Passive Income Investing – Equity Versus Debt

Real estate prices and interest rates are rising. Cap rates are compressing. As a result, some investors are switching from equity investing to debt investing.

So in this episode, we’ll take a deep dive into the world of debt investing.

Equity investing is a way to capture growth and get capital gain. Debt investing, on the other hand, means loaning money to other investors as a way to generate income.

There are great reasons for both strategies. As we like to say, “Different investment philosophies for different folks.”

But in times of financial uncertainty, debt investing can be a way to reduce risk and generate predictable incomes.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your pro-debt host, Robert Helms
  • His indebted co-host, Russell Gray
  • Managing partner at American Real Estate Investments, John Larson

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A new option for investors in tight markets

John Larson is a turn-key provider at American Real Estate Investments (AREI) in Dallas, Texas. He’s worked in Dallas and other markets for many years … but now he’s seeing something new happening in Dallas.

Prices and interest rates are now higher than they were in 2006. The cap rate is compressing, and as a result, cashflow is decreasing.

And rents are starting to plateau, which puts investors in a bind. Larson says this isn’t enough for him to start moving into C and D class neighborhoods … cash flow on paper doesn’t mean easy cash flow in reality.

Instead, he’s come up with a different option … syndicated money lending.

John manages the development opportunities … investors just have to put in the capital. In return, they get a fixed, passive income stream each month.

“It’s a way to play a strong market AND get cash flow,” John says.

How debt-investing works

Which is safer … equity or debt?

In terms of rate of return, the debt investing model allows investors to get a specific, predictable rate of return.

John uses a trust deed model, where lenders get deeded the trust to the property … but in this case, there are multiple lenders.

For each deal, John raises 2 to 3 million from a group of 25 to 35 lenders.

Investors get double-digit fixed returns … 10.5 percent of the amount they’ve invested, paid out over 15 months or until the loan is complete.

Usually John’s loan deals last from 18 to 36 months. And John pays out returns on a consistent monthly basis.

It’s private lending, redefined.

John calls the solution a “win-win” for both AREI and the lender groups. Lenders get great returns … and John gets funding for many different types of development opportunities.

More nitty-gritty details about private lending

When you go into a debt-lending deal, there are two important questions you NEED to ask yourself before you say “yes” …

  1. How will the borrower pay me back?
  2. What happens if they don’t?

Typically, debt syndicators will use money from private loans to rehabilitate or develop a property. Once construction is complete, lenders get their principle PLUS proceeds back.

Debt investing is a lot different from the traditional equity route … and investors need to get their heads around that.

Do investors need to be syndicated? At AREI, the answer is NO.

Most of John’s investors are not accredited, because loans are not securities.

But often, private lending requires a minimum principle amount. John says his investors come in at around $100,000 on average, and the minimum is about $50,000.

Passive investing pros

We mentioned John works in the Dallas-Fort Worth area … but we didn’t mention WHY. Dallas-Fort Worth is top-10 metropolitan statistical area … and it hits all the right notes.

“I feel safe about this market,” John says. He notes that data shows continued demand in the area, along with multiple companies in a variety of industries. The population is expected to continue increasing in future years.

But investors DON’T have to be located in Dallas or even Texas to take advantage of John’s debt-investing program. That’s the great thing about passive investing.

For more from John, check out his podcast, The Real Estate Cowboys … which is all about how you can capitalize on passive income investing.

And listen in to this show to get access to a special report from John with more information about passive private lending opportunities.

Capitalize on a bull market

When people think about real estate investing, they usually dream about owning a ton of properties.

But debt investing is a way to expand your portfolio and bring in monthly cashflow … without having to manage a physical property.

It’s also a way to capitalize on a tight market.

With property investments, cash flow changes as rents, and rates, rise and fall. Cash flow from debt, on the other hand, is more stable.

And lending money in a hot market is a great way to help investors get around rising interest rates … while taking in great returns, yourself.

Just like equity investing, debt investing can be done many ways. You can make small loans and be more hands-on … or you can work with someone like John and be totally passive.

Regardless of the option you choose, you’ve got to look at what the market is giving you. Right now, it’s giving you rising interest rates for the first time in decades … but that doesn’t mean there aren’t great investment opportunities if you look closely.


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Ask The Guys – How To Invest In Real Estate With No Money

how to invest in real estate with no money - wallet

Overview

Ever wonder how to invest in real estate with no money? No money down is the Holy Grail of late night TV real estate infomercials.  But can you really do it?

In this edition of Ask The Guys, we field questions from around the world about how to buy real estate…even when you have next to nothing to start with.

Discussing how you can bring value to the table even when you have no dollars:

  • Your ask a question, but not in the form of an answer … this isn’t Jeopardy show host, Robert Helms
  • His “I’m no tv host. I just play one on the radio” co-host, Russell Gray

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(Show Transcript)

 

Welcome

Robert Helms: Welcome to the Real Estate Guys Radio Show, I’m your host Robert Helms. With me as usual co-host, financial strategist Russell Gray.

Russell Gray: Hey, Robert!

Robert Helms: You know, this is one of our favorite shows.

Russell Gray: It is, “Ask the Guys”.

Robert Helms: We do “Ask the Guys”, you know, every 6, 8, 10 weeks – whenever we can, and we could do it every week – we’re now to the point where we get enough questions that we could almost do this show every week, although there’s so many other things to talk about.

But here’s the idea – our listeners, like you, have questions. They go to the website, www.realestateguysradio.com. They click “Ask the Guys”, and we try to answer as many as we can that we feel will have some relevance to the entire listening community, not just one person.

We don’t answer them individually usually. But, here’s our only disclaimers – we are not tax or legal professionals. We don’t give advice; we only give ideas and information. Your job is to take that and to turn it into actual knowledge by enrolling whatever professionals you need. And we’re big proponents of using professionals, and that’s how you get things done.

 

How to Invest in Real Estate with No Money

So here we go, in no particular order. Number one, this question comes from Edward, in Surrey, United Kingdom. So he’s in the UK, and he says (and this will ring home, cause this is true for a lot of people in a lot of places).

“I have zero money to invest. Can you help me? I live and work in the UK at a very ordinary, low paid job, without a car. Can you help a guy in my circumstances?”

Well, you know what, congratulations for having the interest and wanting to invest, and recognizing that you don’t have much to start with. Almost everybody who does well in real estate investing started with practically nothing.

 

How to Invest in Real Estate with No Money – Invest in Education and Building Your Skills

Russell Gray: That’s true. And I would say, if there’s only one thing that you could invest in, it would be your education, and if you were going to focus on one thing to learn about, I would say sales skills.

Because if you learn sales skills, then you can go out and recruit all of the other resources you need. If you know how to sell, then you can find investors, you can make private loans, you can negotiate owner carry-backs. There’s all kinds of things you can do if you have the basic skill of knowing how to sell, and communicate with people, and get deals done.

how to invest in real estate with no money - educate yourself

And then, number two, some basic concept of how real estate gets done in terms of structuring deals, and the benefits – why somebody perhaps would want to carry-back, or make an investment, because again you’re going to be brokering your knowledge and your network in order to track all of the other resources you need.

 

How to Invest in Real Estate with No Money – Recognize and Use the Resources That You Do Have

Robert Helms: And the other thing is that you’ve got a lot of resources that are not necessarily money, and income, although you do have a job, right? So having a job is great, number one rule: Live below your means, just like you should in any productive society. You earn more than it costs you to live, so you’re putting away a little bit.

That little bit isn’t going to grow at a huge investment rate quickly, but it doesn’t have to. Because what you do have, is you have more time. Even a full time job, you still have time that you commit to learning, and networking, and listen to the show we did back on the idea of building your network in the new year, and figuring out some ways that you can add value.

Get around the real estate investors who have the opposite problem that you do – they have not enough time, and way too many deals, and way too much to go do. Figure out how you can help them, and learn as you do it.

