9/8/13: Ask The Guys – LLCs, IRAs and Contract Contingencies

Two months ago we CRUSHED our all time record for podcast downloads in a single month.

Than, last month we KILLED that new record by over 50%!!!

This month, we’re on our way to DESTROYING the August record, and we’re only 8 days into the month.

Why?

Because we have AWESOME LISTENERS.  So to celebrate, and because it’s that time again, we ran to the email room and reached into the mail grab bag and pulled out a big stack of questions from our Ask The Guys page.

Then we put on our eye black and game faces and huddled up.  So now,  in our studio locker room for this game of Ask The Guys:

  • Your quarterback of conversation, host Robert Helms
  • The half-wit halfback and little ball boy, co-host Russell Gray
  • Your gold jacketed,Hall of Fame pontificator, the Godfather of Real Estate, Bob Helms

When we put these questions up on the chalkboard, we knew this episode would be a home run….

Oops.  Wrong metaphor.  But you get the idea…

So kicking off the conversation, we tackle a question about the difference between measuring ROI in dollars versus percentages.

At first, it seems like a simply question.  Because if you invest $1 and double your money, you only make another dollar.  Big deal, right?  Even though you have 100% ROI, you really didn’t make any money.

Conversely, if you invest $10 MILLION dollars and only make 5%, you earn $500,000.  A lot less percentage, but which would you rather have?

But of course, there’ more to it than that.  What about factoring in your time?  If each investment required 1 hour, then you could earn either $1 per hour or $500,000 per hour.  Extreme examples, we know, but it makes the point.  And when you get to the point where you have a staff and fixed overhead, even small margins are better than hemorrhaging cash.

So we’ll always take absolute dollars over high percentages.

Next, we intercept a question about what to do with a dinky self-directed IRA.  Rather than punt, we suggest a flea flicker where you combine your cash with someone else’s credit to make a bigger play.

But what about loans to your IRA?  Isn’t that out of bounds?

Not necessarily.  For example, if you loan your IRA to a credit partner to use as a down payment, then your credit partner can get a conventional loan.  It’s only one of a couple of options you have in this situation.  So don’t be dismayed if you only have a little bit to work with.

Next, we get a great questions about cash flow versus capital gains.  That’s like looking at the cheerleaders.  Which is better?  Blonde or brunette?  They both look good to us!  (What can we say?  We’re The Real Estate GUYS).

The real questions is which one is faster.  Calm down.  We’re talking cash flow versus equity now.

Cash flow is great, but most rich people got rich on equity.  Bill Gates made a modest salary, but earned BILLIONS in stock equity.  Same with Steve Jobs.  Same with Donald Trump.  Equity is just cool.

Now with real estate, it’s VERY IMPORTANT to remember that cash flow is KING when it comes to controlling a property.  Otherwise the debt can sack you for a big loss.  Not good.

But when you can FORCE the equity (do something under your control to make it worth more, as opposed to waiting and hoping that a greater fool will come along and pay more for the property in exactly the same condition as you bought it), then you can compress time frames.  It’s like running a 2 minute drill against a prevent defense.  You can earn big chunks of cash in short periods of time.

So we like equity for getting rich.  It’s offense.

Cash flow is like defense.  It keeps you in the game until the offense can score points.  Just remember, DEFENSE wins championships. So don’t diss cash flow just because it’s not as fast as equity.  Just like fast cheerleaders, equity can be fickle.

Cash flow is faithful.  And if your ultimate dream is an annuity of passive income for the rest of your life, you’re going to be married to your real estate.  How we went from football to marriage, we’re not sure.  Maybe too many shots to the head.  Or maybe just too many shots.

We got several other great questions about asset protection and privacy.  But we’re getting carpal tunnel on this blog and we’re sure your eyes are getting tired.  So do us both a huge favor and grab a frosty brew, sit back and listen to this fabulous episode of Ask The Guys.  Then, if you want to hear YOUR questions answered on the air, send us a compliment-laced message with your question through our Ask The Guys page.

Until then, enjoy the show and then go make some equity happen to YOU!

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