Build-to-Rent Real Estate — Another Look at a Hot Concept

What do you do when a housing shortage meets a shortage of home buyers? 

It’s real estate investors to the rescue! Developers are finding big opportunities building homes to cater to the needs of landlords. 

We’re talking with two developers who are taking the hot concept of build-to-rent to new heights. 

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

    • Your informative host, Robert Helms
    • His inquisitive co-host, Russell Gray
    • CEO of Sage Oak Assisted Living, Loe Hornbuckle
    • Loe’s partner and construction developer, Austin Good

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A new approach to rental property 

We’re talking about a niche that is getting hotter and hotter by the minute. It’s something that lots of people can participate in … build-to-rent. 

Traditionally, builders have been buying land, building, and then selling what they built. 

But more and more, there is the idea of building the end product not for someone to buy and use … but for someone to rent. 

Most renters are looking at older properties … single family houses, apartments, townhouses … all already up and running and built for owner occupants. 

They may not be ideal as a rental for either the tenant or the landlord, but they work fine. Now, these properties are being built with the tenant specifically in mind instead.

We read a lot about the millennials and their debt load and inability to purchase houses. That means more people renting their homes and a giant demographic of young people that need a place to live. 

On the flip side, you’ve got a lot of interest in real estate as an asset class for the first time … so there is opportunity. 

Big benefits in build-to-rent projects

We’re talking to two men who have found the secret sauce in build-to-rent properties … Loe Hornbuckle and Austin Good. 

Austin started out as a real estate agent and quickly began flipping single family rental properties. But when inventory started to tighten he thought, “Maybe we should just go in, buy land, develop it, and build to rent.”

Doing so meant you could control the entire process a lot better and easier. “And as we did that, we found a lot of demand from investors,” Austin says. 

Some of the benefits of the build-to-rent scene is that investors are usually ready to close right away. You don’t have to wait things out depending on the market as much as a traditional developer. 

Physically, there are ways to optimize properties with renters in mind as well. 

“The biggest differences come down to durability of certain goods. We’ve gotten rid of carpet altogether in all of our deals because LVT flooring is more durable for a rental market,” Austin says. 

Austin also says that they design the homes with the investor’s exit strategy in mind. 

Right now, these properties will be used as rentals … but in 10 years the investor may want to sell to an owner occupant. It all depends on how the market changes. 

On that note, build-to-rent as a niche is fairly recession resistant. 

“These types of properties are a Class-A product that can rent for a Class-B price. You also don’t have to compete in the amenities space like apartment buildings,” Loe says. 

Currently, Austin and Loe build a combination of duplexes and townhomes … so people treat them as single family residences and don’t expect all the extras of an apartment complex. 

The other big pull for this niche, Loe says, are the tax advantages. 

When you sell a product, you’re being taxed. But build-to-rent has the advantage of the government realizing you are building affordable, clean, safe housing, so it offers many breaks and cuts to help you out. 

Then, you have the low turnover rate to consider. The two biggest expenses in renting are turnover and vacancy. If you can minimize those things … you’re in great shape. 

The tenants that come into build-to-rent properties treat them like they are their own, and they become attached and stick around. 

A big appeal of these build-to-rent properties right now is that they give the tenant the chance to rent something that is brand new or only a year or two old. 

Compared to living in a 25-year-old property … new is very appealing. 

In short, build-to-rent is a long-term asset with multiple exit strategies and multiple uses. 

Syndication in build-to-rent

Efficiencies are important when you’re undertaking a large project … and that’s exactly what Loe and Austin are doing. 

Their current project in Denton, Texas, has almost 90 units … which offers opportunities for a streamlined workflow and other efficiencies that mean more profit for builders and a better deal for investors. 

They also have a unique approach to ownership. Instead of selling individual units, they are collectively owning them. 

Many of Loe and Austin’s current projects are in Opportunity Zones. One aspect of investing in these areas is you have to hold the property for 10 years to get the maximum tax benefit. 

For many investors, investing in an opportunity zone is solely for the tax benefit … and with build-to-rent style investments, there are many additional bonuses for passive investors that want to get involved. 

Passive investors can see the tax advantage and return they want and are willing to hold the property for an extended amount of time. 

That’s why Loe and Austin focus on real estate syndication. Individual owners are foregone in favor of a leasing agent and maintenance staff that oversee the project. 

To learn more about syndicating in the build-to-rent niche … listen in to the full episode!

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.