 

How to Invest in Real Estate with No Money – Look for Ways to Get Experience, and Networking Opportunities

Russell Gray: And that’s a great way to potentially either earn a little extra money, if it’s a paying gig, or expand your knowledge, where maybe instead of paying to be in the room to go to the seminar, you are volunteering. And so you get to hear the material, and even though you’re not making any money, you’re not spending any money. So, there’s creative ways to get what you need by bringing what you can, and that’s ultimately what it always comes down to: adding value first, and then looking those opportunities.

One other thing strategically, Edward, is think about the people that would need to get to know. So, look for ways to get things onto your experience resume by volunteering with people, or working with people that are going to position you more professionally, or from an experiential point of view, as being better qualified later on. Because, in sales, it’s not just knowing how to communicate, or to negotiate a deal, or to uncover someone’s needs and match things up; it’s your positioning. It’s how do they view you?

And so, when you have things on your resume, or you have people in your network who are recommending you or endorsing you, then that becomes part of your credibility. And it may not be as good as having credit in terms of financials, but in terms of opening up doors when you get into relationships, when you have that kind of credibility from people, then it begins to help you access the resources you need until you can have more of your own resources.

 

How to Invest in Real Estate with No Money – Keep a Steady Job

Robert Helms: And if you are looking down the road to a point where you could qualify for a mortgage to buy real estate, then every job counts. Yeah, it’s a low paid job, but you know what? Don’t hop around from job, to job, to job.

If your resume looks like you’ve been at 10 different places in the last 20 months, that looks very different than if you’ve been at one place for 20 months. Even if it’s not a great job, sticking with it looks good in the eyes of a lender.

 

How to Invest in Real Estate with No Money – Meet With a Mortgage Professional to Discuss Goals

Russell Gray: It goes back to the idea – you’re painting a picture. That’s what we talked about building your brand, building your network. And you’re painting a picture. You’re painting a picture to the lender.

One thing you may do is go visit with a mortgage professional, and ask them to tell you how lendable you are, and if you could make changes, what changes should you make in order to become more lendable. Because it’s much easier to hit a target when you actually know what it is.

Again, these are things that don’t really cost you any money. It just takes some time, and a notebook, and you go listen. You take notes, and then you go do the things that you can do. And when you start having that action-oriented, can-do attitude, you’ll begin to start making some progress. It begins to pick up momentum, and pretty soon you will start feeling not so far out of position.

You won’t quite feel as despairing, and you’ll go, “Wow, really? You know what, maybe I don’t have a great, high paying job, maybe I don’t have a bunch of money in the bank, but I do have a lot to work with, and I’m getting more every day.”

Robert Helms: And the great news is, absolutely this is possible for you. We know so many people that started with less than zero, and have been able to acquire portfolios. It just takes time and diligence and doing the thing. So, congratulations on listening to the podcast. Listen to a lot of other stuff out there – it’s not just us – there’s all kinds of great information available, most of it for free. But great question, Edward, and good luck to you in the UK.

 

How To Learn about My Real Estate Market

This next question is from Toras in Lithuania.

“I wanted to ask you guys what should I begin to learn about the real estate market in my area? I intend to buy an apartment for life. Maybe what would you recommend?”

All right, well I’m confident that there’s a little bit of an English challenge there, but I’m certain that this person speaks better English than we speak Lithuanian.

Russell Gray: I would say that’s a for sure.

Robert Helms: So ok, so this is great. What do you begin to learn about a market in your area? If you’re new to real estate investing, and you don’t know, there’s a lot you’re looking for. I often say, live where you want to live, but invest where the numbers make sense. So just because you live somewhere doesn’t mean necessarily that it’s a good market to invest in, but it sure could be.

So what are you looking for? In a real estate market, you’re looking for a couple of macro factors.

The first is what we call net migration. Are more people coming into a market, or are more people leaving a market? Every single day, people are coming into your market. People are leaving your market. The question is, in which direction is it trending?

And then within that, who’s coming in? Are there companies locating, are there jobs coming in? Is there reason for people to be spending more time in your marketplace? Are there what we call drivers that are bringing folks and money into your marketplace? If so, that means the potential exists for rents to go up, for there to be good opportunities to buy investment property.

On the other hand, if it’s not that kind of a market, and your market doesn’t deliver those kinds of metrics, then you start looking at a larger area. It could be the next town over, the next city or state, right? You start to look at the areas geographically that you can get to.

I’m no longer limited by the geography to where I personally invest. But when I was starting, my thing was, anywhere I can get in a day would be fine. So when I started, I invested mostly 150 miles from my house, until I realized that a two hour drive by car was the same as a two hour flight, and there was a lot more real estate I could get to if I was willing to take a two hour flight, and again I’m thinking, “can I get there in a day and back? Can I fly in the morning, check out whatever I need to check out, fly back in a day.”

Today, that’s completely gone away, and it’s pretty much anywhere on this planet and any of the adjacent planets. So, you start with what’s close because that’s what you know.

how to invest in real estate with no money - jobs market analysis - scrabble words of jobs

And the kinds of things you want to find out in the market are: What are the jobs like? The people who are paying rent – those people would be your tenants – where are their jobs? How much are they getting paid? How regularly are they employed? What’s unemployment like? What industries are there, and how are they paid? There’s a lot to find out about the people who are in your real estate market.

Russell Gray: You know I get the feeling he might be asking about a personal residence – you know, an apartment for life. This is going to be a place I’m going to buy, and a place that I want to live. And then the questions you’re going to ask are completely different.

Because it may not be necessarily about all those other things, although you’re going to be interested about the local economy, and sure you care about the value of the property. And it’s obviously better if you buy a property and if you think somewhere down the road “I wouldn’t want leave,” it would be nice to be able to rent it back out. So all the questions – all those things you mentioned, Robert – are important.

But if it’s your personal residence, then there’s a whole other host of questions. Right? Is it where you want to live? Is it where your friends and family are located? Is it a part of the world that you enjoy being in? Is the floorplan, the neighborhood, and all of the things, and of course, the trend of the neighborhood right for you? So, lots of different things to think about, and the biggest thing is, you know, you said apartment for life. And I just wonder, are you talking about buying a property you’re planning on owning for the rest of your life?

Robert Helms: I don’t know if I would assume that just based on the disjointedness of this, because he specifically asks about the real estate market. So that terminology has me think investment. Apartment is also terminology that we think of as an investment, but not all over the world. You can buy apartments in many places. So, I think it’s ok on either side. Russ brings up a great point. Depending on your use, that’s going to dictate the questions that are important. And with different uses, there are different questions.

Russell Gray: And if you’re married, “A happy wife, happy life.” Just remember that.

Robert Helms: Do it her way.

Russell Gray: Do it her way.

 

When to Start Investing in Real Estate

Robert Helms: But congratulations, and hello from Lithuania. Our next question comes from Chris in Montreal, Quebec, Canada.

“Hey guys! I’m 30 years young. I want to start investing in revenue real estate.”

Well, hot dog! That’s awesome.

“I have over $100,000 in savings, and no debt. However, the market here in Canada seems to be very expensive, and has never had a price correction like the US did in 2008. The pricing of the average rental property in my city goes for 15 times yearly rental income, or around 3-5% ROI. Should I wait for the correction, or get started right away?”

Well that is great. So, before we get to what you should do (and again, we don’t give advice but ideas, and we’ve got a lot of them), let’s talk about this idea of the return.

He says, “In my city, the rent is 15 times yearly rental income,” which we can assume from his note, that translates to a 3-5% ROI. There’s some big assumptions there.

Russell Gray: Yeah, so 15 times is a little bit on the high side, even with today’s low interest rates. So that’s definitely a little bit frothy for income producing real estate.

