Ask the Guys – Long-Distance Landlording, Property Management and More

Welcome back to an all-new edition of Ask The Guys!

Today, we’ll be answering listener questions. So listen in for our best real estate tips and tricks!

A disclaimer … we are not tax advisors or legal professionals. In our Ask The Guys series, we give ideas and information … NOT advice.

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

  • Your tipster host, Robert Helms
  • His tricky co-host, Russell Gray

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How do I find a property management company?

This question comes from Lee, in Bay City, Michigan. He wants to know whether we have any advice for finding—and vetting—management companies.

He says he’s investing in his area, but the only management companies he can find are run by real estate agents on the side. He has a day job, and doesn’t have time to manage on his own … so he wants to find a reputable company that’s up for the task.

He also asks whether he should move out of his local area, since there aren’t many management companies.

We always say you should invest where the numbers make sense … but you also need to invest in places where you can find a great team.

In the long term, your property manager is the most important person on your team. So if there aren’t any great property management solutions where you live … perhaps it’s time to expand your geographic investing boundaries.

Start by refining your personal investment philosophy, then look for a market that both matches your goals and has the management companies to fill your needs.

You don’t want single-point failure. Make sure the company you choose aligns with your philosophy. Ask them, “Who supports you, and how?”

You want to make sure their compensation model is aligned with your best interests. In other words, when you earn money, they do too.

And choose your property management company BEFORE you buy your properties. They can be an excellent resource for finding properties and asset class types that will work well for both of you.

Remember, you can’t scale up without putting the right team in place. Getting a great property manager on your team helps you find the professional distance you need to run your business properly.

How do Section 8 rentals work?

Laura, from Naples, Florida, wants to know how Section 8 rentals work and how she can acquire affordable housing in her investment market.

First, a few things about Section 8. Section 8 is housing subsidized by the Department of Housing and Urban Development (HUD). But it’s administered by local public housing agencies, so it’s not always available and differs across the country.

Section 8 can be great because a portion of the rent is paid by the government. You basically have a guarantee you’ll get most of your rent on time, regularly.

But tenants in this housing can be a tough crowd … sometimes they don’t blend well with other, non-Section 8 tenants. For that reason, we like a property to be all Section 8 or none.

A great resource for learning about Section 8 is Mike McLean, who has published a book called the Section 8 Bible and has some great online resources, too.

Affordable housing can be a good place to be because of stagnant purchasing power … but make sure you’re playing close attention to the program from which funding comes.

And keep in mind … the devil is in the details. If you’re not managing the property yourself, make sure your property manager is well acquainted with Section 8.

Should I invest now, or later?

Casey, in Lehi, Utah, has been listening to the podcast, and now he has a pressing question.

Casey has saved up $100,000 to invest, but he wants to know whether he should invest now or wait until the market takes a dive. He mentions worries such as rising interest rates, an unstable dollar, and inflation.

Let’s start with a premise … markets will either do well or poorly in the future. We know that. We also know that when the market hits the bottom, you can only go up.

Real estate is a long-term, buy-and-hold business. But it is interest-rate sensitive, so you want to make sure you lock in long-term financing if you invest now.

It’s also good to keep some liquidity for if and when the market does go downhill.

Something we like to say is, “Opportunities are like busses. Another one will always come along … but you have to get on the bus at some point.”

The way we see it, Casey has a few options …

  1. Invest in things that are likely to do well, even when the market is bad, particularly mid-level rentals and below. There will always be demand for housing, especially mid-range housing.
  2. Invest in a forced equity situation … a neighborhood or property that has room for improvement, which you can force upward in value. This will help you mitigate downward pressure to the dollar.
  3. Invest in a bigger market … this provides stability, as these markets have more ballast during tough times.
  4. Step in on the debt side of the market by lending money to other investors.
  5. Work with an experienced syndicator who is more likely to get investments right, even when times are more precarious.

Remember, when you’re in property for the long haul, most of the time you’ll be fine. The key is to structure deals so you can weather the ups and downs.

Another thing to consider … the price only matters when you buy and when you sell. In between, it’s all about cashflow.

Real estate is one of the best inflation hedges if you structure the financing properly relative to cashflow … but you can’t fledge against inflation if you don’t do anything at all!

How do I create residual income with little savings?

Jeff, in Fountain Hills, Arizona, says he is in an interesting situation.

He doesn’t have any income, but he has enough cash to live on for 24 months. In the meantime, he wants to figure out how to create residual income that will pay for his living expenses going forward.

