11/25/12: Taking Control of Your Retirement Account – Alternative Capital to Fund Your Real Estate Investing

Finding money to take advantage of the many great bargains in today’s real estate market can be challenging.  After all, those easy cash out loans and the equity they created are largely gone.  So investors have been looking in other places for investment capital.

In this episode of The Real Estate Guys™ radio show, we re-visit retirement accounts as an alternative source of investment capital.

In the broadcast control center, finding alternative topics to discuss:

  • Your air-talk traffic controller, host Robert Helms
  • Your alternative co-host, Russell Gray
  • The Godfather of Real Estate , Bob Helms
  • The Managing Director of Sovereign Pension Services, Larry Grossman

One of the still largely underutilized sources of investment capital are Individual Retirement Accounts (IRAs) and “leftover” 401ks.  A “leftover” 401k is one that is left over (and often overlooked and forgotten) from a previous employer.  Many people don’t realize these old 401ks are eligible to be converted into self-directed retirement plans.

In fact, since we’re on the topic of things many people don’t know (at least about retirement accounts), one is that retirement accounts can actually be “self-directed”.  This means the owner (YOU) can decide what investments you want to place inside the tax advantaged account and you’re NOT limited to whatever an employer, stock brokerage, insurance company or other custodian dictates or steers you towards.

In fact, you can invest in virtually ANYTHING you want, except for a VERY short list of things that the IRS prohibits.

Keep in mind we’re just radio talk show hosts.  We’re not tax guys, lawyers or investment advisors.  So be sure to check with your own advisors before you take any action based on something you hear on a radio show (even ours!).  The good news is that there are several excellent companies who provide great educational content and custodial services to help you put your retirement funds to work in “alternative” investments.

And speaking of “alternative”, think about this…

Wall Street marketing has so permeated the way people look at investing that paper assets like stocks, bonds, mutual funds and derivatives are considered “traditional”.  While “non-traditional” investments include things like real estate, mortgages (real ones, that are tied directly to a real borrower and a real property as opposed to the securitized mortgages Wall Street blew up the financial markets with), and metals (gold, silver, etc.).

Really?  Since when is paper traditional, while real estate and gold are not?  Seems to us that real estate and gold were the things that rich people traditionally invested in before Wall Street came along to “improve” everything.  But that’s a rant for a different day.

For this episode, we talk with Larry Grossman, who is Managing Director for a company that provides custodial services for investors wanting to self-direct their retirement accounts.  The reason you need a custodian is because one of the rules the IRS imposes on investors in tax -advantaged retirement accounts is you can’t touch the assets.  So you need a custodian to hold onto them for you.

But once the custodian has the assets, it’s up to you as the owner, to tell the custodian what to invest in.  It may sound complicated, but it’s actually pretty simple.  However, it’s also very important to COMPLY with the various rules to make sure you don’t trigger an unpleasant tax consequence. (Is there such a thing as a “pleasant” tax consequence?  Maybe a refund?)

So don’t be intimidated by taking charge of your retirement account and self-directing it away from Wall Street and towards investments and people you understand and trust.  You can begin by getting educated, then by taking steps to move your funds to a custodian who will support your declaration of independence from Wall Street “tradition”.

Listen Now

  • Want more? Sign up for The Real Estate Guysfree newsletter
  • Don’t miss an episode of The Real Estate Guys™ radio show! Subscribe to the free podcast
  •  Stay connected with The Real Estate Guys™ on Facebook!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!

11/18/12: Don’t Give Up, Give Back – Turning Your Passion Into Action

Do you ever get discouraged or wonder if there’s more to life than just making money and having a good time?

As the U.S. celebrates Thanksgiving and heads into an orgy of consumerism starting with Black Friday and Cyber Monday, we thought it important to reflect on some of life’s higher purposes – at least as far as investing goes.

Behind the microphones for today’s inspirational episode:

  • Your higher powered host, Robert Helms
  • The turkey co-host, Russell Gray
  • The Godfather of Real Estate, Bob Helms
  • A not-so-ordinary investor with a purpose, Rita Khagram

We’re guessing you’ve never heard of Rita Khagram.  She isn’t famous or outrageously wealthy.  In fact, if you met her on the street you’d guess she’s just an ordinary woman working her way through life, which is true.  But then again, it’s only part of her remarkable story.