The other thing is, just in the big picture with Canada, I mean right now, the big part of the Canadian economy is oil. And the Canadian economy is going to feel the impact. So I’d be paying a lot of attention; we talked about this quite a bit on the show and in the newsletter and in the blog, because oil’s a big story all around the world, and it’s especially a big story in a place like Canada.

canada oil production - oil tanker

Robert Helms: Not so much in Montreal; Montreal’s much more diverse. That’s definitely a place that has a lot of different stories, and probably less driven by oil, but Canada as a currency, right? For sure.

Russell Gray: Well you’ve got that going on, so your currency potentially could be a little bit weaker. And real estate is kind of a lagging type of an indicator, you know. When the economy gets strong, then the real estate gets strong as people can afford. When the economy gets weak, real estate kind of hangs on for a while. People don’t like to let go of what they think the value is.

You know, Robert’s spent a lot of time selling real estate, and one of the hardest times to sell real estate, especially retail real estate – residential real estate, is when you go talk to the home owner and he goes, “Well, wait a minute, you know, you come back with my comparative analysis and do the market report, and you tell me my house is worth this, well, a year ago, it was worth this plus 20%.”

Robert Helms: Right.

Russell Gray: “Well, that was a year ago, and we’re in a different direction.” And they don’t want to let that go, and they resist. And so, there’s some of that. So you have to really understand where you’re at in the local economy. So, real estate timing is a difficult thing to do. It’s really more does the individual deal make sense.

Even though a marketplace could be going for 15 times, you may find a unique opportunity. You may find an opportunity where something is being under-managed, where it has more income potential. Or maybe you can find a way to change the property, or the structure somehow, add a room, create a little extra storage space, add an amenity, and you can get more income than the current owner, and all of a sudden that 15 times drops down the more like 12. And then that starts to get more within spitting distance of numbers that make sense.

You may be able to find a neighborhood that’s in kind of the path of progress, and moving up, and maybe you want to stretch a little bit because you believe in this particular location.

Sometimes you can find a particular seller that is able to sweeten the deal a little bit. Maybe he needs to get his price for whatever reason, but he might be able to throw something else into the deal that would make sense. It could be personal property. It could be some other set of terms that would work for you.

So, the idea is that you know if you wait for a correction that never comes, then you miss out. A lot of people have criticized some of the perma-bears. You know, Peter Schiff gets this all the time, “Hey, gold’s going to 5,000. Gold’s going to 5,000.”  Well, meanwhile it went from 1,700 to you know, 1,100 or below.

Robert Helms: Well, he’s not wrong yet.

Russell Gray: He’s not wrong yet, but for the people who were bought in and then took the hit, well… but what if he would have been right? What if it went from 1,700 to 5,000? Everybody says, “Well I’m waiting til it goes back down to 12.” The point is, you don’t really know.

Robert Helms: No, I mean, you can’t try to play a correction. I would say this – the best time to invest in real estate was 20 years ago, and the second best time is today. Don’t wait.

Not only that, there’s other places in Canada and in the world where it’s not 15 times. Live where you want to live. Invest where the numbers make sense. When I see a market that is 15 times yearly rental income, I think that’s a great, great opportunity to develop property.

There’s much better returns when I get involved. And I know you’re thinking, “I only have 100 grand; I’m trying to buy my first property. How am I going to develop?” You don’t have to do the work. You can find a developer who needs what all developers need – capital – and figure out how to partner. There’s a lot of hot markets around the world right now where folks are making good money by producing the kinds of inventory that are getting these kinds of returns.

Russell Gray: The one thing, Chris, that I like about the question, is at least you’re thinking about whether or not it’s a good time. And so, the one thing that I would say, is just be very careful about you know, I agree with Robert – don’t wait, but don’t chase. Don’t chase the market. Don’t try to make a deal be something that it’s not.

In a market that’s a little hotter, you’re going to have to do more work to try to find a deal that makes sense. Just don’t try to squeeze a mediocre deal in just because you want to get started now.

Just work harder, look at more deals, crunch more numbers, look for out of the box ways to make a deal make sense when maybe on the surface it does. See something that somebody else doesn’t see, and then that’s probably where you’re going to end up finding a deal that’s going to make sense, no matter what the market. There are always deals in every market, but sometimes they’re easy to find, and sometimes you’ve really got to work to find them. 

 

How to Structure a Deal With a Private Lender

Robert Helms: It’s “Ask the Guys” – the first three questions from three different countries. This question comes from Dan in Reno, Nevada.

He says, “I’m messaging you today in hopes that I may get some advice on how to approach a private lender (my parents) in regards to financing my first turn-key real estate investment. I only need a down payment from them, as I should be able to finance the rest myself from a mortgage lender. Question – though I can pay my parents back in interest, I would like to know the best strategy for paying them back.

For example, option one, should I pay them back the monthly cash flow for an estimated 5-6 years until they’re paid, which will leave me with the refinance money to invest in another property. Or, option two, pocket the cash flow myself, and pay them back in whole with the cash out re-fi.

My priority is to start accumulating rental properties, so losing the cash flow in the first property to get started is not a big deal, if it means that I can use the cash out re-fi for my next property. I don’t know if my debt to income ratio will be adequate, though, after re-financing the first property. Thanks for your time. I will try to make the message a little shorter, next time. Love the show, and all of the great content.”

Alright, Dan. Well, there is no one way to skin a cat. There’s lots of different ways. And although we don’t have advice for you, we definitely have some ideas.

Russell Gray: Well I think this is deal making 101. What’s optimal for you, is going to maybe be a mathematical decision, but what’s optimal for the other person may not be what’s optimal for you. And so, if you’re going to make a deal, the first thing you have to do is determine optimal is what both parties are willing to do.

And so, you have to have a conversation with your folks. It’s like, “Hey guys, what are the options here? And I don’t know exactly how we’re going to put the deal together, but I want to get all of the pieces of the puzzle on the table. So let’s just hypothetically say, if you had to wait 5 years to get your money back, and we did it as a sale, or a cash out re-fi, how would you feel about that? What kind of return on investment would you want to see? If I were to pay you a monthly payment, is that something you would be interested in? Or you know would that create an income tax problem for you?”

Here’s another thing: you have more to work with than just the cash flow or the equity. You also have the tax breaks on the property depending on how you structure the deal. Sometimes an investment partner is going to be just as interested in getting a tax break, and if you factor in the value of that break into their scheme, it actually sweetens the return on investment without any money coming out of your pocket. So, that’s where you have to understand a little bit about what their criteria is, and then involve the appropriate professional who can help you understand it.

You also talked a little bit about debt to income ratios, which is great understanding. You just need to make sure that you’re working with your mortgage professional, not just today, but projecting forward in these different scenarios, because giving up that, if you promise to give someone a cash out re-fi and it puts you in a DTI where you can’t do that second or third property in your plan, maybe that’s something you think you’d be willing to do today, and then you realize, “Well, gosh, if I do that today, then in two years I’m going to be out of position.”

Robert Helms: Well, that’s a great point anyway. Anytime you look at investor financing, when you’re trying to finance a property that you’re going to hold as a rental property short term or long term, you always want to begin with the end in mind.

Lenders: I love lenders, they’re very necessary, but they look at the deal on their desk today, and they try to close it by the end of the month. They’re driven that way. They don’t necessarily look at you being the first of seven or eight or nine or ten or one hundred transactions. You need to start with that. “Listen, I’m going to buy a house every year. How do we structure my first loan in such a way that I get that win?”

For instance, a lot of lenders aren’t going to want to see a second or third party second on the property, which is what this would be, alone from your parents, but because it’s your parents, it’s maybe not documented that way. I’m not suggesting doing anything that’s not legal, I’m just saying, parents have more flexibility.

You start with a conversation, which is, “Mom, Dad, thanks for the help. What’s best for you?” Maybe it does make sense for you to give them 100% of the income until they’re just off and paid, and now you’ve got the property. That might make sense.

