Podcast: Short Term Rentals for Long Term Profits

Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

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 investing in the face of a potential recession, the pros and cons of private note investing, whether it makes sense to leverage gold to invest in real estate … 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 knowing host, Robert Helms
• His crowing co-host, Russell Gray 

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Preparing for a recession

James from Phoenix, Arizona, just moved to the area and is interested in purchasing a single-family rental property.

He wants to know what zip codes we feel offer the best opportunities for a solid cash flow, long-term equity investment.

He also wants to hear our thoughts on how we think a possible recession will affect the Phoenix housing market.

First off, we don’t get into the specificity of zip codes in any market. BUT we do know a great provider in Phoenix that absolutely has the answer.

It’s always better to find someone with boots on the ground knowledge to learn more about a marketplace. So, that’s our advice there. Find a good team member … and work with them.

But when it comes to recession … that’s something we can definitely talk about.

As a country, we recently had a tax code change. One of the biggest changes was that state and local taxes are no longer deductible on your federal income tax.

People who lived in high tax states like California are suddenly realizing what a big difference that deduction made … and they are moving to greener pastures.

Phoenix is a major metro that offers a lot of the quality of life amenities people want … and its close proximity to California makes it a hot destination for those fleeing the state’s high prices.

For investors, the key is to find properties with what we like to call “recession resistant pricing.”

If things go well, the value of the property moves up … but those rents are still in demand even when things in the economy aren’t doing as well.

So, your mission ought to be to get with a great local provider and work together to find properties that hit in this sweet spot.

The good news is that Phoenix is a market where we saw pretty good stability in the last downturn.

A look at note investing

Larry from Folsom, California, wants to know what we think about the notes business … and what we think about the notes business as a real estate business.

Some people like to invest in the property. Some people like to invest in the financing.

The note business means that you are writing mortgages, carrying back mortgages, placing private notes, or buying second-hand notes that are loans.

You get the note … and you get the interest … and you have the collateral against the property.

There are two primary reasons people invest in notes.

Some people invest in notes because they want the yield … they want the interest rate, which often can be higher than traditional mortgages.

Other people invest in notes or make hard money loans because what they really want is the property.

They make a loan to someone who is in need … if it pays off, great. If it doesn’t, they get the property.

So, the note business is an interesting business. It can be appealing because you are able to derive income without the hassle of landlording or the risk of the property going down in value.

But that doesn’t mean note investing is without capital risk. It all depends on whether you want to sell the note or not after you buy it.

Where the real money gets made in notes is when you’re trading in notes and you’re using distressed property.

You might go in and lend to somebody who may not be a prime borrower in an ideal situation … so they’re going to pay a premium.

That means you are going to get a little bit of extra interest … and maybe a little bit of extra protective equity.

You can also take things a step further and purchase loans from people who own them already and have decided for whatever reason they don’t want them.

So, you would offer them a discount to the face value of the note.

Now, you’ll be getting paid back more than you lend plus more!

And that discount is added to the interest that a person’s going to pay. That can bring your yield up quite a bit.

Another approach is to buy non-performing notes in the hopes that you can rehab them and get the person paying again OR that you’ll be successful in foreclosing on the collateral.

These types of notes can sometimes be bought for pennies on the dollar.

The key takeaway here is that there are a lot of different ways to get involved in the note side of the business for people who aren’t as interested in dealing with the real estate and tenant side of things.

You don’t have the landlord responsibilities … you do have the debt collection responsibilities.

Overall, we like the note business … but we don’t like the note business as a real estate business.

Now, this is just because of our personal investment philosophies. We don’t want to make a bunch of money because someone else had to be foreclosed on.

For us, it’s too messy and can be ugly. But if you have a more combative personality … it might work for you.

Leveraging against gold

Quentin from Mahomet, Illinois, is seeing the value of the dollar go down … and wondering why an investor shouldn’t just buy gold to use as collateral and leverage against it.

Quentin feels that if the dollar tanks, then your collateral … the price of gold … goes up all while your real estate cash flow asset makes money.

The question is … are there downsides to this approach?

Leveraging against gold has been on our mind for a long, long time.

It has only been in the last 50 years or so that gold hasn’t been money … there’s a good possibility it’s going to come back and eventually be money again.

Central banks are loading up on it. So, we don’t think it’s a bad idea to take some of your liquid reserves and put them into gold.

