Everyone loves a hot market! But hot markets have their disadvantages.
When markets heat up … prices go up … and yields go down.
But that doesn’t mean investors are stuck.
There are things you can do to adapt and keep cash flow up … without having to change markets.
We sat down to chat with our good friend John Larson to find out how he has made the most of one of the hottest markets in the last ten years.
In this episode of The Real Estate Guys™ show, hear from:
- Your heating up host, Robert Helms
- His hot-head co-host, Russell Gray
- Managing Partner of American Real Estate Investments, John Larson
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Adapting in a hot market
Dallas, Texas, has been a hot spot for real estate investors for the last decade. But .. like any market … the tide is starting to turn.
After 2008, the rules of the market changed.
Dallas stood out because it had not one … not two … but multiple drivers.
It had population. It had education. It had transportation. It had a business-friendly environment, low income tax, medical finance, tech distribution … it was the whole package.
It ended up being the best real estate market of the past ten years … and it’s not over yet … but yields have changed a lot.
So, what’s an investor to do?
As Managing Partner of American Real Estate Investments, John Larson has had to adapt to the changing Dallas market.
Many people knew John and his team as the Turnkey Single Family people in Dallas … but his company has had to change what they do while maintaining the big picture of WHY they did it.
Debt syndication and using your retirement to make money now
John says that the Dallas market is hotter than ever … but in 2017, the cap rates on the single family homes started to get compressed.
“You can only push rents up so far,” John says. “The values of homes kept going up because of the demand, so property went up as well.”
John says his investors came to him primarily for cash flow. They were looking for passive income.
So, John needed to find some new ways to provide that cash flow that investors came for in the first place.
The first project they took on was debt syndication … partnering with a developer and syndicating funds on the debt side.
“We came in as lenders to buy the lot and get the construction completed and get those units leased as office space,” John says.
A debt investor is someone that wants to have predictable income flow again, and it’s not as risky as other ventures … with the opportunity for BIG returns.
At some point, you have to graduate from single family houses and move to the next level, like multifamily or office space.
John says there are great deals to be found … but you have to do a little nosing around.
And you can’t beat the opportunity for passive investing.
With debt syndication, investors can be very hands-off and get as high a return as possible.
Especially for the investor who is looking to lend money from their IRA or 401k, debt syndication is a great passive experience for them and a great way to maximize their retirement accounts.
Many people don’t understand that they can put their retirement dollars to work … but as soon as you can self direct your retirement funds … you’ve opened up a whole world of alternative investments.
Because of the nature of a retirement account, you can’t have a current benefit. It is really for tomorrow, not for today … so passive investments just make sense.
These are solid deals in solid marketplaces … but people have a hard time getting their minds around why someone would want to use debt.
In good deals, the asset pays back so quickly that there’s not a lot of risk on either side.
It really just depends on how your personal investment philosophy fits in.
Keep your money working
If someone is looking to put their money to work in a debt syndication type of deal, the big question is … how long is this deal going to take?
John says that the longest term he has done so far was with a new construction project … that was 18 months.
The average term for a deal is usually about one year.
“We want to get you money back within a year and have another deal lined up for you so you can keep your money working,” John says.
Keeping your money working … that’s the key to finding high yields in a hot market.
Learn more about the Dallas market and how John and his team are finding new ways to create cash flow without changing markets by listening in to the full episode.
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