5/25/14: Diary of a Resourceful Investor – Using What You Have to Get What You Need

How do you buy real estate with no money and no credit?

This is one of the most asked and abused questions in the real estate investing education business.

The good news is that it can be done.  To find out how, we dial up a good friend who’s not only figured out how to do it consistently, he also loves to share his secrets for success!

This episode of The Real Estate Guys™ radio show features:

  • A true resource of broadcasting brilliance, your host Robert Helms
  • His next-to-nothing co-host, Russell Gray
  • A truly resourceful real estate investor, J Massey

Talking to J is always a fun time.  He’s full of enthusiasm, wisdom and catchy phrases that quickly communicate complex ideas.

We first met J Massey in our Southern California real estate investor mentoring program just after The Crash of 2008.  We soon discovered that J had experienced a series of personal disasters which left him with useless credit, no money, no equity and no income.  Yikes!

But having a wife and four children to support, failure was not an option, J developed an uncanny resourcefulness which allowed him to build a successful real estate investing business and portfolio.

Back in 2012, we invited J to tell his story to our radio audience.  You can find that interview here.

Since then, J’s joined the faculty of our Summit at Sea™.  We’ve been proud to introduce him to our friends and fellow broadcasters, Robert Kiyosaki and Simon Black, and J has been a guest on both of their programs.

So what makes J so interesting and what can we learn from him?

What stands out to us is J’s mindset.  So many people think achievement starts with knowledge.  Of course, knowledge is important, but it isn’t first.  Mindset is.

“Look for problems, not for properties.”

J says the first important mindset is to focus on looking for problems, NOT properties.  When you look for properties, all you see are things you can’t afford with your current resources.  That’s discouraging.

Better to look for problems and then challenge yourself to find solutions.

Why?  Because resources are solutions.  But outside the context of solving a problem, resources are all but invisible.  However, once you have a problem to solve, you begin to see the potential for the people, things and circumstances around you to solve the problem.  NOW you can see all the resources available!The world is full of resources to help solve your real estate investing problems

“No one has a money problem.  They have an idea problem.”

This is true not just for you, but for most of the people out in the world.  Our friend, Blair Singer, says “When emotions are high, intelligence is low.”  That is to say that when people get freaked out about their finances, they can’t think straight.

If you can learn to keep calm in a crisis, you will see solutions that others won’t.  And when this happens, you have something VERY valuable to bring to the party.

“Fail fast. Fail forward.  Fail frequently. That’s how you learn quickly.”

How fast do you want to find a solution?  The sooner you start trying, the sooner you find the answer.  We all want the smooth, painless, non-stop ride to the top.  But the real world is full of sometimes painful setbacks and disappointments.

But inside every failure is useful feedback.  If you learn to find it, you’re a better, smarter investor.

With each experience, you find out what works, what doesn’t and ultimately what works best.  Next time, you see more potential solutions faster and your odds and effectiveness improve.

It’s all about others. 

It sounds so simple.  But when you’re starving and scared, it’s easy to make it all about you.

However, when other people understand the problem, how they fit into the solution, and why being involved benefits them, they will almost always provide the resources necessary to achieve the goal.

Been there. Done that.

Here’s the great news:  No matter what problems you find yourself or others facing, someone has probably already figured out how to solve all or part of it.  So you don’t have to be the smartest guy or gal in the room.  You simply have to be the one willing to invest the time and effort in finding those people more experienced than yourself.

And while this all sounds good on the chalkboard, J is out on the field running the plays and making it happen.  He would be the first to say that if HE can do it, so can YOU.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

5/18/14: Lots of Real Estate – Strategies for Investing in Land

Land investing is a very unique aspect of real estate investing.  Raw land typically doesn’t provide income or tax breaks.  And without a tenant to make the payments, there’s no amortized equity.  Besides, with no income, borrowing to buy land can be risky business.

So why do it?

Well, as you might suspect, there are…lots of reasons.

In the studio for this episode of The Real Estate Guys™ radio show:

  • Your well-grounded host, Robert Helms
  • His dirt-poor co-host, Russell Gray

While the Holy Grail of real estate investing is passive income, it takes equity to acquire those income producing properties.  And it’s wise to have adequate liquid reserves to handle maintenance, repairs, turnover and marketing.  Of course, if you use debt to acquire your income properties (and why wouldn’t you?), then you’ll need to have additional reserves to service that debt when the property is sitting vacant.  So liquid cash (currency of something else that is readily convertible into currency) can be pretty handy.

Of course, once you have all the currency you need, not to mention that once your empire of income properties starts pouring out piles of positive cash flow, you might want a place to park some of that money for the long term where tenant and toilets aren’t involved.  Someplace not subject to counter party risk…and in something that will retain it’s relative value, no matter what happens to the currency.