But think about the way most people put money to work who are lenders. They put out money, they expect a monthly return that is somewhere in the 4-10% range, depending on the kind of lenders they are. Maybe that works for them. So for sure, no matter who the partner is, what does the partner want to see, what do you want to see, and how do you come to common ground that works for everybody?

Russell Gray: Yeah, and part of it is the source of funds, you know, wherever your parents are coming up with the money, because whatever you’re going to offer them in their mind is compare to what? What else might they do?

Now because you’re their child, of course, they have a vested interest one would think in seeing you succeed, and maybe that’s good enough. Maybe they’d say, “Hey, you know what? I could make a higher rate of return on XYZ investment, but part of the return is seeing my son, Dan, get into his real estate investing career, and I want to be a part of that.”

And so, again, it goes back to what I said at the top of my comments on this question, Dan. It’s about really understanding the person on the other side of the table, and everything that they have to work with, everything that they are looking to get out of the deal. Then, you taking what you have to work with, and everything that you want to get out of the deal. And then looking what the deal will actually make available to both of you. Then figure out how to carve out each piece, so that everybody gets what they want out of it, and everybody can walk away.

And some of that’s going to be math. Some of that is going to be negotiation and understanding. Some of that is going to require technical expertise maybe from a tax adviser or a mortgage broker, but it’s actually one of the most fun components of being a real estate investor, being able to sit down and create these kinds of deals because this is creative real estate.

You may not even need to go to a conventional mortgage lender. You may decide not to do that. Maybe your parents or somebody else has better lendability, or perhaps they have other resources. “Well gosh, if you’re going to pay the mortgage company 4 %, I would love to get 4% or 5%, secured by a piece of real estate. So why don’t I make that a private loan, and now, you don’t have to worry about the down payment. I’ll give you the whole thing at 5%.”

Robert Helms: Now, you bring up another great point, Dan, which is perhaps a nuance, but I think it’s worth talking about. And that is this idea that you recognize you don’t necessarily need the monthly payment. You don’t need that red income, because you’ve got the ability to pay for the loan.

Too many real estate investors don’t think about that. All they focus on is “I need to get positive cash flow,” and they create a scenario where they go out and get a house, they save up a down payment, and they qualify for a loan, and they create $200 a month positive cash flow, and now what? $200 a month is nice, but it’s not going to turn you into a wealthy real estate mogul. Two hundred dollars a month if you’re accumulating that for every house or three hundred, pick a number, it takes a lot of houses to get to a meaningful number.

So the fact that it’s not all about the monthly positive cash flow today by you giving that in this case to the lender or your parents instead is a tool you have.

And I think most people should be more creative of what all the tools are. Russ mentioned tax benefits. Again, consult your tax professional, but there may be some ways to make it work out in their benefit and give them that much more reason to want to invest with you. So, great question.

And if you’ve got a great question for the Real Estate Guys, or even a mediocre question, send it to us. Go to our website at realestateguysradio.com and click “Ask the Guys.”

 

How to Invest in an Expensive Market

This question comes from Diana in Miami, Florida. Alright. She’s asking about a loan in California.

“Hi again, I’ve written you guys before and you answered my question on the podcast. Thank you. So, I’m reaching out to you again.”

You know, rarely do we let a second one slip through, but this time we will.

“My friend lives in Arcadia, California, and has a $240,000 combined income with her husband, great credit – but, saving 20% for their down payment has proven tough. Property there is generally more than $600,000, so FHA doesn’t apply. Could you guys offer any suggestions as to any of their options that may be available to her?”

Well, we sure can. When you go into an expensive market, whether it’s New York, or California, or even parts of Miami, then you’re always up against saving the down payment.

What’s crazy is you go to Memphis, Tennessee, and the people there also have a hard time saving the down payment, even though it might only be $10,000. So, someone making a quarter of a million dollars has a hard time putting away 20% – half of that for a down payment.

expensive california real estate - how to invest with little or no money

Well, sure, how many people could put away half of everything they make for a down payment? Only the most disciplined. So, what’s a person to do?

Well, in California, there’s a lot. In fact, there are particular loans, and you want to have your friend probably talk to a local lender, or perhaps you’re in that business because you seem to know a lot about it – about what local loans may be available.

California’s one of the states that has some good first time buyers’ programs. So, we don’t know about the situation here, if they’re a first time buyer, but if they are – that’s a potential opportunity. And there’s other things to consider.

Russell Gray: Well, yeah, I mean the big strength here is a good credit score and $20,000 a month of documentable income. So, that’s highly leverageable.

So, assuming the ratios are fine, it may be possible to actually borrow the down payment from a private lender, not secured by the real estate (maybe secured by something else on the balance sheet if there is something else, or maybe just a private, unsecured loan based on the strength of their credit profile, and their income.

And then you get those funds, it’s a private loan, you stick it in the account, you let it season for however long your mortgage professional tells you it needs to be there, you know. It still needs to show up on your balance sheet as a loan, but it isn’t showing up on the properties as an encumbrance, and so if the lender would not allow a second loan – and a lot of lenders will, so that’s not even an issue.

Robert Helms: Well, the issue is getting the money up front and then having it attached to the piece of property later – that takes a particular person to be willing to do that.

Russell Gray: Yeah, but again, that’s quite a bit of income even by California’s standards, and so I would think that you would be able to offer somebody a relatively attractive return, especially if you give them a term that’s reasonable. Meaning you’re not asking them for the money for 30 years; maybe you’re only asking for it for 3 years, or 5 years. And that way you’re in the property, and you’re counting on the property going up, maybe it’s a property that you have the opportunity to do what we call force equity; it’s a fixer upper, or somehow you can add something or do something to it to make sure that the value goes up even if the market doesn’t go up as fast as you’d like it to.

Robert Helms: The challenge with that is that a lot of fixer upper properties are going to have even less LTV because lenders aren’t going to want to be as exposed. So if we’re assuming a 20% down scenario, the collateral might not be well enough.

What about an 80, 10, and 10? What if you found a seller who is willing to not carry the entire thing, cause that doesn’t happen very often, but would carry 10%. You know, someone who bought this house that’s $300,000 and today it’s worth $600,000, they’re going sell and have whatever gain or whatever that looks like.

We don’t know if that’s an investment property to them, they’re residents, or whatever. But could they take 10%? See, if your friend only had to come up with half as much, would that be do-able?

Russell Gray: Yeah, so I mean, owner’s equity is always something that you should inquire about, and the way you do it is you ask, “Well, what are you going to do with the proceeds? Because maybe I can make you an offer that would be just as good or better backed up by a property that you already know and like. And maybe you’d be comfortable with that.”

Because if someone’s going to go stick the money in a CD and earn you know one quarter of one percent, or one percent, or two percent, and you’re offering them three, or four, or five, I mean that’s like triple the return! And that could be very attractive to somebody.

The other thing is, if you’re buying an owner occupied property, you know, maybe they’re going to say, “Hey, it’s tax free money to me.” But if it’s an income property, and they’re going to realize a capital gain, or if it is over the threshold, and they’ve got more than half a million dollars of appreciation in it, for a couple, they’re going to be looking at paying a capital gains tax on that.

Especially in California, maybe they don’t want to realize that just now. Maybe they want to wait a little bit. Maybe you can work out a deal with them. Again, this is where you have to have a decent working knowledge of the tax ramifications of decisions not just for yourself, but for the party on the other side, as we were sharing earlier. So it would be something to look into. Owner’s equity is always something that you want to ask about.

Robert Helms: I think a lease option would be possible – find a property that they can rent for a year that becomes the potential to be the property that they can purchase. That gives them time at a $240,000 income to put that money away, cause that’s a good income. And I’m sure they’re able to save some, but if they can’t save up 20%, give it a little more runway and a little more time, maybe they could. Maybe a 2 year lease option would make sense.

Russell Gray: Yeah, sometimes the seller, especially a seller who is either maybe asking a little bit higher price than the market wants to give in an area that maybe isn’t selling as fast as you know some areas are, would be willing to do that, because they can get more cash flow today. And even though, let’s say for example, you rent the property (and I’m just going to toss out numbers), let’s say it’s a $3,000 a month property at market, but you pay $4,000. But they’re giving you $1,000 a month credit towards the down payment.

That’s really equity build up to you, and that is receipt of equity to them. Of course, if you don’t close, they get to keep that money, but in the meanwhile, they get the cash flow. And based on your strong income, or your friend’s strong income, maybe that’s something they could swing.

Meanwhile, that gives you the opportunity to continue to work on the down payment, so down the road, when you get ready to do the loan to take out the seller completely, you’ve already got some down payment credited in the transaction from the $1,000, plus whatever else you’re able to save up outside of that.

Robert Helms: You know, we look at conforming loan limits today. They vary based on the areas of the country. Some are higher, some are lower. In a high area like this, you’re going to be right up at the top. I don’t make it a habit of staying right up to date on these things, but last I knew, about $417,000 was the conforming limit.

So if that were true, you’re not that much more than a 20% here, and maybe it makes sense to figure out some in between.

I’d come back to a local lender. Local banks have different lending parameters than the big guys do, and certainly the FHA does.

So, look around. You know, kiss some frogs, and get out in the market and see what’s available. But just think creatively, which I think we’ve demonstrated in the last 8 minutes, but there’s a lot more I’m sure. So come out to an event, and let’s continue this conversation over a beer.

 

How to Structure to Protect Your Assets

It’s our favorite guest! It’s you! “Ask the Guys” – your questions, our answers. This one comes from Arnold in Bur Ridge, Illinois, and he says,

“What’s the best structure to use to protect my assets? All my properties are currently in separate in LLC’s. Should I put these LLC’s into a trust? Should it be a domestic trust or international trust, revocable or irrevocable? What should I do?”

Alright, well great question, Arnold. And as you probably heard today, we don’t give advice. And “best” is such an interesting thing. “Best – what is the best structure?” and we’ve covered this before, the best structure is the one that works the best for you. We don’t know enough about your personal situation, but we can certainly talk around these various issues you bring out.

Rusel Gray: So without getting too far into the weeds, a basic structure is, you’re there at the top of the food chain, and off to the side you would have a living trust that kind of catches all of your personal property and avoids probate, and any good estate planning attorney can help you understand the benefits of a living trust.

You brought up the topic of an asset protection trust, which can be both domestic or foreign, and so depending on how private you want to be, depending on how inter-jurisdictional, or international you want to be, you might consider using a combination of domestic and foreign entities. And again, a good international attorney can help you with that.

Robert Helms: Well and certainly worth some time getting educated about that – you know, part of that is, it’s a whole order of magnitude more complex when you add an international structure in. But there’s a lot of great reasons to do it. So, you really have to begin with the end in mind.

If you plan to live all of your days in Illinois, and never leave the United States of America, never own anything or create any income outside of the US, probably not worth a lot of time and toil figuring out international structures.

If on the other hand, you like to travel, you might consider owning property in other places, you know, it’s a big old world out there with a lot of opportunity, then now you have the wonderful benefit of the fact that not every country’s laws are the same, not every asset protection structure is the same.

There’s a lot you can do, a lot when it comes to not only asset protection, but taxation and privacy. So it’s certainly worth getting educated about.

Russell Gray: Yeah, I mean there’s so many different ways. It’s just a complex question. You know, Robert, you brought it up great, it’s like, well, best, what is best? Well, I mean, you can really set the thing up bullet proof, and it can cost you a fortune. But you’re bullet proof, you’re private, you’ve got everything all set up.

Robert Helms: Well, let’s use an example. A lot of attorneys will say, put every property in a separate LLC, like you’ve already done here, Arnold, and well, I can see why attorneys would say that. They’re in the business of creating LLC’s, and that is the most bullet proof.

But you know what? Often, if I have 3 or 4 single family homes in the same neighborhood, I might put them all in one LLC, because I don’t perceive that there’s a huge liability hanging out, unless it’s a really low risk neighborhood. And they’re all about the same kind of asset, and they’re all in the same neighborhood. I’m comfortable with the risk. I’m just talking personally.

So, why am I putting them in a LLC? To protect assets. What else could I use? Insurance protects assets. So, there’s different ways to come out of it.

You might say, “I want every property in its own LLC, and I want that LLC owned by an offshore trust.” Ok, you could do that. I might say, “I’m going to put 4 properties in the same LLC. It’s going to firewall between the rest of my life, but not within each other, because I’m willing to take that risk.”

So part of it is getting out who you are, as an investor, and how much risk you are willing to take, and how much you are willing to pay to avoid that risk.

Russell Gray: Yeah, so, it’s a combination of asset protection structures, entities like LLC’s, and then jurisdictions, and then privacy, and then insurance policies. There’s a whole combination of how you put those together.

For example, if you have 5 properties all in 1 LLC, and there is 100% financing, no equity – there’s really not that much to go after, except the income streams on the individual properties.

And depending on if you use things the way you do the ownership structures, all anybody may end up with is the charging order, which means they realize the tax, but they don’t end up getting any of the income. And so, that’s a whole different structure. It’s kind of like this little poison pill that your attorneys can stick inside your deal.

So, it’s difficult to answer the question in great detail when someone asks a question like “best,” but I think big picture is, the idea that you have living trusts and asset protection trusts, Then underneath that you have holding companies that don’t do any business with any third party people. Because when you do business with third party people, that’s when you create a liability port, or a door, a way they can get to you.

And then you have operating companies, and management companies, and the operating companies would be these individual LLC’s, and you might have one management company with a directors and officers, or as an errors and omissions insurance policy that is operating all of these different LLC’s, each one holding an individual property, and each one of those properties would have a commercial, general liability policy, which would cover you against slip and falls, and some of those types of things.

It would trigger a defense. And if somebody went after the holding companies, or the managers, meaning you, then that’s where the directors and officers insurance, or your errors and omissions insurance would kick in.

So you have insurance that are funding your defense, you have insurance policies that can pay out a settlement, and on top of that, you can use a technique called equity stripping, and that’s where you might have a separate holding company somewhere else put a lien on your property for the full amount of the equity.

So when someone does an asset search on the property, they go, “Oh, well this property doesn’t have any equity in it. There’s a first lender, and there’s a second lender, which means that I would be third in line at best, and there’s nothing to go after.”

You know, someone who takes the time to sue you, and gets you all the way through, that they win, and then they do what’s called an order of examination to have you reveal where everything’s at – they’re going to find all that stuff. But the person who isn’t going to find it easily is just the opportunistic attorney who’s just running around looking for properties with bunches of equity that they can go after easily.

You just don’t want to be having your assets hanging out there uncovered, you know, where people can take a shot at them. So, if you use privacy, if you use insurance, you use asset protection, and you use multi-jurisdictions, you make it very, very difficult for the opportunistic, lazy, predatory people to come after you.

The only people who are going to get you are going to be the government if they’re coming after you for taxes, or somebody who really has a solid, legit claim, that they’re going to push all the way through the whole structure, and then have you come reveal where everything is.

Robert Helms: And two of the parties really to be involved in helping you make this decision, obviously, your tax attorney, and that may be a separate attorney than the person who sets up your entities, but then also your estate planner – whoever’s going to help you with that, because that has a lot to do with those, too.

 

How to Find Real Estate Investors

Good question, Arnold! If you have a question for the Real Estate Guys, go to our website at realestateguysradio.com and click “Ask the Guys.” This question comes from Dave in Mountain Home, Idaho.

“Hey guys, I’d like to find out the best way to find equity partners for our manufactured home community investments. We have two projects in Montana, and one in Colorado. All three are C-quality projects that need better management and a few homes brought in to fill up the vacancies. The initial cash flows are approximately 10%, and will go up to about 18% in 3-5 years. Any ideas in today’s world?”

Thank you, Dave. Well, Dave, yeah. Here’s the deal. There’s lots of money out there, and this is the kind of opportunity people are interested in. Right? A kind of value add opportunity.

Certainly mobile homes and manufactured housing have good returns as an asset class. So, pretty easy to find money for those deals. In fact, we have a couple of students that do exactly this. Mobile home parks in little cities all around the United States, and they’re offering, you know, 18% returns, 16% returns, 21% return.

So yeah, you can go out and find money for that. Where? Probably not institutions.

Russell Gray: Yeah, exactly. It’s really interesting, cause there’s that best again. What is the best way? The best is whatever works best for you. But at the end of the day, it’s going to come down to building your brand and building your network, something we talk about all the time at the syndication seminar.

It is getting to a place of professional positioning, where people believe that you’re credible, that you know what you’re doing, that you do quality projects, that you’re a reputable business person, someone that they can invest with.

So you start by building that up. You show people who are credible, like CPA’s and attorneys, and people that have networks of high net worth people. And you begin either retaining them to help you with your own practice, because now there just is a nature of networking. Business people refer other business people to business people. So the more people you have on your team, the more likely they’re going to bring people to the party. And so, you begin to do that.

The other thing is, you learn how to tell your story. You get good at telling your story. You may go to join investment clubs, or go other places where there are investors, and you begin to tell your story. And you start getting really, really good at it, so you can explain to people why what you’re doing makes sense, why it’s compelling, why it’s interesting.

And so now you’ve got some good endorsements, you’ve got some good professional communication skills. Now you want to think about the people that you want to be partners with.

Because, if you’re looking for private investors, these people are going to be your partners. They might not be voting partners, they may be limited partners (and hopefully they will be), but nonetheless they will be people that you have a degree of accountability to, you’re going to have to  interact with, and so you have to decide what kind of people that you want to do business with.

how to buy real estate with little or no money - fundraising word written in chalk on pavement

Now, once you’ve figured out who those people are, where are they? Where do they congregate? They do. Their eyeballs congregate somewhere, somewhere they socially congregate – could be a rotary club, it could be a networking event.

And here’s the great news: It used to be, until a couple of years ago, that you were not even able to advertise. But today you can. We’ve been talking about this for quite a while.

In fact, we have a report on this in our special reports section. I believe you can get it if you send an email to monopoly@realestateguysradio.com, because the new law that has come out basically allows you to go out and advertise these types of opportunities to accredited investors.

And then recently we did a show with attorney Mauricio Rauld about how even non-accredited investors it’s beginning to open up.

So the ability for someone who has a credible deal to go out and find investors with whom you did not have a prior relationship from a legal perspective, is opening up.

But that doesn’t mean you still don’t have to work on your brand, and your reputation, and your ability to communicate your offer. And of course, that means you’ve got to have an offer that’s compelling.

And so, if you take the time to go meet with a few people, and instead of trying to pitch them the deal, you ask for their feedback – say, “Hey, here’s what I do, here’s how it works, here’s how I’m thinking about putting it together. What do you think? What kind of questions do you have? What kind of returns do you think people out there would be interested in?”

Some of the people whose opinions you ask for are actually going to want to invest. You’re not really trying to sell them, you’re trying to get their opinion, and if that’s all you get out of it, you’ve won. But you may end up getting a lot more than that.

Robert Helms: If this is more than just three properties, if you’re thinking about doing more of this, Dave, I think I would strongly recommend you come out to the Secrets of Success full Syndication. It’s two full days and a big workbook, and a lot of great faculty.

Not only that, the people that come to the syndication event are top notch. It’s amazing. We are humbled every time at the great people we meet that are already doing deals and many that have a lot of property in their own account and are looking to get to the next level by raising capital.

You’ll meet great people, you’ll get all kinds of great advice, and who knows, maybe you’ll find another few folks in this same space that can give you some ideas. I know of a couple of guys who will be at the syndication seminar who do exactly what you’re doing, and they’ve raised money to do it. So that would be a great place to go meet folks like that. But, good good stuff. Those deals are absolutely do-able.

 

San Diego and Southern California Water Concerns

Time for one more question today. This comes from Laura in San Diego. She says,

“You and your podcast are awesome, and I listen to every show religiously!”

Well, thanks a lot, Laura!

“I would like to get your opinion on the drought situation in San Diego, California, and how it may change San Diego in general, and real estate market specifically. You know, prices for both rent and sales, in the short and long term. What are the best strategies” – there’s best again – “for real estate investors to hold real estate properties long term if it was planned originally, or sell everything and run away from San Diego before it runs out of water and becomes a desert? Thank you.”

Well, Laura, in case everyone is not up to speed on this, San Diego is one of many cities that faces a little bit of a drought issue in the fact that they are running out of water. Now having said that, do we think, as the Real Estate Guys, it is going to turn into a desolate desert, and no one will ever want to go there again? Not very likely.

Here’s the reality. If the business people and stake holders in San Diego have to ship water in in one pint bottles, they will get this problem solved. We’ve seen this happen again and again. We’ve seen this happen in multiple markets.

I remember more than 10 years ago when Las Vegas, Nevada, had the same exact issue, and they were running out of water, and developers weren’t even getting permits because there weren’t going to be water rights. Guess what? Today there is plenty of water in Las Vegas. It’s thriving. It’s all good.

I’m not trying to make light of the issue. I’m trying to say, don’t be alarmed about it, and don’t say I’ve got to cut and run and get rid of everything before it becomes a desert. Now just looking at where the market is price wise, who knows? Maybe you’ll look like a hero two years from now if you sell everything you own in San Diego today. Don’t know.

Russell Gray: I think the big picture is there’s a lot of things to worry about, and I probably worry about as much as anybody there is. I mean, I listen to everybody, I try to take everything seriously, and then you just have to ask yourself, “what’s most likely?”

And it always comes down to this notion that when you have a major economic population center, and you have a key piece of important infrastructure, and it’s hard to imagine anything much higher on the food chain than water, as far as being an important piece of infrastructure, there is enormous resource in political will to fix the problem.

Water exists somewhere. I mean, think about it right now. We have gone back and forth through this keystone pipeline, right? The idea that there’s tons and tons of oil way up north. And all we have to do is get that pipeline built over how many thousands of miles to bring that oil from where it is to where it’s needed.

There’s water in this world. It may not be in southern California, but there’s a big enough population base and economic base that they will build a pipeline – probably not one pint bottles, right? They’re going to build a big pipeline to get it where it needs to be. Not to mention, San Diego’s right on the ocean.

Robert Helms: Hello!

Russell Gray: There are people that have manufactured desalination plants. There are entire populations – islands, you know – where you get fresh water, and it comes straight from the sea water.

Robert Helms: The entire island of Grand Cayman is desal, and it’s desal by a publicly traded company. And the water is of high quality. It’s wonderful, and it’s easy to do.

Plus, they have so much beer produced in San Diego, they go through a lot of water there. I can’t imagine that they’re not going to want to brew more of their great hopped ales, with more water. So, you know, you’ve just got to look at whatever the risk you think is. I think San Diego’s a great marketplace for a lot of reasons. I also think it’s high up there, right? The prices are high, so.

Russell Gray: Well, I think the thing is, whatever thing you’re concerned about, what you need to do is figure out the people who are qualified to have an opinion on the matter.

In this case, it could be people in the water community, it could be people, you know, involved in civil engineering and planning – I mean, I don’t exactly know who, but you study the issue for a little while, you’re going to figure it out pretty quickly, and once you figure out who’s qualified to have an opinion, then try to understand what agenda they might have in swinging their opinioni one way or the other, and listen to a lot of different people, and then sit down and think about what really makes sense to you.

If you really believe in your heart of hearts that it’s on its way to become a desert waste land, then absolutely, the best strategy for you, is to sell everything and get out of dodge. If like us, you think, you know, that’s probably not a very likely scenario, then pay attention to it, but then turn your attention to other things that are more likely to help you make good investing decisions going forward.

