Opportunity Fund Zone

I did some research on this new Opportunity Fund Zone tax benefits. Below are some notes and ideas.

Note: I’m not a CPA or attorney just putting it out there to help inspire some ideas.

An Opportunity zone (OZ) is a tax-favored investment for people with capital gains.

6-pages in the tax document in the new 2017 Tax Cuts and Jobs Act
Goal to encourage long-term investments in low-income communities across the US.
Every major city has some OZ.
Most of Detroit is an OZ plus large portions of Baltimore.
Allows investors to sell their appreciated assets and invest their realized capital gains into one or more designated OZ.
EVEN STOCKS! Non-like kind assets are OK!
After your selling your appreciated asset you have 180-days.
The longer you hold the more benefit you get (up to 10 years).
1) Defer your original capital gain tax obligations until 2026 or until you sell your OZ investment.
2) Discount of 10% or 15% on the taxable amount of your original gains. If you hold more than 5 years your original cap gains decrease 10%
3) If you hold 10 years or more. You will pay NO capital gains tax on any appreciation.
You can self-certify so you do not need an intermediary like in 1031 exchanges.
No investment minimum.
There are some items that get a little unclear… where you should really consult your CPA.
Check out the IRS opportunity comes frequently asked questions page and additional resources below.
Resources to Google: community development financial institutions fund, CDFI Fund map.
Note: Spending $100 dollars to save $20 dollars is not a wise idea. Just like buying a rental next to Grandma’s house because your travel there. A lot of specifics are still being played out but something intriguing to augment an already good investment.
Other ideas: Look at the OZ map and try to find the smaller slivers of OZ. This is called “buying on the line” whereas areas improve on the edge of development you greatly benefit.
I would ask your CPA if they know about these opportunity fund zones. If they don’t you might need a new CPA. If you are a current Hui Deal Pipeline Club member I would be more than happy to refer you to some people and then you can see if you work well together.

 

There is a lot of rumors floating around how this tax will be implemented later this year. One of these rumors suggests that we might not qualify for the Opportunity Zone Fund. See second to the last page of the attached where they state that we have to do improvements that is the same as the basis in order to qualify.

Resources: Article on Opportunity Fund Zones – https://drive.google.com/open?id=1F8wDToyb9olvq52U9LRMD8cBrJILm8q_

Kohlers article

 

***If you are a Hui Investor please email me for the secret report on these Zones***

How to invest proactively in a Sellers market

Since I feel we are in the 9th inning of an 11 inning ball game, I decided to pass on a Class-A deal in a secondary market.

Here is my thought process…

First off, Robert Kiyosaki has a saying: “There are three sides to a coin.”
People like to argue that it is either a good time to buy or a bad time to buy. For example, they say that “MFH” is overheated or commercial is getting killed by Amazon and e-commerce. I think these are mental justifications by tire-kickers who are scared to act. I mean really how many of these people are under the accredited status (not sophisticated) or not obtained their “Simple Passive Cashflow number.”
Sophisticated investors still trying to grow live on the edge of the “coin.” They buy deals out of the reach of amateurs due to the amateurs’ lack of network/knowledge. These opportunities are undervalued, with undermarket rents, with value-add opportunity. Sophisticated investors are patient; they don’t stray from standards that force them to get crushed in a market correction. (Cashflow from other investments makes this possible.) They invest following the macro- and micro- trends and don’t gamble on gimmicks such as guessing where Amazon’s next HQ is going or where the hurricanes just drowned a market.
The trouble is that an unsophisticated investor or an outsider (in terms of having a poor network) is figuring out which of these deals transcends the two sides of coin and is on the edge. Stating the obvious (though often ignored by many)… starting out as an investor is going to be slim-pickin’s due to the lack of network. But you have to push through this rough part. You are not able to decode the noise until after a few deals or having someone mentor you.
With that out of the way let’s continue…

Real estate is one of the best risk-adjusted investments out there. In private placements or syndications we are able to crowd-invest in larger & more stable assets while maintaining control with operators who are aligned in our best interests. By going into a project properly capitalized with adequate capital expenditure, budget, and cash reserves, you are able to remain steadfast through softness in the market where rents stagnate and vacancy decreases.

