there are lots of rules surrounding how I need to go about buying that property, holding that property, making income from that property. So opportunities don't get really complicated, but just sit down with someone who understands that they can walk you through it, but it can make a really, really great investment from a rental property standpoint. Michael: Fantastic. One last question for you, Joel, is what are some common mistakes? You see new investors making? Joel: Common mistakes?One is that they lacking in documentation for support of how they spend money. Because oftentimes when it comes to let's say audit, okay. If the IRS was going to look at someone's activity and they wanted to audit it, a lot of your ability to support the expenses that go into your tax return is based off of documentation. The other one I would say is most people don't include all their expenses. They look at them very, very narrowly, right? So if I own a rental property, there are some big ones that just stand out. Insurance, mortgage, interest, property taxes. I mean, those are some of the big ones that are just there. But if you go back to our conversation earlier, when I talked about going to home Depot, buy a light bulb going over, I'm looking at mileage, what did it take for me to actually earn a dollar? People never really take a step back and look, maybe go through your credit card statements, your bank statements, you know, even cash that you spent dealing with. If you have a general contractor or someone like that, like what was the money I spent with you? You really have to take a hard look at all of your expenses that went into the activity of that rental property, because that's where you're going to see your benefit. I mean, taxes. Oftentimes we call it death by a thousand paper cuts because it's all these little things that kind of, I miss miss, miss, miss. And when I accumulate all of them, it's a really big total, right? So really look at how you're spending your money and spending your time. Pierre: I have a question. Michael: Shoot Pierre Pierre: What would be sufficient documentation for driving Home Depot? Is taking a spreadsheet and counting your miles good? Joel: Yeah. Spreadsheet could work. You can go onto Google maps. It's a beautiful thing. Get some directions and just print that out. There also lots and lots of apps that will help you identify your mileage, where you went that are really, really useful. Like my like Mile IQ or Tax Bot. It's almost like, you know, the right swipe, left swipe. So it tracks all your mileage. And you're just going through swiping personal, personal business business business. And it's really easy to do it creates the log for you. So I would always tell people to use technology to your advantage, especially when it comes to tracking what you spent and doing your documentation for anything that goes into your tax return. But this spreadsheet would work just as well. Michael : Great. Okay. So now we'll move onto the section of the show that we call the quick fire questions. So these are going to be kind of yes or no either or type questions. You ready Joel? Joel: Go ahead. Michael: High property taxes or high income taxes? Joel: High property taxes. Michael: Because you can deduct them, right? Joel: Because I can deduct them. Michael: I love it. High rent growth or low vacancy. Joel: Low vacancy, it's easier for me to manage my cash. Michael: Nice consolidation or diversification. Joel: I like diversification because I just think it's more fun. Michael: Cashflow or appreciation? Joel: I take cash flow. I want a dollar today. Michael: Love it. Local or remote investing? Joel: Ooh, that's a good one. I go where the deal is. So I don't care. Michael: Right. Single family or multifamily? Joel: Multifamily. Because basically in that instance, I've just adding zeros, but doing the same thing. Michael: Yep. Turn-key or master project? Joel: Oh, that's another good one. I'm going to say, well, nowadays based on the situation, I'm going to do turnkey, but under normal circumstances, I would like a master project just again, because I think it's more fun. Michael: Okay. Great. Last two. Midnight oil or early bird worm? Joel: Early bird worm, for sure. Michael: Awesome. And then text message or email? Joel: Text message. Yeah. My email inbox gets over flooded with emails. Michael: Yep. I know how that goes. Awesome. Well Joel, thank you so much for taking the time and spending the time with us. This has been really great. What's the best way for someone to get in touch with you if they've got tax questions or tax needs? Joel: Yeah. So if they want to get in touch with us, I would actually go to taxhive.com/roofstock. You can sign up. We'd love to talk to you for 30 minutes. We'll give you a free consultation. Maybe we can improve some of the stuff that you're doing. Give you some suggestions, whatever it is that you would like to do, but we're happy to help and give you any advice we can on an individual basis. I think it can be a little more relevant that way. Michael: Fantastic. And again, the name of your company is? Joel: So we're Tax Sentry, but if you go to taxhive.com, that's where you can find us. Michael: Fantastic Emil: H-i-v-e? Joel: H-i-v-e. Michael: Great. Emil, any final thoughts? Emil: No. Joel, thank you so much. I actually, I learned a ton about real estate investing taxes myself. So thank you so much for coming on. Joel: Sure. Love it. Happy to be here. Michael: Always a pleasure looking forward to hopefully chatting again soon. Joel: Thanks guys. Okay, everyone. Well, that's our show. Thanks so much for listening. Hope you enjoyed it as much as we did. I know both Emil and I got a ton of knowledge and golden nuggets out of it. So again, a big thank you to Joel and we can hopefully have him on again. Thanks so much for listening and happy investing. Emil: Happy Investing

love google young local holy single meaning deep dive insurance midnight roi congratulations cpa irs uncover ernst oftentimes home depot accelerate emil kool aid hoa brigham young university spreadsheets rental properties depot w2 condos tax benefits 80k mileiq michael you michael it michael love michael so joel h michael okay joel you joel low remote real estate investor michael awesome