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Podcast: Build-to-Rent Real Estate – Another Look at a Hot Concept

When a shortage of housing converges with a shortage of home buyers … it’s real estate investors to the rescue!

Developers large and small are realizing there’s a big opportunity in building homes to cater to the needs of landlords.

In this episode, we visit with two developers who’ve put a new twist on the build-to-rent concept.

So listen in as take another look at the hot concept of build-to rent.


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.


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Podcast: Paradise in Your Portfolio – Exploring the Resort Market of Belize

Resort property investing starts with market selection … just like all real estate investing. You’re looking for the right mix of supply, demand, location, team, and demographic.

Belize checks a LOT of boxes. It’s one of the most uniquely positioned resort markets in the world.

In this exotic episode, we visit with a U.S. ex-pat who set up shop in Belize and is very active in the real estate market.

Is it time for you to consider putting some paradise in YOUR portfolio? Tune in and find out!


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.


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Ask The Guys – 401ks, Losing Properties, and Preparing for a Bust

That’s right. It’s another episode of our favorite topics from our favorites guests … YOU!

It’s time for another segment of Ask The Guys … and we’re ready to tackle the tough questions. 

We’re touching on 401ks, purging portfolios of problem properties, and how to prepare for what many believe is an inevitable bust. 

And … there’s more!

The best way to learn is from each other. 

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 succeed-or-bust host, Robert Helms
  • His bust-a-gut co-host, Russell Gray

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401k sitting idle

Our first question is from Lenedia in Forney, Texas. She says she has about $16,000 left in an old 401k plan that’s just sitting idle. 

She wants to invest this money in real estate or in another niche that would give her a profit within a year … but she wants to know our advice for a first time investor. 

Well, we don’t give advice … but we are happy to share ideas. 

The duration of the investment is always an important factor. When you’re looking for a return in a short period of time … it limits the things you can invest in. 

When you’re using retirement savings … there are some rules and some risks. 

The best thing you can do as a first time investor is get educated. Invest in investment. The good news is that it doesn’t cost that much. 

In this particular case, you’ll want to learn about 401k plans and how they dictate what you can invest in. 

Maybe you’re at a point in your life where it’s time to start taking distributions from retirement. In that case, you may make different choices about where you invest the money. 

One of the big advantages of retirement account investing is that it isn’t subject to the same taxation.

But again … the most important thing you can do is educate yourself on all the options before you make a decision. 

What to do with non-performing properties

Christopher in Anchorage, Alaska, started purchasing multi family real estate in 2013. Currently, he’s sitting on two unfinished, non-performing properties.

Christopher says he either needs to find a buyer that wants to finish the properties … or an investor willing to front the funds so they can be finished and flipped for a cash out. 

What have we seen in these types of situations?

The real essence of the question is, “How do you get rid of a property you don’t want?”

Anytime you’re looking at an investment decision, you’re looking at its current condition. Whatever it is … it’s worth something in its current state. 

That worth is your baseline. Then, you look at what the potential of the property is … and what it is going to take to bridge the gap between where it is and its potential. 

If you can bridge that gap and make a profit … it may be an opportunity … but it still might not be the opportunity for YOU. 

Have other investors in your life come and look at the property and the market and ask them what they think the opportunity may be. They may see an opportunity that you don’t … or they may want to take it on themselves. 

Either way, it’s time to take a look at how the properties got this way to begin with. Why did this project croak on your watch?

Use it as a learning opportunity … and if you decide to take on the project yourself, you’ll need to be able to explain what happened to other investors. 

When you take the property to market … you may just decide it is best to take a loss on it and move on. Nobody gets through this business clean. 

Extra billions and the bust 

Jason in Merrick, New York, wants to know if we see the recent creation of billions of dollars pumped into the banking system having an impact on real estate. 

In the U.S. and many other countries, there is what we would term quantitative easing … printing money and creating billions of dollars out of thin air. 

Of course, there are ramifications. And there are a couple of things to think about. 

Lots of this capital gets into the system, and it doesn’t get back out again. That’s how it stays contained. 

People have access to the capital through whatever means bid up the assets that are in demand. 

That being said, there’s a lot of motivation on a lot of people’s parts to prop up real estate … because bankers make loans against real estate.

If those loans go bad … if real estate prices drop … the voters that live in those homes get angry at politicians. 

Some politicians are very motivated … that’s why you see a lot of effort to create subsidized financings and easing lending guidelines. 

All that to say that historically, more money being pumped into the system is good for real estate in the long term. 

