Ask The Guys – Super Session Part Two

In this show, we’re pulling another fistful of questions from our bursting email grab bag. This is a two-part session of Ask The Guys … if you missed the previous round, you can check it out here!

In this episode, we’ll take on great topics, including how to

  • get started
  • find mentors
  • structure syndication deals
  • survive a crash
  • get into deal flow
  • and build credibility

Before you dive in, please take note of our standard disclaimer … we are not tax professionals or attorneys. This show does not contain advice, only ideas and information.

Ready to get started? In this edition of The Real Estate Guys™ show you’ll hear from:

  • Your informational host, Robert Helms
  • His info-maniac co-host, Russell Gray

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Question: Where does the beginner begin?

Steve, from Laguna Niguel, California is a fledgling investor. And like many newbies who’ve just dipped their toes into the vast ocean of real estate investing, he’s not sure where to start.

Steve asked us, “How do I turn what little knowledge I have into action? There’s so much information available, I’m afraid I might become an analytical quadriplegic trying to find reliable and trustworthy information.”

Before we offer any ideas, we want to offer Steve a big congratulations on taking the first step of getting himself educated on what is arguably the single greatest investment vehicle. (We’re talking about real estate, obviously!)

A new investor’s basic education should be two-fold:

  1. Educating yourself on what kind of opportunities are available and what kind of investor you want to be (that means developing your personal investment philosophy).
  2. Forming relationships with other investors who are doing the kind of things you can see yourself doing.

To begin, we recommend listening to past episodes of our podcast and listening to other investment podcasts, as well as reading books. This step is largely free and will help you understand the rules of the road and the language of the business.

THEN, before you get overwhelmed by the nuances of all that education, leverage what you’ve learned by attending real events with successful people who will help you understand how real estate investing works in the real world.

When considering which events to go to, keep in mind this wisdom … “People who aren’t invested won’t make the investment.”

If you’re only attending free events, you probably won’t be meeting the most successful people or getting the most helpful advice. You have to be willing to pay to put yourself in inspiring social environments.

Once you get some basic education, you need to take action. Education without action is essentially useless.

Start by assembling a team of professionals. At the bare minimum, you’ll need a mortgage consultant and a tax advisor.

And don’t just pick the cheapest option. Be strategic in your choices by looking for people who can help you expand your social networks.

Every relationship is a gateway to a whole host of other relationships.

As you go through the process of getting started, don’t be afraid to ask questions. Learn how to ask great questions, and you’ll find that deals will come to you!

Question: Should I join an investment mentoring program?

Another California resident, Diane, told us that she attended a FortuneBuilders seminar and was psyched about it. Now she’s wondering whether she should join their mentoring program.

We’ll start by saying that we don’t endorse any specific program. Almost every real estate coaching program out there can teach you valid, useful skills and introduce you to great people.

But what success in these programs really comes down to is you.

That’s right, you have to make the program work for you for it to be successful. That might mean kissing a lot of frogs.

We also want to clarify the difference between theoretical information and real world information.

In the world we live in, most employed and self-employed people are taught we need to know how to DO something to find success … and the better you are at that specific thing, the more dollars you can trade your time for.

This can lead to new investors consuming a lot of specific information that they might not really need. We want you to get out of that mindset.

Look for courses and programs that help you learn to build a team, create a basic investment philosophy, and practice your conversational skills … all skills you’ll actually need when you start investing.

Also make sure whatever program you choose teaches independent investing, not dependent investing. You need to build your own ability to be a successful investor … not others’.

Make sure any education you invest in leads to you DOING something with your newfound skills and info.

Question: I’m a syndicator. How much equity do I give back to investors?

Kevin, our third Californian listener of the day, asked us what to do in a specific syndication scenario. He’s splitting his deal 50/50 between the investors and himself, and wants to know whether he should also return a piece of the equity to investors when he refinances the deal and returns profits.

The reality, Kevin, is that the percentages completely depend on the deal.

If you and investors are both putting money in, obviously you’ll split the return in some way.