The Top 4 Strategies to Convert Your Trapped Equity Into More Rental Properties

Play Episode Listen Later Jun 23, 2020 40:08

In this Episode Emil, Michael and Tom discuss the pros and cons of the HELOC, cash-out-refi, 1031 exchange and buy and sell strategies. --- Transcript: Emil: Hey everyone. Welcome back to another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I am joined by my lovely co-hosts Michael Albaum and Tom Schneider. And today we're going to be talking about how you can use trapped equity to actually help you scale your portfolio. So let's dive into this one. Tom: Before we get into it, I want to give you a heads up on a promotion that we're running right now. So with Roofstock Academy, we have always benefits coaching on demand lectures, the tools, our SFR playbook, on and on, but the Roofstock marketplace credit's just got that much sweeter. So initially it was a $750 credit when you buy now it's a $2,500 credit. So you buy Roofstock Academy and for your next five transactions with no time limit, you're going to get $500 back at the close of your transaction. Michael: That's right, Tom. Thanks so much for sharing. And for all of our listeners, we're actually giving out a hundred dollar off coupon for an enrollment into the Rootstock Academy. So go ahead and use JULY4 at checkout and that's JULY and the number 4, at check out for a hundred dollars off every sock Academy enrollment. And that coupon code is good through July 4th of 2020. Tom: Take advantage of today. Happy investing. Awesome. Emil: Thanks Tom. All right, guys. So we're going to be talking about how to tap into trap equity to help you scale your portfolio before we get into the different ways. Why do you guys even think this is an important topic for investors to know about? Tom: This is gasoline to growing your portfolio? You know, buying a rental property is expensive, right? You know, it's not as expensive of buying an apartment complex, but once you start appreciating, having these properties appreciate and building equity, to being able to flip that appreciation into new rentals, honestly like that's really like a catalyst for growing your portfolio so much faster than needing to, you know, come up with all the new cash all at once. Michael: Totally, totally agree, Tom, just to echo and piggyback off that if you're taking a hundred dollars a month cashflow, just for sake of discussion from a property that's 1200 bucks a year, that's several years of saving that cash flow before you're ready for your next down payment.So being able to tap into the appreciation side of things, which tends to grow a lot faster and appreciating markets than the cashflow does, can be a really great way to just leverage into additional rentals. Just like Tom said. So hopefully I added some value there and didn't just say the same thing in different words, but I totally agree. Emil: It's funny because we're all I think in the same boat of we're all cashflow investors and we don't want to bank on appreciation, but when it does happen, there's all these benefits you can take advantage of to help you grow, right? Like most people probably think, Oh, I have to keep saving from my W2 or whatever you're doing to save up for properties. But there's actually a lot of different ways you can come up with the funds to keep acquiring new rental properties. Michael: Absolutely. It can come from a number of different buckets. Emil: Yep. Tom: Something that's, similar to us three is where we're not necessarily need to use the returns we're making on our investment properties right now where I think we both think of it, of the cashflow reinvest that dividends into new properties, as well as the appreciation reinvest that appreciation is new properties. And today's episode is just about that ladder of return and how to actually actualize that to investing in new properties with the appreciation. Emil: Yep. All right. So now let's get into the specifics of how you can actually tap into that trapped equity. And we're going to be highlighting four different strategies. You can use first one being HELOC or home equity line of credit. Second one is a cash out refinance. Third is a 10 31 exchange and the last one is selling a property and using those funds to buy a new property. Michael: Yeah, absolutely Emil. So, a HELOC, like you said, as a home equity line of credit and it's something that I'm super excited about. It's something I've used a lot. It's a very, very powerful tool in the real estate arena. So basically what it is is it's a line of credit. Think of it like a credit card that gets established on the equity in your home. So if you've got a primary mortgage, call it a hundred thousand dollars and you've got a hundred thousand dollars of equity in the property, a lender might give you 80% or 70% of the equity in a line of credit, which means they might give you a 70,000 or an $80,000 line of credit. And what it is, it's basically just like I said, a credit card. And so you actually get a check book in the mail and if you need access to that $70,000, you can write yourself a check and you'll have $70,000 as soon as that check, clears your bank. So this can be really great. That can be used as a down payment that can be used to go buy a new car that can be used for home improvements. I definitely wouldn't recommend the car thing because that's a depreciating asset. It doesn't give you any kind of return on your money, but it's just a really, really, really flexible way to have access to quick cash. And then really nice thing about a HELOC is that you're only paying on the balance if it's outstanding. So let's say I set up this HELOC for $70,000 day one. I don't use any, I just have the line sitting there. There's a closing cost associated with setting that lineup, but it's usually pretty minimal, but so now I have access to that $70,000 and I can use it in any increment that I'd like. So let's say next week I want to buy a property. And $20,000 is my down payment. I'll write myself a self, a check for 20 grand close on that new property. Now I'm off to the races. And now let's say a month from now, I get a bonus for $20,000 at my job. And I decide that I want to pay back that line of credit. I can make a $20,000 payment back to the line of credit. And now my outstanding balance is zero, which means I have no monthly payments on that line of credit. The other nice thing about HELOCs is that they're typically interest only payments. So on that $20,000 example, I just gave that I had outstanding. I'd be making interest only payments, which as we all know are going to be significantly smaller than a fully amortized principle and interest payments, some important things to note about HELOCs and their interest only payments, typically they are going to be variable interest rates, which means they're going to fluctuate from month to month. So if I have a 5% interest rate this month, I might be at five and a half or six or 7% month next month. So we just need to be aware of that. But again, if we look at the math and just go back to our $20,000 example, the difference between a 5% interest rate and a 7% interest rate in terms of interest, only payments on a monthly basis is pretty negligible. So I, you know, when I first started using a HELOC and I'll get into it at the end, I thought, wow, the interest rate is 6%. That's crazy. I can go borrow money at 4%. Why would anyone use this, this HELOC thing at 6%? But again, as it comes back to the interest only payment, it's a so much, it's often a much more affordable and digestible payment amount to be allowing you to do things with that money that you might not ordinarily be able to do. So that was a super long winded answer. I know Tom thoughts, feedbacks opinion, additions? Tom : Love a HELOC. It's like basically a bazooka in your back pocket. Like if you need to like a bunch of cash real quick, like let's say a great deal comes up and you're like cash of like actual, you know, liquid position is low. If you have an open HELOC, you can quickly tap into that and use it. Like for opportunistically, the rates that are available now are pretty incredible. I have one through right now from third federal. Yep. That's the name of it? And it is like hovering like mid two per two point somewhere in the middle. Holy smokes. I'm looking at my app right now and it's unreal and it's, you know, I jumped into it without knowing a little bit about it, but kind of just Guinea pig my way through and setting the line of credit up on my personal residence. And it's as wonderful as it sounds, but just having this huge cash, I'm using the capital right now, doing some improvements to the house that I live at, but what's, what's great is there is no HELOC police. You can use the funds to on whatever you want to use it on. You can use it for buying rental property. You can use it for buying a car. As Michael said, I think you said it was a good investment to get a car. Anyways. I don't remember. Michael: Yeah a Lamborghini is the best. Tom: Yeah, HELOC really powerful way to dip into your appreciation that you have. Something that I'm thinking about on the risk side is I don't, who knows what's going to happen with rates? I think into 2021, it could potentially go either way, but I don't want to leave. Myself on the hook for if there is a spike up, just because like Michael said, they are variable rates. I don't want to leave too big of a balance that I can't get out of, but it's a really great resource to have. If you're able to set one up. Michael: Such a great point, talking about risk Tom. One thing that's really important to note is that a locked is actually a second position mortgage. And so if you've got an outstanding balance that you don't pay on your house or the property that the HELOC is established on could be foreclosed on via that he locked. Even if your primary mortgage or your first mortgage is up to date. So it's gotta be treated with respect. It's it's still a mortgage. It has all the ramifications of a mortgage. So just be aware of that, but they are such, such a flexible tool. Emil: Nice job guys. You guys covered this one. Well, I have a couple questions for you as someone who's never done a HELOC, never used a HELOC, Michael, you mentioned there's some closing costs. How do those compare to a cash out refinance or just, you know, when you're regular, when you're getting financing, those closing costs, how do they compare to that? Michael: Super, super minimal? I think I set up my line for like 500 bucks. It was the cost of the appraisal. And then like some miscellaneous minor fees. It was super, super cheap. Tom: That's right. And on the appraisal, they didn't even send someone out to appraise the property. Michael: Someone did a desktop appraisal. Tom: I think they may have even waive that fee on that one, the one that I did, but yeah, it's marginal costs. Emil: Okay. I was going to ask you guys about appraisals as well. How do they do that? Do they send somebody out? Do they do desktop? Michael: So depending on the size of the property, they might send somebody out. But yeah, for mine, it was just as on a single family home. Emil: Got it. Tom: Another piece about HELOCs is, as Michael said, you know, it's a delta between the value of the home and the, your first mortgage, different companies. That issue HELOCs may have a different percentage that they go up to, to the value. So the one that I'm in right now, it's the balance of my mortgage, excuse me, 80% of the value of my home that the appraiser comes up with minus the balance of my mortgage. So the point that I'm making is for this particular lender, it's 80%, but I've seen HELOC companies, I believe the San Francisco Fireman's credit union or something, they go up to 90%. Don't quote me on that. But there are some HELOCs that go up to 90% of the value of the home, which, you know, if you're trying to build a, a big arsenal of having HELOC funds, going up to 90% of the value is pretty, pretty incredible. But this was a while ago when I looked at this. So I'm not sure if it's still available, but the point is it's not a one size fits all. Just like mortgages are not one size fits all. Emil: Nice, good job guys. Well covered. Alright. So any, anything else before we move on to cash out, refinance? Tom: Might as well do it, go get a HELOC Michael: Yeah, I was gonna say one last point is it's one of those things that there is very little consequence to doing it and not using it. So I would so much rather have it and not need it than need it and not have it. And so for the $500 expense, I mean, these typically have a five to 10 year drought period. So they'll reevaluate in five or 10 years. If they still want to grant you this line, if you don't use it for five years, okay. Not a big deal. It cost you 500 bucks, but if you do use it, you are going to be so, so, so thankful. I promise you that you establish your future self will thank your past self for having set this up on a property, especially when values seem to be quite high at this moment in time, kind of throughout the markets. Tom: I'll come in with one last question. Michael, do you have. On your rental property? Cause I know a lot of lenders don't like doing HELOCs on rental properties, Tom: Like I have it on my personal house. What I'd love to, for you to riff on that real quick. Michael: Yeah. I've got it on a rental property that I own free and clear. So it was much easier to do because most lenders don't like to come in and a second position lien. Uh, so if you have a free and clear property, you have a primary with some equity in it. Those can both be really great candidates for, although