Sometimes, it does create major disruptions in the credit markets. When that happens, credit markets dry up like they did in 2008 … and that has a negative impact on real estate prices.  

But, if you’re a cash flow investor and you’re controlling your real estate with prudent cash flows and long term structured debt that isn’t going to be called … you can ride that wave out. 

If prices were to crash again, we think it would be fair to expect that the powers that be will do exactly what they did last time … funnel lots of money into real estate until they can re-inflate. 

So, there are a lot of maybes and what ifs … but generally, real estate is the winner when there is more money floating around in the system. 

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™…

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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Ask The Guys – Markets, Growth, Condos and Credibility

You’ve got questions. We’ve got answers. 

That’s right. It’s time for another segment of Ask The Guys … when we host our most favorite guest … YOU!

This time we’re tackling listener questions about choosing a great real estate market, building a bigger portfolio, whether or not an office condo makes sense, and creating a rock-solid reputation in the real estate business. 

And … there’s more!

We never tire of hearing what is on your mind. 

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 rock-solid host, Robert Helms
  • His rocking out co-host, Russell Gray 

Listen


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To office condo or not to office condo

Our first question comes from John in Houston, Texas. He’s considering purchasing an office condo for his investment management business. 

“I’ve been doing research, and I get mixed feedback about these being a good investment,” John says. 

Is purchasing an office condo really better than leasing if you plan to be in the space for over 10 years? 

It’s a great question. 

Let’s start with what an office condo is. Maybe it’s obvious, but just like you would own a condominium home, you would own a part of an office complex. 

It could be the third floor in the corner or it could be its own building. It really depends on the development and its structure. 

These types of properties appeal to landlords who want commercial tenants instead of residential. The incentive for a business owner is that for what they are paying in rent, they could be working toward owning a building. 

Office condos can be really great investments. 

The biggest consideration for owner users is that not everyone has part of their business plan dedicated to owning real estate. 

But one of the great things about owning the business and owning the real estate is that you can do those two things separately. 

Your business doesn’t have to own the building. If you own it instead, you have the flexibility of just selling the business but keeping the building to lease out or selling the building and staying as a tenant. 

It also provides some asset protection benefits and other flexibility in terms of taxes. 

At the end of the day, talk with your legal or tax professional and run the numbers. Figure out the cost of ownership and if it makes sense for you. 

Growing bigger, faster

Casiana in Battle Creek, Michigan, wants to know how to grow her portfolio fast. She currently owns four rental properties and is interested in syndication. 

The whole premise of syndication is being able to do more … faster. 

Every property only cash flows so much … and to get to a really great passive income could take a lot of houses. 

Syndication isn’t the only way to go … but it is the next step for many folks, because it allows you to use other people’s expertise, money, and resources. 

You can also take advantage of great networking and education events like our Annual Investor Summit at Sea™. Come prepared … reading books by the instructors beforehand is a great start. 

Remember … education for effective action.

The main message is don’t trade time for dollars. Put your money to work for you. 

Money doesn’t buy happiness … but money can help take the things that make you happy and bring more of them into your life. 

Making sense of markets

Alex in Poulsbo, Washington, is looking to buy a first investment property … but doesn’t know where to begin. Maybe markets outside Seattle?

Well, you can make money in Seattle … but Seattle is very expensive. It’s one of the more expensive places to try to buy in the U.S. 

You may find out that investing in your home market means the numbers don’t work out very well … and since you are thinking about other markets, you’ve probably figured that out already. 

For those of you that live and invest in the same market … good for you! There’s no reason to go outside your market if you live in a place where the numbers work. 

Market analysis starts with listening to the industry buzz … what markets other real estate folks are excited about. 

Then, you look at each market and the key market drivers … factors that create vitality, jobs, and the need … or want … for more tenants to be there. 

Then, you need to look at the market in terms of your personal investment philosophy. 

What are you trying to accomplish as an investor? And what are you willing to do and not willing to do to achieve those goals?

Once you’ve found a market … or three … that look good to you, get on the ground. 

Go see things in person, and work on building a team. Latch onto a great property manager. 

Find experts who know the area. They should know where the path of progress is, where demand is going, and where the good tenants are.

They will help you drill down to the neighborhood where you should look for property. 

Carefully building credibility

Mike in Buffalo, New York, wants to know how to build credibility in his brand new real estate investment company as a wholesaler or investor. 

Credibility takes time to build. It’s like a reputation. 

You have one reputation. It takes you years to build it … and the whole thing can topple down in a minute. 

