Ask The Guys is our radio segment where YOU ask us your burning questions … and we give our best shot at answering them.
Lately, we’ve received so many excellent questions we decided to do not one, but TWO episodes of Ask The Guys! In this first installment, we discuss finding deals that make sense, breeding equity, how to keep going when you’re out of money … and much more!
Before you get into the good stuff, we have to give you our standard disclaimer. We’re not tax advisors, and we’re definitely not attorneys, so we never provide any advice … just IDEAS.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your problem-solving host, Robert Helms
- His problematic co-host, Russell Gray
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Question: I’m looking into local real estate, and the numbers don’t make sense. What do I do?
This question comes from Walter, a Canadian listener.
Can you guess our first response? You got it … “Live where you want to live, and invest where the numbers make sense.”
Investing locally means you can have a heavy hand in daily business and management operations. Investing in other markets means someone else will do the work for you.
That can be a really good thing … IF you have the right team.
As you know, the market overall is quite tight right now. If you’re looking for deals in a tight market, you might spend all your time searching out deals that fit your criteria. That’s why it’s a good idea to look for markets that fit your criteria, then build relationships with a trustworthy team.
Of course, start out by building a solid personal investment philosophy.
Next, find your market and get set up with a good team. THEN you can work on finding a property to invest in.
Starting by finding a property first can be a disaster. We know because we’ve seen it.
Think this information sounds great, but wondering where to start? There are a few steps you can take:
- Start networking with folks in your area who are investing elsewhere. Get to know them and get familiar with what they’re doing.
- Research different markets, identify a handful that fit your criteria, and then check them out … in person!
- Get your resource network set up by seeking out credible management folks who know what they’re doing.
Whatever you do, ALWAYS evaluate whether a market makes sense before you even start looking for deals. Always.
Question: Can I reposition my equity to buy more properties?
Ari from West Hollywood, California, asked us whether it was prudent to use the equity from current properties for the down payment on a new property.
The short answer is yes.
The long answer is that equity repositioning can be a good idea, with some caveats.
You CAN take equity out of a property through cash-out refinances (or 1031 exchanges, if you want to relinquish the property).
And with today’s low-interest rates, this process allows you to harvest your equity.
A word of caution … it is possible to run into trouble. It’s NOT the act of moving equity that can work against you, but the act of taking on additional debt and income.
Any time you move your money, you have to weigh your ability to manage your income against your debt. It doesn’t make sense to take money out and invest in a property with low or negative cash flow.
When done right, equity optimization allows you to move easily from mature markets to emerging ones and diversify your holdings.
Always remember these words of wisdom … “Do the math, and the math will tell you what to do.”
Question: We’re purchasing our first property. Should we create an LLC to protect our personal assets?
Jonathan in New York City, is buying his first rental unit in the U.S. state of Maine (congratulations on taking action, Jonathan!).
He’s wondering whether it’s prudent to form an LLC in order to purchase the property … but worried that buying as an LLC will force him into a commercial loan with 10-year terms.
How to protect your personal assets is a common newbie question … and it’s a good one!
The primary question Jonathan has to ask himself is whether the added expense will be worth the protection. That answer will vary.
If Jonathan has a ton of assets, it might be worth it to form an LLC. Keep in mind there are other places he can move his money to … primary residences and retirement accounts come to mind.
The bigger question, though, is whether Jonathan will need the protection in the first place. Investors like Jonathan can put up a three-pronged line of defense:
- Consistent, good business practices.
- Clear documentation and legal paperwork with built-in arbitration clauses.
- Insurance, which will cover most problems that might arise.
The reality is that most people who use entities are usually working on bigger projects. And not all lenders will be willing to lend to an LLC with no operating history.
If you’re in Jonathan’s situation, you have to weigh the pros and cons. We recommend doing your homework … and checking with a local tax attorney.
Question: When is the next Investor Summit at Sea™, and when do tickets come out?
Adrian from Salt Lake City, Utah asked this timely question. Thanks for asking, Adrian!
The next Summit will be early to mid-April, 2018. Exact dates will be announced shortly!
We roll out registration in three phases … alumni first, then our syndication mentoring club, and then our advanced notice list.
Your best chance at getting a ticket? Get on the list! Sign up now if you’re serious about attending next year.
Question: Will it be more profitable to invest on our own or with a syndicate? (And should we invest for equity growth or cash flow?)
This question comes from Sheryl, in Pacifica, California. Sheryl told us she and her husband are newly debt free. Her question is best in her own words:
“Our goal is to save $100,000 this year and buy a rental property on the big island of Hawaii, where we eventually plan to live, to start establishing some cash flow. We also plan to take a year off and live off my spouse’s retirement while visiting Southeast Asia, South America, and Africa. We are frugal and have simple needs. Would it be better to invest $100,000 with a syndicate for better monthly cash flow return?”
Sheryl, you could invest in a property that provides cash flow and will be well-suited for your eventual retirement home.
But we’d caution you that one property may not be able to solve multiple needs.
One solution would be to buy a cash flow property, then use the equity you’ve saved to buy a perfect retirement home when the time is right.
Another solution might be to look for a property that will provide long-term price appreciation instead of a high cash flow. It’s a different investment vehicle that could carry you to the same destination.
And of course, syndication is always an option, and it might be a good one if you’re traveling and need a hands-off investment.
If you decide to come alongside a syndicator, you do have to be careful. Vet the deal and the sponsor just like you’d vet a deal of your own.
Make sure you line up your investment objectives and the timing with the investment and manager you choose. And above all, be certain you understand the underlying risks.
Question: I’m out of money. How do I extend my property portfolio?
This listener hails from London, England. (A side note: we LOVE hearing from listeners around the world!)
A former nurse, Bobby purchased a couple of properties in the outskirts of London. He loves real estate and wants to expand, but he’s out of money.
Maybe this sounds familiar to you … you got enamored with real estate, got educated, pulled the trigger and took action, then quickly realized your money was gone. This happens to a lot of folks.
If you’re like Bobby, the first thing you should do is ask yourself, “Knowing what I now know, would I still invest in these properties?”
If the answer is no, it might be time to switch things up.
We’ve found the best way to expand when you have limited resources is to force equity from properties by adding value, then use that equity in other properties.
The other way to go would be to syndicate. Leverage your knowledge, and use your skills to acquire and manage assets on behalf of clients who do have money … taking small slices from the pie along the way.
Because Bobby came from a demanding career path and wants to make his way in what can be a very demanding real estate world, we’d also caution him to be very careful about what he chooses to do and how he structures his business.
It’s no good to pursue real estate for less stress and then fall into the same pattern of stressful days and no fun.
Question: I’m a syndicator. What’s a good percentage to offer investors?
Our last question for this episode comes from Joel in Boston, Massachusetts. Joel puts deals together for investors, but he’s new to the game and isn’t sure whether he’s offering a percentage that’s too high.
He wants to find the sweet spot, and that’s a laudable goal … one every syndicator should have.
Our answer? There is no magic formula.
We’ve done deals about every way possible, and in our experience, the right structure is one that attracts the right capital and the right investors for YOU.
Finding the right number can be a dance and an art form. But there is a place you can start.
Begin by having conversations with investors and gauging their responses. Ask, “What number would make sense for you?”
And realize number may vary with each deal you make.
If you’re just getting started with syndication, err on the side of giving more to the investor.
The purpose of your first few investments ISN’T to build a fortune. You’re trying to start a business, so you need to emphasize your dependability, focus on predictable results, and build your track record.
Ultimately, the magic number is one you’re willing to get up every day and work for!
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