Land can be a great place to store long term or generational wealth.So reason #1 for buying land is long term preservation of wealth…even generational wealth.  Think of it like gold or fine art.

In fact, if you’ve been listening to James Rickards (author of Currency Wars and The Death of Money), he’s an advocate of using real assets (versus paper currency) as a means to store long term wealth.

In other words, instead of building up a savings account full of dollars, convert those dollars into real assets by buying things like land, precious metals and fine art.  His point is that these items have a long term history of being relatively safe stores of value in unstable economic times.

Of course, if you’re strategic about the land you buy, you could end up doing more than simply storing value (hedging against inflation).  You might actually make a profit (appreciation) as the land becomes more desirable (location and path of progress).

And if you’re feeling more ambitious, you could “force equity” by improving the land.  This could be as simple as sub-dividing, changing the zoning or acquiring other entitlements.  In this case, the land might appear completely unchanged to the naked eye.  But the legal rights and permissions associated with the land could make the land more valuable to the next buyer.

Of course, that brings up the question of exit strategy.  One of the basic tenets of real estate investing is not to get into a deal you don’t have at least one (and preferably more) clearly identified strategies for getting out.

When it comes to land, the best way to think about possible exits is to understand the life cycle of a property.  Of course, land almost always lasts forever, so you could argue the life cycle is forever.  But for our purposes, we’ll think of land as starting out as raw (no entitlements of infrastructure like sewer, power, streets, etc).  From there, it becomes entitled, infrastructure is added directly on the land or nearby, improvements (buildings) are added, and eventually human beings live, work or play on the property.

Most people think of real estate only in it’s “finished” state (ready for human use).  Land investors see the whole cycle.  And each step along the way, value is added to the land.  And anywhere along the line, the original land owner can hand off the development baton (sell) to the next guy who’ll take it to the next level.

Obviously, the closer the land gets to a finished product (and depending on what the finished product is), the number of potential buys grows and the property becomes more “liquid” (easily sold and converted to cash).  Like a bus, you can get on at the beginning, in the middle, or near the end, and ride as long as you like.

Land investing is usually long term which makes it ideal for retirement funds.  Especially because tax advantaged accounts don’t really need the tax breaks…and land doesn’t provide any.

But land, like any asset, can also be flipped quickly for a profit if it can be acquired or controlled at a price below what someone else might be willing to pay.  Again, keep in mind that there are typically fewer buyers at the front end of the life cycle.  Of course, you only need one!

One final note…

In addition to being a long term store of wealth, land can also be a powerful part of an international asset protection strategy.  As FATCA compliance descends on the global investors, land is an asset which remains more private and unattractive to revenue starved governments than off-shore bank and brokerage accounts.  So if privacy and asset protection are high on your list, you might consider using off-shore land as a place to store long term wealth.  Who knows what that little Caribbean island will be worth some day???

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5/11/14: How to Know if a Real Estate Market is Real

Markets get hot for different reasons and if you can get in front of a rising market, it can be a lot of fun.

But when the tide of hot money rolls back out, does your market have a solid foundation for stability and recovery?When real estate investing, it's important to consider infrastructure

It’s an important question.  So we decided to dedicate this episode of The Real Estate Guys™ radio show to one of the most important foundations of a solid real estate market: infrastructure.

Behind the shiny microphones to talk about the role of infrastructure in real estate market analysis:

  • Your stable host, Robert Helms
  • His recovering co-host, Russell Gray

Money moves in and out of all markets, both paper and real, for two basic reasons: momentum and/or fundamentals.

A postmortem of those formerly hot markets which dropped precipitously in the 2008 crash tells us that there was a lot of hot money chasing momentum (speculation).  And when the hot money stopped flowing in, prices fell all the way past fundamental levels.

This is a very simplistic explanation, because the real estate bubble was really rooted in hot money in the bond market which fed the real estate market.  But the concept is that more properties were built and purchased than there were fundamental reasons for building and owning them.

The result, of course, was inflated prices and overbuilding.  And when the tide shifted, prices fell.  In some cases, prices fell well below replacement costs (a fundamental).

But some markets fell further than others.  And some markets came back sooner than others.

So what makes the difference between a slow falling or fast recovering market, and those that die and never or very slowly come back?

This is an obviously complex question, but one of the key components to a more stable and better recovering market is infrastructure.

Infrastructure is an important consideration when choosing a real estate market to invest inIn basic terms, infrastructure is all of the things that need to exist to support human occupation of land.  These things include roads, airports, utilities, etc.

In broader terms, infrastructure that is attractive to residents and businesses include education, health care, entertainment, shopping, communications and in some cases, shipping.

When you think about it, it makes perfect sense.  After all, people and the businesses which employ them need infrastructure in order to live, work and recreate.

Therefore, it stands to reason that, all things being equal (taxes, cost of living, weather), a market with superior infrastructure is more desirable than one with less infrastructure.

