Ask The Guys – Markets, Mentors and Kissing Frogs

In the Ask The Guys episodes The Real Estate Guys answer listeners questions about how to make money investing in real estate

 

In another intriguing rendition of Ask The Guys,  we dig deep into the email grab bag and pull out another great batch of listener questions.

Behind the mics but ahead of the times for this Ask The Guys edition of The Real Estate Guys™ radio show:

  • Your Answer Man host, Robert Helms
  • His questionable co-host, Russell Gray

 

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How to Invest in Out of Area Real Estate

 

This questions comes up ALL the time….especially from people living in high cost, low rent areas like California.

We always say, “Live where you want to live, but invest where the numbers make sense.”

Easy to say.  But how?

The answer isn’t complicated, but it does take some work.

First, get in touch with your inner investor.  That is, decide what you want your real estate investing to do for you…and what you’re willing to do to get it.

Sometimes travel’s involved.  You’ll definitely need a team.

Next, pick a market that is likely to provide the kind of real estate opportunities you’re looking for.

Some areas are tight supply relative to high demand.  That means they’re expensive and likely to increase.  But they probably won’t cash flow.

Other markets provide solid cash flows and abundance of working class jobs.  But don’t hold your breath for huge equity gains…unless you force it through adding value.

Once you have a market, it’s CRITICAL to build a TEAM.  And the most important, yet most unappreciated and overlooked team member is the lowly property manager.  This is the MOST important person on your team.

After all, your property manager is the primary person responsible for managing income and expenses.  But your property manager can also help you identify prospective properties to purchase.  It’s something we put a big emphasis on in all our market field trips.

Sadly, most newbie investors get excited about the property and pro-forma financials…and then figure out the market and management later.  BIG mistake…and one you should avoid.

 

What’s the Best Investment for a Sixty-Something Passive Investor?

 

That’s like asking what’s the best medicine.  It really depends on what’s ailing you!

With that said, we think the first and best initial investment for ANY investor is in education.

As Ben Franklin said, “An investment in knowledge pays the best interest.”

But as much as love books, podcasts, webinars, seminars, summits and field trips…sometimes a great way to learn is simply to talk with some experienced investors.  Especially those who don’t have anything to sell you.

Generally speaking, “best” is really a matter of suitability.  The goal is to pick an investment vehicle and strategy which is most likely to produce a desired outcome with minimal risk.

With that said, ALL investing decisions have risk….including a decision not to invest…or a default decision not to invest by not deciding anything at all.  In other words, inaction is an action by default.

So when you know you need to do something, the trick is to think about what you’re really aiming at.

In financial planning, it usually comes down to the following categories:

  • Preservation of Purchasing Power (some call it Preservation of Principal, but we think that’s a misnomer.  Because if you’re sitting in a currency which fails, or a bond or note which pays in a currency that fails, you may get paid back, but you won’t be able to buy anything)
  • Income (interest, dividends or profits from ongoing operations…like rent)
  • Capital Appreciation (equity from buy low, sell high)
  • Growth and Income (a balance between growth and income…something income producing real estate does quite well).

Then you have to look at time frames and liquidity.  How long can you leave the money in the investment?  What if you have an emergency and need the money out sooner than expected?

If not being able to get to the money creates a unbearable hardship, you can only choose investments which can be quickly sold or otherwise converted to cash.

Typically, the more liquid an investment is, the lower the return (think savings account)…or the more volatile the pricing (think stocks).

Real estate is relatively stable, but not very liquid.

This a bigger topic than a blog or a broadcast, but an important one.

Basically, it comes down to knowing your needs and understanding your options.  Both require asking good questions, verifying the answers, and thoughtfully considering how to best select the investment choices whose features most align with the needs you’re trying to meet.

 

Where to Get Money for Building and Investing?

 

Another common and popular question.  The great news is there are LOTS of options!

Typically when people ask this question, it’s because they aren’t lendable or banks aren’t lending.

So aside from traditional loans where you need to qualify based on your credit, income, net worth and (sometimes) your investing experience, private money is a place many investors are turning to these days.

In our Secrets of Successful Syndication Seminar we talk about how private investors can serves as lenders or as equity partners, or as both.

And with interest rates so low and the stock market so volatile, many people are looking at private placements back by real estate as a great place to invest their savings.

Many of these private investors are discovering they can use funds from their self-directed IRA, in additional to their other savings and investments, and enjoy the benefits of real estate without the hands on hassle.

So if you have investing expertise and can show a private investor how you can put their money to work in your deal and pay a good return, you’ll probably get some takers.

You still need to “qualify”, but it’s personal based on the relationship, the deal, and your’s and your team’s ability to execute.

 

Where Can I Find an Experienced Investor to Mentor Me?

 

This is a GREAT question for several reasons.  First, it implies the need to learn from someone more experienced.  Real estate investing attracts a lot of mavericks and they naively dive in because it looks easy.

Then, when they get in trouble, they don’t have anyone to turn to for help.  Or they’re embarrassed and just try to figure it out on their own.

If you push your limits (and you should), you’re bound to get stuck at the upper limits of your ability.  This is where your mentor can help you break through.

They key is to have the right mentor with the right access and relationship.

This is a TALL order because most successful people are very busy.  So when you find a prospective mentor, you’ll need to provide something of value.

So the first thing is to decide what kind of investor YOU want to be.  Then go look for someone who’s been successful doing what you want to do.

Next, figure out a way to get close.  You want to learn as much as you can, so you can look for ways to add value.

Obviously, sometimes people who love to teach create mentoring programs.  And if they’re credible and qualified, these can be great investments.