Gold shouldn’t be considered as an investment. Gold is a place to store wealth … just like cash.

But gold protects you from cash failing and has a longer track record of success.

Borrowing against gold is just like borrowing against any other asset. The equation always just comes down to being able to provide the cash flow to service all the debt involved.

If you lose control of cash flow … everything leveraged unravels.

Still, if you’ve done the math … and you feel comfortable … it’s not a bad way of thinking.

More Ask The Guys

Listen to the full episode for more questions and answers.

Have a real estate investing question? Let us know! Your question could be featured in our next Ask The Guys episode.

More From The Real Estate Guys™…

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

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Hidden costs that hike housing prices …

As the political cycle ramps up, housing affordability might get some attention. And it’s more complex than you might think.

Obviously, housing policies have the potential to affect YOUR real estate investing … so it’s smart to pay attention.

Of course, there’s always risk in talking politics. Everyone has heroes and talking points. Sometimes it’s hard to take the filters off and consider all perspectives.

Fortunately, we’re not here to promote or protest a policy or a politician. Life’s too short for that.

Instead, our focus is on what people in power are thinking and doing … and how it affects our strategic investing.

In case you missed it, President Trump recently signed an Executive Order to take on the lack of affordable housing.

According to the announcement, the EO establishes a White House Council tasked with “tearing down red tape in order to build more affordable housing.”

This ONE sentence reveals much about how the President views the problem … and reflects his background in real estate.

So let’s put our red or blue foam fingers down and consider the landscape the way it’s being planted by the powers that be … and how things might change if a new sheriff comes to town.

Components of Affordability

Housing affordability is a relationship between incomes and mortgage payments or rents. It’s not about price as much as it is the gap between income and housing expense.

It’s no secret housing prices and rents have been rising faster than real wages.

And the longer this goes on, the more people get pushed off the back of the affordability bus.

Ironically, it’s often the attempts at creating affordability which inadvertently makes things unaffordable. Will that happen this time?

Past national policy efforts focused on increasing the availability of financing, while many local efforts include legislating lower rents.

History shows easy financing actually makes housing more expensive … just like student loans made college more expensive.

This confounds typical politicians.

But it’s simple. Financing increases purchasing power … and newly empowered buyers bid prices up. Of course, sellers are happy to oblige.

Consider what happened to housing after the Clinton Administration lowered government lending standards in late 1999 …

Looser lending combined with the Fed’s then unusually low interest rates (trying to reflate stocks after the dotcom bust and 9/11 attacks) …

… drove real estate prices up, up, up in the early 2000s.

Everything was great until derivatives of those sub-prime mortgages imploded the bond market and crashed not only real estate prices, but the global economy.

So again … easy money doesn’t make things affordable. It inflates price bubbles which eventually collapse. Not a great plan.

Interestingly, President Trump is badgering the Fed to drop rates.

He says lower rates are necessary to keep the U.S. competitive in international trade … and to lower the interest expense of ballooning federal debt.

Some claim Trump’s trying to prop up the stock market heading into the election cycle, which is probably true.

In any case, based on this EO, Trump’s push for lower rates doesn’t appear to be intended to drive housing prices UP.

Of course, that doesn’t necessarily mean he wants to drive prices down either.

After all, there are many constituencies with vested interests in keeping values stable or growing.

Banks depend on property values to secure the mortgages they make.

Local governments depend on high values for property tax calculations.

And of course, property owners (who also happen to be voters), use high property values to feel rich or to tap into for additional purchasing power.

On the other hand, there are a growing number of disenfranchised voters who struggle with rising rents and are watching the dream of home ownership become more elusive.

When we asked then-candidate Donald Trump what a healthy housing market looked like in a Trump Administration, he simply said, “Jobs“.

Fast forward to today, and we know President Trump has been trying to re-organize the economy to produce more higher paying jobs.

Of course, the jury’s still out on whether he’ll succeed. But that’s the plan. And if he is successful, it will help close the housing affordability gap.

Of course, rising wages are useless if housing prices continue to outpace them … which brings us back to this affordable housing executive order.

When we put all this in a blender and hit puree, it seems to us crashing housing prices can’t be the goal.

Instead, we suspect the purpose of increasing supply is to moderate excessive price growth … while giving incomes a chance to catch up.

So on the housing supply side, President Trump’s Executive Order presumes to stimulate development by REDUCING regulation.