I was talking with a student within the Academy and they were saying that they found a headlock provider that would come in and second position behind a mortgage company on an investment property. So those, you know, everything exists under the sun. So you've just got to go out and find it. Emil: I don't know if you guys answered this or mentioned it, what's the period on a HELOC usually when is that payment due? Is it five years, 10 years down the road. Michael: So typically it's it's between five and 10 years, depending on what the HELOC stipulates, but it's, again, it's an interest only payment. And so if you're paying it back slowly over 10 years, and then you still have a balance, usually it'll just convert to a standard mortgage at that point, whatever interest rate is, and that all be stipulated by the lender specifically. Emil: Got it. Okay. Thanks for clarifying. All right. Let's move on to the cash out refinance now. So basically a cash out refinance replaces your current home loan with a new mortgage that's higher than your outstanding loan balance. And what you're doing is that difference. You're pulling that back out as cash. And what's awesome about this. Just like the HELOC is that this is money you're getting and it's not taxed your, your home appreciates. You're redoing the loan and taking out that difference. And it's untaxed, which is really, really nice as an investor. Michael: Can you give us some like math, some, some number of breakdowns in meal about what that might look like for an investor? Emil: Yeah. So let's say you let's make it simple. You purchase a property at a hundred thousand dollars and you put 20% down. So you have a outstanding loan of 80,000, your home appreciates to 150,000. So your equity has gone up 50K. So now you basically redo the loan at an 80%. Some lenders only can go up to 75% loan to value. So you're making, what is that? What does that difference? The 50 K times 75%, Michael's doing the math 112. Okay. So your original loan was 80 and now your new loan is for 112. So the difference is $32,000. So minus some closing costs, let's call it 3000 bucks. You're able to pull out around $29,000 in your cash out refinance. And now your new mortgage is for 112,000 instead of that original 80,000. So some of the things to be conscious of here, you might, let's say you, your home appreciates like the example we just gave. And before you had a cash flowing property, you may, you want to be careful to not over leverage yourself. So now you have a property that's not cash flowing. Maybe you were making a hundred, $150 of cashflow a month before with very conservative estimates. Now your new loan you're basically breaking even each month or maybe even paying into the property. So that's when I think of some of the cons with a cash out refinance, I think some people may over leverage themselves to get that extra cash, create, turn a cash flowing property into one that's negative cash flow. Tom: An alligator Emil: An alligator as our friend Michael Zuber a likes to call it. Michael: So I've, I've got an opinion on this. And so I always say, especially within the Academy with a lot of people I coach consult with that, we have to look at cash out refi is as really a two step process. Step one is getting the cash. And step two is what are you doing with that cash? Because if we can go then buy a second property that will yield us $250 in cashflow a month, as opposed to are just single at one 50, as long as our cumulative sum is greater than its parts. I think that's a good move. Even if I have to have a negative cash flowing property in order to obtain a better one, I'm willing to do that. Tom, what do you think? Whose side are you on? Tom: It really depends on what your situation is. If you are not needing the cash flow. Now, you know the scale I would advise if you build your portfolio, there's a lot of value in that. As long as you're cognizant of your LTV as a whole, cause you know, with doing a cash out refi, your loan to value is going to go up. So being conservative with that, but if you have the opportunity to scale your portfolio and you don't need the cashflow now, I think you're going to have two lines in the pond with multiple properties of doing that cash out refi and buying another unit with that would be what I would recommend. Does that answer it? Michael: Yeah, totally. You're on team Michael. That's awesome. Team michael for the win. Emil: You guys are being silly, don't have negative cash flow on properties. Come on, rule number 1. Michael: But if your cumulative cashflow is now greater than your single positive cashflow, does that carry any water for you? Emil: Okay. In our example, what do we pull out? Like 30 K you'd have to use that 30 K as a new down-payment. Michael: Correct. Emil: Let's say your, your old property was cashflowing a hundred bucks and now it's at zero. So your 30 K would have to go find a new property. That's going to cashflow. I mean, yeah, at least a hundred bucks, 150 to make it worth it. Michael: I would argue that it would need, yeah, we need to need to cash flow significantly more than what you were previously making because you could have done nothing and ended up with the same cashflow. So I need, in my opinion, should cash out at least 200. Yeah. Emil: I mean, it sounds good on paper. Is that possible? Can you take that and go steamroll into more cashflow? Michael: Watch me, challenge accepted. No, I have, of course I think the numbers have to work and we're, we're just using examples numbers for the sake of discussion to illustrate a point. But I guess the point that that I would take is that if I'm comfortable and again, like Tom said, it's a very personal decision and you've got to evaluate everyone at their own specific point in life and what their, what their properties look like and what their business looks like. But I'm comfortable killing the cashflow on property a to have a increased cashflow on property B that is cumulatively greater than just a alone. Emil: Yeah. You're more of a risk taker than me. I'm a little more conservative, but to each their own. Michael: To each his own! Emil: All right. Cool. Anything else on cash out refinance we should cover. When do you guys think the cash out refinance is better than the HELOC and vice versa? Tom: Well, the nice thing about the cash out refinance is if rates, as they are now are at a very low number. When you do a cash out refinance, you're going to lock that rate in for 30 years or, or whatever the terms are versus the HELOC. You know, you're still on the rollercoaster on where rates are going. So for me right now, just basically cash out refi the majority of my portfolio to tap into these super low rates that we have. So thinking longterm, looking at the rate. Michael: I totally agree. I think it all comes back down to what your plan or what the individual's plan is for that cash. If they know that they're going to be buying something in the next three to six months, you know, cash out refi could be a great way to go if they don't know what they're going to do with the cash, but they know that they want cash, HELOC can be a great way to go because you're not paying on that cash to just sit in your bank account, like you are with it with a cash out refi. So, and there's nothing to say that you can't do a hybrid approach, take a little bit of cash out and also set up a HELOC for that remaining equity balance. That can be a really, really great way to go and a really powerful tool. It's something else that just keep in mind is that your rate is going to change from your original mortgage when you do a cash out refi. So you're basically wiping that first mortgage clean and getting a brand new, totally new mortgage. So whatever the rates in terms are of that new one, that's what you've got to come to terms with. And then the last thing to think about is I've heard this said from a number of different people, is that if you're a, towards the end of your mortgage, when go do a refinance that resets the clock back to year one on a 30 year payback for a single family home conventional mortgage. So if you're at the end of your mortgage cycle, you're paying this significant balance towards the principal. You are just gobbling away at that principal balance, which is really, really nice. Versus if you resetting the clock. Now we're paying the vast majority of that payment is going to the interest. So the balance is going to be decreasing at a slower rate than if we're towards the end of our, of the life of our mortgage. So again, just something to consider, to keep in mind, to be cognizant of, as you're looking at considering doing our cash out refi, Tom: Great point. Hybrid, and it's not a one size fits all you can, if you could use both, have both guns and missiles.But that example, I would say that the HELOC would be the gun and the cashout refi would be the missile, like the kind of a bigger, you know, locked in. Michael: I thought that HELOC was the bazooka man. Now you're changing it up Emil: So destructive today Tom. Michael: Someone played command and conquer as a kid. Tom: Too much coffee. Emil: Man, you guys are making my job easy. Like I don't have anything to add on top of like your final notes. Cool. Let's let's move on to the next one, 1031 exchange. Tom, you want to take the lead on this one? Tom: Yeah. So we'll hit this one pretty quickly. We had an episode earlier episode, I think four or five somewhere in there. Anyway. So at 1031 exchange is deferral. So it is selling a property, not paying any taxes on the proceeds from that sale and rolling all of those proceeds into buying a new property. So with a 1031, there are some rules that you need to adhere to. And a high level example of those rules is you need to identify properties within a specific period. There is rules around the value that you're selling to what you can buy. And we recommend talking to a 10 31 professional company to understand those rules, but the big shtick for a 10 31 exchange is you're selling your property. You're making a bunch of money and you're not paying any taxes on those. You're deferring those now eventually when you do sell and do not use the proceeds to buy another property, which we'll talk about. Michael: The thing that you're getting at Tom, is that you can continue rolling that deferment via 1031 exchanging every property that you then buy and then subsequently sell. So if you sell property via 10 31 exchange to buy property B, when you're ready to sell property, be 10 31, exchange that into property C and so on and so forth, such that you're deferring, deferring, deferring your capital gains tax until the point at which you might not be around anymore. And then whoever you leave that building to gets a step up in basis. And that basically wipes away the capital gains tax that they would have to pay. So, yeah, echoing what you said, go talk to a 1031 professional before attempting this go to the episode that we did on 1031 exchanges, it's really, really informative, but it's a really, really great way to sell properties and not have to worry about paying the capital gains tax. Emil: Yeah. And I looked it up. It was episode 15 was a 1031 episode. Tom: Awesome, reasons that you would want to do a 10 31 is perhaps you're moving your portfolio, moving geographies. Perhaps you're changing to more of an appreciation asset to more of a cash flowing assets. Perhaps you want to take one property and use the proceeds to buy multiple properties or the other way around. There's so many different use cases for doing a 1031 exchange and the mechanics of it, of deferring the tax payment are available for all of them. Emil: Yeah. Michael: So what would be a con, why wouldn't you want to do it today? Tom: You wouldn't want to do a 1031. I mean, you're, you're selling the property. So if it's an asset that you like, like, you know, you are changing assets, you know what other ones cons are? Emil: Oh, the, the timeline you have, right? So sometimes I think it's like a 45 day or 60 day timeline to identify the next property that you're going to re 1031 into. And so sometimes I think you could feel like it's forcing your hand into maybe a so so deal versus something where you wait, you know, maybe you pay the capital gains on it, but you finding a better property cause you, you're not restricted to this short time window. Michael: Mhm Tom: Other con I would put is versus those initial two with the HELOC and the cash out refinance, you have a very good idea on how much money you're going to have available from that maneuver. But with a 1031 exchange, you're selling the property. So there are just a lot more variables on what you're going to get when you for when you sell the property versus like knowing what the, what the rates are and whatnot with a, with a HELOC and a cash out refi. Michael: Yep. And one additional point to add on top of that time, I always seem to be picking piggybacking off you cause you've got such great points. Is your back tired yet from carrying me? Tom: I'll call you Jansport. Go ahead Michael: Is, you know, in the first that we talked about, we're tapping into the equity and now have a usable cash. In addition to still controlling the asset. When we go to sell as with the 10 31 and selling a property straight up as we're going to talk on in a minute, we now no longer own the asset. And in the example of a 1031, we don't have the cash because we need to use all of that cash to buy a new property. Now, of course, if we don't use all the cash, that's called boot and that can be taxed at capital gains rate, whatever. But if the idea is to pay as little capital gains