5/24/15: Demographic Shifts – Double Digit Returns with Assisted Living Facilities

Even when people stay still, time doesn’t.

So today, one of the largest and most economically powerful demographics…the baby boomers…are living in “empty nests”, enjoying or preparing for retirement…and thinking about things like long term care for their parents…and ultimately for themselves.

Of course, every time the baby boomers hit a new economic phase of life, they move markets.

And when they do, smart investors and entrepreneurs find ways to serve those boomers’ needs…and earn great profits.

In the studio to talk about another facet of “the silver tsunami”…Assisted Living Facilities:

  • Your silver-tongued host, Robert Helms
  • His blowhard co-host, Russell Gray
  • Special guest, Assisted Living Facilities entrepreneur, Gene Guarino

Ever since Rich Dad Advisors Josh and Lisa Lannon showed us how they turned McMansions into cash flowing addiction recovery centers, we’ve been fascinated with the concept of combining business with social service with real estate.

So you can imagine how excited we were when we met Gene Guarino!

Gene Guarino runs the ALF Training Academy and teaches investors how to use assisted living facilities to turn single family homes into cash flow money machinesGene is a Certified Financial Planner turned real estate entrepreneur.  And he’s found a very profitable niche converting single family homes into assisted living facilities.

Even better, Gene is a a gifted teacher.  So not only does he know how to make money with assisted living facilities, he’s expert at teaching others how to do it too.

The opportunity in assisted living seems obvious…when you think about it.  And once Gene brought it to our attention, the more we think about it, the more sense it makes.

After all, you’ve got this HUGE demographic of baby-boomers getting older.  And they happen to be the most affluent demographic on the planet.

So the opportunity to help them set up their elderly parents in a nearby home in a nice area…with 24/7 care and a “homey” feeling (versus a “clinical” feeling)…is a great way to get some cash flowing your way.

And with high income per “tenant”…and multiple tenants per home…you end up with more than enough cash flow to pay care providers…and end up with lots of extra cash at the end of every month.

So you can make enough money to pay for a very nice home…providing a valuable service to an affluent demographic who can afford to pay you…and have a tenant base who don’t abuse your property, typically stay for years and are highly motivated to pay the rent on time.Two men enjoy fellowship in an assisted living home

We like it.  And we think you’ll like it too.

So listen in to our interview with Gene Guarino.  And when you you’re done, be sure to check out Gene’s webinar explaining how YOU can turn a single family home into a cash flowing assisted living facility.

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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.

5/17/15: Economic Shifts – Real Estate Diversification and Emerging Markets

We all know shift happens…and it can be messy.

But rather than complain about it, nimble and resourceful investors find new markets, strategies and product types to keep their portfolio chugging down the track.

Of course, for professional fund managers this is nothing new.  But for most day-to-day nose-to-the-grindstone real estate investors, the idea of investing even just outside their own neighborhood can be daunting.

So spend a lot of time traveling around and sitting down face to face with some of the smartest investors on earth…and that’s exactly what we do in this episode.

In the studio for this edition of The Real Estate Guys™ Radio Show:

  • Your engineer of education, host Robert Helms
  • His coal-shoveling co-host, Russell Gray
  • Special guest, noted money manager and publisher of the Gloom, Boom and Doom Report, Dr. Marc Faber

Like it or not, believe it or not, follow it or not…central bank policy around the world…and especially the issuer of the world’s reserve currency, The Federal Reserve Bank of the United States…is affecting the prices of everything including stocks, bonds, mortgages, real estate…even wages.

And it isn’t just the central banks.

Ever since President Nixon opened up trade with China and President Clinton signed the U.S. up for NAFTA (North American Free Trade Agreement) and the World Trade Organization (WTO), the globalization of the economy has changed the way money and prosperity flows around the world.

These macro factors trickle down to Main Street consumers (your tenants) and investors (you)…from the value and future of those dollars you’re trying to accumulate…to the interest rates you pay on your mortgages…to what your building materials and labor costs…and how much money your tenants can afford to pay you in rent.

Our special guest, Dr. Marc Faber is a Swiss born magna cum laude PhD in economics.  From 1978 to 1990 he was the Managing Director of Drexel Burnham Lambert (HK) Ltd.

Marc Faber is the publisher of the Gloom Boom and Doom ReportIn 1990 he set up his own business, Marc Faber Limited, which acts as an investment adviser and fund manager.  If you watch financial TV, you’ve probably seen him more than a few times.

Since 1973, Dr. Faber has lived and worked in Asia…with offices in Hong Kong and a residence in Thailand.

All that to say, Dr. Faber is not only a smart guy…he’s very experienced, highly regarded and he’s got a VERY global perspective.

And he likes real estate right now.