Pause there. In troubled times what happens?

People lose their jobs and there is a bit of shuffling.

Yea, people need housing, but there will be some vacancy as some people will lose their jobs and be displaced elsewhere.

Following this train of thought…

In a recession, the high end or class A will be hurt the most. It is Class A workers who fulfill much of he discretionary services.  We are already seeing softness in rent by rent decreases in class A of the high-end markets such as Seattle and San Francisco.

For example a once $1,700 one bedroom is now $1,625.

Most deals model for 1-5% in annual rent increases or escalators. Other than the Cap Rate to Reversion Cap Rate truck, this is the second most manipulated assumption in investment modeling.

In this unfortunate but natural event, the A-Class renters will fall to class B housing. Some homeowners will even lose their jobs creating foreclosed investments for smaller investors in the single-family home scale.

What’s happens to the B and C class renters?

It is likely that they will also lose their jobs at higher or lower rates, but that is up to debate. In the same fashion as the A-Class renters, the Class B/C renters will downgrade to make ends meet.

I imagine this similar to a game of musical chairs (where the chairs are getting crappier and crappier). Or it looks a lot like the natural housing shuffle in the summer near colleges with people moving in and out. The landlord/investor is likely to see increased vacancy.

Multifamily occupancy varies from 85-95% in stabilized buildings. Some markets are hotter and some are colder. It is important to use the correct assumptions depending on the markets. For example, Dallas typically sees 92% occupancy while Oklahoma City sees 89%.

One of the reasons we love multifamily is because of the decline of the middle class and the need for more scalable workforce housing.

When I travel to Asia (which I see as a more mature society, for better or worse) there is a much larger wealth gap than in the USA.  People are living in cramped apartments or very rare single-family homes. And they are driving a Mercedes on barely enough money to share a family moped. This is the trend that the USA is following.

As with many things, you need to look past the headlines and the general data. Instead of analyzing a whole asset class, as the media likes to do, let’s break down vacancy in terms of classes.

Here are some typical vacancy rates (notice the spread).

Class C 4.5%

Class B 5.0%

Class A 5.5%

Why? Because there is just more demand for the lower class properties cause there is more demand than supply.

Many times the business plan is the be the “best in class.” For example, businesses want to be the best mobile home park or best high end remodel because you attract the richest customers in that niche.

I like to monitor the number of new units coming online because that is your downward pressure. It is rare that new builds are for Class C or Class B.

The micro-unit trend is an attempt to build for Class C and B tenants due to the need. But often the numbers don’t make sense when you have purchased the same building materials and mobilized the same crews to build a Class B asset as opposed to a class A asset.

Let’s go through that Armageddon example again.

Class A will have to drop rents severely and see great vacancy.

Class B and C will see vacancy come up too as people are losing their jobs but should see some absorption from ex-A Class tenants.

Mom and dad will also see some absorption as deadbeat son or daughter move back home.

Shows like Friends and How I Met Your Mother will go on for another decade.

Note: one can argue that class A+ will not be affected at all which I believe is true. That’s why we are trying to invest right to enter that untouchable status.

I remember when I sat through the same economic presentation at work from 2010-2014. The sentiment at the time was that it was going to be an extremely slow recovery. It makes sense that the length between the 2008 recession and now is very long which is why I mentioned an 11-inning ball game.

This is why I took a set back from some pretty Class A deals because I asked myself the following questions:

1) What will happen to the rents if IT should happen?

2) Is the modeled 90% vacancy rate going to get blown up?

Class B and C apartments in strong submarkets will perform best over the long term. If you ensure the loan term is long enough so you don’t get hurt then you should Outlast the bumpy ride ahead.

Beware of the self-destructive behavior of not investing. You know what I mean… are you someone who self-sabotages?

Understand the micro and proceed if the numbers make sense.