possible, we want to be using all of that gain into a new property. There's going to be nothing left over for us and usable cash. Emil: Talk about boot a little bit. You mentioned it briefly. Michael, do you know that? I think it's the boot is, let's say you sold your property at 200,000. You go and find another property for 150 K you still have $50,000 that isn't used in the 1031 exchange. And so if you don't use that within your 1031 timeline, you're still taxed on that $50,000 capital gain or whatever. Michael: Exactly whatever that Delta is, whatever is not used up is leftover and that's called boot, Tom: Yeah. And that's a con example, you know, you're, you're fitting a little bit more of a piece of a puzzle and you can't fit it just right. You're going to have some taxes. Sorry Emil, go ahead. Emil: All right. Michael, do you want to close us out on selling a property straight up without a 1031 exchange? Michael: Yeah. So last and final way to tap into the trapped equity is just sell a property straight up. So instead of doing a HELOC or a cash out refi or temporary one, just sell the property. If you bought it for a hundred, now you can sell it for 120, sell it for 120. You'll walk away with 20 K and you'll have to pay uncle Sam, the capital gains on that. And depending on what your personal financial situation looks like, that's going to dictate what that game might look like. So if we call it a cool and easy 25%, you'll walk away with 15 grand in your pocket, not a bad payday at the end of the day. So I think a lot of people get hung up in, Oh, I've got to do 10 31. So I've got to do cash. Every fire, I've got to do a HELOC. If you just need the cash quick and you just want to be done with the property, for whatever reason, you just want the cash, you don't want to have to worry about it. Just sell the property. It can be a really, really great option. And again, depending on your personal financial situation, that's going to dictate how much tax you may or may not have to pay on that gain. So Emil, do you have any pros cons to this type of thing? Okay. Emil: Yeah. So I have a personal example of this recently. So I bought a property about two years ago and recently decided to sell it, ended up selling it for the same price I bought it for, for me. So I didn't have to worry about a 1031. I didn't have any capital gains to worry about. I basically ended up a little bit below break even. I lost $1,200 you factor in cashflow and selling and all that stuff. But for me, I wanted, I wanted this down payment back, right. I put 25% down on this property. I wanted my down payment back to be able to go use it on something better that that property was okay. Cashflow property, but I'm pursuing a little bit different of a strategy right now. And there's, again, there's all these different ways you can tap into money. This, this property hadn't appreciated. So cash out refi hayloft weren't really options for me, but I wanted to get a nice chunk of cash right now. And so I just decided to sell this property at basically no gain. So this is something I used recently. Michael: So that's a massive pro. Okay. Emil: Right, exactly. Tom: I like that example because you know, you got you, you dipped your toe and you know, maybe it wasn't like the property you wanted, but I think that the takeaway that I hear from it is, you know, when you do these maneuvers and nothing is locked in stone and you know, these are all, some excellent tools that you have in your back when you are investing in real estate. And there is some appreciation, some extra equity, but ultimately, you know, doing, you have a lot more options within this type of investment and to have these options available, you got to get in, you know? Yeah, Michael: Absolutely. And Emil is something too that I don't think we touched on yet is, is the tax advantages that you've had for the last two years as a result of owning that property. So if we looked at the total total, total return factoring in loan, pay down appreciation, tax benefits, all this kind of thing, my guess is you're, you're gonna end, you're still gonna end up in net positive. So even though you didn't see any true dollars gained in your pocket, if we turn the clock back and look, two years in reverse, you probably did better on this than you would have had otherwise. Emil: Right. And, and to echo Tom's point, it's a learning experience. I didn't lose that much. Right? Like obviously there's an opportunity cost of that money making money over the last two years versus losing. But I think that's part of it, right? I think a lot of real estate investors only talk about the big wins and sometimes it's not always rosy, there are some things that happen that were isn't what you expected. But the important thing is you learn something from each, each maneuver each step Michael: Nicely said, Tom, do you have any good examples of any instances where you've maybe used one or multiple of these strategies to grab some tap equity, some trapped equity? Tom: Yep. So HELOC on my personal house, have that line of credit, uh, did a cash out refinance. It was two years ago on some properties and actually going through a couple of them right now getting a lot of dry powder available if using a lot of, yeah. Of a weapon analogies, Michael: A lot of pirate puns today, Tom: A lot of pirate puns, dry powder anyway, and then did a 1031, a couple of years ago, getting out of a specific geography or I guess a better way to say it is concentrating into a different market than that current, that property was in. And just like we were talking about earlier in doing these exercises, you get experience and kind of understand them that much better Michael: Love that. Emil: How about you, Michael? Any stories you want to call out on using these strategies? Michael: Yeah, sure. So I bought a property, all cash awhile back and then day one cash out refi, 80% of the sale price, which the lender was gracious enough to give me and then basically took all of that cash and put it into the rehabbing of that property. And now that property is worth a whole lot more. And so I intend to go cash out refi again. Now at the higher value after the rehabs all said and done, everything's leased up. So some important things to think about are the refinance costs that I incurred now twice. Thankfully the lender that I work with, the refinance costs, it's the same lender I use for my, HELOC their refinance costs are pretty minimal. So it's not a big deal as far as the costs are concerned, but it's a really great way recycle that cash and only needing to have that initial chunk of change to buy the property, all cash. Obviously we have to make sure that the rehab costs aren't going to exceed the, the 80% refinance of the initial purchase, but that's a really, really, really great tool that I like to use a really great strategy is buying all cash, turning around, refinancing, getting that cash out and then go, go doing it again somewhere else. So then again, I've already spoken about the HELOC I've used. So using those two things in conjunction has been a really, really great way for me to be able to scale pretty rapidly and take advantage of some killer deals that have popped up on the radar over, over the last couple of years. Tom: So one more thing I'll add real quick is knowing what your loan to value is. Um, that's just really important with any of these tools. You want to just make sure that you have an appropriate balance between the total mortgages or HELOC value or whatever out on the property versus the value of the property. And I think, you know, at a minimum, you know, 75%, 80% loan devalue, more conservatively, you can get down to 60%. Well, I'd love to hear what you guys think is an appropriate loan to value ratio. Emil: I'm probably personally pushing it to like the 75 80% cause I'm in growth mode right now. I think later on at some point, just for peace of mind, it's going to switch to, okay, how do I increase my equity on these properties? Maybe sell properties to own certain other properties free and clear, but right now it's kind of just grow. And then I think it will be switching to how do we make this more efficient. Michael: Yeah, anytime I get this question, I think of that song, push it to the limit, push it to them. Cause I totally echoing Emil. I levered up as much as I could when I was in growth mode. And I've talked about this in other episodes. Now I'm looking to really streamline and become super, super lean, super efficient and reduce my loan to value and just being able to do more with less. I also think that depending on the deal itself, I mean, if the, if the value isn't there, but you've got a high loan because it just, the property isn't super valuable, but it cashflows really well. So your debt service coverage ratio, the amount of income that you're bringing in compared to the debt on the property is, is really powerful. Then I'm more okay with that. You know, if I've got the cashflow to cover the debt, even though it might be a very high debt ratio, I'm, I'm comfortable with that. And so everybody's got to reconcile that for themselves and determine what their risk appetite looks like and how comfortable they are with the values that they're working with. But no, I like him he'll have, have levered up as much as I possibly can. What about you, Tom? Tom: Yeah. Growth, growth mode. I mean, debt is cheap right now. So keeping it at, you know, 70% I think is a number that I keep in a keep in the back of my head, and not getting, getting beyond that. Cause once you start getting involved that you risk where if there is like a downturn in the, in the market, getting under water where the value of the loan is greater than the cost of the house, I think it's pretty unlikely, but that's how a lot of people got in trouble in that 2008 crisis is the value of the loans greatly exceeded the value of the houses. And that's not a position that you want to get in. So that's why you want to build that buffer. It's kind of, it's similar to the alligator expression, a property that cashflow is negative. The version of that for value is a property that's underwater. So the worst animal in the real estate investing zoo is the underwater alligator. Emil: Yes. Don't be an underwater alligator finishing strong. Michael: Yeah. Emil: I have a question for you guys. Let's say you have a rental property and does go underwater, right? As long as you have a tenant, who's covering rent, your mortgage, all that stuff. Does it matter? Like as you know, real estate goes in, cycles goes up and down. Let's say you temporarily go underwater, but you're still cash flowing. You're still able to pay everything off. Do you guys think that matters? Tom: It really depends on your situation. Like if you are an ultra growth mode and you are not at risk of not servicing your debt payments, even if you do have a vacancy or something, I think that's fine, but it's pretty situational. So if you have good other sources of income to be able to cover those shortcomings, I think that's fine, but you need to have a, an end game plan as well as some contingencies, if things go sideways, which sometimes they do. Michael: Yeah. You know, it's a great question Emil one that comes up a lot within the Academy. And it's something that I don't pay a whole lot of attention to as far as the value, because I agree that it doesn't really matter. Nothing about that. Snapshot in time has changed. If you have a rental renter paying the rent, your income has not changed. It's totally independent of the value. So as long as you don't need to do anything with that property, either sell it or refinance it or try to get a heat lock on it. It has no impact on the financial picture. In that snapshot of time, of course it'll affect your net worth and all that kind of a thing. But again, it doesn't affect the property's performance. And it's kind of like a stock. If a stock has gone down in value, we don't automatically say, okay, we now we're going to sell it. It's an unrealized gain or loss until we do something with it. Buy, sell refinance. Emil: Yeah. Yeah. I think the same thing I think about it a lot, I guess it's just the unknown of will you need to sell for some unknown life events, right? And then it's, you're putting yourself at risk in that way. Michael: Exactly. Exactly. But that gets into the bigger discussion of having reserves and not, not ever being in that position because you never want to have to fire sale something. Emil: Sure. Cool. I always think about that one. I was curious to get your guys' thoughts on it too. Michael: What's your guys's spirit animal and the real estate investing zoo? Tom: An Eagle. No. Michael: Why? Tom: Agile. Peregrine. Falcon. Fastest animal. Next question. Michael: Yeah, but you're at the zoo. So you've got your wings clipped. Same answer? Tom: I'd fix them. I'm like a lizard. Michael: Grow new wigs that are better faster stronger. Emil, what's your real estate spirit animal? Emil: Oh man. My monkey swinging from property to property. I don't know, man. Michael: That's a good one. Eating bananas the whole time, right? Emil: Exactly. Yourself. Michael? Michael: I'm a duck man. I said it before. I'll say it again. I'm floating. Looking calm on the surface underwater. I'm paddling hardest. Emil: Well, thank you as always everybody for tuning into this episode, make sure you go and subscribe wherever you listen to podcasts, you get new episodes. And if you enjoy the show, please leave us a review. We want to know what you think and we'll catch you on the next episode. Happy investing. Michael: Happy investing Tom: Happy investing

