Ask The Guys – Market Indicators, Wholesaling, and Raising Money

 

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There’s always twists and turns in real estate, creating a labyrinth for investors. Who can you trust with your questions along the way?

When you find them, let us know. In the meantime, we’re happy to share our thoughts 😉

(Our lawyers make us add this friendly reminder: We’re not lawyers, accountants or financial planners. In fact, we’re not even all that bright. We just share ideas and information for you to consider when working with your own professional advisors.)

In this latest edition of Ask The Guys, we take a deep dive into our email bag and pick out some great questions, including…

  • Should I flip homes or rent them out?
  • What are some market indicators I should know about?
  • How do you recommend I raise money?

Tune in and see what we have to say in our latest edition of The Real Estate Guys™ radio show with:

  • Your on-a-quest-for-answers host, Robert Helms
  • His (trusty?) answer-finder co-host, Russell Gray

 


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Question: Should I flip a house or hold and rent it out?

Andrew from Portland, Oregon, reached out to us, “tired of getting a paycheck while someone else gets the profit.”

The Real Estate Guys don’t do a lot of flipping. In our mind, flipping is not real estate investing, but flipping IS a way to make good money.

The essence of business and investing is to build a machine that accumulates the efforts of others (time, money, etc.) as an organized “asset” with a cash flow.

Investing is putting your dollars out to work instead of your labor.

When renting to people, they pay you rent out of their earnings. That’s their effort, turned into a cash flow for you.

A lot of folks think in terms of: Cash > Asset > Cash. (Taking cash to build an asset that creates more cash.)

We encourage you to think in terms of: Asset > Cash > Asset (Using an asset that creates cash flow so you can invest in more assets.) Assets are our end goal.

So you could use your skills to rehab a home, tenant it, and keep the income.

We have a good friend Terry Kerr who has built a portfolio of properties in a thriving business in Memphis using that model.

Question: Should I buy a home before an investment property?

Sonya from Pembroke Pines, Florida, is a smart woman looking for the best way to use her $32,000 VA loan.

She’s renting right now, “because it’s tough to find a home in order to afford to buy an investment home. Which should I do first?”

We say where you live is a personal choice based on where you want to be and the type of home you want to live in.

Sonya isn’t sure she wants to stay in Florida long-term, which is part of her dilemma in choosing a property.

She’s got this VA loan eligibility for a primary residence. The nice thing about the VA is that once you buy a property is that even though it’s an owner-occupied loan, if you live in the home and move, the loan can stay in place after you move.

You could even buy another home as an owner-occupied loan. Keep in mind, you can generally only have one VA eligible property at a time.

If Sonya buys a home to live in, and there’s a possibility of moving, it’s probably best if she feels comfortable it would be a profitable rental, in case it’s not easy to sell.

(That’s the thing about home ownership: You will pick up some tax breaks but you’re also tethered to the property.)

There’s always the chance you may end out getting stuck in a property.

Sure, home prices have been going up, but it doesn’t mean it will keep going to the moon.

Based on the chance you may or may not be trapped in a property you may not want long-term to take that VA and use it somewhere else.

As far as renting goes …

We say there’s really no harm in renting today if you’re figuring out how to put your assets to work.

Question: David in Boise, Idaho, asked: “Are there limits, as a percentage, to invest my self-directed IRA? Can I invest it into one property?”

We definitely recommend you talk to a tax advisor. If your IRA is self-directed, then yes, you are legally allowed to invest as you please.

While you can, the bigger question is should you invest it all into one real estate project?

Generally speaking, it’s not a good idea to put all your eggs into one basket. It may be prudent to diversify.

We don’t have all the details on David’s portfolio, but the general principle is it’s never good to be greedy. Sometimes you swing hard and get the Grand Slam, and sometimes you strike out. If you’re not prepared to strike out, it might not be the best route.

Question: Looking to diversify in several markets, what do you think?

Rick in Michigan is looking to raise money through a syndication, and has a plan to acquire four or five properties in several markets, including one or two vacation properties in Belize.

We love his idea to syndicate, putting together a lot of people’s resources to do something bigger.

Rick wants to have all the properties managed except those in his own area, which he plans to manage himself.

At the high level, we love the idea.

It’s wise to diversify across markets and property types. We like that he’s throwing in some vacation properties. But here’s our hang-up: Why manage it yourself?

Rick, you’re going to be attentive to what’s going on in the other markets. You’re managing money and time.

Time is tricky. You can’t raise more time.