So, you’ve got to be very strategic and careful about building your credibility. 

It starts with presentation … how you show up, look, walk, and talk. 

Then, look at who you associate with. Seek out experts in the industry who are top notch quality, and find ways to enter their circles. Offer your help. Ask them questions. Find mentors. 

And … of course … do great work. 

In the end, credibility takes time and consistency. 

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™…

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 – Markets, Growth, Condos and Credibility

A litany of listener questions about how to choose a great real estate market to invest in, how to build a bigger portfolio faster, whether or not an office condo makes sense, what it takes to create a rock-solid reputation in a relationship business, and more.

So listen in as The Real Estate Guys™ answer listener questions!


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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

California screaming …

In August 1971, President Richard Nixon went on national television and shocked the world by defaulting on the gold-backed dollar system created at Bretton Woods in 1945.

Up to that point, dollars were essentially coupons for real money … gold. Foreign dollar holders could turn in their dollars and walk away with gold at $35 per ounce.

Nixon repudiated that deal without warning, promising it was only a “temporary” measure. That was over 48 years ago … and the world is still waiting.

It reminds us of Ben Bernanke’s promise that quantitative easing was only temporary. Yet, here we are 10 years later and it’s still here.

Yes, we know Jerome Powell doesn’t want to call it QE. Most people forget Ben Bernanke didn’t want to call the original QE “QE” either.

So Nixon tried to take the edge off the gold default by saying it’s only temporary, but he knew the world would react by dumping dollars … crashing the dollar and causing prices to rise.

If that’s confusing, just think of dollars like stocks. When something happens to trigger people to sell, the price falls.

When the dollar falls, it takes more dollars to buy the same products. That’s called inflation. And it hurts people who do business in the falling currency.

So while foreigners were upset about Uncle Sam’s broken promise, those paying attention could sell their dollars quickly and buy gold in the open market.

American citizens were not so fortunate.

That’s because back then it was still illegal for U.S. citizens to own gold. And the government had already taken all the silver out of the coins in 1965.

So even if Americans were smart enough to know what was happening, the best escape routes were blocked. Real money wasn’t readily available to them.

Being aware the American voter would be facing rising prices and falling purchasing power headed into the 1972 election cycle, Nixon attempted to stop inflation by executive order.

In fact, at the same time he defaulted on the gold standard, Nixon also ordered a national freeze on prices and wages.

You read that right.

In the United States of America, the land of the free, bastion of free market capitalism …

… by executive decree, and without warning, it became immediately illegal for a private business owner to raise prices on a customer or increase wages to an employee.

Of course, it didn’t work.

In fact, as discovered through his now infamous penchant for tape recording everything, it’s well-documented Nixon knew it wouldn’t work when he did it.

On February 22, 1971 in a recorded conversation with his Secretary of the Treasury, Nixon said,

“ The difficulty with wage-price controls and a wage board as you well know is that the God damned things will not work.”

“I know the reasons, you do it for cosmetic reasons good God! But this is too early for cosmetic reasons.”

But by August 12, 1971, the Secretary of the Treasury apparently convinced Nixon the time had arrived to put lipstick on the pig …

To the average person in this country this wage and price freeze–to him means you mean business. You’re gonna stop this inflation. You’re gonna try to get control of this economy. …If you take all of these actions … you’re not going to have anybody…left out to be critical of you.

In other words, it was all political theater to pander to pundits and voters. It doesn’t matter if it works … or if you even think it can. It only matters that you’re seen trying.

So just 3 days later, Nixon went on TV and pulled the trigger.

What does all this have to do with YOUR real estate investing?

Maybe more than you think. History often has valuable lessons for those who take the time to reflect on it.

You may have heard … California just enacted state-wide rent control.

California’s not the first to do this … Oregon holds that “honor”, having enacted their own version of state-wide rent control last February.

Of course, this is a governmental policy, so any discussion of it runs the risk of turning political and divisive.

But it doesn’t matter whether you or we agree or disagree with the spirit or letter of the law. That’s irrelevant.

The rent control laws are here like them or not, so the more germane discussion is about what rent control on this scale might mean for real estate investors … regardless of political stripe.

Now if you think none of this matters to you because you have no intention of investing in California or Oregon … think again.

Because even though each state’s law is different, the motives are similar … to “do something” (or at least appear to be trying) to address growing homelessness presumably created because “rent is too damn high.”

If this way of thinking catches on (and it seems to be), state-wide rent control could be coming to a market near you.