Faber says we’re not really in a currency “war”…because central banks appear to all be working in a coordinated effort to devalue their currencies.

This means the “money” you work so hard to accumulate is likely to lose much of its value over time.  For the U.S. dollar, that’s a trend that’s been going on for 100 years…and in spite of the dollar’s recent “strength” relative to other currencies that are falling faster…it’s probably going to continue.

So smart money managers and rich investors are looking for alternatives to currencies as place to store wealth.   Recent record auctions for fine art is an indication of this.

But you don’t have to be a billionaire to see the writing on the wall…or to put yourself in a position to both survive and thrive.  Faber say you’re better off with real assets…like real estate...versus paper assets like stocks.

Some think he’s crazy because the stock market is BOOMING.

Faber thinks the stock valuations are a big BUBBLE.  And the problem with bubble driven booms is when the air comes out, those phony values crash.  So the BOOM becomes GLOOM…and for those out of position…it’s DOOM.

So listen in to our conversation with Dr. Marc Faber…and consider how you’re positioned…in case the shift hits the fan.

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5/10/15: New Media’s Role in Helping Investors Find Opportunties

Ever since Thomas Edison electrified the world, technology has been changing how people connect to information, opportunities and each other.

Over 100 years later, that trend continues…

And just as radio, telephones and television expanded the reach of marketers…as well as the choices for consumers…today, podcasting, webinars, websites, mobile apps and even good ‘ole email…are changing how business…and investing…gets done.

Like all revolutions, there are early adopters…those intrepid pioneers who embrace the change and chart new territory.

When it comes to real estate investing education and content, The Real Estate Guys™ are happy to be among the leaders.  But we’re not the only ones.

In this episode, we visit with another pioneer in virtual real estate content to compare notes…reflecting on the past and looking towards the future.

In the studio for this edition of The Real Estate Guys™ Radio Show:

  • Your pioneer of pontification, host Robert Helms
  • His unsettled co-host, Russell Gray
  • Special guest, host of the Creating Wealth with Real Estate podcast, Jason Hartman

The Real Estate Guys™ radio show started broadcasting on regular radio…way back in 1997.  By 2007, we were on more than a dozen stations nationwide with plans to add more.

Then a not-so-funny thing happened on the road to broadcast fame and fortune…a little setback called the 2008 financial crisis.

Our then-producer came to us and told us our advertising base was drying up…and suggested we try something new called “podcasting”…to expand our reach with less reliance on advertising.

“Great!” we said….”What’s a podcast?”

Now…over 4 million downloads later…The Real Estate Guys™ radio show is heard in more than 190 countries….even though we’re still on broadcast radio too…just for old times’ sake.

Jason Hartman is the host of the Creating Wealth with Real Estate podcastBut back when we first showed up on the podcast scene…we weren’t the only real estate investing content creators.  Among them was Jason Hartman.

And over the years, we noticed that Jason didn’t put out just one podcast…but many…including his flagship Creating Wealth with Real Estate program…along with The Speed of Money, The Commercial Investing Show, Young Wealth and even the Holistic Survival Show.

Wow.  Jason’s a busy guy!

The point is that while new media may not have achieved the prestige of traditional media…yet…it’s arguably got more reach.   And it allows Main Street ideas to make their way into a marketplace that was traditionally dominated by just a few voices…arguably feeding a Wall Street agenda.

Today, thanks to new media, there’s more content and more choices for consumers…and a global, highly targeted market for advertisers.

This is a powerful development….because for decades real estate investing has been both a local and an insider’s game.  That means it’s been difficult for investors to go outside of their own geography and network to find deals.

But the new media of real estate investing is changing that…and it’s a win-win-win-win scenario.

When investors are able to affordably discover new markets and service providers through interviews and live events (like The Real Estate Guys™ educational market field trips)…they can “Live they want to live, but invest where the numbers make sense.”  Great!

Of course, when real estate sellers, brokers and turnkey providers can affordably attract buyers from all over the globe, they can do more business faster…and more profitably.  Terrific!

Then you have the local communities, where money from outside comes in and fixes up dilapidated properties, builds new ones…and creates jobs along the way.  Super!

And our personal favorite…the medium by which all these parties get introduced to all the aforementioned fabulous benefits…enjoys a growing and loyal audience…which in turn attracts advertisers, sponsors and affiliates.  Wonderful.

Of course, like any new terrain…there are some new rules of the road…in terms of etiquette, best practices, etc.

Along the way, you get new players…some are hardworking, quality people who are looking to add value…and occasionally you get some short-sighted takers…who usually get found out and fade away into distant memory.

It’s been said that half of being successful is simply showing up for work every day.  That’s something we have in common with Jason Hartman.

Listen in as we chat with Jason…and consider how the new media revolution will continue to benefit real estate investors worldwide.