If there’s room in your business model to have a property manager, then get someone else’s help to manage the properties in your area.

Also consider this …

Since you’ll be having investors as part of your building this portfolio, you have to disclose every way that you may be compensated. Being a property manager could appear as a conflict of interest.

You need to build a team and build a relationship with the team. If you’re managing the properties purely to save money, raise more money.

As Simon Black says, “Add a zero to your thinking.”

If the only gating item is the amount of money, that’s largely a mental block.

Question: What are the market indicators?

Everett in Coral Gables, Florida, reached out to get more clarification on the market indicators.

We suggest looking at net migration, which will be either a net positive or negative. You always want to look for a POSITIVE net migration.

There are some markets where more people leave than come in. That’s bad news.

For example, look at Detroit, Michigan. It had a population of 2 million people. Now it’s somewhere between 600,000 – 800,000 in population.

In Detroit, they are literally tearing houses down – removing inventory – because it’s more of a liability to have squatters in them.

Detroit’s an exaggerated scenario.

The point is these markets shift slowly and if you’re not paying attention, then you get left holding the bag.

Another indicator of market health is how long it takes to sell a home.

Not just annually, but from a month-to-month basis. What are the average days on the market?

There’s a whole lot of other indicators … check out our podcasts for more!

Question: What’s the legality of wholesaling? Do I need to be a licensed realtor?

Shawn in Fort Meyers, Florida, reached out to us to learn more about wholesaling.

Wholesaling is the idea of getting into a contract for a property that you’re not going to buy, then finding another buyer.

Since you did the work of finding the property, other time-strapped investors may pay for your efforts in finding it for them. They’ll take it off for hands for a small fee.

The legality portion is tricky.

The smartest thing is to ask a real estate attorney the question. Tell them what you want and ask how to do it within the law.

We’re guessing wholesaling would be fine.

To have a license means you are brokering, or representing a third party.

When you make the contract as a wholesaler, you’re NOT representing anyone.

Make sure you understand HOW you should sign the contract …

This will be either as a “signee” or a “nominee,” depending on what your attorney tells you.

What you’re effectively being compensated for is tying up the property at a decent price and getting a buyer.

Again …

The smartest thing to do when you have a legal question is to spend a couple hundred dollars and GET COUNSEL from a qualified real estate attorney.

Question: With fixed-rate loans, backed by real estate, am I making a bet on inflation?

Patrick in Belgrade, Montana, reached out to us with a great question.

Looking at history and trajectory of U.S. dollar, it’s tempting to think it’s going down. Is it possible the U.S. could have a lost decade of inflation?

If you’re investing for the long-term, our opinion is the trend is your friend.

If you look around the world and the economic uncertainty globally, you’ll see the dollar is less flawed that in other countries.

If all the currencies are sinking, then long-term the dollar will be in the same ship.

We see you having a better chance of inflation than deflation.

In a lot of markets in the world, the U.S. dollar is the de facto for real estate purchases.

As a real estate investor, you need to be prepared for either side – whether the dollar loses or gains value in the global marketplace.

How?

  • Structure yourself conservatively, not razor thin on the cash flow.
  • Pick markets that are more in demand, and think more about where they are GOING then where they are now.
  • Go to cheaper places, where the cost of living is lower but quality of life is good.

These are big, strategic decisions.

If you are serious about understanding about macro economy, this is more than we can dedicate to an episode. That’s why we dedicate and entire, fabulous WEEK to it: Summit at Sea™.

We commit ourselves for a week of intense discussion with some of the greatest minds in banking, commodities, real estate, and investing. They give us a 360-degree look at all of these different topics and come out with actionable intelligence.

It’s a big investment of time and money. It’s also a blast!

Question: I’m just getting into investing, partnering with my dad. What should we be sure to include in our portfolio?

Andrew in Yucaipa, California, is 31, using his dad’s retirement to build a portfolio.

We’ve learned the hard way …

Structure your portfolio to weather a storm!

If you are betting on financing to take you out of tight spot, be cautious. If you’re being conservative and you’re picking a good demographic, have adequate reserves, and not letting yourself get to the point that you might have to sell.

You NEVER want to HAVE to sell.

Instead, you want to do determine your own timing.

We recommend recession-resistant product types. When times are bad, the wealthier are going down t middle class homes. When times are good, people are getting raises and upgrading their homes.

How to protect yourself?

Stay away of high-end stuff and choose more of the bread-and-butter middle ground.

Create your future

All of these were great questions. If you’ve read this far, you’re interested in investing BECAUSE you have goals. Good for you. That’s where it all starts.