And like California, rent control laws could be RETROACTIVE.

Think about that.

Let’s say you’re a value-add real estate investor and you find an older, run-down, poorly managed property in a decent area.

You put together a plan and invest generously to improve the property to the benefit of the tenants and the neighborhood, expecting to earn higher rents for a better product.

But AFTER you make your investment, the government decides to make it illegal for you to raise the rents to your projections. And it’s retroactive.

You made a plan and took a calculated risk based on the rules in place … and wham-o! The government changes the rules after the fact.

Ouch.

Call us crazy, but that doesn’t seem fair. At least Oregon “only” made their rent control effective immediately. California’s law is retroactive seven MONTHS.

We understand politicians are trying to pre-empt landlords from jacking up rents before rent control kicks in.

Of course, this reveals a paradigm of how politicians view landlords … as greedy takers looking for every opportunity to screw over their customers.

Funny, some people see politicians the same way … but we digress.

It’s painfully obvious these lawmakers don’t understand real estate investing.

While it’s true, the laws allow rents to rise a “generous” spread of 5-7% over the (artificially low) CPI.

Maybe this is okay for new or fully renovated properties. No cap ex needed.

But the law specifically targets properties over 15 years old … the very ones most likely to need substantial renovation.

Worse, the law does NOT make an exception for capital expenditures, so the limit on rental increases potentially caps the incentive to fix up old, ugly properties.

Will rent control create a greater divide between the nice and not-so-nice areas as existing properties are starved of cap ex?

History says it will. Time will tell if it’s different this time.

Meanwhile, it’s wise for real estate investors to pay attention to laws in places like Oregon and California … even though they may not apply to you … yet.

Because when you look at California, it seems like they got some of their ideas from Oregon. Like Hollywood, politicians tend to copy each other.

And because affordable housing is a national problem heading into a heated election year 

… it’s likely other states are looking at the “leadership” of California and Oregon … and could be considering a rent control law variation of their own.

The opportunity could be in the overt and implied exemptions …

… like mobile home parksresidential assisted livingself-storage and other niches outside the cross-hairs of perhaps well-meaning, but sometimes misguided politicians.

Remember, markets are dynamic, complex systems affected by fiscal, tax, monetary, and regulatory policy as much or more than local demographics and economics.

It’s smart to pay attention to ALL of it … and objectively evaluate how each factor might impact you and your portfolio.

Unconventional Funding Solutions for Real Estate Investors

Lending is a big part of real estate investing … but sometimes your situation doesn’t fit the traditional lending mold. 

If you … or your deals … require out-of-the-box funding … have no fear!

There is a great, big, wide world of alternative funding solutions just waiting to be discovered. And the payoff can be just as big. 

Today, we’re sitting down with a veteran loan broker who is here to share the details of some of the creative loan products available for unconventional real estate investors. 

It’s time to optimize your portfolio … and find new ways to claim needed capital. 

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

  • Your fund-finding host, Robert Helms
  • His fun-loving co-host, Russell Gray 
  • Investor and financing strategist, Billy Brown

Listen


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Locating leverage and getting cash for deals

One of the most important questions in real estate is … where do you get the money?

Great news! Things have changed in the lending world … and today, there are opportunities like never before … all while protecting your equity. 

One of the first challenges many investors have to figure out is leverage. Leverage is what helps us magnify returns. 

In a nutshell … it means the bank loans you money so you don’t have to come up with all the money to buy real estate. 

Leverage is like a chainsaw. It’s a great tool … but if you use it wrong, it can cut you. 

So, today we’re going to focus on alternative funding solutions. 

True investing is about focusing on cash flow. If you do that, then you can weather pretty much any storm. 

Right now, the market is pretty hot. There are people out there who have wisely built a nice portfolio … but now they have five, six, seven, or more loans and they can’t get any more. 

And yet the rates are down. That leaves those investors staring at a lot of cheap money that they can’t get their hands on. 

So, those investors look at the equity they have in their current properties … and they want to get at that equity. 

If you’re not liquid … you’re going to be like a kid locked out of the candy store. 

If the credit markets seize up … all that fabulous equity that you have disappears. But if you have strong cash flow … you’ll weather it. 

How can you liquefy equity? How can you take advantage of lower rates in your portfolio and free up money so you can continue to invest? 

Loans designed for investors

Billy Brown is a seasoned investor and loan officer who specializes in helping investors and syndicators figure out the finances of investing. 