I have to admit Class C and B assets are boring but work especially in a sellers market because 1) they cashflow and 2) have a forced appreciation value add component to give you levers to pull in tough times.

To join our Hui Deal Pipeline Club and stick with the group join below:

131 – Takeaways from #FinCon18 and Side Hustle stories

 

Just got back from FinCon2018!

 

What’s that?

A pretty impressive event. Its where 2000 financial bloggers, you-tubers, and podcasts this year gathered around all this money.

In 2006, I started reading financial blogs. Sole of my favorite was getrichslowly, Wallet Hacks, and of course mr money mustache. FinCon started in 2011 with just a couple hundred people.

Real estate investing is a minority. 95% of people are debt adverse and about the 4% rule. Buying cash so so debt. Living small is selfish? Make 150k a year and retire when you are 35…

The Millionaire Next Door book is not the type of lifestyle I would like to live.

A lot of financial advisors which I don’t really like.

I am cool with how it is enough to be happy and content.

Other Findings:

New investment account that incorporates mobile interfaces and suto-AI. Mint app has click to invest and banking apps have click to refi. It’s a little dangerous.

A cool 5% instant liquidity online savings bank that invests in inventory loans. Let me know and I can connect you with that as I try to do more due diligence on my own.

Liberty health share – religious-based health insurance

Side gigs – consistent theme from high performing growth mindset W2 employees who are not getting fulfillment at their bureaucratic day jobs.

Interviews to follow in video…

Please share this with friends because if you don’t soon you won’t have any friends to have mid-day lunch with when you not doing anything
Interview 1: Michael – Financiallyalert.com –
Interview 2: Spendlessgreen.com
Interview 4: Alex – http://dailyps.com & nguonline.com
Audio only version

129 – Matt Theriault – Changing strategies in this market

YouTube Link: https://youtu.be/SkY5izkbkoQ? sub_confirmation 1


Audio Version: https://youtu.be/cIYy9ViRoSw? sub_confirmation 1

Article Link: Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer

For a free electronic version of my bestselling book in 12+ categories text the word “ebook” to 587-317-6099.

Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347

Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club

Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!

________Here are the Show Notes________

I worked with Matt’s team way back when in 2014 buying turnkeys. Simplepassivecashflow.com/turnkey Since then it is interesting as times change how his strategy has changed.
We just completed the last deal for an Mobile home park. Which is a little different than apartments.
Please leave an iTunes review – Help fight negative one-star review

Earning $30,000/mo through single-family homes and seller-financed notes.

Epic Real Estate started selling turnkey properties in 2009.

Built successful portfolio, but returns lowering. However, real estate always a good purchase to buy and hold long-term.

Amortization, depreciation, appreciation, and leverage (wealth multiplier) all make real estate investing attractive.

Focusing more on lease options now for C- and D-class properties to rent properties and eventually sell them to tenant.

Went from 7-figure year as a musician to bankrupt at 34. Found real estate mentor at grocery store and life changed.

Real estate is the final frontier for the average person to have a legitimate shot a creating wealth.

Paid $22,000 for mentorship in 2006. Everyone thought it was insane, but helped him get started.

People who made it were ready for it. “Move faster than your doubts.”

Find the deal first and then the money will find you.

Authored book “Do Over” that chronicled struggles and how he built his real estate empire.

Be intentional with who you surround yourself with. Peer pressure works.

Always be looking for a coach and outgrow them. Results accelerator.

Spends $100,000/year on masterminds – worth being around the right people of doers.

Goal was to increase passive income and decrease expenses. In 4 years became “retired,” but wants to be wealthy; not just financially independent.

Bookkeeper should be the first role you should outsource. Transaction coordinators and marketing person also helpful.

Hardest part of the business is to find the deal and get into contract.

Visit www.epicrealestateinvesting.com to check out the Epic Real Estate Investing Podcast.

Why invest in MFH

MFH is the obvious choice when it comes to jumping into syndications because it is the shorted logical leap for a single family home investor.