Other times, you might find someone to mentor you in exchange for your helping them.  For example, you could volunteer time to do research, vet deals, inspect properties or assist an active investor in some way.

A GREAT way, if you have the ability, is to help an expert investor write a books, create a seminar or develop a training program.  Now you’re on the inside, and you get a front row seat for all the best ideas.

 

You’re Just One Good Idea or Relationship Away from a New Success

 

While it’s true you need to kiss a lot of frogs to find the Prince Charming real estate market, team member, deal, investor or mentor…when you find that winner, it suddenly all becomes worth it.

And because most people don’t have the fortitude to keep pressing forward, you’ll find the longer you stay in the game, the less crowded it is.

So keep on kissing those frogs and it won’t be long before you leap frog to the top!

 

More From The Real Estate Guys™…

 

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

Preparing for the Next Crash – Strategies for Weathering a Storm

Peter Schiff says The Real Crash is coming. How do you prepare for a financial crisis?

 

If you caught the real estate investing bug after 2008, you’ve been riding a fun wave of rising rents and growing equity.

Was 2008 a one-and-done anomaly? Or are vicious ups and downs a part of the new normal? And if so…is another crash coming?

No one knows. But it’s probably a good idea to be prepared.

In this episode, we’ll take a look at some of the strategies you can use to prepare your portfolio to weather stormy economic seas. Just in case.

Battening down the hatches and rigging the storm jib for this one-hour tour of The Real Estate Guys™ radio show:

  • Your brave and sure skipper, host Robert Helms
  • His mighty unsure first mate, co-host Russell Gray

 

Listen

 


 

Subscribe

 

Broadcasting since 1997 with over 300 episodes on iTunes!

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Is another financial crisis coming?

 

Maybe it’s just us.  But when we look around, we see the financial winds blowing in a way that’s eerily similar to 2007.

Of course, back then we didn’t really know what the signs meant.  But we soon found out.  And so did a lot of other unsuspecting investors…real estate and otherwise.

After the 2008 financial crisis, we became pals with Peter Schiff, who insists 2008 was just a warm-up act and the real crash that’s coming will be far worse.

But before you look for a nearby tower to jump off of, remember that the flip side of every problem is an opportunity.  And typically the people who fare best, see the bad times coming and prepare.

Then, when the storm hits, they wait for the sun to break and head out into the sunshine of bargain shopping.  Remember, lots of people made a TON of money in the wake of 2008.  So a financial crisis isn’t something to fear as much as it is something to prepare for.

 

What can you do to prepare for the next financial crisis?

 

With the caveat that no one knows when, where or how severe a downturn will be, there are some basic precautions which are helpful in almost all situations.

First, as Donald Trump reminded us when we asked him what he learned in the crash before the last one…it’s always good to be liquid.  That is, have a chunk of cash and cash equivalents on hand.  And just consider whatever your lost opportunity cost as storm insurance premium.

Also, if Peter Schiff is right (again) and the dollar’s at the center of the storm, it might be good to keep a chunk of your liquidity in something other than dollars.  Maybe that explains the huge popularity of precious metals lately.

With some liquid reserves in metals and some in dollars, your hedged whether the dollar rises or falls.  And if real estate values collapse again…you’re in position in pick up new properties.

If the next crash is anything like the last one, they’ll be lots of properties in solid markets…available for below replacement cost again.  Nice.

Of course, if you’re the proud owner of big portfolio of properties you might be wondering…

 

How can you protect your equity in a downturn?

Mr. Market giveth equity.  And Mr. Market taketh equity away.

Unless of course, you beat him to the punch.

Right now loans are cheap and becoming more plentiful.  You can even get cash out refinances and equity credit lines to convert equity to cash.

But then you have to pay interest.

True.  But rates remain stupid cheap…and, at least for now, tax deductible.  At least in the USA.

This make the net interest expense on real estate equity is REALLY cheap.

So perhaps before mean Mr. Market takes your equity and leaves you illiquid, you could grab a chunk of it and arbitrage the debt.

What?

The concept is simple.

If you borrow $200,000 out of a property at 4% interest and then invest $100,000 of the proceeds at 8% interest, you’ve created a break even cash flow.  You’re long the dollar (as the lender) and short the dollar (as the borrower) at the same time.  So you’ve effectively arbitraged the debt.  At at least half of it.

And while you didn’t make a “profit” on it in terms of positive cash flow (you’re only break even), but now you’re sitting on $100,000 liquid cash…perhaps some in the bank and some in gold bullion buried in your backyard…but don’t lose your treasure map. 😉

 

Preparing for a financial crisis is more than just money…

 

One of the most important investments you make…right up there with your financial education…is building your tribe.

Let’s face it. When the poo poo hits the fan (that’s a technical term)…it’s easy to panic.  Our friend Blair Singer says, “When emotions run high, intelligence runs low.”

So being a part of network of serious investors who can share ideas and resources…and maybe do some deals together…can be a very important part of navigating challenging storms.

After all, it does no good to call, “All hands on deck!”…if there’s no one else on the ship.

So while the sun is shining, get out and build quality relationships with quality people.  It’s why we produce, promote and attend so many events…especially our annual Investor Summit at Sea™.

High level events are a great way to meet high level investors.  Of course, the opposite it true, so pick your events carefully.

Better to be prepared

A lot of really smart people are sounding the alarm, which at the very least, demands our attention.  And probably some form of action.  Because knowing isn’t the same as doing.  And it’s what you DO…or don’t do…which determines your results.

And, using a variation on a quote from the great Les Brown, “Better to be prepared and not have a financial crisis, than have a financial crisis and not be prepared.”

 

More From The Real Estate Guys™…

 

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