We first met Rita at a Rich Dad Advisor retreat.  Robert Kiyosaki asked her to share how the lessons of Rich Dad Poor Dad and the Cash Flow game had impacted Rita’s life.  When she finished telling the story, there wasn’t a dry eye in the room.  It was THAT powerful.

But in addition to being inspirational, there were also some very practical lessons about business and investing.  So even if you’re not that into heart warming stories, you’ll like this interview because Rita shares valuable practical lessons she’s learned about both investing and building successful businesses.

And while she’s no Donald Trump (yet), Rita has acquired over 20 properties in just 3 years, while also building and expanding a successful optician business.  She credits much of her success to the practical financial education she received through Rich Dad.

But there’s much more to Rita’s story than just her real estate and business success.

Rita was born into a culture that didn’t empower women.  Undeterred, she set off to achieve success in business and prove to her father she was every bit as capable as a son.  However, she paid a big price for her ambition.

Rita’s business took her away from her then very young daughter, who grew to be resentful and rebellious.  By the time Rita found success in business, she discovered she was failing as a parent.  It was a profoundly painful realization.  But she didn’t hide or quit.

Instead, she redirected the same drive which compelled her to prove her worth to her father and focused it on reorganizing her life and winning back the heart of her daughter.  This is where Rita discovered the teachings of Robert Kiyosaki and Rich Dad.

Realizing that she needed to focus on building businesses and generating income without trading time for dollars, Rita sold her business and began the hard process of rebuilding.  And a critical oversight in tax planning meant she had to start over from next to nothing.

This time, however, she maintained her focus on her family.  By the time we met Rita at the Rich Dad retreat, her daughter (now a young woman) was at her side and the affection between the two was apparent.  Rita has succeeded beyond her financial statement!

But, there more to the story…

When you listen to Rita explain all of this, pay careful attention to what she decided to do when she was between finding she’d lost everything and getting back to work to rebuild it all.  Not only was it a brave decision which reflected the new commitment to balance in her life, but it turned out to be what brought her to yet another watershed moment in her development as an investor and entrepreneur.

Rita had a profound experience while traveling in India, which brought purpose to her investing beyond herself.  But rather than tell you that part of her story, we encourage you to listen to this episode and hear it directly from Rita.

Then afterwards, think about the blessings in your own life and how, when you might be tempted to give up, you can find a higher purpose to inspire you to keep moving forward in the face of all obstacles.

Listen Now:

  • Want more? Sign up for The Real Estate Guysfree newsletter
  • Don’t miss an episode of The Real Estate Guys™ radio show! Subscribe to the free podcast
  •  Stay connected with The Real Estate Guys™ on Facebook!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!

 

 

McAfee Antivirus Founder Suspected of Murder in Belize

Sometimes bad stuff happens…even in beautiful places.  And sometimes, bizarre events can affect our investments and even our investing psychology.

The bizarre story about John McAfee’s potential involvement in a grisly murder on the tranquil island of Ambergis Caye Belize has become a major focus of the international media.

It’s a sad story on many counts, most importantly because 52 year old American expatriate Gregory Faull is dead.

We didn’t know Mr. Faull, but our thoughts and sympathies are with his friends and family.  They are innocent victims of this unfortunate turn of events.  It’s always traumatic and tragic to lose a loved one.

And we don’t know John McAfee personally, so our interest in this story isn’t about him either. It’s more about our our roles as unofficial ambassadors for Belize.  Since our first visit nearly 7 years ago, we’ve been telling the world how wonderful Belize is.  Then a story like this one breaks, and being so close to the community of Ambergris Caye, our sympathies are not only with the victim, but with the people of Belize.

Of course, what the world is obsessed with is the eccentric tragedy that is becoming the life of John McAfee.

McAfee’s anti-virus software company made him a household name.   Sadly, ugly things happen every day all around the globe, but when the parties involved in tragic events are famous, like O.J. Simpson, Michael Jackson or John McAfee, the story can easily get blown entirely out of proportion.

For the residents of Ambergris Caye, the ramifications of the world’s temporary fixation on this story range from difficult to devastating.

It’s bad enough to have a horrible murder occur in your community. But when the prime suspect is a celebrity who alleges to the world that your police department is corrupt and your community is unsafe, it’s extremely upsetting.  More, for a community whose economy relies significantly on tourism, the magnification of this story can have a highly detrimental impact on the good and innocent people of Ambergris Caye.