Here are some other reasons:

  1. We need more housing for class-C and class-B renters due to population increases and rising interest rates
  2. Inflation favor hard assets
  3. We are no longer a buying nation we rent (think millennials)
  4. The government is trying their best to incentive investors – Follow the money people!
  5. 2018 tax changes with bonus depreciation make it better for projects like large apartments to get better tax treatment than ever before via a cost segregation.

Market Indicators:

  1. Large employers or job growth
  2. Population increasing
  3. Rent increases
  4. Occupancy/Vacancy stabilized

Typical business plan:

  1. 60+ units or more to get economies of scale and to have dedicated staff on site
  2. 1970-1980s Class B or C buildings
  3. Utilize Fannie Mae or Freddie Mac Non-Recourse debt with up to 12-year loan terms
  4. Buy right – rehab units with $2,000-8,000 per unit – reposition by improving operations and stabilizing rents for exit
  5. Property cashflows day one after purchase
  6. Re-brand (new signage and online presence)

Value-add:

  1. Poor existing property management
  2. Old tired units or leasing center
  3. Outdated amenities
  4.  Creative improvements using best practices and technology
  5. Additional opportunity for extra income
Open post

Going from “Active-Passive” Investor to an LP in Syndications and Private Placements

Video version of this article with extra commentary:

In 2016, I paid over $30,000 to get the mentorship to be an apartment operator/investor. What I learned in the process was that I did not need to be a General Partner and that I had enough income and net worth to invest as a Passive investor (LP).

Technically I paid $40,000 on this fiasco too.

Webinar – What are Syndications/Private Placements? – https://youtu.be/n_qsZHBOCS4

 

 

For me, it was simple math. The assumption was that my money would grow at 15-20% a year in part cashflow and equity & forced appreciation.

I was on the flight path to Financial Independence. And this is why I have shifted my focus to non-investing activities and enjoying the journey.

I made the jump to MFH/Syndications after more than 7 years in the SFH mindset. Read more here.

Every investor is at different stages of the game. This article aims to offer guidance on when to make the jump to more scaleable syndications.

Like ‘Rome’ I believe all most paths lead to investing in Syndications (as long as you are not a jerk and can halfway network with people).

Should I invest in syndications or private placements with investment experience?

Most investors start by investing in single-family home rentals. The natural progression is to move into larger more scalable assets such as being an operator/general partner (GP) or passive investor/limited partner (LP) in a syndication. Most novice investors do their research and come to the conclusion after evaluating the scalability, economies of scale, and diversification that bigger deals are the better route, but is that what you should really do?

Wait, what is a syndication or private placement?

I use an airplane analogy when I explain these syndications. In an airplane, the General Partners in the cockpit fly the airplane (find deal, negotiate, find investors, line up lending, manage the 3rd party property management, operate the investment). They are typically signing on the debt and their net worth needs to be greater than the loan size. In coach, you have the passive investors or Limited Partners who come on the plane and go to sleep. We look for both because its all about putting more people together and leveraging each other’s strengths.

Bigger is better

Theoretically, it does make sense. Larger investment deals, such as syndications or apartments, would likely bring in larger cash flow and better deals due to better teams. If you do the math, you will likely net at least $100-300/month per property with a single-family turnkey rental. Assuming you earn a decent wage as W2 employee, you will probably need 20-40 of these single-family rentals to replace your income.

Cost segregations that typically cost around $5,000 create bonus depreciation. Bonus depreciation creates more upfront depreciation – often front loading in the first year of ownership. This is only practical in larger assets or scale.

I personally had 11 single-family homes, but experienced one or two evictions per year. On top of that, there could (and have) been other big maintenance and capital expenditure events that happen (3-4 a year with the same sample size of 11 homes). In other words, single-family homes can only get you so far and you will need to invest in more to truly generate more cash flow.

Thus, investing in syndications can be an attractive way to achieve true financial freedom because it is even more passive than SFH’s.