This is an unusual tactic for a politician. Politicians of both stripes are infamous for MORE government, not less.

Maybe Trump is still thinking like a real estate developer.

In any case, we visited the National Association of Home Builders website to see what active home builders think of the Trump approach.

They describe Trump’s EO as “a victory for NAHB” because “it cites the need to cut costly regulations that are hampering the production of more affordable housing…”

According to NAHB, regulations add SIGNIFICANT costs to development …

“… regulations account for nearly 25% of the price of building a single-family home and more than 30% of the cost of a typical multifamily development.”

Think about that. These are YUGE numbers. 😉

Of course, the odds of reducing regulations and their costs to absolute zero are … absolutely zero. There’ll always be some regulation.

But even if regulatory costs are substantially reduced, there are other factors to consider (we told you it was complex) …

Components of Cost

When bringing a real estate development to market costs include land, material, capital, labor, taxes, energy, and regulation.

Once built, you can tack on marketing, sales, and costs of operation until the product is sold or leased up. So, regulation is just one of many pieces of the equation.

Watching President Trump operate, it seems he attempts to manipulate components of cost as you’d expect from a typical real estate developer … making trade-offs to get things done in time and on budget.

The Opportunity Zones program is an attempt to move economic activity to where land is less expensive.

As mentioned, he’s aggressively calling for lower costs of capital (interest rates).

And the already passed Trump tax reform is delivering tremendous tax incentives for real estate investors.

As for energy, Trump opened up domestic oil production while pushing for lower oil prices.

And with his recent EO, Trump is going after costly regulation in the home building sector.

All that checks a lot of boxes.

Of course, there’s the issue of tariffs … which (at least temporarily) are adding to the cost of building materials.

(There’s much we could say on the touchy topic of tariffs … but we’ll save it for another day.)

Meanwhile, we’re chomping popcorn watching this play out … and trying to decipher what it means for Main Street real estate investors.

Here’s our bottom-line (so far) …

While interest and energy costs are macro-factors which affect the broad market, a reduction in federal regulation makes a smaller dent.

That’s because regulation is both a federal and regional phenomenon.

Our guess is markets with more local regulations will continue to attract less investment than those with less. Conversely, markets with less regulation will attract more.

This push to stimulate development is an obvious opportunity for real estate developers.

Meanwhile, we’re not staying up at night worrying about a supply glut collapsing housing prices any time soon.

If housing prices fall, it’ll probably be because credit markets collapse again.

For that reason, we continue to think it’s a good time to liquefy equity, lock in long term cheap financing, and tighten up operational expenses.

If prices do happen to fall … for whatever reason … as long as you have resilient cash flow and low fixed-rate financing you can ride out a storm as an owner.

And with some dry powder, a collapse isn’t a crisis for you … it’s an opportunity as a buyer.

Of course, you can stand at the plate all day waiting for the perfect pitch. Meanwhile, the market might continue to boom.

You can’t profit on a property you don’t own.

So even though there’s arguably some frailty in the financial system, it’s an ever-present threat you need to learn to live with and prepare for.

But as long as deals you’re doing today are structured to weather a storm, you’re probably better off collecting base hits than taking strikes.

Until next time … good investing!

More From The Real Estate Guys™…

• Sign up for The Real Estate Guys™ Free Newsletter
• Check out all the great free info in our Special Reports library.
• Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
• Stay connected with The Real Estate Guys™ on Facebook,  and our Feedback page.

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

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Podcast: Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

Investing Where Real Estate, Healthcare, and Demographics Converge

Real estate is like surfing … it’s all about riding the waves. 

Smart investors catch a big wave early and hold on for a long ride … and one of the biggest economic waves in history is happening RIGHT NOW. 

It’s all being driven by baby boomers. No matter what phase of life the boomers glide through, the businesses that serve them prosper. 

Over the next two decades, the baby boomers hit senior status … and senior-centered industries are set to boom along with them. 

One industry we’ve got our eye on … healthcare … really, the place where healthcare and real estate meet. 

We’re visiting with a seasoned real estate entrepreneur about how investors can ride this particular wave through residential assisted living homes. 

 In this episode of The Real Estate Guys™ show, hear from:

• Your booming host, Robert Helms
• His waving co-host, Russell Gray 
• President, CEO, and Founder of RAL Academy, Gene Guarino

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Broadcasting since 1997 with over 300 episodes on iTunes!