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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.

Robert Kiyosaki Talks Second Chance – For Your Money, Your Life and Our World

Exclusive Robert Kiyosaki Second Chance Interview

Like him or not, Robert Kiyosaki has had an ENORMOUS impact on the world. Kiyosaki’s signature book, Rich Dad Poor Dad is the greatest selling personal finance book in the history of the world.

Over the years, we’ve become good friends with Mr. Kiyosaki.  He’s far more cerebral and complex than you might imagine.  In fact, he’s downright brilliant.  So yes, we’re fanboys.

In his latest book, Second Chance, Robert Kiyosaki reviews the past, analyzes the present and predicts the future.

And like Peter Schiff, Robert Kiyosaki is not afraid to go on the record with controversial predictions.  Check this out…

So when we heard that the Robert Kiyosaki Second Chance book was out, we jumped in our semi-private jet (the one we share with 145 other people and affectionately call “Southwest”) and landed in Scottsdale to sit down face to face with the Man himself…

In the Rich Dad Radio studios talking the past, present and future of the global economy and what it means to you:

  • Your very present host, Robert Helms
  • His past-his-prime co-host, Russell Gray
  • The best-selling financial author in the history of the world, Robert Kiyosaki

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Robert Kiyosaki Second Chance book coverYou might be wondering if Robert Kiyosaki has anything left to say…after all, he’s written a gazillion books.  And if you’ve read any of them, you probably recognize some recurring themes.

So is Second Chance just really just a second chance for Kiyosaki to ring the cash register again with a souped up retread of Rich Dad Poor Dad?

Well….no.

First, Robert isn’t really money motivated.  Otherwise, he’d make us pay him a big fat fee when he appears at our events.  And he doesn’t.  He already has tons of money.

The Robert Kiyosaki we’ve gotten to know is mission minded.  He REALLY wants people to understand how to play the financial game in a practical way.  And he feels strongly that financial training is a HUGE missing part of the world’s educational systems.

Second Chance explains, with data (charts and graphs), where we (primarily the U.S., which has in turn infected…er, impacted…the world) came from;  where we are now…and then looks forward to where we’re headed.

The data is credible.  The picture it paints is disconcerting.  But if you care about your financial future, you need to look at it.Sometimes you need to look at the data...no matter how disturbing it is

For the unprepared, the future will be “messy”.

For those who can see what’s coming and organize their resources, and develop the skills, knowledge and relationships to prosper…the future has hope.

And the first step towards preparation is education.

So Kiyosaki gets into the mechanics of the financial system…how the educational and financial institutions have worked (conspired?) together to create paradigms which don’t empower prosperity for the average person; and then he predicts what he thinks will happen and why.

Then most importantly, Kiyosaki shares what anyone alert and brave enough can do to not just survive, but thrive, as major changes occur globally.

Is it alarming?  Yes.

Is it gloom and doom?  No.

The past provides case studies we can learn from to predict the future.

The present is what we have to create the future we want…but it must be based on the realities of what’s happening around us.Robert Kiyosaki Second chance author quote on the future

For example, global debt levels are astronomical.

Central banks worldwide are engaged in what James Rickards calls “Currency Wars“.

These policies have a direct impact on interest rates, job creation, food and energy prices, asset values (stocks, real estate, precious metals, etc.), and financial system stability (or better stated…instability).

Some will get rich.  Many will become poor.  BOTH very DIFFERENT outcomes will occur in the SAME set of circumstances.

How can that be?

One of the things we’ve most enjoyed learning from Robert Kiyosaki is a generalized principle he learned from futurist Bucky Fuller (whom Kiyosaki dedicated Second Chance to)…

Unity is plural and at a minimum, two.

Noodle on that for a moment.

In other words, to see the WHOLE, you must see ALL sides.  In the Robert Kiyosaki Second Chance book, he uses the analogy of a coin…saying there’s heads, there’s tails….and there’s the edge.  And only when you stand on the edge can you see the whole.To see things clearly, you need to see ALL sides

In the future, there will be winners and there will be losers.  Some will be prepared and profit.  Others will be unprepared and be impoverished.  Same world.  VERY different results.  You MUST decide which side you want to be on.  And no decision IS a decision.

None of us can stop the future.  The forces are too great.  But we can stand on the edge and see the opportunity in every problem.

So yes, Kiyosaki draws attention to the problems.  But he also shines the light of hope on the opportunities…and in this case, it starts with financial education…something that is readily available to anyone willing to seek it out.

That’s a good thing, because we all need a Second Chance.


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Picking the Right Niche in a Booming Market

We’ve talked many times about the baby boomers.  While many are homeowners and will remain so in retirement, there’s a chunk who will either remain or become renters.