You want to improve your life.

You want to create cash flow.

You want more freedom.

You can do it! Go out and make equity happen!


 

More From The Real Estate Guys™…

 

 

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

How to Flip a Minnesota Foreclosure in 2014

According to MSN Real Estate, home flipping—the act of buying a dilapidated house, renovating it and selling it for profit—is heating up again. After the housing bubble collapsed some four years ago, the flipping world came to a grinding halt. Though plenty of inexpensive homes were available on the market, including many foreclosures, the flat-lined real estate market made flipping a risky proposition.

Now, however, the number of foreclosures and short sales in Minneapolis has fallen dramatically. According to The Skinny, a little over 35 percent of all closed Minneapolis home sales in November 2012 were foreclosures or short sales. In November 2013, that number fell to a little over 22 percent. If you’re in the market for a foreclosure to flip, now’s the time to act.

The latest flipping trend in Minneapolis, which the Star Tribune recently reported, is purchasing and renovating homes in the upper end of the real estate market. With fewer foreclosures to choose from, some of your fellow flippers have turned to tackling these million-dollar rehab projects in hopes of turning a big profit.

Where to Start

Make sure that the foreclosed home you purchase is in a desirable neighborhood or community. Remember, with real estate, the old adage, “Location, location, location,” is almost always true. Do your research, especially if you are not familiar with a neighborhood. That home you’ve been looking at may seem like a real bargain because similar houses sitting just a few blocks away are selling for thousands more, but they may be in a different school district. Parents place high value on the schools their children will be attending, so the ones that service your neighborhood could significantly affect the price of your foreclosed property.

Don’t Skimp if You Purchase a High-End Property

With a high-end flip, you will typically be dealing with discerning buyers who expect quality, above all else, in their investment. If the foreclosed home you are planning to flip has cheap or dated carpeting, cabinets or countertops, replace those cosmetic areas with top quality items, such as hardwood floors and granite. The same holds true for your appliances.

Have a Dumpster on Site

Flipping generates a lot of trash and waste so have a dumpster on site so that all of your contractors will have a place to dispose of their rubbish quickly. Companies like Minneapolis Next Day Dumpsters rental, include the dumpster, delivery and pick-up all in their fee. Remember to ask your contractors to remove any waste removal costs from their estimates since you’ll be providing the dumpster on-site.

Stick to Your Timeline

While it’s not always possible to keep contractors on schedule, remember that the more time you spend on your flip, the less money you will be making in the long run. Each mortgage payment you have to pay cuts into any potential profit you stand to make.

This post provided by The Real Estate Guys™  guest contributor, Nettie Gomez

5/30/10: Getting Into the Deal Flow – Wholesale Solutions for a Distressed Market

We always say that every problems presents one or more opportunities.  That sounds really good in a seminar or on the radio, but what about in the real world?

In our continuing quest to find resources to help real estate investors succeed, we came across an entrepreneur who looked at all the carnage in the low end housing market and saw a business opportunity.  In fact, we were so impressed that after out first meeting we decided to fly to his office and look at his operation.

While we were there, we fired up the microphones and recorded an interview.  Wouldn’t you like to hear it?  We thought so!

Behind the microphones on location in Austin, Texas:
•    Your host and lead explorer, Robert Helms
•    Co-host, financial strategist and travel coordinator, Russell Gray
•    Lawyer, entrepreneur, investment banker and CEO, Jeffrey Ball

Anyone who’s every watched a late night TV infomercial has probably heard the terms “REO” and “Wholesale”.  And at 2:00 am, the idea of buying bank owned properties for pennies on the dollar SOUNDS easy to do.  But anyone who’s every tried knows it’s a whole lot harder than it looks.  So even if you’re well educated and adequately capitalized, getting into the deal flow can be elusive.  Correction, getting into the GOOD deal flow is elusive.

Of course, most people only look at a problem from their own perspective.  If deal flow is a problem for investors, what about the banks who are holding repossessed properties?  Our guest points out that the banks have problems too!   And he tells why the problem is worse on the lower priced properties.

Wow!  If both the buyers (investors like you) and sellers (banks holding repo’d property) have problems, there MUST be an opportunity in there somewhere, right?

Once we understand the problems from both sides, Jeff reveals how he built a business around solving the problems.  What’s most exciting is there is a role for individual investors to play.  If you know there’s great deals in distressed property, but haven’t figured out a practical way to get into the deal flow, then this show is for you!

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