So when you look at a prospective market to invest in, don’t focus simply on its price to rent ratio.  While it’s great to buy a cheap property with strong cash flows, it’s better to have a property that can better withstand the beatings of the economic waves over time.

Instead, learn to look at the market through the eyes of your tenants and their employers; or, if you’re a commercial real estate investor, your tenants are the employers.

Ask yourself if there is a strong and educated labor pool (educational infrastructure).  Are new people attracted to the market to go to school?  Colleges can help drive inbound migration to an area.  Best of all, college grads tend to rent for awhile after they graduate and first start working.

Think about the support services people need and want…like health care, shopping and entertainment.

And what about a businesses ability to move people and products in and out of the region?  Are there good roads, airports, railways, etc.?  And is the physical location itself conducive to efficient transportation?

Our thesis is that the best long term markets are those that have solid and diverse infrastructure because it’s a huge competitive advantage over those that don’t.  And because infrastructure takes time and a lot of money to put in, any market that already has it is in position to get stronger faster when the economy is growing.

When the economy is booming and everyone’s flush with money, all markets look good.  But what about when the economy turns soft?

If you want to stay in the game in good times and bad, it’s critical to understand the role of infrastructure in a real estate market.  So listen in to this episode as we talk infrastructure and real estate market selection.

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On the road again….

The Real Estate Guys™ are headed to San Antonio, Texas on May 31st for The Texas Expo!

Click here to join us! C’mon!  It’ll be fun!

It’s no secret we like Texas.  After all, it’s the number one state for job creation (followed by Florida…one of our other new favorites).

Texas is also consistently rated as one of the top states to start and run a business.  No wonder they create so many jobs!

So a couple of months ago we spent the day in Houston at an all day real estate expo.  We met a lot of great folks and attended some informative educational sessions.  Most of all, we got a chance to talk with lots of people and get a street level view of all the buzz we’d been hearing about Houston.

Now, we’re headed to San Antonio.  If you don’t know it, San Antonio is the first major U.S. city on the NAFTA (North American Free Trade Agreement) highway.  So when products make their way from Mexico to the U.S., they come through San Antonio.

San Antonio’s also one of the biggest cities in the U.S. and has moved up a couple of notches (currently #7) since we first started visiting there nearly 10 years ago.  And of the top 10 biggest U.S. cities, it’s the fastest growing.

So what’s so great about San Antonio?  Now that we’ve heard the buzz, we’re going to go find out as we talk to real life real estate investors that are actively investing in the San Antonio market.  And we’ll probably come back with a few interviews!

Of course, you don’t have to wait.  YOU can join us on May 31st for the Texas Expo in San Antonio, Texas.  We always like to visit with our listeners.  Why don’t ya’ll come out and say hi?

CLICK HERE now to learn more about the San Antonio Texas Expo on May 31, 2014.

Join The Real Estate Guys at the San Antonio Texas Expo on May 31, 2014

 

 

5/4/14: Beyond Entity Structure – Proactively Protecting Your Portfolio

Sometimes you think you’ve covered, then you find there’s a big hole in your asset protection.  Not only is it embarrassing, it can be very expensive.

Sadly, most people’s assets are exposed.  But not in the way you think.  And you may be one of them if you think simply setting up an LLC has you covered.  If only it were that easy!

We’ve spent quite a bit of time over the years talking about using entities and off-shore strategies to protect your valuables. But there’s also been a glaring hole in our coverage of the topic of asset protection: insurance.

Wait!  Come back!  This is actually a VERY interesting and IMPORTANT topic.  It’s something long overdue to be discussed. And unless you’re among the very small group of sophisticated investors familiar with it, you’re very likely to learn some thing you didn’t know…important things that can save you a LOT of money.

So, to insure your assets aren’t shining naked for financial predators to abuse, we go on the road to talk with one of the top lawyers on the subject.

Under the cover of The Real Estate Guys™ Cone of Silence in San Jose, California:

  • Your mostly covered host, Robert Helms
  • His over-exposed co-host, Russell Gray
  • Special guest, insurance attorney Randy Hess

When it comes to insurance, most real estate investors think of property insurance and umbrella liability.  Both are important, but they’re really just the tip of the iceberg.

But because insurance is one of those products you pay for, but hope you never use, no one is standing in line excited to shop for it.

So right out of the gate, you may be wondering why we’re interviewing an attorney to learn about insurance.  After all, wouldn’t it make more sense to talk with an insurance broker?

But consider that insurance is really a contract between the insurer and the insured.  The contract contains promises.  You promise to pay the premium and the insurer promises to pay all legitimate claims.  Sounds simple, right?

Think about this:  When you enter into any other contract, isn’t it smart to have an attorney review the document to make SURE you know what you’re getting into?  And in the case of insurance, most of what your insurance agent says doesn’t matter.  It’s the policy (the contract) that dictates the parties’ (that’s you and the insurer) responsibilities.