In a 70 million person demographic, a “chunk” can be a sizable market!  And when you’re building any kind of a business, rental real estate or otherwise, it’s nice to have a big market.

But in addition to having a big market, it’s also important to have a good understanding of what the customer wants and needs.

So when a summary of a survey of 55+ year olds from the webinar (below) by John Burns Consulting popped up in our inbox, we took note of some interesting findings.

But before we go there, let’s talk a moment about why a boomer might want or need to rent rather than buy.

You’ve probably heard rumblings from the Fed that they plan to raise interest rates “sometime”. The reason we fixate on interest rates is because rates influence consumer and investor behavior.

Right now, low interest rates incentivize home buyers to finance because a) the payment is as low or lower than renting in many nice areas, b) the money not used in a down payment can be invested elsewhere at a yield higher than the mortgage rate, and c) mortgage interest remains tax deductible, while rent is not.

But if rates rise, things change.

If the house payment with a loan becomes too high, either paying all cash or renting are both more appealing.  And while some boomers will have the wherewithal and the willingness to tie up a chunk of cash in illiquid home equity, others won’t…so they’ll rent.

Also, if rates rise, then fixed income investments like bank accounts, CD’s, bonds and annuities all become more attractive to boomers trying to live off passive income.

When they do the math, some boomers may discover than it makes more sense to rent and use their cash to generate income to live on.

All that to say, there will be a sizable portion of boomers who will be renting.

So back to the survey…

Probably the most-telling, but least surprising, is that 77% of boomers want a single-story home. And while it may seem obvious that aging occupants would prefer to not have to deal with stairs, 77% is an overwhelming majority.

63% of boomers have pets.  Again, not surprising that empty-nesters would like the companionship and security of a pet, but it’s nice to see the assumption confirmed with hard data.

So simply based on those two revelations from the survey, it seems that a residential landlord who wanted to focus on serving the housing needs of renting boomers would be wise to invest in single-story homes with a pet-friendly policy.

Add to the mix that 41% want to accommodate an adult child and another another 33% need room for a elderly parent, and it seems obvious that more bedrooms is better than less…even though it would seem older couples might want to downsize.

But before you go buy up a bunch of single-family 4 bedroom homes in a 55+ community, consider this: Only 23% of the boomers surveyed want age-restricted.

That’s why it pays to do your homework.

Here’s the webinar:

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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.

9/7/14: From Orlando With Love – Tips and Tricks from the Trenches

Let’s face it.  Property management isn’t the most glamorous profession.Property management isn't the most glamorous profession
But your property managers are arguably the most important member of any buy and hold real estate investor’s team.

So we spied out a 20 year veteran real estate investor who self-manages his dozens of properties and asked him to share some of his secrets for profitable property management.

Under the Cone of Silence in a secret bunker hidden beneath a non-descript building somewhere near the Windy City:

  • Your suave and debonair host, Robert Helms
  • His oft kicked in the side sidekick, Robert Helms
  • An international man of mystery, a double “O” as in Orlando agent….Bond.  Greg Bond

The iconic movie spy, James Bond, was cool with a double O.

James Bond would have made a great property managerThough it wasn’t easy, some how, some way, he always managed to come out on top…in more ways than one.

Why?

He was well-trained, had all the gadgets, he had years of experience, and he seldom lost his composure or sense of humor.

James Bond would have made a GREAT property manager.

We tried to get James for this interview, but he was in the middle of a long shoot with a beautiful starlet.  So we connected with his distant cousin, Greg Bond.

Greg isn’t quite the ladies man that James is.  And he doesn’t have a license to kill (though we’re sure there are those occasions as a property manager when he wishes he did).

But he’s one heck of a property manager…which pretty much gives him a license… to print money. 🙂

We first met Greg when he joined us on our 12th annual Investor Summit at Sea™.   When we found out that he owned and managed dozens of properties in Orlando (one of our favorite markets), we couldn’t wait to interrogate him.

Turns out, he’s very focused on single family homes.  He’s particularly active in specific sub-markets and neighborhoods.

He’s developed all kinds of techniques for making his properties profitable over the long term….including thriving through the Great Recession, even though Florida was among the hardest hit.

No surprise his success is the result of diligent attention to detail and consistent application of proven practices.

Of course, those practices were proven in trenches over the last 20 years.  So we asked him to share the things he knows today that he wishes we would have known from the beginning.

Greg is a big believer in checklists and standardization.  When his portfolio was small, he could rely on memory and make decisions on the fly.  But when he started having to keep track of dozens of properties, there’s too much to carry around in your head.

So Greg has a checklist for tenant screening.  He has standards for paint, floor coverings, door locks, etc.

He’s also learned how to buy better, because a reduction in expense is just as good as a rent increase for boosting the bottom line…but it doesn’t risk chasing the tenant away.