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June 2, 2020

covid-19 america church chicago donald trump bible washington dc george floyd pastor senior chris butler michael love geoff holsclaw

Play Episode Listen Later Jun 2, 2020 72:56

(00:00-09:15): Brian and Ian talked about the on-going unrest around the country in the wake of the George Floyd murder, and what people are doing to support peaceful protest. (09:15-26:24): Chris Butler is the Pastor at Chicago Embassy Church. He joined Brian and Ian to share his reaction to the death of George Floyd and the protests all around the country. (26:24-35:49): Brian and Ian talked about the spike in COVID-19 cases in the wake of the nationwide protests. (35:49-46:03): Brian and Ian shared their reaction to President Trump’s visit to St. John’s Church in Washington, DC and talked about how politicians use the Bible and religion. (46:03-59:46): Romell Williams is the Pastor of Lilydale Progressive Baptist Church in Chicago. He joined Brian and Ian to share his reaction to the death of George Floyd and the protests all around the country. (59:46-1:10:24): Dr. Michael Love is the Senior pastor of Trinity Baptist Community Church International. He joined Brian and Ian to share his reaction to the death of George Floyd and the protests all around the country. (1:10:24-1:12:55): Brian and Ian wrapped up their discussion with a message from friend of the show Geoff Holsclaw to church members in America.See omnystudio.com/listener for privacy information.

Putting yourself out there, re-examining ambition, and finding inspiration in unlikely circumstances with Michael Love Michael

I'm Over It

Play Episode Listen Later May 25, 2020 65:45

On this week's episode of I’m Over It, I sat down with recording artist and Paper Magazine’s Culture editor, Michael Love Michael. When Michael isn’t writing profiles on individuals like Hayley Williams and introducing new music you need to have on your weekly playlist, they’re producing their own musical jams. Recently, Michael released their second song 6 Jaguars, which was inspired by an incredible story revealed in this week's episode. Listen to us talk about putting yourself out there, re-examining ambition, and finding inspiration in unlikely circumstances. Follow Michael at @michaelxomichael, me at @atlantabean, and I’m Over It at @imoveritpodcast

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Metaphysical Soul Speak - - The Podcast!

Play Episode Listen Later Apr 8, 2020 118:37

Intro: Schumann Resonance News for 7 places on Earth. A Course in Miracles Lesson 269. Sun activity, cosmic radiation news, solar wind news, NASA Fireball Network News. ONE BILLION people participated in the 444 Meditation! OMG! Congratulations everybody! Intro: A discussion about how you shouldn't force yourself to go against your own true nature and try to start a new business or get a side hustle, etc. If you're really and genuinely worried about the world right now. You've never been through a global pandemic before! In fact, no one has in 102 years and this is an unprecedented event. And you might need some time to grieve, process, and just be. If all you're doing is surviving and staying home right now that is enough; you're doing okay. Everybody's handling this in their own way and that's okay. Tonight's Topic: I asked Prime Creator 20 questions and get answers via pendulum dowsing. In each of these questions I am asking many follow-up questions as well. Topix tonight include Pleiadians, Coronavirus, extraordinary human abilities coming online, Galactic Federation, is Michael Love real and actually hearing the Pleiadians? What's happening with all Twin Flames around the world? How many Twin Flames, percentage-wise, will get together in 2020? How many people participated in the Awakening of Humanity Meditation on 444? Is there going to be a singular event that affects everybody at the same exact moment? Will we have 3 days of darkness? Did we already have 3 days of darkness? Will all corrupt and evil people leave Earth soon and when? All this and more tonight.