Ultimately, the way you structure a deal should satisfy the needs and the desires of everyone who is at the table (including you!).

There are a lot of variables that will affect the specific structure you choose … what you’re trying to deliver in terms of taxation, whether clients want their original equity back, what you and investors are looking for in terms of future opportunities, and more.

You have to think through all the possible permutations of the deal.

We’d caution you not to get caught up in a specific number. Instead, ask the important questions of who is doing the work, what will happen with your investment, and when will those changes take place?

Then structure your deal accordingly. Every deal will be different.

P.S. Check out our last edition of Ask The Guys to hear us answer a very similar question.

Question: Can you guys refer me to contacts?

Steven, from South Lake, Texas wanted to know whether we could refer him to contacts that are currently putting together syndicated multi-family apartment deals.

We don’t like to fashion ourselves as matchmakers. That’s not our job.

So our first recommendation would be that Steven and people like him come to our events and get around people who are familiar with the syndication world.

Making contacts at real world is your best bet for finding syndication deals.

However, we do want to make all our listeners aware of our investor registry. Because we’ve been in the real estate world for a long time, we have a lot of great contacts. This registry allows those contacts to connect with investors interested in specific deals.

Signing up is simple and easy … and your first year is on us! Sign up here.

Question: Do you sell recordings from the Investor Summit at Sea™?

The short answer is no.

The long answer is that you have to join us at the Summit to access the valuable information we provide there. The Summit creates a certain camaraderie that simply can’t be transmitted electronically.

However, we did record some livestream sessions this last Summit in partnership with Rich Dad Poor Dad Coaching … if you really want to get your hands on live material from the Summit, this would be your only avenue.

We do not personally use recordings from the Summit in any commercial capacity.

Question: How do I prepare myself for potential unrest in the United States?

Phillip lives in Southern California. He asked us specifically what the best place to live would be if America were to enter into a second, violent Civil War.

While we can’t state with any certainty that the U.S. has another Civil War in its future, we will say that many of our faculty members believe it’s very possible we’re heading for some big-time trouble in the future of our nation.

The reality is that economic cycles of boom and bust are baked into our economic system. And economic distress can mean unrest in certain places.

The threat of the unknown will always be present.

However, while a sudden recession can mean devastation for one person … it can spell opportunity for another.

How does the same environment produce such drastically opposite results? The difference is preparation.

We recommend you read Prosper!, a book on how to curb your vulnerability to frightening trends in our economy by our smart and prudent friends Chris Martenson and Adam Taggart.

And if you’re looking to situate yourself in a place that will be resistant to the effects of an economic downturn, we think it would be smart to look for areas where people aren’t highly reliant on government and supply chain infrastructure.

It’s wise to be concerned … but that doesn’t mean the answer is to hide in a bunker. Be prepared to bridge the gap between our current reality and new and unexpected possibilities. And don’t forget the wise and true words of Chris Martenson… “Humans rise.”

Question: I have a burning passion for real estate … and no money. How do I gain credibility with sophisticated investors so I can partner up or syndicate?

We love this question from Sam, a new investor and social work student in Brooklyn, New York.

Sam is passionate enough about investing that he’s read literally dozens of books on the subject. He knows that relationships are key to making good deals … and he also knows that he’s starting out without any connections.

We’d tell Sam that when you change anything in your life, you’re being recognized for your past, but what you can do in the future is uncertain.

So you have to create your future by acting like the person you want to become.

Russ had to go through this process when he started out in real estate investing. Like Sam, his background was in a different field. He took a few steps:

  1. He realized that his current connections weren’t the best prospects for getting better in his new field.
  2. He started to act like the person he wanted to be, projecting himself as a successful real estate investor.
  3. He changed who he was associating with by putting himself in new environments where he could make new relationships.

The key is to “Be who you’re becoming.”

When you’re establishing yourself as the person you want to be, lean on the credibility of those who’ve already found success.

Passion and enthusiasm are key. A great deal (and we mean great) will also help tremendously.