He shares a lot in the interview, but we also hit him up to write a report on some of his most important tips and tricks.  You can get it for free here.

Meanwhile, we don’t want to steal any of Mr. Bond’s thunder(ball)…so listen to the interview, then request the report (for you eyes only)…

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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.

8/31/14: The One Skill that Solves Every Problem

If there were only ONE skill you could have…the one that would help you overcome nearly every problem and get everything you want or need out of life…what would it be? Sales skill is the key which unlocks opportunity in life

That’s the topic of this edition of The Real Estate Guys™ radio show!

In the studio, to contemplate this curious question…

  • Your skillful host, Robert Helms
  • His problematic co-host, Russell Gray
  • The Godfather of Real Estate, Bob Helms

Our good friend, mentor and uber-successful real estate investor, Ken McElroy, says, “Sales solves every problem”.

At the time, he was talking about revenue being the answer to every business problem.  After all, when you have revenue, you can pay for all the rest of the help you might need.

But it got us thinking.  His statement is far bigger and more universal than simply making money.

In fact, most people only work at making money so they can use the money to do something else they’d rather be doing.  That’s a little sad, though very common.  But that’s a topic for another day.

Meanwhile, consider how sales skills translates into non-business areas of your life.

If you’ve ever tried to win the heart of the special guy or gal, or convince a headstrong child to make better choices in life, or simply want to win the debate about where to go on vacation this year…you’ve been using sales skills.

And if things aren’t going your way more often than not, it’s most likely because your sales skills need some attention.

We talk to LOTS of real estate investors.  Everyone wants to know the magic formula for picking the a great market, doing the best deal analysis, what kind of financing to use, or what returns to offer a prospective investor.

Sometimes our answer is a little rote…and irritating.  Because we always say, “It depends.”

That’s because life is a customized game.  It’s all about choices.

Better stated, it’s about applying customized solutions to very personal problems.  There is no “one-size-fits-all” answer.

The core skill of master salesmanship is asking the right questionsAnd the key to finding the unique solution to a particular problem is to master the art of asking great questions.

That is the core skill of master salesmanship.  Learn to ask great questions.

Think about it.

As real estate investors, we’re constantly negotiating with buyers and sellers, vendors and lenders, tenants and neighbors, partners and investors…and the list goes on and on.

It’s non-stop negotiating.

But isn’t negotiating simply finding out what the other party wants and is willing to do, and matching it up against what you want and what you’re willing to do?

Once you find some common ground you focus on it and build out from there.

When you get good at this (which is salesmanship), you can attract every other resource you need into your life.

And while we love the idea of educating, delegating and motivating to do more through other people, isn’t sales the core skill you use to build and lead a team?Skills take chance out of the equation and help you produce consistent, predictable results

So just like exercising,  you really can’t hire someone to do it for you.  If you want to have more in your life and business, then make it a priority to develop and practice sales skills.

Because if there is a magic formula to success, sales skills are it!

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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.

8/17/14: Property Rights – The Foundation of Prosperity

The ability to own private property is the foundation for building wealth with real estate…or anything else for that matter.

But what is “ownership” without control?  And what happens when society’s needs and desires slam up against individual rights?

Conflict.

Sometimes it’s just heated debate and angry rhetoric.  Often, it ends up in litigation with issues being decided in the courts.

In this episode, we visit with two lawyers…each of whom are involved in defending individual property owners’ rights against incursions by governmental agencies.

In the studio courtroom and on location exercising our first amendment rights:

  • Your prosperous host and landlord of the microphone, Robert Helms
  • Tenant of the co-host seat, Russell Gray
  • Attorney, filmmaker, activist and farmer, Karen Bulich Moreau
  • Attorney with Pacific Legal Foundation, Anastasia Boden

When rank and file real estate investors think about property rights, it’s usually in terms of zoning, building codes and rent control.

But there are a whole host of other rights that are often part of property ownership including air, water and mineral rights…and more besides!

Government can and does restrict the unfettered use of private property...and in some cases will seize or force the sale of private propertyDuring the mortgage crisis and even today, we hear stories about the government essentially forcing a property owner to turn over their private property to the government for “fair compensation”…even if the property owner doesn’t want to sell.  And who decides what’s “fair”?

More importantly, how the government just step in and force a private citizen to sell (or buy…but that’s a different debate) something against their will?

The government invokes a power called eminent domain.  The premise is that the private property owner’s rights subordinate to the “greater good” in the sole judgment of the government.  That may not be the technical legal definition, but for all practical purposes, that’s the way it works.

The potential for abuse is obvious and to no great surprise uncomfortably common.