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Moving People in Flow with Michael Love

Sell Less. Mean More.

Play Episode Listen Later Jan 30, 2020 23:27

Michael Love helps people move. On the face of it, he's a third-generation estate agent at the helm of leading Melbourne network Love&Co. Mike blows the stereotype of what an agent is out of the water; way, WAY out of the water. An intrepid young business owner in a fiercely competitive category, this episode of Sell Less, Mean More sees Mike and Iolanthe discussing the import of being present in our business dealings, why being in flow is at the heart of leading colleague or clients ... and why there are fewer women in the Australian real estate category than men. To learn more about Michael Love, follow https://www.instagram.com/michaellovere/ or visit https://www.lovere.com.au/ To learn more about Iolanthe Gabrie, visit iolanthegabrie.com or follow @rubyassembly on Instagram.

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Huskies On Tap Ep.3 Michael Love

Huskies On Tap

Play Episode Listen Later Jan 22, 2020 46:46

This week we had the pleasure of sitting down with Sophomore NIU WR Michael Love. We discussed his High School state championship, the recipe to success for seeing the field his True freshman season as well as the Huskie Special and so much more on this action packed episode of Huskies On Tap!

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Pleyadianos - El evento 2020

Maestros ascendidos

Play Episode Listen Later Jan 12, 2020 12:50

12 de Enero Inicio de la liberación de la tierra Canalizado por Michael Love. Ver en Youtube: https://www.youtube.com/channel/UCIIYtizEWdhacNLg-npaYIg Escuchar Audio en Spotify: https://open.spotify.com/show/0JU2Blx1OfZ8vtGc7y64C1?si=adGgX6llRmKhOfD5c0ImuA Escuchar Audio en Apple Podcast: https://podcasts.apple.com/us/podcast/canalizaciones-de-maestros-ascendidos/id1490261777?l=es Escuchar en Web: https://mx.ivoox.com/es/podcast-canalizaciones-maestros-ascendidos_sq_f1816237_1.html

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Pleyadianos - UPDATE Evento 2020

Maestros ascendidos

Play Episode Listen Later Jan 9, 2020 7:17

Pleyaianos UPDATE Evento 2020 Canalizado por Michael Love. Ver el vídeo anterior: https://www.youtube.com/watch?v=0hhkBPA8nCE Escuchar Audio en Spotify: https://open.spotify.com/show/0JU2Blx1OfZ8vtGc7y64C1?si=adGgX6llRmKhOfD5c0ImuA Escuchar Audio en Apple Podcast: https://podcasts.apple.com/us/podcast/canalizaciones-de-maestros-ascendidos/id1490261777?l=es Escuchar en Web: https://mx.ivoox.com/es/podcast-canalizaciones-maestros-ascendidos_sq_f1816237_1.html

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Selah Korah (Band)

Sound Underground

Play Episode Listen Later Jan 9, 2020 81:20

Selah Korah is an incredible band self described as "euphoniously newfangled". They are based out of Poulsbo, Washington. They've released several singles and are looking to release a full album in the near future. Selah Korah consists of Michael Love, Drew Rochon, Ben Thomas and Olivia Holmberg. They tell the story of their origin and how they've come to be what they are today. Olivia gives us the perspective of a talented young female drummer in a male dominated industry, braving her passions to inspire and revive the efforts of fellow musicians. Like what you hear? Check out their website: http://www.selahkorah.com/index.html containing all of their information to find out their events and projects! #selahkorah # scene #macklemore #patmethany #admiraltheatre #incubate #kitsap #shipyard #bangor #jazz #femaledrummers #poulsbo #emeraldqueencasino #hellsbells #coverbands #charleston #thechuck #church #battlechurch #seattle #ferry #brentdriscoll #album #gamers #rosssandoval #brookchin #location #jamesnewman #rabbitholerecordingstudio #genuine #marketable #good #frenchtomahawk #northkitsapbaptistchurch --- This episode is sponsored by · Anchor: The easiest way to make a podcast. https://anchor.fm/app Support this podcast: https://anchor.fm/SOUNDUNDERGROUND/support

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Pleyadianos - Lo que acontecerá en 2020

