It’s time for Ask The Guys … the episode where you ask and we answer!
This edition we are tackling topics from how to use credit lines strategically BEFORE they disappear to how to prepare NOW for the investment problems … and opportunities likely to emerge from COVID-19 … and more!
But remember … we offer commentary, education, and resources … not advice.
Always consult with tax or legal professionals before making any investment decisions.
In this episode of The Real Estate Guys™ show, hear from:
- Your know-it-all host, Robert Helms
- His know-nothing co-host, Russell Gray
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Where to get liquidity from your balance sheet
Our first question comes from Alicia in Woodstock, Georgia.
She says, “Hey guys, I want to have liquidity to buy real estate, but I’m not sure where to pull the money from.”
Alicia says she has a homestead and a rental that are both paid off. She also has a 401K. She wants to know if she should convert the 401K into a self-directed account and take money from there.
First, Alicia is thinking the right way. If you want to acquire more real estate, you have to have more money.
The good news is that someone like Alicia already has idle equity sitting around waiting to be worked with.
The cheapest money out there is mortgage money. It’s very inexpensive and long-term … so the payment and the cash flow is really easy to manage.
Someone like Alicia could potentially borrow against her paid off rental property … and the 401K is also an option.
But, if you roll that 401K over into a self-directed account, you’ll want to talk to your tax professional first to see if you will end up facing some type of a penalty.
Then, the only other way to go about getting money that gives income from your own balance sheet is to think about raising money from someone else’s balance sheet.
There are people out there who have money … but they don’t have access to deals, and they don’t have the hustle.
When to buy a house
Don is looking to buy a house and wants to know when he should be buying.
“Prices are still high,” he says, “and judging from past market crashes, should we wait maybe two months to buy at a lower price?”
When you’re buying a residence to live in, market timing means very little. If you’re looking for an investment property, you make different decisions than you would for a home you want to live in.
Your first priority should be finding a home that is safe, clean, affordable, and in a good neighborhood. If you’re patient, some good deals will come.
Finding off-market deals
DC from Edinburg, Texas, says, “Due to the pandemic, people are going to be selling their homes at discounted prices. How do I find these deals? I want to get some off-market deals.”
The premise that there will be deals to find is fairly sound … and the answer as to how to find them is simple … relationships.
You won’t find much success cold-calling or knocking doors. Instead, find someone who already has the pulse on that part of the market and form a relationship with them.
Build a brand of someone who people want to do business with. Don’t just throw lowball offers out there and see what happens. That will become your reputation.
And don’t jump at the very first thing you see unless it happens to be fantastic. If you build the right relationships, you’re going to find some amazing deals.
Scaling up your investments
John in Round Lake, Illinois, is a fledgling investor looking to scale up.
“I can’t help but have some apprehension about jumping from small things to a big thing,” John says. “How can I make sure I don’t mess up?”
Many folks make this same shift that John is looking at … and they do it for different reasons.
Often, it’s because they get to the point where the economics of scale efficiencies, headaches, and management of single-family houses becomes a lot for them. So, many make the jump over to multifamily.
There are many benefits to this approach. One is that once your portfolio reaches a certain size, you can get into non-recourse financing.
This means your lender has recourse against the property, but not you personally.
And, with bigger properties, you typically don’t buy all by yourself. You do it with partners or syndication … and those people bring support and power to the deal.
If things were to get dicey, these factors combine to make apartment investing actually less risky than going it alone in single-family homes.
And, one of the beautiful things about syndication is that anything you’re lacking … including experience … you can go aggregate by finding other people who need what you bring to the table.
A query on credit lines
Mark in Ohio has a question about credit lines.
“I have two large lines of credit, and I’m currently not using either,” he says. “Should I draw the entire amount out now, or should I wait a bit longer?”
On the one hand, John thinks it would be a shame to pay interest on money he doesn’t need at the moment. But … he is concerned that those lines of credit could freeze up in the near future.
Short answer … we would draw them out completely.
You see a lot of big corporations doing this right now. Ford Motor Company famously did that going into the 2008 crisis … and unlike GM, Ford didn’t need a bailout.
Banks are nervous. The Fed is acting pretty nervous. So, if you have access to credit lines and equity … we would put the two together and get liquid.
Having liquidity is good insurance.
More Ask The Guys
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