Similarly, government agencies from city to federal, can (and do) restrict the ability of property owners to use, develop or harvest resources from their own private property.Government restrictions on use can lock up the economic value of a property

So while the government doesn’t necessarily take title to the property, the restrictions imposed can dramatically affect the value of the property or the economic benefit derived therefrom.

In this episode we visit with two attorneys.  Each is actively involved in litigation defending individual owners from value eroding restrictions on the use of their privately owned property.

Karen Moreau is at the heart of an energetic debate surrounding the rights of private property owners in New York state from harvesting rich natural gas deposits located under their property.

The state says the property owners can’t lease the mining rights to energy companies because of environmental concerns.  Some say it’s more about nearby property owners simply wanting to preserve the serenity of their vacation homes.

It’s a controversial topic.

It seems logical in a civilized society that an individual property owner should have some degree of responsibility and accountability to fellow citizens.

After all, should a property owner really have the unfettered right to set up a nuclear waste dump or run a skunk farm in the middle of a suburb?

On the other hand, it’s easy for non-owners who are insulated from the financial consequences to impose their will on a property owner simply through majority vote.

For example, what if the residents of a tract of homes adjacent to your undeveloped acreage decide they like to look at the open space your property provides?  They each have one vote and so do you.

Can they decide you don’t have the right to enrich yourself by building more houses on your land?  Or should you have an inalienable right to do with your own property what you wish?Mining can impact the aesthetics of a property

As you can see, it’s not cut and dried.  And because of that, it’s a hot topic of debate from local planning commission meetings to the halls of Congress in Washington DC.

We’re not here to venture an opinion about the way it should be.

Instead, we want to raise awareness among real estate investors that the politics of property rights can affect your economic benefit of ownership.

And the problems caused by these conflicts can also create some very interesting investment opportunities.

So listen in to the insights of these lawyers and expand your ability to recognize the risks and opportunities hidden in the property rights debate.

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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.

8/10/14: Ask The Guys – Getting Started, Using Leverage and Strategic Default

One our favorite things to do is answer listener questions!  And as the show grows (now up 3.5 million downloads!) we get lots of them.

So we asked our email room manager Walter to send us a stack of emails and we picked some fun questions to talk about for this edition of Ask The Guys!

In the studio for another episode of powerful pontifications:

  • Your brainiac host, Robert Helms
  • His brainless co-host, Russell Gray
  • The oldest brain in the business, The Godfather of Real Estate, Bob Helms

How to get started as a real estate investor is…by FAR…the most popular question we get.  But there are always variations on the theme.

This one is about…

Finding a Mentor

In this episode, a listener wants to know how to persuade an experienced investor / developer to mentor him.  Now that’s a GREAT question!

Of course, this isn’t really an investing question.  It’s a sales question.  And that brings up the whole topic of sales as an essential skill for everyone…including real estate investors.

Sadly, many people consider sales simply as a vocation…and not a very noble one at that.

They think just as some people know how to cook, do carpentry, perform brain surgery, or program computers…that salesmanship is simply something people do to make a living.

Wrong.

Salesmanship is a LIFE skill.  Like reading, writing, arithmetic, budgeting and tying your shoes.

In other words, EVERYONE needs to know how to do it.

Think about it.  If you’ve ever tried to get a job, win a lover, negotiate a good deal on a car, ask for a raise or promotion, etc….you’ve been using salesmanship.  And the better you are at it, the more good things you can attract into your life.

Okay…off the soapbox…

So in this case, the answer to getting into a relationship where someone who doesn’t need your money (that is, you can’t pay them to mentor you even if you could afford it), is to uncover some unmet need, want or desire.  This requires asking good questions and listening carefully.

Most inexperienced people will go in talking…pitching all the features of whatever they’re offering.  Or worse, they lead with their own needs…like a beggar.  Ugh.

Don’t be that guy or gal. Look for things that you can do to help your prospective mentor, investor, lender, seller, employee, partner, vendor…and then negotiate a relationship where you exchange benefit for benefit.

We know.  It sounds so simply and obvious.  But watch the people around you.  Most do not do this consistently or effectively.  So they don’t attract as much into their lives as they could or would like to.

Using Leverage…

In case you hadn’t noticed, equity happened to a lot of folks smart enough to acquire properties when everyone else was scattering like cockroaches.

So a question came in about what do with the equity…leave it, reposition it, or sequester it?

Another GREAT question!

So we dusted off some of our old equity optimization strategies and shared some thoughts.

First, it’s important to remember that equity is wealth on paper.  It’s based on a differential between the market value and the loan balance.

The challenge is that market values can change, and because the loan balance doesn’t change, when it comes to equity, the market giveth and the market taketh away.

Unless you beat the market to it.Cash out refinancing cen be used to reclaim equity before the a market down turn takes it away.