One of the big problems Billy sees is that investors get successful, start to build their portfolios … and then get what we call Fannie-d and Freddie-d out. 

They no longer conform to those guidelines Russ was talking about. They suddenly have a hard time getting a loan. 

Billy has the ability to sit down with these people and help them be able to take individual loans and restructure that in a way that frees up their qualification. 

“I love infinite returns,” Bill says, “so that’s how I wear my hat. I focus on how we can use the tools available to us inside lending and our lending partners to go create infinite returns.”

Billy has a few different strategies in place to help people access equity. 

The first is portfolio lending. 

There are a lot of portfolio lenders out there. Banks and non-banks will do it. The idea is to take everything and put it together as an investor loan. 

The rates might be a little bit higher … but what it buys you back is the qualification of those loans. Plus, you get the option of one loan servicing multiple properties. 

This type of loan is better than going through Fannie Mae or Freddie Mac because it is designed for the job you are trying to do. 

You go from 9 or 10 loans with 9 or 10 mortgage payments that may or may not be escrowed down to one mortgage with escrow … and a whole bunch of cash. 

Billy says that if you have a simple written rule or schedule of real estate owned and your personal financial statement, he can come up with a plan fairly quickly. 

“Usually within 48 hours I have a pretty good idea of whether I can get you a recourse or non-recourse option and set out the strategy,” Billy says. 

Billy also says that these portfolio loan options are fun because they are designed for investors and have a cash flow of their own. 

Special considerations for special loans

What happens if you want to sell one of your properties?

Billy says that is one of the first questions he asks when he consults with investors. “Are there any ugly children in this portfolio that you want to get rid of? If so, leave them out of the loan.”

This type of lending option is really designed for the investor that wants to buy and hold a portfolio and keep hanging on to it for at least 3 to 5 years.

The reason there is a prepayment penalty is that lenders put a certain amount of resources, time, effort, and capital to be in a position to collect the interest rate from you. 

Lenders want to make sure they’re making a return … so you can’t use this type of portfolio strategy and then turn around in 10 days and sell it without paying a heavy fee. 

So if you’ve spent the last several years acquiring a portfolio of single family homes that are working for you … but you would like to have access to the capital … this is probably a great tool. 

Each lender has their own set of circumstances … and most require you to have property management. 

The property manager is the least respected and most important person on your team. 

If you have commercial properties, you probably already have management in place … but if you have single family homes, you could still be managing yourself. 

“That’s a great way to learn for the first couple of years, but eventually you want to hand that job off,” Billy says.

Discover the method that works for you

No matter what your circumstance is, Billy and his lending network can help. 

“We can do anything from $100,000 cash out refinance of a single family rental up to a $100 million CMBS loan,” Billy says. 

To learn more about unconventional funding solutions for investors like YOU, listen in to the full episode!

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.


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Bank of America just made the case for real estate …

In this week’s perusal of the news, this headline caught our attention …

Bank of America declares the “end of the 60/40” standard portfolio 
Market Watch 10/15/19

We know it SEEMS like a pretty benign article … irrelevant to real estate investors. But au contraire mon frère …

There’s actually quite a bit of useful intelligence packed into BofA’s thesis.

Here’s what they have to say …

“Investors have long been told that the ideal portfolio should carry 60% of its holdings in equities and 40% in bonds, a mix that provides greater exposure to historically superior stock returns, while also granting the diversification benefits and lower risk of fixed-income investments.”

This, as they say, is “conventional wisdom” for paper portfolio strategy. It’s basically a straddle between principal risk (stocks) and safety of principal with income (bonds).

Except in today’s topsy-turvy financial markets, BoA admits this no longer makes any sense …

“ ‘The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies,’ [says Bank of America] …”

Stocks for income and bonds for price speculation? That’s a substantial role-reversal.

Before we dive into the real estate ramifications, let’s dig a little deeper into the essence of their position …

It’s easy to understand the first part … an ideal portfolio hedges both inflation and deflation while positioning for equity growth, yield, and protection of principal.

Of course, real estate can do all that MUCH better than stocks and bonds. But we’ll come back to that in a moment.

The bigger revelation in this article is BoA’s admission that paper assets aren’t working properly right now.

This is something most Mom and Pop investors (and their financial advisors) aren’t fully aware of. If they were, this BoA research note wouldn’t be newsworthy. But it is and that’s telling in and of itself.

Here are the problems in a nutshell …

Bonds are producing next to no yield. They’re next to useless for the production of income, as any pension fund manager can tell you.