Having spent a lot of time in Ambergris Caye, we feel compelled to put the McAfee story in perspective for those who don’t yet know, or are just getting to know, Belize and Ambergris Caye.

We have many friends there and for many years, we’ve been introducing people to this beautiful Caribbean paradise.  It saddens us that many people around the world are drawing negative conclusions about Belize simply based on the sensationalism surrounding the McAfee story.

So here are some things to take into consideration when forming opinions about Belize and Ambergris Caye in the wake of the the McAfee murder mystery…

Belize is a country that is roughly the geographical size of Delaware, but has a population of about 330,000.  The country has two primary components: the mainland and the islands (Cayes).

Ambergris Caye is the largest island, measuring approximately 24 miles long and 3 miles wide.  By comparison, the largest island in The Bahamas is New Providence, which is 21 miles long and 7 miles wide.  The well-known city of Nassau is located on New Providence.

Although Ambergris Caye makes up only 63 square miles of Belize’s entire land mass of 8,867 square miles, 70% of all tourists to Belize visit Ambergris Caye.  Both John McAfee and his late neighbor, murder victim Gregory Faull, maintained residences on Ambergris Caye.  It’s a favorite of many American and Canadian expatriates and when you see it in person, it’s easy to see why.  It’s beautiful, warm, friendly and (dare we say?) safe.

Our good friend and American expatriate John Turley, who has been living with his family and working in Ambergris Caye since 2005, recorded a video of both Mr. McAfee’s and the late Mr. Faull’s homes.  In the video, John shares his personal perspectives on the sad story.

 

As you’ll see, these homes are not hiding behind gates and guards deep in some topical jungle.  Rather, these homes are right out on the open beach, facing the barrier reef and Caribbean Ocean.  We’ve passed by these homes several times during our many travels to Ambergris Caye.  We’ve never seen anything that raised a concern for us.

Of course, though we’ve been to Ambergris Caye many times and have walked around freely in town (at all hours of the day and night) without ever feeling unsafe, our experiences are purely anecdotal and potentially biased.  It’s no secret we love Belize.

So setting our personal experiences aside, here’s some third party information that’s worth considering…

From the United States Department of State Bureau of Diplomatic Security’s Belize 2012 Crime and Safety Report:

“Many of the safest places in Belize are the off-shore cayes (islands), which are some of the major tourist destinations. While crime still exists on the cayes, it is much less frequent and generally non-violent.”

This isn’t to say there isn’t crime in Belize.  In fact, the murder rate per capita is high by international standards.  However the vast majority of these murders are gang related and in the major mainland cities of Belize City and Belmopan, not on Ambergris Caye.  When you understand that, then the Department of State’s comment makes more sense.

So, in addition to Mr. MacAfee’s celebrity and eccentricity, another reason Mr. Faull’s murder is such big news in Belize is that this kind of crime rarely occurs on Ambergris Caye.

For additional contrast, consider the Department of State’s report on The Bahamas:

“The U.S. Department of State rates the criminal threat level for New Providence Island as CRITICAL”

Again, New Providence is the largest island of the Bahamas and home to the city of Nassau.  New Providence Island in The Bahamas, like Ambergris Caye in Belize, is a beautiful tropical island in the Caribbean and is part of a larger country.  Both islands attract tourists, expatriates and international investors.  We believe the similarities warrant our comparison.

More from the U.S. Department of State on The Bahamas:

“There were 127 homicides in The Bahamas in 2011, up from 94 in 2010, with nearly all the victims being Bahamian. This is a 35 percent increase from 2010. The police report that many of the homicides were a result of drugs, domestic violence, and retaliation/retribution crimes with firearms being the weapon of choice.”

Yet a cursory search of the internet does not find a plethora of news articles reporting on the dangers of visiting The Bahamas.

In fact, in an article published in the New York Times to help readers enjoy a successful trip to The Bahamas, there is no mention of crime. Neither is the Bahamian murder rate an item of discussion in the many articles describing Prince Harry’s visit there earlier this year.

What do you think the chances are that many of the news articles that will be written about Belize in the coming months will mention the John McAfee murder investigation?  And not to belittle the tragic murder of Gregory Faull, is it really fair to the community of Ambergris Caye to cast it in the shadow of a single horrible crime simply because the leading suspect is famous?