If you don’t like the future prospects of the particular property or local market, you may decide to sell the appreciated property and 1031 exchange the equity into a more promising market and property.

But if you still like the current property, you may decide to reposition the equity by refinancing the existing property and using the proceeds to purchase another property.

Of course, the downside of this is that you potentially negatively impact your cash flow.  Usually, a bigger loan means bigger payments (unless you replace a higher rate loan with a lower rate loan).

But if the property’s income has increased, your net cash flow may end up being the same.

And if the new property cash flows at a rate higher than the cost of the loan on the first property, you could create positive cash flow on the loan proceeds.  That is, if you take $100,000 out at a 5% rate, your cost of funds is $5,000 per year (deductible).

So if you invest the proceeds in a new property that returns 10% cash-0n-cash, you have $10,000 per year coming in.  You just created a positive spread of $5,000 a year.  Nice!

Meanwhile, you own more real estate.  And if values keep going up, then appreciation occurs over a larger base.  That is, 5 % appreciation on $1 million in property is $50,000.  While 5% appreciation on $200,000 in property is only $20,000.

Of course, there’s a dark side…

Your equity is thinner.  After all, $50,000 of equity on a $100,000 portfolio means you have 50% equity.  But $50,000 of equity on $500,000 of property means you only have 10% equity.

So if the market pulls back, you could end up underwater.  A LOT of that happened in 2008.Is strategic default the best answer when a property is underwater?

Of course, if you have good cash flow, and plan to hold long term, it really doesn’t matter.  You simply wait.

Even if the market NEVER recovers, eventually the properties are paid off.  And no matter what the pricing structure, in any economy, paid off properties are nice to have.

If there’s concern about the cash flows on real estate, you might use harvested equity to invest in some other cash flow instrument or investment.

Even though we aren’t fans of being a creditor in a falling dollar world, if you’re using loan proceeds from property A to make a higher interest loan to on a property with a lot of protective equity (i.e., a $100,000 loan on a property worth $200,000), it can still make sense.

Let’s say you borrow $100,000 at 5% and loan it back out at 10%.  You just created $5,000 positive cash flow with less exposure to falling values.

So if the market drops 20%, you have negative equity on the first property with the cheap loan, but you have positive protective equity securing your loan to the borrower on property B ($200,000 less 20% decline means the property is only worth $160,000).

Now if the borrower defaults,  you foreclose and own a positive equity property.

There are other variations, but you get the idea.

As long as there are better things you can do with your real estate equity than leave it in the property, and it only costs you a modest interest rate and some fees to extract it, it can be a very powerful tool to accelerate your cash flow and equity growth.

However, if you have negative equity AND negative cash flow, you might decide that it’s not worth writing a check each month from other resources simply to save your credit score or hold on to a property you’ve lost faith in…which brings up another question about…

Strategic Default

We had a great question come in from a guy with a nice home in the Phoenix area.  It’s underwater and he can’t rent it out for enough to cover the mortgage and expenses.  Ouch.

So he’s trying to decide if just handing the lender the keys (deed in lieu of foreclosure) might be worth it.

A deed in lieu is a form of strategic default where you simply turn over the keys and deed in lieu of a foreclosure.He’s got a non-recourse loan so the lender can’t ask for anything else besides the house.  So his personal assets are safe.  That’s good.

BUT…it means a big hit to his credit score.

However, he says he hasn’t really used his credit score for anything for nearly 9 years, and he knows that it will heal itself over time, so why not just take the hit and get out from underneath the negative cash flow?

Another great question!  Though not exactly the way he asked it…

He’s looking for reasons to walk away from the property.  Emotionally, he’s done.

We, on the other hand, see the value in a high credit score, and would like to see him keep the property if possible.

Why?

First, about the property…

It’s a very nice executive home in one of the top retirement metros in the U.S.  And last time we looked, over 11,000 baby boomers are retiring EVERY day.  AND…they’re looking for big city amenities at a more affordable price.

In fact, if only 5% of the 11,000 boomers retiring every day want warm weather, big big city amenities, and quality infrastructure (travel, shopping, health care, entertainment, open space, golf, etc…), that’s 550 people each day who may choose a place like Phoenix.

So even though there’s a glut of properties on the market in his neighborhood right now, that probably won’t last forever.

Next, we know the Fed and the government are doing everything they can to prop up the value of homes.  There’s an old saying in investing – Don’t fight the Fed.  You might disagree with their policies, but they’re inflating real estate anyway.

Also, remember that prices fell because of de-leveraging when the mortgage industry imploded.  But recent headlines tell us lending is loosening up…especially at the higher end of the market.

So we think there’s a good chance more purchasing power is headed into his property niche.  That’s positive for long term values.