Jeff is looking at building a balance sheet of passive income sources.

But right now, he has time, labor, and energy he can put to work. And since he’s not holding on to a chunk of cash, the active investor route is a good one.

Some options …

  1. Force equity by fixing and flipping.
  2. Earn cashflow by fixing, holding, and renting.
  3. Become a syndicator and use other people’s money to make great investments. It’s our favorite way to go full-time, fast.
  4. Try wholesaling.

Basically, what Jeff needs to do right now is to build up his investment capital so he can start getting some cashflow.

But before he does that, we suggest he invest in education and build relationships. Get the right tools in your toolbox and the right advisors at your back before you go big.

Can you recommend turnkey management companies?

Keith hails from East Sandwich, Massachusetts. He recently bought a home through Mid South Homebuyers and is ready to buy another.

The problem? He’s on the waitlist at Mid South. In the meantime, he’s looking for another turnkey company that manages the houses it sells.

One disclaimer … we don’t know anybody quite like Terry Kerr at Mid South.

But we do know lots of other great folks.

The idea of a turnkey provider is that they do the whole thing … find the properties, get them in great shape, put tenants in, and manage the rentals.

But before you look for a provider, think about the type of property, market, and team you want.

Then go ahead and search our provider network for someone who can help fill your needs. We don’t guarantee anyone on the list, but we do promise we’ve spent a lot of time with them on the ground and have seen enough to trust them.

Should I attend Secrets of Successful Syndication now, or later?

Gene, in Boston, Massachusetts, is an investor who owns two duplexes. He wonders whether he should attend our signature Secrets of Successful Syndication conference now, or later in the year when he has more experience.

We’ve gotta say, we really think the key is for investors to come early and often.

This conference is designed for investors who already have a portfolio and are ready to take the next step.

But even if you’re just starting out, it’s a great way to get around what we call “evidence of success” and learn the power of networking.

Experience is something you can accumulate through other people. And syndication is all about having the experience to make good investment decisions.

So, for those who want to move forward, we recommend you start as soon as you can.


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04/26/15: Clues in the News – China’s Latest Attack on the Dollar…and YOU

In this edition of Clues in the News™, we take on the biggest story most real estate investors are ignoring…and discuss why we think it matters to real estate investors…

In the studio to discuss China’s latest moves and the potential impact on U.S. real estate investors…

  • Your clued in host, Robert Helms
  • His clueless co-host, Russell Gray

The world is in constant flux.  There are SO many variables moving around out there. It can make your head spin…even more than a thick, frosty imperial IPA. 😉

To make sense of it, we try to take all these events we read about in the news…and put them into major categories.

In this case, today’s episode is really about the future of the U.S. dollar…specifically as the world’s reserve currency…and how a change might affect every day real estate investors on Main Street.

So let’s start with the Big Picture…

Out with the Old and In with the New

Virtually all active real estate investors today only know one financial world.  The U.S. is the dominant economy and the dollar is the world’s reserve currency.

This means that interest rates, job creation, access to capital have always stood on the foundation of U.S. financial dominance.  And not just in the U.S., but around the world too.

BUT…this has been slowly changing…and the evidence is right in front of you IF you take the time to look at it.

There hasn’t been anyone for the U.S. to be accountable to for decades.  Uncle Sam can just go into debt and wage war endlessly. No one can stop him.

Understanding Economic Cones

When it comes to your real estate investing, the LOCAL economy is what really matters.

Of course, your local economy may be VERY much connected to macro and even global factors.  To figure all that out, you need to understand the concept of an economic “cone”.

A “cone” or Primary Driver in any geographic market is something that brings money into the region from the outside.

Think of Google or Apple.  They’re based in Silicon Valley, but bring in revenue from all over the world, which creates jobs, incomes and spending in Silicon Valley.  Google and Apple are “cones” that funnel outside money into the local region.

Now think about Walmart or Costco.

Sure, Walmart and Costco sell all over the world…but each location only sells to local customers.  That means the income is generated in the local community.  So when the people who work in the local store spend they wages in the local economy, it’s simply a recycling of local money.

The idea is that when a Walmart or Costco is located in a place like Silicon Valley, the OUTSIDE money is funneled into the local economy through the employees who work at Google or Apple is then spent at Walmart and Costco.

In other words, if Google or Apple went away, it’s likely that business at the local Walmart or Costco would decline.  That is, the overall region would have LESS prosperity because they only would be trading among themselves…instead of pulling in money from around the world.

Make sense?