Maestros ascendidos

Play Episode Listen Later Dec 18, 2019 11:02

Grandes Seres: Dentro de 4 meses de la Tierra, habrá una Alineación Celestial muy significativa y rara, que comenzará durante la confluencia de Plutón y de Júpiter. . Los poderosos efectos de esta Alineación Cósmica, serán experimentados por las Semillas Estelares de la Tierra, desde el 20 de febrero hasta el 17 de diciembre de 2020. · El impacto energético completo de esta Alineación, llegará a la Tierra a las 11:11 AM del 11/11/2020. Sobre este Evento Celestial les decimos, que el Sol Central, ubicado en el Centro de la Galaxia de la Vía Láctea, recientemente ha tenido una actividad mejorada, con masivas y cíclicas eyecciones desde el agujero negro del Núcleo Galáctico. · Estas Eyecciones del Sol Central están inundando a este Sistema Solar, con partículas exóticas de altas frecuencias de Luz Gamma fotónica y Plasma, que ha sido medida por la Resonancia Schumann de la Tierra en 40-100 HZ y se corresponden con el estado de la Consciencia Gamma. · El límite inferior de la quinta dimensión, o Cielo, comienza exactamente a los 40 Hz y el límite superior termina exactamente en los 100 HZ. · Una dimensión no es un lugar, sino un estado del Ser o Consciencia que se manifiesta a través de la percepción de la realidad. El Gran Sol Central de la 12D es lo que se llama ‘Energía de la Fuente Inteligente' que se emana a sí misma de forma infinita y se manifiesta como TODO LO QUE EXISTE. · El Gran Sol Central de la 12D transmite toda su información en forma de Rayos Cósmicos, para su almacenamiento y uso en este Cosmos local, e incluye al Sol Central en la quinta dimensión. · El Sol Central es un repositorio intergaláctico que sostiene a toda la información de la Luz contenida en este Universo. · Toda la información que existe, son los datos que componen a Todas Las Cosas, inherentes a Todo el Conocimiento de Dios, del Universo y los Registros Akáshicos. · Significa que Todas Las Cosas están compuestas el 100%, por la Divina Energía Inteligente que integra el Universo. · El Repositorio Divino de la Luz 5D ha sido bloqueado por los Seres negativos que ingresaron, durante los últimos 350.000 años, en el campo energético de la Tierra. · Pero las Fuerzas Benevolentes han retirado a través de la Tecnología Cristalina, a todos los sistemas artificiales que bloqueaban la Luz del Sol Central, para ayudar a la humanidad a alinearse con las frecuencias superiores. Los Pleyadianos sabemos en qué puntos específicos del calendario astrológico, se alinearán de manera especial, los cuerpos celestiales de este Sistema Solar y que permiten la llegada a la Tierra, de la Luz del Sol Central. · También, conocemos previamente, cual será el momento oportuno para actuar en nombre de toda la humanidad, durante la fase final de la obra maestra y operación de terminación para la manifestación de la Nueva Tierra 5D. · Los Pleyadianos utilizaremos la confluencia estelar de Júpiter y Plutón en 2020, para enviar desde el Sol Central, cantidades masivas de Luz Gamma 5D. · En este momento, estás frecuencias ya están totalmente presentes en la superficie de su Sol, desde donde serán enviadas a la Tierra. · Esta Luz será recibida, decodificada e integrada por los 4.500 millones de Semillas Estelares de la Tierra, con el propósito de que manifiesten por completo, la nueva realidad de la Tierra 5D. - Este será el punto del cronograma de la historia humana, que expresará el completo clima energético del Evento que cerrará el gran ciclo cósmico de este Sistema Solar y de la humanidad. Algunos miembros de la Alianza de la Tierra conocen con certeza sobre este Evento Solar, ya que, en este momento, su Sistema Solar está atravesando por un área extremadamente energética de la Galaxia. · Las partículas exóticas, contenidas en este Campo de Plasma Cósmico están cargando a su Sol como un super capacitor gigante, y pronto se descargará con un Evento épico de Luz cósmica, que será testimoniado por todos en la superficie de la Tierra. · Otra masiva y magnética onda interna de Luz Blanca 5D del sol Central, llegará a la Tierra a principios de la primavera de 2020. · En ese momento, a medida que vaya abriéndose su Sol, irá construyendo un ápex para el resto de este año y cerca del final de 2020 completará su apertura, donde culminará como un Gran Flash Solar. La Energía que actualmente rodea al planeta, está construyendo un Campo Magnético alrededor de la Tierra, está elevando la vibración planetaria y la Consciencia de todos los Seres vivos. · La civilización de la Tierra está cerca de la transición a una sociedad hiperdimensional, lo cual les permitirá viajar multidimensionalmente a través del espacio tiempo, a través de tecnologías de Energía gratuita del punto cero, que permiten el vuelo antigravitacional. · Además, las capacidades súper humanas serán alcanzadas por las 4.500 millones de Semillas Estelares en la Tierra. - Queridos, ¡esta alineación planetaria será la más poderosa y especial de la historia humana! - Todos los datos intergalácticos, de cada signo del Cosmos, canalizados por cada oráculo, señalan que habrá un inminente Evento evolutivo en el planeta Tierra. Los datos arqueológicos, derivados del carbono 14, están cronometrados en conjunción con varios otros tipos de métodos relacionados con las antiguas fechas, de los siguientes eventos prehistóricos que ocurrieron en la Tierra durante la Alineación Estelar de Plutón - Júpiter: - Destrucción de Tiamat. - El principio y final de la edad del hielo. - La extinción de especies prehistóricas. - Venida de los annunakis. - El gran diluvio. - El primer hombre creado y moderno. - El comienzo y fin de las civilizaciones lemuriana y atlante. - El principio y fin de las razas constructoras de la Tierra. - La desaparición de la cultura maya. - La salida Pleyadiana de la Tierra. En los tiempos más modernos, durante los últimos dos siglos, los astrólogos han seguido y conservado registros escritos sobre esta alineación específica. · Como en los tiempos antiguos, cada vez que se ha abierto este Portal Galáctico, han ocurrido las épocas, eras, eventos y cambios más significativos en el planeta Tierra. · A partir de la primavera de 2020, esta Alineación traerá Energía de la Ascensión, para la liberación y los nuevos inicios de los ciudadanos de la Tierra. · Pero como con cualquier mayor cambio, habrá una cantidad sustancial de caos planetarios en el camino del desplazamiento total de la vieja matriz colectiva 3D, por la Nueva Matriz de Luz 5D. · Esta especial Alineación planetaria será la señal celestial de que la Luz de la Nueva Era de Oro, finalmente ha llegado al planeta Tierra. Queridos, a medida que se acerquen al gran año de 2020, todos deben ser, tanto como puedan, la mejor versión de sí mismos. · En este ahora, la Luz entrante es muy fuerte y durante los próximos meses irá aumentando en Poder, porque se necesita de una frecuencia potente y saludable, para que puedan integrar a estos niveles más altos de Luz fotónica. · Este Ahora, es el momento de que practiquen un mejor cuidado de sus cuerpos, mentes, emociones y Espíritus. - Coman solo alimentos naturales, como vegetales y frutas, también, beban mucha agua pura. - Si sienten la necesidad de descansar y dormir más de lo normal háganlo, ya que les servirá para la integración de estos niveles más altos de la Luz. - Quítense a todas las personas y cosas negativas de sus vidas, procuren pasar más tiempo solos, porque así es como cambiarán y curarán lo que necesitan transformar. - Efectúen la sanación de su trauma interior, para que limpien la Energía emocional negativa y tóxica atrapada en sus cuerpos. - Busquen conocimientos por fuera del sistema de la Mátrix 3D, para que puedan comprender por completo, lo que está pasándoles. - Pasen tiempo en la naturaleza. - Mediten al menos una hora al día. - Los baños diarios con sal marina, harán maravillas en ustedes. - Si lo requieren, soliciten ayuda en los grupos de los medios sociales conformados por las Semillas Estelares. - El uso de Cristales los ayudará a canalizar la Energía de alta vibración, a través de las capas de sus cuerpos. - Ámate a ti mismo más que nunca, ignora la opinión ajena durante la creación de la vida que deseas. Tú que lees y escuchas estas palabras, en este momento, estás entre los primeros, sólo procura mantenerte en esta posición que ahora te encuentras. · En 2020 espera en tu Cielo, a la Gran Fiesta de la Luz, que las Fuerzas Benevolentes y Celestiales, estaremos enviando para ayudar a la humanidad en su gran evolución espiritual. · .Amados, gracias por su Gran Servicio a toda la humanidad y a Gaia. Bendiciones de buena fortuna y de Amor para todos, Somos Los Pleyadianos, a través de Michael Love.

English, Michael - Love is the Golden Rule

Faith Radio Podcast from The Meeting House

Play Episode Listen Later Oct 28, 2019 16:14

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All Things Education part 1

The Triple Effect

Play Episode Listen Later Aug 30, 2019 31:18

Education, not just schooling can change the trajectory of your life. While you are growing, changing within you, you inadvertently change those around you. Join me and my special guest Michael Love, the educator, uniter, advisor while he shares his wisdom and life experiences in education with us.

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All Things Education part 2

The Triple Effect

Play Episode Listen Later Aug 30, 2019 38:42

education michael love

June 24, 2019

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Play Episode Listen Later Jun 24, 2019 73:54

(00:00-09:13): Bishop Dr. Michael Love, of Trinity Baptist Community Church International in Crystal Lake, joins Ian in studio to discuss his organization and the beginnings of BCCI and where he found his passion for the mission of the church. (09:13-18:35): Dr. Love sticks around to talk about community and treading the “tumultuous waters of disagreement.” He believes it is important to enter a conversation aiming to find common ground and coming together through disagreement, rather than separating. (18:35-27:50): He stays to talk about his educational background and his relationship with his wife. He went to Judson University in Elgin and expresses his appreciation for JU’s emphasis on Kingdom expansion and collaboration. (27:50-37:09): Dr. Love rounds off the hour with Ian. He dives deeper into the faith and necessary risks he took with his church. He highlights the importance of faith and fellowship for financial implications. (37:09-46:50): Author Aubrey Sampson joins Ian in studio for the second half of the show today. She discusses her first book “Overcomer” and the difficulty translating experiences into a narrative. (46:50-56:16): Aubrey dives a bit deeper into her latest book "The Louder Song" and the basis of its inspiration: Lament. Her and Ian discuss the importance of lamenting and casting your cares on the Lord. Why do you think God allows pain and suffering? (56:16-1:05:39): She sticks around to talk about her preaching history and how she brings up lamenting regularly. She also touches on the tough climate of being a woman preacher today. She expresses her appreciation for support from men and women of faith. (1:05:39-1:13:53): Aubrey closes out the show talking about her writing process and finding peace in her writing. She expresses the challenges of being a women leader and how she tears down walls and exemplifies women of leadership in the Bible.See omnystudio.com/listener for privacy information.

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Michael Love - Trinity Baptist Community Church International - Crystal Lake - 6-8-2019

Leading the Church

Play Episode Listen Later Jun 10, 2019 36:38

Movie Guys 2049 Episode 36:

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Play Episode Listen Later May 30, 2019 49:43

Brett, Chris Mo, and Michael Love review Booksmart, and that's it! No other content today folks, see the movie, listen to the pod, spread love. Peace up, A-town down.

Movie Guys 2049 Episode 31:

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Play Episode Listen Later Apr 11, 2019 80:54

Brett, Chris Mo, and Michael Love come at you with our Jordan podcast. Each of us battling treacherous illnesseses, but doing it for our loyal 34 listeners. God bless you all. We review Pet Sematary & SHAZAM! Then we build our SHAZAM! Sqauds. The end.