Our last words of wisdom? Don’t be the smartest, poorest investor. Take action.

Now, go out and make some equity happen!


 More From The Real Estate Guys™…

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

Ask The Guys – Super Session Part One

Ask The Guys is our radio segment where YOU ask us your burning questions … and we give our best shot at answering them.

Lately, we’ve received so many excellent questions we decided to do not one, but TWO episodes of Ask The Guys! In this first installment, we discuss finding deals that make sense, breeding equity, how to keep going when you’re out of money … and much more!

Before you get into the good stuff, we have to give you our standard disclaimer. We’re not tax advisors, and we’re definitely not attorneys, so we never provide any advice … just IDEAS.

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

  • Your problem-solving host, Robert Helms
  • His problematic co-host, Russell Gray

Listen



Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

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Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Question: I’m looking into local real estate, and the numbers don’t make sense. What do I do?

This question comes from Walter, a Canadian listener.

Can you guess our first response? You got it … “Live where you want to live, and invest where the numbers make sense.”

Investing locally means you can have a heavy hand in daily business and management operations. Investing in other markets means someone else will do the work for you.

That can be a really good thing … IF you have the right team.

As you know, the market overall is quite tight right now. If you’re looking for deals in a tight market, you might spend all your time searching out deals that fit your criteria. That’s why it’s a good idea to look for markets that fit your criteria, then build relationships with a trustworthy team.

Of course, start out by building a solid personal investment philosophy.

Next, find your market and get set up with a good team. THEN you can work on finding a property to invest in.

Starting by finding a property first can be a disaster. We know because we’ve seen it.

Think this information sounds great, but wondering where to start? There are a few steps you can take:

  1. Start networking with folks in your area who are investing elsewhere. Get to know them and get familiar with what they’re doing.
  2. Research different markets, identify a handful that fit your criteria, and then check them out … in person!
  3. Get your resource network set up by seeking out credible management folks who know what they’re doing.

Whatever you do, ALWAYS evaluate whether a market makes sense before you even start looking for deals. Always.

Question: Can I reposition my equity to buy more properties?

Ari from West Hollywood, California, asked us whether it was prudent to use the equity from current properties for the down payment on a new property.

The short answer is yes.

The long answer is that equity repositioning can be a good idea, with some caveats.

You CAN take equity out of a property through cash-out refinances (or 1031 exchanges, if you want to relinquish the property).

And with today’s low-interest rates, this process allows you to harvest your equity.

A word of caution … it is possible to run into trouble. It’s NOT the act of moving equity that can work against you, but the act of taking on additional debt and income.

Any time you move your money, you have to weigh your ability to manage your income against your debt. It doesn’t make sense to take money out and invest in a property with low or negative cash flow.

When done right, equity optimization allows you to move easily from mature markets to emerging ones and diversify your holdings.

Always remember these words of wisdom … “Do the math, and the math will tell you what to do.”

Question: We’re purchasing our first property. Should we create an LLC to protect our personal assets?

Jonathan in New York City, is buying his first rental unit in the U.S. state of Maine (congratulations on taking action, Jonathan!).

He’s wondering whether it’s prudent to form an LLC in order to purchase the property … but worried that buying as an LLC will force him into a commercial loan with 10-year terms.

How to protect your personal assets is a common newbie question … and it’s a good one!

The primary question Jonathan has to ask himself is whether the added expense will be worth the protection. That answer will vary.

If Jonathan has a ton of assets, it might be worth it to form an LLC. Keep in mind there are other places he can move his money to … primary residences and retirement accounts come to mind.

The bigger question, though, is whether Jonathan will need the protection in the first place. Investors like Jonathan can put up a three-pronged line of defense:

  1. Consistent, good business practices.
  2. Clear documentation and legal paperwork with built-in arbitration clauses.
  3. Insurance, which will cover most problems that might arise.

The reality is that most people who use entities are usually working on bigger projects. And not all lenders will be willing to lend to an LLC with no operating history.