 

 

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Get rich in a niche

Not all real estate investments are created equal. 

One of the things that drives demand is demographics. As a real estate investor, who are you going to serve … and how profitable can it be?

The old adage goes, “Get rich in a niche.”

Today we’re talking about a niche that has demographics firmly on its side … which means potentially years of profit for investors like YOU. 

We’re diving into senior housing. 

A new approach to senior housing 

Gene Guarino is president, CEO, and founder of RAL Academy … and our go-to guy in the senior housing sector. 

“Everybody’s going to get older and eventually need some kind of assisted living,” Gene says. 

With aging baby boomers moving our way, senior housing and assisted living is a great niche to be in. 

It works nationwide … and baby boomers are living longer. 

And senior housing is a pretty wide niche. It covers everything from 55 and over communities to hospice care and everything in between. 

Gene’s niche within a niche is somewhere in the middle. 

Gene caters to older seniors … typically in their 80s or 90s …  that still want independence but need some help with their daily living activities. 

Right now 4,000 people a day are turning 85 years old. That’s 120,000 people a month and more than 1.4 million a year. 

Not all of them need assisted living, but hundreds of thousands of them will … and there’s no room at the inn, so to speak. 

One of the biggest misconceptions we need to break is that assisted living is a three-story building with elevators and a common kitchen. 

“What we do is take a single family home in a residential setting. Not a big box facility, but a home,” Gene says. “You could literally be living next door to it, and you wouldn’t even know it.”

Gene and his team take a home in a nice neighborhood and do a little bit of conversion, get it properly licensed, and hire an expert staff.

And the payoff can be enormous. 

Think about it. You might have 10 seniors in a home each paying $4,000 or $5,000 a month. The net profit from this setup is significant. 

A home that might rent for $2,500 or $3,500 a month to a single family now rents for somewhere around $30,000 a month. 

These homes offer a moderate amount of care. The seniors living there don’t need skilled nursing help … but they do need some basic help. 

So, senior housing is really in two parts … the real estate side and the business side. 

How you can get involved

The beauty of senior housing is that there are multiple ways to get involved. 

You may have real estate investors who want to own one of these homes … but they don’t want to be involved on the business side. 

Or you may have some individuals who don’t have the funds to purchase one of these homes … but they are ready and willing to be involved in managing the day-to-day operations. 

Most people don’t realize when they walk into an average business that the business owner behind the counter doesn’t own the real estate. 

Someone else owns the building and leases it to the business. The business is making money … but the real estate owner and everybody in between is making money too. 

Senior housing means you can own real estate, lease it to an operator, and get it up to twice the market rent with a long-term, low-impact tenant. 

“The key to this transaction is to find a tenant first,” Gene says. “Find an operator you can lease the residential assisted living home to.” 

There are many reasons to find your operator before you find your property … the primary being taking their suggestions on potential home locations. 

The time is now

So what’s the end game? Gene says his students have found multiple profitable strategies from investing in senior housing. 

The first is acquiring multiple homes and then selling them off as a portfolio to a larger conglomerate. 

Another approach is to simply hang on to the properties over the years making really good cash flow and giving the property an opportunity to go up in value. 

Lastly, you can build your own brand and business into something that you can eventually sell as a branded package. 

No matter what you do, Gene says the time is now. 

“Business is good now, and it’s getting better and better and better. And once the spike from the baby boomers hits, it’s just uphill from there for the next 20 years,” Gene says. 

So, to get in position to ride this wave, there are a couple of ways to go. 

You can either passively invest in the real estate with an operator … or you can learn the business side of residential assisted living. 

“I wish there was a training like the one that I give people that I could have attended,” Gene says. “It would have saved me so much time, effort, and money.”

We always say that the best way to learn is to learn from the people who are already doing what you want to be doing. Through RAL Academy, Gene is enabling investors to do just that. 

Gene’s trainings take place over three full days in Phoenix, Arizona. On the second day, students load up and visit some of Gene’s operating homes in the area to see what senior housing looks like firsthand. 

To learn more about RAL Academy and opportunities that lie in senior housing … listen in to our full episode. 

More From The Real Estate Guys™…

• Sign up for The Real Estate Guys™ Free Newsletter
• Check out all the great free info in our Special Reports library.
• Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
• Stay connected with The Real Estate Guys™ on Facebook,  and our Feedback page.

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

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