You’ve got questions. We’ve got answers.
That’s right. It’s time for another segment of Ask The Guys … when we talk about trends, challenges, and investment opportunities.
This time we’re tackling listener questions about syndicating single-family homes when to make the move to multi-family properties, the rising role of gold in the economy … and more!
Remember … we aren’t tax advisors or legal professionals.
We give ideas and information … NOT advice.
In this episode of The Real Estate Guys™ show, hear from:
- Your answer-filled host, Robert Helms
- His questionable co-host, Russell Gray
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What makes a good investment
Our first question comes from William in Maryville, Tennessee.
William recently purchased a single-family residence. He wants to know what the average difference should be between monthly rent and expenses to make it a good investment.
The answer varies depending on your personal investment philosophy … but we can give a general idea based on what we see from other listeners.
We start with what we call the gross rent multiplier … also known as the 1% rule.
The idea is to look at whether or not a property can take in a gross rent 1% of its purchase price.
So, if you purchase a house for $200,000, a house would need to take in $2,000 a month as its base rent.
And this number doesn’t consider your operating costs.
If your property isn’t bringing in 1%, you’re going to be tighter on cash flow. Making a little more than 1% is always better.
But remember … cash flow is certainly important. But there are plenty of other ways to get money out of your investment.
The big picture is that in single-family rental homes that the tenant pays down or pays off the mortgage. Over time, income goes up.
You’re creating a portfolio of property that increases its asset value, and cash flow increases too.
Even in the best-case scenario, single-family homes are making a couple hundred dollars a month. That’s why so many investors start in single-family and then move into bigger asset classes.
Going bigger and growing older
And that’s just what Lou in McKinleyville, California, wants to talk about … moving into those bigger asset classes.
Lou is 56 years old, and he owns six multifamily property units. He wants to know if … at his age … it makes sense to purchase more.
Age does play into your investment horizon. What you really have to think about is … what do you want your investment to do for you?
At age 56, we think Lou still has a lot of time left.
Continue building your investment portfolio. Play into your personal investment philosophy. And when you’re ready to retire and are relatively comfortable, it’s ok to call it quits.
There’s no need to do more if you feel like you’re done. Until then, keep up the good work!
The smaller side of syndication
Let’s talk a bit about syndication. Greg in Auckland, New Zealand, wants to know if you can use syndication to raise capital for deals in single-family homes.
Syndication is simply aggregating capital to do a deal. It doesn’t have to be a bigger deal.
Instead, think of syndication as the way to go bigger … faster.
So, the short answer is … yes. You can absolutely syndicate a single-family home.
But there is a threshold that makes sense for syndicators because there are some costs associated with doing the deal … especially on the legal side.
A tiny deal may not make sense for syndication, because you’re going to burden the deal with a lot of costs.
What you probably want to do is think about building a portfolio. Instead of just syndicating a single property … go buy a collection of them!
And don’t forget that syndication doesn’t only mean syndicating capital. You can also syndicate credit.
Remember, there’s not much point in syndicating if you want to play small. The whole goal of syndication is to go big.
All the things that go into syndication get amortized over the size of the portfolio … so from a cost perspective, building a bigger portfolio is the way to go.
The value of gold
Karen from Lehua, Hawaii, wants to know what we think the coming financial meltdown in the U.S. will look like … and why gold won’t lose its value when it happens.
The reality is that the longer we go in a cycle, the closer we are to a downturn.
Nobody really knows what this downturn will look like. It all depends on what the critical factor is that turns the economy down.
The one thing we know for sure is that the concern for American right now should be making a bigger allocation toward gold.
If you follow the news, you know that central banks recently bought more gold than any time since Nixon took the country off the gold standard and collapsed the dollar.
That’s an indication that people are beginning to lose confidence in the dollar … and when people lose confidence in currency, we see inflation.
So, in the short term, you’re going to need supplies … things you can barter with until a new medium of exchange is introduced.
But, in the long term, you’ll need something that is universally accepted as currency.
Why is gold valuable? Because the banks are stocking up on it. There’s always going to be a market for gold.
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