And who writes this contract?  You got it…the insurance companies’ lawyers.  And even though it’s regulated by state insurance commissioners and all kinds of consumer protection laws, who do you think the policies are most likely to favor?  Right again…the insurance companies.

And one final point to illustrate that when you’re dealing with insurance, you’re out-gunned…like most consumer protection laws, they’re primarily designed to protect non-business people.  When you enter the realm of business (like real estate investing) the law considers you to be sophisticated enough to look out for yourself, so it does less to protect you.

So we think it’s REALLY important to have a good insurance attorney on your team of advisors.

But this is LOT more than simply making sure you understand your policy.  This is about MAKING SURE you get paid when you make a claim.

It starts with getting the right kind of insurances.  Once again, it sounds simple, but nothing having to do with insurance is simple.  In fact, to talk insurance, you have to go the cupboard and open up a can of alphabet soup.  Though far from comprehensive, here’s a list of  some of the kinds of polices EVERY real estate investor should be aware of:

CGL – Commercial General Liability insurance.  This is like your personal umbrella liability policy, except it covers your BUSINESS activities.  Running a rental property business, even as the property owner, is a COMMERCIAL enterprise.  Your PERSONAL insurance most often does NOT cover it.  So if you think your LLC and your umbrella policy have you covered, think again.

D&O – Directors and Officers insurance.  If you have an entity (like an LLC or corporation) that is holding and managing your properties (even if you’re operating through a professional property manager), there are living, breathing humans (probably you) making all the decisions, signing the documents, etc.  D&O insurance protects the INDIVIDUALS for the things they do while acting in their official capacities as Directors and/or Officers of the entity.  Once again, your PERSONAL coverages probably don’t cover your business activities.  But when your entity gets sued, you’ll almost certainly be named in your individual life (it’s how the predator goes after your personal assets) so you need this kind of coverage to protect you.

E&O – Errors and Omissions insurance.  This is a MUST HAVE if you’re syndicating.  It covers mistakes you make when providing professional services (like money management).

All of the above are in ADDITION to your personal insurance and the insurance you have on the property (fire, theft, damage, loss of rents, etc).

Wow.  That can be intimidating.  But it gets worse…

Each one of these policies can be laced with exclusions.  These are legal clauses which give the insurer the right to DENY your claim.

Now, insurance companies are NOT supposed to deny claims in order to increase their operating profits. Just like people shouldn’t judge you by how you dress.  Good luck with that.

But the law says if you have a legitimate claim, the insurance company has an obligation under the law to make a “good faith” effort to pay the claim.  Some companies are good about this.  Others…not so much.

When an insurance company refuses to pay a legitimate claim, just like when any other counter-party in a contract fails to perform their obligations, you need to sue them (or at least threaten to), which means you need a lawyer.  Someone like Randy Hess.

But even good insurance companies can write policies which exclude things you think you’re covered for.  And if you don’t read the contract, don’t understand what you read, or rely upon your agent’s representations and not the policy itself, you can end up with big holes in your coverage.  These holes can allow the insurance company to deny a claim…legitimately.

So we think it’s REALLY smart to have your coverage counsel (insurance attorney) review your policy BEFORE you buy it, to make sure it really protects you.

Now, if you’re thinking, “Oh, I don’t need all that.  I’ll just hide behind my entity and no predator can get through.”

That’s naive and here’s why…

When the predator sues you, you still have to defend.  That means you need to hire a lawyer to respond to the complaint and handle the litigation.  And even if you end up in mediation or arbitration, there are still SUBSTANTIAL costs.  In other words, you can win, but still lose.

But one of the aforementioned insurance policies will pay all your defense costs.  Do you know which one?  Do you know how much they’ll pay?  Do you know whether the defense costs come out of the total policy limits or are they in addition to whatever gets paid out to the plaintiffs?  Because if you have a $1 million policy and get sued for $1 million, but then spend $500,000 on defense (yes, it can cost that much), then there’s only $500,000 available to pay the plaintiffs if you lose.  Guess where that extra $500,000 comes from?  That’s right.  From you.

And if you can’t afford to defend, then you automatically lose, even if you’re not wrong.

Yes, it’s a jacked up system, but that’s the way it works.  So if you’re investing in U.S. property, even if you’re a foreigner, you’ll be dealing with the U.S. system.  It’s the same system that accounts for the vast majority of the world’s lawsuits and feeds the overwhelming majority of the world’s lawyers.

When you look at this way, insurance and your insurance attorney are a bargain.  You just can’t afford to be ignorant about how to buy polices that will really do their job when called upon.

That’s why we interviewed Randy Hess and why we strongly recommend you listen to this episode with a notebook.  It could be one of the most valuable broadcasts you ever listen to.

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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!