If you’re in Jonathan’s situation, you have to weigh the pros and cons. We recommend doing your homework … and checking with a local tax attorney.

Question: When is the next Investor Summit at Sea™, and when do tickets come out?

Adrian from Salt Lake City, Utah asked this timely question. Thanks for asking, Adrian!

The next Summit will be early to mid-April, 2018. Exact dates will be announced shortly!

We roll out registration in three phases … alumni first, then our syndication mentoring club, and then our advanced notice list.

Your best chance at getting a ticket? Get on the list! Sign up now if you’re serious about attending next year.

Question: Will it be more profitable to invest on our own or with a syndicate? (And should we invest for equity growth or cash flow?)

This question comes from Sheryl, in Pacifica, California. Sheryl told us she and her husband are newly debt free. Her question is best in her own words:

“Our goal is to save $100,000 this year and buy a rental property on the big island of Hawaii, where we eventually plan to live, to start establishing some cash flow. We also plan to take a year off and live off my spouse’s retirement while visiting Southeast Asia, South America, and Africa. We are frugal and have simple needs. Would it be better to invest $100,000 with a syndicate for better monthly cash flow return?”

Sheryl, you could invest in a property that provides cash flow and will be well-suited for your eventual retirement home.

But we’d caution you that one property may not be able to solve multiple needs.

One solution would be to buy a cash flow property, then use the equity you’ve saved to buy a perfect retirement home when the time is right.

Another solution might be to look for a property that will provide long-term price appreciation instead of a high cash flow. It’s a different investment vehicle that could carry you to the same destination.

And of course, syndication is always an option, and it might be a good one if you’re traveling and need a hands-off investment.

If you decide to come alongside a syndicator, you do have to be careful. Vet the deal and the sponsor just like you’d vet a deal of your own.

Make sure you line up your investment objectives and the timing with the investment and manager you choose. And above all, be certain you understand the underlying risks.

Question: I’m out of money. How do I extend my property portfolio?

This listener hails from London, England. (A side note: we LOVE hearing from listeners around the world!)

A former nurse, Bobby purchased a couple of properties in the outskirts of London. He loves real estate and wants to expand, but he’s out of money.

Maybe this sounds familiar to you … you got enamored with real estate, got educated, pulled the trigger and took action, then quickly realized your money was gone. This happens to a lot of folks.

If you’re like Bobby, the first thing you should do is ask yourself, “Knowing what I now know, would I still invest in these properties?”

If the answer is no, it might be time to switch things up.

We’ve found the best way to expand when you have limited resources is to force equity from properties by adding value, then use that equity in other properties.

The other way to go would be to syndicate. Leverage your knowledge, and use your skills to acquire and manage assets on behalf of clients who do have money … taking small slices from the pie along the way.

Because Bobby came from a demanding career path and wants to make his way in what can be a very demanding real estate world, we’d also caution him to be very careful about what he chooses to do and how he structures his business.

It’s no good to pursue real estate for less stress and then fall into the same pattern of stressful days and no fun.

Question: I’m a syndicator. What’s a good percentage to offer investors?

Our last question for this episode comes from Joel in Boston, Massachusetts. Joel puts deals together for investors, but he’s new to the game and isn’t sure whether he’s offering a percentage that’s too high.

He wants to find the sweet spot, and that’s a laudable goal … one every syndicator should have.

Our answer? There is no magic formula.

We’ve done deals about every way possible, and in our experience, the right structure is one that attracts the right capital and the right investors for YOU.

Finding the right number can be a dance and an art form. But there is a place you can start.

Begin by having conversations with investors and gauging their responses. Ask, “What number would make sense for you?”

And realize number may vary with each deal you make.

If you’re just getting started with syndication, err on the side of giving more to the investor.

The purpose of your first few investments ISN’T to build a fortune. You’re trying to start a business, so you need to emphasize your dependability, focus on predictable results, and build your track record.

Ultimately, the magic number is one you’re willing to get up every day and work for!


 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.