So think about how the U.S. government affects the flow of money into the local communities where YOU invest in real estate...and what would happen if the government was no longer able to go deeper and deeper into debt just to keep on spending.

What happens to YOU if Uncle Sam’s credit card is cut off?

Military

If you own properties near military bases or defense contractors, you’ve been an indirect beneficiary of Uncle Sam’s blank checkbook.

Money flows through those operations into the local community…directly as wages which are spent on rent…and indirectly when the military, its contractors, their suppliers and employees all trade with each other locally.

Are YOU invested in an area where many of the employers are directly…or INDIRECTLY…nursing on Uncle Sam’s…checkbook?

Section 8

If you own Section 8 housing, you’ve been a direct beneficiary of government subsidies.  How often do you worry about your Section 8 check bouncing?

But if Uncle Sam is forced into “structural reform” and “austerity”….with is geo-political jargon for shutting down spending programs and cutting costs…what happens to YOU if the Section 8 program gets a big haircut…or completely shut down?

College Loans

What about college towns and student housing? There’s been hundreds of billions of dollars of government subsidized student loans which feed the college towns.

Your student tenants might be using their loan proceeds to pay their rent.  Or maybe Mom and Dad are using the tuition savings to pay the rent on behalf of the kids, while the student loan pays for the tuition.

And of course, if you’re renting to employees of the school and they depend on tuition paid by student loans and the student loans stop…then what?

How exposed are YOU to austerity in student loans?

Social Security

What about senior housing? Do you have tenants who are collecting social security and using it to pay the rent?

Disability, Food Stamps

There are RECORD numbers of people on disability and food stamps in the U.S. right now. But Uncle Sam already admits that the disability fund will be insolvent in 2016.

How many of your tenants are depending on these subsidies to survive?  What happens to their ability to pay you rent if their benefits are cut off?

Real Estate Loan Subsidies…Fannie, Freddie, Ginnie, VA, FHA; plus down payment assistance

For decades, homeowners and real estate investors have benefited from cheap mortgage money.

In fact, the risk premium (interest rate) on those funds wasn’t enough to compensate for the risks, and that’s why these programs always teeter on insolvency. Fannie, Freddie have both been bailed out by Uncle Sam…with BORROWED funds…because Uncle Sam doesn’t have any savings.

It’s Greek to Me…

So…what happens if the U.S. can no longer go into endless debt?  What happens when the U.S. is accountable…say…like Greece?

Right now, Greece is broke. Their Prime Minister came right out and said, “We’re broke and we can’t pay the ECB (European Central Bank)”.

How many times has the U.S. said, “Hey, we’re broke. We can’t pay our debt?”

Okay, so they SAY it…but it’s never been an issue because they can always…

Raise the Roof!

Actually, the U.S. has threatened to “default” a few times…but then Congress simply raises the debt ceiling.

In other words, they just borrow more. It’s like applying for a new credit card every time you run out of money…rather than deal with the fact you have a spending problem.

How is it the U.S. can do that and Greece can’t?

It’s because the U.S. gets to print the world’s reserve currency, the U.S. dollar.

And when places like China produce more than they consume and produce excess, they keep their saving in U.S. Treasuries.

In other words, the world “saves” by loaning money to Uncle Sam.  What a deal for the U.S!

How did the U.S. get this sweet deal?

Way back in 1944… in a place called Bretton Woods… the world “agreed” to allow the U.S. to be the world’s banker.  And why not?  Uncle Sam had the biggest army and biggest stash of gold.

Because…back then, gold was money. And U.S. dollars were redeemable for gold…

Well, not by citizens.  Because in 1933, Franklin Roosevelt used an Executive Order and took away the right for citizens to own gold.

But other countries COULD turn in their dollars for shiny yellow metal.

So all international trade would be settled in dollars, and then the holder of those dollars could go the U.S. and redeem those dollars for physical gold.

The ability to redeem dollars for gold kept the United States accountable to not printing too many dollars…at least that’s the way it was supposed to work.

But it didn’t.

Handed a virtually unlimited credit line, the United States began spending like crazy…the same way we do today…on endless wars and social programs.  In the 60’s it was the Vietnam War and Lyndon Johnson’s War on Poverty…also known as the Great Society.

So the U.S. printed billions of dollars (which was a lot back then) and as they made their way around the world, holders would come and redeem them for gold.

Before long it was apparent that the U.S. was running out of gold.

So on August 15, 1971 President Richard Nixon announced to the world that he was “temporarily” suspending the redemption of dollars for gold….and…we’re still waiting for the “temporary” ban to be lifted.