Also, he’s got a good loan on the property.  Good loans are nice to have.  Especially in an inflationary environment.  Every dollar in debt gets to be paid back with a dollar of lesser value.  Borrowers win when inflation is present.

Second, about his credit score…

Banks are loosening guidelines right now because they want to make loans.  They’re trying to attract borrowers.  But not on the low end.  They want good credit scores, solid balance sheets and documentable income.

This guy has all three.

So, his credit score is valuable asset because he can get his hands on cheap capital. And he can make money with cheap capital.

In fact, he can probably very easily make enough money with just his credit score that he could more than make up the negative cash flow on the underwater property.

But, you say, doesn’t that put his credit score at risk?

Yes.  But he’s already decided he’s willing to throw it away.  So why not go for it?  As long as the future deals are all set up non-recourse, the only thing at risk is the credit score.

And the only thing missing is knowledge about how to do it.

The point here is that before you get emotional and simply throw in the towel, it’s important to explore ALL the options.  And when your focus is on how to make profit versus simply cut losses, a whole new world of opportunities open up to your imagination.

So listen in to yet another imaginative episode of Ask The Guys!

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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.

8/3/14: Clues in the News – Banks, Millennials, the Middle Class and Interest Rates

U.S. home ownership is around a 19 year low…banks are lowering their standards for jumbo loans…millennials aren’t buying houses…and the middle class is moving inland to more affordable markets.

Other than that, there’s not a lot going on. 😉

But what do all these headlines mean to everyday real estate investors?

Behind the shiny silver microphones to explore the Clues in the News:

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

We like to watch the news.  Each headline is like a piece of a jigsaw puzzle.

Each headline adds to the bigger picture of challenges and opportunitiesViewed separately, it’s hard to see the big picture.  But when you look at a series of headlines, they start to tell a story.

So when we’re not sitting in the studio or gallivanting around the world seeking out interesting guests and real estate markets, we bury our noses in the news.

For this episode, there were a few headlines that popped out.

First, Reuters reports that Wells Fargo is loosening their lending standards.  But this time, it isn’t for the lowly sub-prime borrower…it’s JUMBO loans.

So it’s no surprise that Bloomberg reports million dollar home loans have surged to new records.

Why?

Well, partly because, as CNBC reports, millennials aren’t buying homes.

We also see that banks are showing interest in cash out refinances and home equity loans.

So on the one hand, this is all very exciting.  We’re having flashbacks to 2003.

Yes, we know it all ended badly.  But everyone made a ton of money until the music stopped.

Maybe it’s possible to take all the lessons from the last crash, and use them to prepare better for the next one?

We think so.  But, as we’ve been discussing in our weekly newsletter, this isn’t your parent’s real estate market…which is both good and bad.

Of course, bad can be good too.

What’s good is that interest rates remain low and lenders are opening up to allow more people to qualify.  They’re also creating loan programs which permit the repositioning of equity.

What’s bad is that first time home buyers aren’t pushing up the demand. In fact, a lot of the price appreciation is the result of hot money looking to real estate for yields.  This includes both foreigners and hedge funds.

Of course, because hedge funds and foreigners don’t use loans, prices are up, but lending is down.

That’s bad for lenders, but good for borrowers…because as lenders try to create business, they lower their standards and their interest rates.

Meanwhile, every day real estate investors aren’t competing heavily with home buyers…at least not yet.  And that’s good.

In fact, home ownership is at a 19 year low.  The inverse of that is there are more people renting.  Great!

It also means that without home buyers to bid up prices, even though prices are up in many markets, they are still at or below replacement costs.

In short, houses and the mortgages to buy them remain on sale!Time to fill up the shopping basket with investment real estate!

How long will this window last?  We don’t know.

But when you can buy a real asset for less than it’s replacement cost, and lock in low cost financing for the long term, it seems like you’d want to get all you can.

Of course, as we always say, market and team selection are important factors.  And being sure to structure your deals so you can weather the next financial crisis….whatever that looks like, and whenever it comes.

For those with money in the bank, the latest inflation numbers should be giving you fits compared with real estate.  Sure, there’s no guarantees with real estate.  But it seems like the only thing a bank account can guarantee is the long term loss of purchasing power.  The need to hedge inflation seems obvious.

With savers are being crushed by Fed policy, no wonder everyone has piled into the stock market.  If you recall, this is exactly what happened last time.

Do you remember what came after the last stock market bubble?

Yep.  It was the real estate bubble.  But if you structure your deals right, even if there is a bubble, as long as you have the cash flow to service your low fixed rate loan, you have a fighting chance.  We know many investors who rode out the last crash…and we took notes.

So it seems to us that properly structured income producing real estate could be one of the hottest investment opportunities right now.

We’ll keep watching the news to see if the forecast is changing…so listen in for each edition of Clues in the News!

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