Robert Helms: We have some great investor friends who own more than a dozen properties in San Diego, and are looking to acquire more, and they’ll be with us on the 14th annual Investor’s Summit at Sea. You can pick their brain. They’re going to do a round table discussion about their properties in San Diego, and I promise, they’re up to speed on this issue.

So come on out to the Investor’s Summit at Sea. There’s still a couple of cabins left. Join us, join sales legend Tom Hopkins, join best selling financial author in history Robert Kiyosaki all live, all in person at the Investor’s Summit at Sea, and get all the details on our website at realestateguysradio.com.

Big thanks to all the folks who submitted questions, whether we got to them today or not. If you have a question for the Real Estate Guys, get to that website, realestateguysradio.com, click “Ask the Guys,” and maybe next edition of “Ask the Guys,” we’ll answer your question.

Until next time, go out and make some equity happen.

 


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2/26/12: Fast, Flexible Financing – The Power of Private Lending

When banks are broken, buyers (and sellers!) are frustrated.  But tight lending requirements open the door for private lenders, who can be more flexible about the people and properties they’ll lend to.

In this scintillating episode of The Real Estate Guys™ Radio Show, we visit with two real world real estate veterans who are putting private lenders together with out-of-the box borrowers in a market with the cash flows to support it.

  • Your powerful yet flexible host, Robert Helms
  • Your somewhat private co-host, Russell Gray
  • Special guests, all the way from Memphis Tennessee, Alex Craig and Jeremy Veldman

We’re always excited when we get to talk with guys (and gals) who are doing creative things in the market.  So when we met Alex Craig in his office in Memphis, we not only invited him to be a part of our market field trip, we asked him to come on the show and share some of the details about how he’s getting deals done in using private money.

What we discovered is that in markets like Memphis, where the prices are low, the rents are relatively high and the cash flows are strong, there’s a lot of interest from people all over the world in acquiring rental properties.  Makes sense to us!

What we also learned is that those very strong cash flows attract private investors who are interested in high yields with the headaches of being a landlord.

So how does THAT work?

Alex and Jeremy explain that even though interest rates are low for qualified borrowers, the key word is “qualified”.  And in today’s super tight lending environment, there are fewer and fewer borrowers who fit in the box.  The folks could be otherwise well-qualified foreigners who simply lack a credit history in the U.S., or have too many conventional loans (“Fannie / Freddie’s out”), but want to keep shopping.

Whatever the reason, there seems to be plenty of demand for unconventional loans.  And people are willing to pay a premium to get it when the cash flow is strong enough to support it  After all, some leverage is better than no leverage.

For the private lender, they get a much higher yield with a monthly payout.  And the loan is secured against an individual property with as much as 50% protective equity and strong cash flow.  Sounds like a win-win to us!

So we ask Alex and Jeremy to explain the whole process to us based on their real world experience.  We learn a lot and so will you!

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

 

3/13/11: Commercial Lending Challenges and Opportunities – Be the Brainer

When we went to the National Hard Money Conference in Las Vegas, we met a guy who had over 30 years in commercial hard money lending.   Based on that alone we wanted to talk with him.

But because we’re busy prepping for our Secrets of Successful Syndication seminar, we were especially anxious to get perspectives from a 30 year vet.  After all, we think it’s a great time for real estate entrepreneurs to step in and help heal a decimated economy by getting capital flowing into properties and projects.  But what does an industry insider think?

Before leaving Las Vegas, we set up our mobile studio.  We wanted to make sure that what happened in Vegas didn’t stay there.  Behind the microphones for this episode of The Real Estate Guys™ Radio Show:

  • Your hard money host, Robert Helms
  • Your semi-hard money co-host, Russell Gray
  • Special guest, founder and CEO of Blackburne & Sons and C-Loans, George Blackburne

Just like in the grocery, hardware and car part businesses, the financial industry has suppliers, wholesalers, retailers and consumers.  But the product being distributed is money.

Most people are familiar with banks, credit unions, mortgage companies and the types of retail transactions they engage in.  Some people (like small business owners) are somewhat familiar with local business banks and other institutional sources of commercial capital.  But most people have only a vague understanding of private capital and the term “hard money” – especially when it comes to small commercial businesses and properties.  So we open the show with a quick overview of the term “hard money” and a quick discussion of how it fits into the financial food chain.

But we don’t take long to get our guest talking about his 30+ years in the business and what he sees going forward.

George Blackburne has been helping guide private money into local projects and properties three decades.  Along the way, he’s seen a lot of changes.  Being an entrepreneur, he saw a need in the commercial funding business which emerging technology could solve.  So fourteen years ago, he founded C-Loans, an on-line directory that matches borrower and brokers with sources of funding.  We thought is was such a cool idea, we’re adding it to our Resource Center.

In addition to being a money guy and an entrepreneur, George is also a lawyer licensed in two states.  In other words, he’s a pretty sharp guy.  So we were very gratified when he told us he thought 2011 would be “the year of the hard money lender”.   It just made us all the more certain that now is the time for all good real estate entrepreneurs to come to the aid of their country and consider getting into the private capital business.

While many are frustrated waiting for corporations to create jobs and banks to start lending to small business, entrepreneurs can create a job for themselves and others while getting into the game of investing private capital.

There are tons of distressed assets available for pennies on the dollar, and deserving projects just waiting to be funded.  And while banks are only interested in the “low hanging fruit”, (the “no brainers” as George calls them), there are lots of “outrageous profits” waiting for those are willing to “be the brainer”!

We think this era will be remembered not only as the “year of the hard money lender”, but as one of the greatest opportunities to build wealth with real estate that we may see in several decades.  Check out this episode and see what you think!

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Secrets of Successful Syndication

Tired of waiting for someone else to create a job for you or give you a raise?  Take control of your own future by discovering how to make big money doing big deals through real estate syndication.

Syndication is simply putting together a group of investors and use the combined resources to take advantage of more and bigger opportunities for everyone’s benefit.  And when you’ve fully deployed your own cash and credit, syndication is a great way to keep going.

Now is one of the greatest times we’ve seen to become a real estate syndicator. Distressed properties and notes are abundant.  Assets can be purchased for pennies on the dollar.  Best of all, you’re not preying upon the unfortunate.  You’re helping clean up a big mess and playing a vital role in revitalizing the economy.

With all the liquidity being pumped into the economy, there’s still time to take advantage of low interest rates.  Longer term, many economists expect inflation – which means rising asset values (equity!), rising rents and rising interest rates.  But inflation hasn’t hit real estate yet, so there’s a window of opportunity to snap up deals.

We could go on and on about why the next 2-3 years look to be among the best ever to be a buyer.  But that’s not the point of this article and we’ve discussed it many times on the broadcast.

The real point is that syndication is a great opportunity for sharp, hardworking people to become real estate entrepreneurs. In his new book, The Sleeping Giant, best selling author and Robert Kiyosaki Rich Dad Advisor Ken McElroy says a new American Dream is upon us: the age of the entrepreneur.  Gone are the days of working four decades for the same company and retiring on a comfortable pension.  And the last time we looked, Social Security isn’t looking very secure.  So you need a good paying job now AND a way to build up wealth over the the long term.

If you’re unemployed, under-employed or concerned about the future of your job or company, then you might want to give serious consideration to starting your own business. And while there are many different businesses to choose from, in most all cases you’ll need to organize capital to get started.  For the average Joe, that means using up his life’s savings, home equity and all his available credit card lines – literally betting the farm on the success of the business.  That’s one way to go.

On the other hand, wouldn’t it be better if you were or raise some private investor money where neither you nor any of your investors are ruined if things don’t go as planned?  Shared risk and shared reward.  That’s all a syndication is.

Of course, that begs the question: what kind of a business?

Obviously, we like real estate – and for many reasons.  First, it’s everywhere and not overly complicated – at least compared to starting a bio-tech firm or a software company.  That makes it possible for you to get up to speed and run the business effectively pretty quickly.  But it’s also a business that your investors should be able to understand and get excited about without needing Ph.D.’s.

Most people can see there are bargains galore in real estate right now, but because the dollars are big they can’t take advantage of them…by themselves.  They don’t have enough money, time, knowledge or connections.  That’s why so many people buy mutual funds instead of picking their own stocks.  They are effectively hiring a fund manager to do the hard work of investing.

When you organize a real estate syndication, your investors are essentially hiring you to buy, manage and sell the investments  – just like a mutual fund manager.  Except instead of investing in stocks, you’re investing in real estate or notes.  Now before you freak out, remember that you’ve probably already bought or sold a property, rented a property, gotten a loan or otherwise been involved in some real estate transactions.  So you already have some experience.  And if you’re a real estate agent, loan officer, appraiser, contractor or someone who deals with the business of real estate on a daily basis, you’re way ahead of the curve.  Remember, most mutual fund managers don’t have to know how to run the companies they invest in, they just have to know how to recognize good business models and managers.

Of course, in the spirit of full disclosure, if syndication were THAT easy, then everyone would be doing it, right?  True.  However, we bet there are many very capable people out there who would be very successful syndicators, but it never occurred to them they could do it.  And like any manager, it’s a huge responsibility to be in charge of other people’s assets.  Yet, many people do a fine job for their employers every day, but  just don’t think of it as asset management.  Yet if you’re a manager of any kind, you’re responsible for someone else’s assets –  their money, their customers, their reputation, their property, their information – on a daily basis.  If you do a good job there, the odds are good you will be successful in real estate – which is quite possibly a lot less complicated than your current day job.

Still, it’s important to be properly trained. And the task of organizing an investment syndication is not one to be taken up lightly.  There are laws to follow and lots of details to be aware of.  Again, if it was brain dead easy, than everyone would be doing it.

So where can you go to learn the secrets of successful syndication? You can and should read books, take classes, and get around people who are doing it.  Much of which you can figure out on your own if you have the time and motivation.  But if the gap between where you are and where you want to be looks to big to jump on your own, we have something for you!

We’ve imposed upon our outstanding Investor Summit at Sea™ Faculty, which includes Robert Kiyosaki’s Rich Dad Advisor Ken McElroy, plus international real estate developer Beth Clifford and attorney Mauricio Rauld, to conduct an all day training called The Secrets of Successful Syndication Seminar on April 3rd in Fort Lauderdale, Florida (you’ve been looking for a great reason to visit beautiful South Florida, right?).

Discover what it takes to organize and operate a real estate syndication business, where you can go from zero to a full time income (even part time!) in six months or less.

For more information and to enroll on-line, click here now.

The Real Estate Guys™ Radio Show podcast provides education, information, training and resources to help investors make money with their real estate investing.

10/24/10: Big Profits without Wall Street or Tenants – How Private Investors are Making Money from the Financial Crisis

When an economy burns down, the landscape is charred and the financial food chain is disrupted.  Viable businesses starve for funding, while investors hunger for return.  The normal eco-system has broken down and sources of capital and investment opportunities aren’t where they’re supposed to be.  Everything is in disarray and the ensuing uncertainty breeds fear.

But it also brings opportunity.

Sadly, after an economic forest fire, most people focus on what’s burned.  They hang around the old Wall Street and banking feeding grounds, waiting for things to grow back and settling for low returns or grubbing for hard to find funding.

But others are able to find new pastures simply by looking past the beaten path and seeing where the new opportunities are growing green in more fertile soil.

We found a guy who’s doing something so brilliant that we decided to dedicate this episode to cultivating our understanding of his model.

Plowing through the conversation in the studio for this adventure in broadcast excellence:

  • Your show host and real estate Yogi, Robert Helms
  • Co-host and Boo-Boo bear, Russell Gray
  • The man with the Smokey voice, the Godfather of Real Estate, Bob Helms
  • Special guest, investor and real estate entrepreneur, Ron Black

A few episodes back, Ron Black called in and seeded our minds with the awareness that in today’s charred economy, conventional banking is failing to feed the needs of both savers and borrowers.  Interest rates paid to savers are too low.  Access to loans for consumers and business is too tight.  Even well qualified borrowers are having a hard time finding the funding needed to grow the economy.

For investors in the past, long term appreciation has proven to provide plenty of financial timber for building a strong retirement.  Just buy stocks and real estate, water them faithfully, and in time they grow into mighty oaks of equity.  But today, the economic forest has burned down – and while those who plant now will likely have some big trees in 20 or 30 years, what if you don’t have that much time?

For baby boomers, the last 10 years of buy and hold stock investing has been disappointing at best. The Dow hasn’t grown.  It’s even worse for retired folks trying to live on interest income when yields are low single digits.  When you’re living on interest, if rates go from 4% to 2%, you just suffered a 50% pruning.  Ouch.

When it comes to personal finance, conventional financial planning models are struggling to adapt. The whole system is designed to sell stocks and bonds through the Wall Street machinery and to park money in the banking system.  Then these “experts” take your money and (as we’ve all now sadly discovered) they do all kinds of risky things, most of which the average person doesn’t understand, can’t control and probably wouldn’t approve of.

Conservative individual investors have been gravitating more towards dividend paying stocks. These stocks are typically issued by big companies with solid profits (or at least as solid as they can be in a fragile economy).  With yields of 6-8% and the opportunity for long term capital gains, we understand that this looks “good” compared to whatever green shoots are peeking out of the charred landscape of traditional Wall Street offerings.

Of course, if times get tough for the dividend paying company, they may choose to reduce or eliminate the dividends.  Or, perhaps they’ll incur debt or distribute vital reserves to continue to pay dividends when they really can’t afford it.  If this happens, you can bet the stock price will drop, which makes an exit in favor of a better offering potentially expensive.  Buy high and sell low is not a winning formula.

What about high yield bonds? Money for top quality corporate borrowers is pretty cheap right now.  The best companies are sitting on piles of cash waiting for the economy to stabilize.  They hardly need to borrow and wouldn’t pay much to do so.  So high yield bonds are likely to carry substantial risk.  Plus, are you ready to trust the Wall Street credit rating agencies again?  You know, the ones that gave sub-prime mortgage backed securities a trip A rating?  We’d rather go for things that we can see and understand.

Then there’s high interest savings accounts and high yield CD’s.  But remember, today’s definition of “high interest” is maybe 3-4%. Whoopee.  Plus, the better rates mean locking the money up for years.

So the conventional investing trees are pretty bare right now.

The problem with the Wall Street model is that investors are too far removed from the actual investment and have so little security if something goes bad (does that really happen?), that even in the good times, it’s still risky.  The only reason it doesn’t feel risky is because Wall Street insulates you.  Plus, all the slick marketing is intended to make you feel like giving your money Wall Street and the banks is not only normal, but your only choice.

With so much retirement planning marketing built on the Wall Street model, most people don’t have any idea where to find another option – or even what it would look like.  And when they do, those Wall Street paradigms pop up and prevent people from seeing that low risk, high yield, short term, cash flow investments are possible in today’s market – specifically because the Wall Street systems have broken down.

In this episode of The Real Estate Guys™ Radio Show, our special guest Ron Black describes how he identified a void left by the breakdown of the traditional mechanisms for matching investors with yields.  Best of all, his model cuts out Wall Street and the banks (after all, they’re really just high priced middlemen) and gets the investor very close to their actual investment.

The bottom line is that double-digit high yields are currently available on short term, secured investments which are easy to access and understand. It’s something anyone can do in today’s market to supercharge their portfolios, whether seeking current income or long term growth of principal.  Think of it as Miracle Gro for your portfolio.

You’re gonna like this show!

The Real Estate Guys™ Radio Show podcast provides education, information and training to help investors make money with their real estate investments.

Listen now:

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