Back to Belize, again from the U.S. Department of State:

There were 125 murders recorded [in Belize] for 2011, four less than 2010, likely due to the gang truce in Belize City that began in September 2011. However, even though the number of murders dipped, ending a three-year trend of new records for murders, the murder rate actually increased slightly, due to a slight decrease in the population. A government of Belize (GOB)-supported gang truce was agreed to in September 2011 and dramatically reduced the intentional homicides during the final four months of 2011. There were also highly-publicized raids in known gang areas by the Gang Suppression Unit (GSU). There were only nine murders reported in the 100 days following the truce. The gang truce will undoubtedly have an impact on violent crime in Belize City in 2012.

If you’ve made it this far, we assume you’re seriously interested in understanding the context of the McAfee story, so let us point out a few important items.

First, both The Bahamas and Belize have populations in the mid-300,000 range.  Each had approximately 125 murders in 2011, most of which were drug and gang related.

However, the crime threat in The Bahamas is considered CRITICAL by the U.S. government, while Belize is not.  Yet, if you were to Google “The Bahamas” and “Belize”, the search results (many of which feature the McAfee story) might have you believe that Belize is a far scarier place, which is factually not true.

To add some additional context, consider another U.S. city that attracts millions of visitors every year.

New Orleans also has a population in the mid-300,000’s, putting it on par with Belize and The Bahamas.  In 2011, New Orleans had 199 murders, making it statistically far more deadly than either Belize or The Bahamas.  Yet many people, especially Americans, don’t hesitate to go to New Orleans for a conference, vacation, entertainment or business.

We hope by now, the point is obvious.

If a celebrity in any town in the U.S. is the prime suspect in a grisly slaying, it gets pasted all over the news.  Just think about the O.J. Simpson case.

But Nicole Brown-Simpson’s horrifying murder didn’t suddenly make Brentwood a grossly unsafe place, though we’re certain is freaked out the neighbors.

Of course, as a suburb of Los Angeles, sensationalized news coverage could blend Brentwood’s low crime rate with the larger metro’s higher rate, and then in the context of the Simpson case, it could make Brentwood seem like a war zone.  That’s what happens to Ambergris Caye when it gets lumped in with Belize City.  But it’s not an accurate story.

The sad part for us, as big fans of Ambergris Caye, is innocent people and businesses will be detrimentally affected by this over-hyped story.  Because when tourists and investors turn away from Ambergris Caye simply because of the John McAfee story, the good people who work in the Belizean economy will be unfairly victimized, making an ugly story even more tragic.  We’re guessing no one will report on that.  It isn’t sexy.

Of course, we see opportunity in nearly every adversity.  And just like when a corporate scandal is reported about one company in a given sector can unfairly drop the prices of every other perfectly fine company in the same space, savvy investors can move in when most casual observers are moving away.  Then later, when things calm down and perspectives normalize, the level-headed investor finds themselves holding a valuable asset.

So if you’re someone who’s considered Belize for vacation, second home, business or investment, before you judge Belize in the wake of the John McAfee story, be sure to keep the sordid affair in context.

Meanwhile, we invite you to join us on an upcoming trip to Ambergris Caye and come see beautiful Belize for yourself.  Statistically speaking, it would be safer than spending a weekend in New Orleans (not that we would discourage from visiting NOLA…we just did and it was great!).

In any case, we encourage you not to allow sensationalized news to taint your view of Ambergris Caye, a.k.a. La Isla Bonita, one of the truly wonderful places on Earth.

11/11/12: Equity, Debt and Syndication – Finding the Money and the Deal

We think the greatest opportunity in real estate right now is syndication.  When you can put money and deals together and get a piece of the action, you not only get to do bigger, more interesting deals, but you can make a ton of money too!  What’s not to like?

Of course, what Uncle Ben told Peter Parker in the original Spider-Man movie remains one of the great pieces of cinematic wisdom:  “With great power comes great responsibility”. How come the older guys are always so smart?

Our point is that if you’re going to get rich using OPM (Other People’s Money), you’re taking on a big responsibility.  Don’t you think it would be a good idea to get some advice from an older, more experienced investor?

We thought so.  That’s why we packed our bags and headed out in search of sage real estate syndication wisdom.  We ended up in Los Angeles, California in the offices of Standard Management Company, where we sat down with one of the most seasoned, successful and respected syndicators around.