Bonds are in a bubble … significantly over-priced. That’s why bonds produce no income …

(A bond’s price is inverse to its yield, so low yield equals high price … and ridiculously low yield equals ridiculously high price.)

When any asset price exceeds fundamental valuation, there’s a possibility … in fact, a high probability … the bubble will deflate, and the price will fall.

This means as a vehicle for adding income and preservation of capital to a balanced portfolio, bonds are failing on both counts.

Bonds have now devolved into nothing more than gambling chips for speculators in the Wall Street casinos …

… and tools for economic intervention vis-à-vis interest rate manipulations by central banks.

In fact, it could be argued that central banks aren’t even focused on the economy. After all, why lower rates when the economy is “booming”?

More likely, the financial system is far more fragile than anyone cares to admit … and central banks are trying to prevent collapse.

Remember, bond values are inverse to yields. If rates rise, bond prices fall.

With TRILLIONS of dollars of bonds leveraged throughout the system, falling bond prices could trigger a chain reaction of margin calls.

Think 2008 on steroids.

Once you understand all this, the logical conclusion is …

“ ‘there are good reasons to reconsider the role of bonds in your portfolio,’ and to allocate a greater share toward equities.

Ya think?

By now you may be thinking, “So what? I’m a real estate investor. I don’t own bonds.”

Smart. But most real estate investors make liberal use of credit markets. When bonds implode, they often take credit markets with them.

Real estate is a lot more challenging when credit markets are broken. And it’s downright deadly if you’re not structured IN ADVANCE to weather frozen credit markets.

But why does BoA sound the alarm now? Because …

“ ‘…this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers re-balance,’ ”

In other words, as portfolio managers wake up to the risks of bonds and scramble to get out before the crowd … they become the crowd … and WHAM, the bottom falls out.

The credit market collapse of 2008 converted us into avid bond market watchers. But there’s also some opportunity here.

The core message of the BofA research note is …

“ [BoA] advise[s] investors to add more exposure to equities, particularly stocks with high dividend yields in under-performing sectors … which can be bought at inexpensive valuations.”

To translate this into real estate investor …

Stocks or “equities” represent ownership in operating businesses.

In real estate, operating businesses are things like an apartment building, a self-storage complex, a mobile-home park … or on a small scale, a rental home.

“Dividend yields” are operating profits distributed to shareholders … just like real estate rental income distributions to property owners.

“Under-performing sectors” could be likened to regional real estate markets or product types and price points which aren’t over-bid.

Of course, BoA doesn’t speak real estate investor, so they’re talking paper assets.

But the economic conditions they see and the actions they recommend in response not only make sense, they make the case for real estate investing.

After all, real estate provides a hedge against inflation. Over time, as the currency loses value, real estate’s value denominated in currency tends to rise.

And FAR better than bonds, whose yield is fixed, rents also tend to rise over time in response to inflation.

Of course, if deflation occurs, the value of the income stream becomes more valuable. And as prices fall, tenants purchasing power increases.

And even if a property falls in value 40% and never comes back (unlikely) …

… if you only put 30% down and the tenants eventually retire the 70% loan, you’re still “up” … apart from the tax breaks and cash flow along the way.

Best of all, real estate investors can use lots of relatively inexpensive long-term debt without fear of a margin call.

Of course, mortgages are only available when credit markets are healthy, so now’s arguably a good time to stock up on cheap long term debt.

However, just because real estate is awesome, it doesn’t mean real estate is without risk. Pay close attention to cash flow.

Still, compared to nearly every other investment vehicle, real estate arguably offers a lot less risk and more resilience against a variety of economic changes.

And unlike stocks and bonds which are essentially commodities traded in global exchanges where it’s hard to find a “hidden deal” … real estate trades in extremely inefficient local markets.

And because every property, neighborhood and ownership is unique, it’s much easier to buy a property at an “inexpensive valuation”.

So whether you’re only investing in your own account, or profiting from sharing your expertise with other investors, it’s encouraging to realize …

… real estate is a powerful solution to the challenge of building a resilient portfolio in changing times.

Getting to the Next Level with Your Real Estate Investing

The real estate game is all about the long game. It’s a process of learning … and often a rollercoaster of rapid growth, steady plateaus, dips, and rising back. 

The key for investors is to always be pushing to the next level. 

So … we’re talking about how to do just that. 

We’re ready to talk getting started, getting out of ruts, and getting yourself to the next level of the real estate game. 