Movie Guys 2049 Episode 30:

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Play Episode Listen Later Apr 4, 2019 69:47

Brett, Chris Mo, Michael Love review Dumbo and deliver our Q1 Earnings Report for our stakeholders. Hopefully we are up to par. If not, that's okay too.

Movie Guys 2049 Episode 29:

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Play Episode Listen Later Mar 28, 2019 85:48

Brett, Chris Mo, Michael Love talk some news, review Jordan Peele's New Nightmare "Us." Then dive into some horror movie hypotheticals as part as a new segment.

Movie Guys 2049 Episode XXIV:

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Play Episode Listen Later Feb 22, 2019 100:13

Brett, Chris Mo, Michael Love review Isn't It Romantic? and Happy Death Day 2U, and also give our full length Oscar predictions. I don't think anyone reads this, and I'm hungry, so I'm just gonna half ass this description. Yell at me if you want better content idc, you're not my mom.

Archangel Michael Love Message

Free Angel Messages from Ask-Angels.com

Play Episode Listen Later Feb 14, 2019 8:54

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Movie Guys 2049 2019 Awards

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Play Episode Listen Later Jan 26, 2019 53:09

Brett, Chris Mo, and Michael Love announce the winners of the Movie Guys 2049 2019 Awards. Congrats to all the daddies!

Archangel Michael Love Message

Free Angel Messages from Ask-Angels.com

Play Episode Listen Later Jan 22, 2019 8:54

Archangel Michael connects in this short message of love to guide and assist you now in rekindling your inner light, … Archangel Michael Love Message Read More » The post Archangel Michael Love Message appeared first on Ask-Angels.com.

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Movie Guys 2049 Episode XVII:

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Play Episode Listen Later Dec 20, 2018 116:52

Brett, Chris Mo, Michael Love do movie news, yada yada yada, bippity boppity, Scaramouche, Scaramouche, will you do the Fandango? We review The Favourite (36:40) and Spider-Man: Into the Spider-Verse (57:20) Then we tell ya ALLLLLLLL about our Top TEN, yeah, TEN Favorite movies of the year! What a treat! Also to those waiting to hear back for the internship, we're swamped with applications, and it might take awhile.

Movie Guys 2049 Episode XVI:

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Play Episode Listen Later Dec 13, 2018 102:54

Brett, Chris Mo, Michael Love talk AVENGERS: ENDGAME!!! Some other movie news too, I guess. We review The Ballad of Buster Scruggs & Mowgli, if you care about that sorta thing (SPOILER: you shouldn't). Then we talk about what films we think would make a good live action remake! Someone needs to scold Mike for saying "Betwixt" like 8 times too, like wtf man. The end. Love you guys.

Movie Guys 2049 Episode XV:

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Play Episode Listen Later Dec 6, 2018 102:30

Brett, Chris Mo, Michael Love, back at it again with another pod and outdated meme. I hope you enjoy the bad photoshops as much as I do too. Anyways, we have movie news, we review Green Book and Instant Family, then we adopt (what we think) who we'd like to be in our movie families. Also, I'm gonna add in some time codes here for the start of each review/segment per a listeners advice. If you have other suggestions, hmu, I gotchu. It's all about the #CONTENT baby!!! Green Book review (33:10) Instant Family Review (54:30) Movie Family Adoption (1:18:45)

Movie Guys 2049 Episode XIV:

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Play Episode Listen Later Nov 29, 2018 119:44

Brett, Chris Mo, and Michael Love here back at it again with another movie pod. DAT LION KING TRAILER THO!!! Brett makes a deal, Guillermo del Toro movie ideas, AVENGERS 4?! We review Ralph Breaks the Internet and Creed II, then rank our top 5 Favorite Sequels. Idk if y'all read this part, but I like to have fun with it. If you do, tweet a "Moo" at Mike or send him an unsolicited "Moo" DM on Insta. Don't tell him what it's for tho. It's way more funny if he gets 30 or so "Moo's" sent to him. Anyways, thanks for listening. We love you

Michael Love – Tapping Deep Emotions

ATX UnBound

Play Episode Listen Later Nov 21, 2018 21:28

Michael Love – Tapping Deep Emotions Being brave enough to step out and say, “I’m gonna make work that speaks to this part of my identity”. Michael Love’s work is like nothing you’ve ever seen before. He’s a tap dancer who taps to hip-hop, funk and videos of social justice work. His dance taps deep […]

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Movie Guys 2049 Episode XII:

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Play Episode Listen Later Nov 14, 2018 94:45

HOOOOOOOOO boy do we have an episode for you. Brett, Chris Mo, Michael Love talk movie news, review Overlord, and talk our top 5 movies we're looking forward to for the rest of the year. Yeah, I know we already did that, but we saw those other five movies, and there's a bunch of other ones coming out. So we're doing it again. Kill me. We average 34 listeners, so it doesn't matter. Jk. You matter. We love you. Subscribe to the pod and rate 5 stars plz. RIP Stan Lee. You magnificent man. Thank you. Excelsior!

Movie Guys 2049 Episode XI:

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Play Episode Listen Later Nov 9, 2018 119:47

Brett, Chris Mo, and Michael Love talk movie news, shit on Mike a bit (for fun), review Bohemian Rhapsody and Mid90s, and talk about our top 5 movies that shaped our childhood. Folks,, if you're looking to look back at the past, BOY DO WE HAVE AN EPISODE FOR YOU. So much nostalgia, I literally can't even. Enjoy. Luv u

Movie Guys 2049 Episode IX:

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Play Episode Listen Later Oct 18, 2018 118:36

Episode IX: Brett, Chris Mo, Michael Love talk movie news, review First Man & Bad Times at the El Royale, then rank our Top 5 Space Movies. This episode is truly out of this world. You know who else is out of this world? You. You're our supernova listener ;). Yeah that's a half Zenon Girl of the 21st century reference, what about it? Read a book idiot. Jk we love you no matter what. plz listen we r begging, she took the kids..

Lessons from David (Bishop Dr. Michael Love; 10/17/18)

Judson University Chapel

Play Episode Listen Later Oct 17, 2018 31:22

Bishop Dr. Michael Love shares with us things to learn from David before David became king.

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Movie Guys 2049 Episode VII:

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Play Episode Listen Later Sep 27, 2018 86:21

Brett, Chris Mo, and Michael Love talk movie news (NEW FANTASTIC BEASTS TRAILER!), Review Life Itself, and rank our Top Five Movies that critics hated, but we loved. You know what else we love? You. We love you. Yeah you. Bless you. Subscribe to us. We subscribe to you ;). How bout a 5 star rating? Not much to ask for someone who's 10 stars ;) ;) ;)

Movie Guys 2049 Episode VI:

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Play Episode Listen Later Sep 21, 2018 95:27

Brett, Chris Mo, and Michael Love talk movie news (CAPTAIN MARVEL OMFG PASDOFIUSAPOFISADOISDJPVOIJSAOPIPADJAOI!!!!!!!!!!!!), Review White Boy Rick and A Simple Favor, and rank our Top Five Movies "Based on a True Story". Also if you're reading this, you are a beautiful person, and mean the world to us. I love you, and hope you have a wonderful day.

Movie Guys 2049 Episode V

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Play Episode Listen Later Sep 14, 2018 83:26

Brett, Chris Mo, and Michael Love talk movie news, talk Chance the Rapper's Slice (not Mike tho, because he's not dedicated enough to the pod), Review the Nun, and give you the definitive list of greatest movie snacks we eat our feelings with.

Movie Guys 2049 Episode IV

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Play Episode Listen Later Sep 4, 2018 95:50

Brett, Chris Mo, and Michael Love talk movie news, we Make Mo Happy (La La Land), review Searching, and rank our Top Five Thrillers

Movie Guys 2049 Episode II

Play Episode Listen Later Aug 24, 2018 104:51

Brett, Chris Mo, and Michael Love talk Movie News: -Little Mermaid live action casting -Rom Com star's bad tweets -Suspiria trailer Reviews: -To All the Boys I've Loved Before -Crazy Rich Asians Rankings of our top five Romantic Comedies

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Movie Guys 2049 Test Episode: