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6/19/11: Be Your Own Bank – Cash Management Strategies for Real Estate Investors

Being a real estate investor means handling a lot of cash. It may not seem that way, especially at first, but think about it.  There’s the float on the cash flowing through your bank account.  Then there’s the cash you maintain and build up to handle contingencies and long term maintenance.  You have deposits you collect and hold for tenants.  Let’s not forget about the growing “Opportunity Fund” you’re stockpiling until the next great deal comes long.  And when you sell or refinance, there may be a BIG pile of cash flowing through your account on it’s way to its next mission.

Oh yeah.  You’re rolling in the dough.

“But,” you say, “all that money’s spoken for.  I just have to sit on it until I’m ready to use it – even though it isn’t earning squat.  I can’t afford to do anything risky with it!”

We feel your frustration.  But what if we told you there’s a way to have your cake and eat it too?  Would you be interested?  We thought so.

In the studio to cook up some new cash management recipes to tantalize your taste buds:

  • Host and Chief Taste Tester, Robert Helms
  • Co-host and Spoon Licking Specialist, Russell Gray
  • Special Guest, Master Financial Chef, Patrick Donohoe

Okay, after a tease like that, you might be worried this episode is all cake and no ice cream, but you’d be wrong.  We have cake, icing, ice cream and sprinkles.  You get it all.  Maybe even a candle or two to light a fire under you.

So what’s the deal?

Simply put, our guest Patrick Donohoe has opened up our eyes and minds to a completely unorthodox way to manage cash.  Only it isn’t some wacko unproven idea.  It’s something that the biggest cash managers on the planet, like Bank of America, Wells Fargo and J.P. Morgan Chase have been doing for years.  And it’s something we would have never thought of without Patrick’s help.

Without giving away the story, here’s the idea:  There’s a financial vehicle out there that enjoys very favorable tax treatment by virtue of being attached to another very old and time tested financial vehicle (hint: it’s not a bank account).

It works kind of like a line of credit secured by a property.  Remember those?  You could borrow against your equity at a low rate, use the money for whatever you wanted, then put it back whenever you wanted.  And then you could take it back out again, anytime you wanted, without prior approval.  Ahhh, those were the good old days!  (hint: it’s not a mortgage).

But as much as we liked those old HELOC (Home Equity Lines of Credit), they had some pesky side effects we just thought we had to live with:

  • You had to qualify to get them set up.  If you had bad credit and no income, you couldn’t get one.  How unfair.
  • The credit line could be shut off at any time for any reason.  Even if something minor happened, (you know, like the market crashing and all the equity disappearing), the bank would simply reduce or completely cancel the line of credit.  How rude!
  • You had to make payments.  What?!  That’s so inconvenient.
  • If you didn’t make the payments, the lender might actually foreclose on your property – even if you were still living in it.  Now that’s REALLY inconvenient. And rude.

Enough about those old crappy HELOCS.  Who needs them anyway?

Wouldn’t it be nice to have you cake and eat it too?

What if you could have a system, where you took all the cash you’re sitting on for various purposes, and you dumped it (neatly) into an “account” where you could earn a much better return than at the local bank (like 3 or 4 times more); AND you could immediately borrow it back out and pay LESS than what it’s earning.

Yes, you heard right (if you verbalize words when you read).  You can get POSITIVE arbitrage when getting a secured loan.  Then you could take the loan proceeds and use the funds for their intended purpose, leaving the positive arbitrage working for you.  That’s like having your cake and eating it too.

Suffering from a little brain freeze?  That’s what happens when you try to gulp the ice cream.  You need to take it slowly.

Here’s a suggestion:  Listen to this episode, maybe 3 or 4 times.  With a notebook.  Make a list of questions.  Think of all the really cool things you could do with an account like this.  Then, if (when) you still have questions, contract Patrick.  He has additional educational resources to help you loosen your brain belt.  That’s what you need to do when you eat a lot of cake.

Listen Now!

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