In the next few years after that, the dollar crashed (gold went from $35 per ounce to $850), interest rates soared (and creative real estate was born)…as the world figured out how to conduct business in this new financial environment.

But they did figure it out.  People are amazingly resourceful.

Along the way some people got rich. Other people got wiped out. That’s what happens when financial systems re-set. People who are prepared and paying attention do well. Those who aren’t…don’t.

Right now, the wheels are in motion for a changing of the global financial guard. We’ve been monitoring this for the last couple of years and wrote about it in our Real Asset Investing report.

EVERY DAY IT GETS CLOSER.

You may have seen these headlines…

March 17, 2015 NPR – European Allies Defy U.S. in Joining China-Led Development Bank

FOUR key allies…Germany, France, Italy and the UK (“one of American’s staunchest allies”) all got on board the new Asia Infrastructure Investment Bank (AIIB), despite U.S. opposition…

“The Obama administration opposes the AIIB and has pressured allies such as South Korea, Japan and Australia not to join…says there’s no need for another international lending institution.”

“It’s believed China is prepared to put half of the initial $100 billion budget, probably giving it veto power, much the same as the U.S. has with the World Bank and International Monetary Fund.”

March 23, 2015 (Reuters) – China’s Premier asks IMF to include Yuan in SDR basket

SDR = Special Drawing Rights – it’s an international reserve currency made of dollars, yen, euros and pounds.  Now China wants a seat at the SDR table…

“China hopes to, through the SDR, play an active role in the international cooperation to maintain financial stability and promote the further opening of China’s capital market and financial area.”

The IMF’s Managing Director is reported to have said, “China’s yuan at some point would be incorporated in the SDR currency basket”.

The Reuters article concludes with “The yuan’s inclusion could be seen as diminishing the dollar’s standing internationally.

March 24, 2015 (Reuters) – UK Official says IMF inclusion of yuan a very live issue

The yuan is the world’s fifth most-used currency in trade, and Beijing has made almost weekly strides this year in introducing the infrastructure needed to float it freely on global capital markets.

“Almost weekly strides this year”!  In other words, things are happening FAST.

March 28, 2015 (Reuters) – More countries join China backed investment bank.

Russia, Australia and the Netherlands became the latest to…join the China-led Asian Infrastructure Investment Bank…adding clout to an institution seen as enhancing China’s regional and global influence.”

“Other countries such as Turkey and South Korea have also said they would join. Brazil, China’s top trading partner, said it would sign up.”

“China’s Finance Ministry said Britain and Switzerland had been formally accepted…Austria had also applied.”

The AIIB has been seen as a significant setback to U.S. efforts to extend its influence to balance China’s growing clout and assertiveness.”

April 6, 2015 (Reuters) – Larry Summers has a major warning for the US economy and everyone should be paying attention.

In an op-ed piece published in The Washington Post, former Treasury Secretary Larry Summers wrote, “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system.

“So while the US has been the dominant global economic power of the last 50 years, the point is that now countries across the globe are seemingly falling over themselves to be more closely aligned with China.”

Summers said, “I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.”

The article concludes, “The global economic tide has started receding from the US and moving toward China.

And what happens if the US loses its role as the “underwriter of the global financial system”?

The U.S. loses the ability to go into endless debt and it becomes more like Greece, dependent on the largess of global central bankers.

Up to now, the U.S. has been the dominant force in global banking.  The headlines say…along with Larry Summers…that that’s in the process of changing.

What will it mean for real estate investors?

We’re not completely sure…but you can bet we’ll be discussing it with the biggest brains we can find.

It seems like government spending will need to be reeled in, so if your real estate portfolio is heavily dependent on government subsidized tenants or industry, you may want to diversify.

Long term inflation is a very serious concern…even though it may not seem like it now. So long term debt (30 year fixed mortgages) seems smart, as does owning real assets…like cash flowing real estate.

The most important thing is to be aware things are changing…to watch carefully as events unfold… and constantly ask, how does this affect me? And where are the opportunities?

James Rickards said in his best-selling book, The Death of Money, that the SDR is the most logical choice for replacing the U.S. dollar as the world’s reserve currency.

Of course he said that years ago and now it’s making it’s way into the mainstream news.

We’re guessing more of this stuff will be popping up in the mainstream…which tells us that the changes are getting closer.

We’re EXCITED!

History tells us that most of the great opportunities are found in the midst of change. But the prizes go to those you are aware, prepared, nimble and fast to react.

So stay tuned for more insights as this important trend continues….

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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.