In the broadcast kitchen, cooking up another appetizing episode of The Real Estate Guys™ radio show:

  • Your just in thyme host, Robert Helms
  • The parsely talented co-host, Russell Gray
  • Our sage and seasoned special guest, Samuel K. Freshman

There are only a handful of real estate investors who are mainstream celebrities.  The most famous is probably Donald Trump.  Robert Kiyosaki is often thought of as a real estate investor, but he’s really much more about financial education (though he loves real estate).  But Kiyosaki’s done a good job highlighting his personal real estate advisor, Ken McElroy, who’s become a good friend of ours and is one of the most successful real estate syndicators around.

So who the heck is Samuel K. Freshman?

Like our very own Godfather of Real Estate, Bob Helms, Sam began his real estate investing career in 1957.  In 1961, Sam founded his real estate syndication company.  Since then, he’s been involved in deals exceeding $500 million.  And when you consider the price of real estate in the 60’s, 70’s and 80’s, that’s a lot of deals.

All that to say, Sam’s been around the block many times when it comes to real estate and syndication.

Now Sam is a generous guy who’s happy to share his wisdom.  In fact, he wrote a book called Principles of Real Estate Syndication, which is THE textbook for real estate syndication.  We highly recommend it.

As you listen to our interview with Sam, you’ll notice that he has a very no non-sense, pragmatic adherence to certain principles he considers essential to success.  It’s what makes him one of our favorite mentors and why we’re excited to share him with you.  His words of wisdom are time and field tested.  So grab your notepad and listen in to our conversation with master real estate syndicator, Sam Freshman!

Listen Now:

  • Want more? Sign up for The Real Estate Guysfree newsletter
  • Don’t miss an episode of The Real Estate Guys™ radio show! Subscribe to the free podcast
  •  Stay connected with The Real Estate Guys™ on Facebook!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!

11/3/12: Sharpen Your Pencial and Do the Math – Utilizing the Formulas of Real Estate Investing

“Do the math and the math will tell you what to do!”

Sounds good!  But how?

That’s the topic of this episode of The Real Estate Guys™s radio show!

In the studio behind the powerful platinum plated microphones:

  • Your calculating host, Robert Helms
  • Your full-figured co-host, Russell Gray

We know.  Math isn’t sexy.  It isn’t even real fun. And it sure doesn’t make for compelling radio.

Nonetheless, knowing how to do proper financial analysis is a fundamental, essential, mission critical survival skill for every income property investor big or small.  And we’d be remiss in our duties as world class real estate investment talk radio show hosts if we didn’t dedicate at least one show to this important topic.

So grab some refreshments (Red Bull, coffee, 5 hour energy, Jolt, etc) and grab your calculator, note pad and pencil and get ready for some (yawn….) exciting, useful, practical content!

In this episode, we identify 7 financial formulas which are essential for everyone who invests in income property, whether it’s single family homes, apartment buildings, strip malls, mobile home parks, office or industrial space, or even a parking lot.  If it generates cash flow, these are formulas you need to know:

  1.     Gross Rent Multiplier (GRM)
  2.     Net Operating Income (NOI)
  3.     Capitalization Rate (Cap Rate)
  4.     Before Tax Cash Flow (BTCF)
  5.     After Tax Cash Flow (ATCF)
  6.     Cash on Cash Return (ROI)
  7.     Internal Rate of Return (IRR), or as we like to call it, Total Return

We won’t clog the blog with the formulas and details.  If you want to see all that in written format, check out Chapter 9 of Equity Happens, our amazing and highly rated book on real estate investing (that was a shameless self-promotion, if you didn’t catch it).

But before you play hooky and skip this episode, let us give you a few reasons you want to pay attention.

When you know how to do these formulas and interpret the results, you can tell if it makes sense to borrow to acquire the property.  You can tell if a market is over-heated or still has some upside.  You can effectively compare the financial return of any property compared to any other property as well as any other kind of investment.  And you can tell if someone is feeding you a big bag of cow chips when they hand you their pro-forma and tout their amazing “cash on cash” return.

So guzzle down some financial stimulus, and listen in as we show you how to sharpen your pencil and do the math!

Listen Now:
  • Want more? Sign up for The Real Estate Guysfree newsletter
  • Don’t miss an episode of The Real Estate Guys™ radio show! Subscribe to the free podcast
  • Stay connected with The Real Estate Guys™ on Facebook!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!