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

  • Your level-headed host, Robert Helms
  • His on-the-level co-host, Russell Gray 

Listen

 


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A natural evolution in real estate

Where are you as a real estate investor?

Whether you’re just starting to think about it, getting started, or a seasoned professional ready to make a jump into a new niche … we’re here to help you get to your next level. 

Not all investors are created equal. Not all investors start in the same place or end up in the same place … but there IS a natural progression and evolution as a real estate investor. 

Part of that transformation is about knowledge and information. The other part is about actually changing. 

If you remain who you’ve always been, you’re going to do things the way you’ve always done them, and you’ll get the same results. 

What we’ve learned through observing many people at various stages of their development is that everything starts with your personal transformation … what you THINK and what you BELIEVE. 

Pretty soon, that starts to manifest in the decision you make and the results you produce. 

No matter where you’re at in your own evolution, there are several standard stages … and several standard ways to move to the next level. 

Is real estate for you?

The first stage is when you’re not sure you want to be a real estate investor … but you think you might. 

You’re exploring whether real estate is a possibility for you. 

Most people do it part-time and are looking to get cash flow. But there’s a lot you have to learn. 

The good news is that real estate is really relatively easy if you keep it simple. You accumulate properties over time and pay attention to details like cash flow. 

You can compress time frames to accelerate the process. Part of that is developing a vision. 

If you put strategy and effort into your real estate dealings, you can create more wealth faster. 

Start by getting around people who are already doing what you would like to be doing and learning from them. 

This principle applies to everyone. Find someone who is playing the game at a higher level than you and learn from them. 

There are also lots of great books out there about getting started that can teach you the minute details of real estate deals. 

All of this knowledge contributes to establishing what we call your personal investment philosophy. 

Just like every investor is different, you want to set up your real estate investing process as something that supports who you are and your skill sets … not the other way around. 

Buying your first property 

After you’ve decided to take the leap into real estate, it’s time to buy a property. 

Buying your first property is awesome and exciting … even when the property itself might not be that fabulous. 

For you to qualify for loans on property, it really helps to have a dependable income … aka a  good job. 

That’s why so many beginners in real estate do it part-time. You might be ready financially to go and quit your job, but having an income and a credit score can help you. 

A few years after buying your first property, you may be ready to buy a second … and a few years later you buy a third. Hopefully over time they produce income and go up in value. 

Direction is more important than speed. Set your course and then get moving. 

Remember … you’re working on your reputation as an investor, which is more than just your credit score

Most people start off in single family homes … but you don’t have to. 

Our good friend Brad Sumrok bought a 32 unit apartment building as his first investment. We know folks whose first investment was an agricultural property. 

But still, most people invest in a townhouse or a condo or a single family home. It’s small, reasonable, and easy to understand.

Then the next part of the natural evolution happens … you look for a second or a different asset class within real estate.  

Moving into different niches

So many people start investing in single family and then start to look at a multi-unit property like an apartment building and think … maybe I want to go into multifamily next. 

Or maybe you want to focus in on another marketplace like retail or industrial. 

Real estate is made up of so many different niches that behave differently depending on what is going on in the economy. 

As you observe what is happening in the world around you, you can be strategic in catching where you think the wave of real estate demand is flowing. 

As you move into a new niche, there is a little window of opportunity where a bunch of buyers run in and buy. They bid things up, and things slow down a bit. 

You can learn to spot this window over time as you start paying attention. 

Expanding into different niches lets you diversify and helps you build your experience resume. 

And to get really juicy returns, most investors need to make the shift into these types of bigger markets. 

Going full-time in real estate

When you reach the point that your passive portfolio can provide the income you need without working … it’s time to ask yourself if you want to go full-time into real estate. 

When people see that their passive income from their real estate portfolio exceeds their full-time income, they usually want to retire. 

But so many people find that they actually want to stay busy. 

So, you use your real estate portfolio as a base … and you start reinvesting your own money. 

You can also start sharing your expertise with other people and partnering with them. Or, you may take on private investors. 

You may decide to invest your time and money into learning a whole new asset niche and developing your expertise there. 

Something many people forget is that there is a particular tax benefit that comes along with being a full-time real estate professional. 

You’ll want to talk to your tax professional about that, but it’s definitely a benefit of being full-time alongside setting your own schedule and being your own boss. 

The point is that there is no one way to take your real estate experience to the next level … there are MANY ways!

And that’s what makes it exciting. 

Learn more about getting to the next level with your real estate investments by listening in to the full episode. 


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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

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