The caveat

But before you jump the gun, let us assess the full picture. From 2016-2018, I have had over 1000 strategy calls with real estate investors and coaching clients. (Today Calls are only available to Hui Deal Pipeline Club members) Many new real estate investors want to skip investing in single-family homes and jump into the deep side of the pool and invest in large syndications as a private placement. Who knows if they can swim? Some individuals can make this jump into syndications. Great for them! Keep in mind that this transition is a big step that requires more capital, a larger barrier-to-entry, skills, network, and unequivocally more risk. It might make sense to get a mentor to point you in the right direction.

If you are planning on being an operator or a general partner (GP) with no prior experience then I think you are smoking crack and I wish you luck. Jay Papasan, author of The ONE Thing, agrees here. You will always make a mistake and I would rather see you make it with a small deal first. Entrepreneurship is often about survival. Stay alive until you get lucky. I am one for going after a bunch of singles first then going for home runs. Plus, if you like real estate investing and want to become an operator, you will benefit by building valuable experience as you mold your track record and brand from starting with small rentals. I think that is why SimplePassiveCashflow.com has become so popular because it started small and progressed organically. Its funny that most of my coaching clients who have phenomenal W2 salaries want to start with the small stuff as if they are gluttons for punishment (I think it speaks to their character and how they achieved so much) and the folks with no track record of any success and are broke always want to swing for the fences.

If you are planning on being a passive investor or limited partner (LP) with no prior experience then there is room for some debate.

More often than not, some investors just try it on their own. They network with some lead investors/syndicators and believe in every executive summary they read. Do not be a sucker. This is not a good approach and often leads to investors getting taken by the glossy PDF and profile pictures.

A discussion of risk and severity

The biggest problem with being a LP on a syndication is the potential of working with a shyster who takes your money. This is a very small chance of happening and can be mitigated by due diligence and creating a network that verifies characters. The risk and severity are modeled below.

Being a single family home operator has its own headaches and dangers which I have documented on past articles. It is “extremely remote” to have a $10,000-20,000 move out disaster and a lawsuit. Being a direct operator has higher returns coupled with more risk.

In my analysis of risk, a syndication (with the right people) decreases the variability of the investment performance as shown below. For example, a deal may not perform up to pro forma so instead of a 100% return in 5 years, you get 70% return in 5 years.

One Investor’s Story

In terms of my investment ideas/activity, here’s what is spinning around in my head (Note: The ideas listed below are going to conflict with one another because each path is a different approach):

1. Duplex, Triplex, Fourplex or small apartment complexes – This was the path I was going towards before we got into contact. I’ve been looking at Columbus and Cleveland, Ohio. I liked Columbus more because of population/economic growth. Got in contact with a couple agents from BP that service Columbus and I haven’t found anything that cashflows at a reasonable rate. A lot of deals cashflow at like $50-$150 per door and that’s going to be eliminated as soon as someone moves out. So while I’ve been looking for a bit, nothing yet.

2. Syndications – After coming across your stuff, I thought being a LP may be the preferred route. I get that I wouldn’t get the experience of knowing the ins and outs of RE if I did it myself, but what do I really want out of life? Do I want to spend so much time finding deals, buying, building the portfolio, or should I just be a LP and use my time for other life goals? Not quite sure, but the idea of being LP sounds like a solid approach. In any case, I won’t have accredited status for 2+ years, so I can’t even go full blast into this path unless I get in on similar deals like the ATL one you had.

3. BRRR – Open to doing any BRRR activities. I thought about this path for single-family homes, but I felt like it may be too hard to jump into BRRRing something out of state. That’s why I’ve been focusing on 1. above because Im trying to find stuff that doesn’t need a ton of work. If it needs relatively minor stuff that a PM can fix, that would be preferred before I jump into BRRRing things.

You could pursue a hybrid approach of investing in all of the above (although 2 of 3 would be more practical to not spread yourself too thin).  Again, it totally comes down to how much money and time you have. More specifically if you have a lot of liquidity then you can do more than one track. All these things are totally correct and shows that you have the big picture. Just a matter of choosing which path you want to go on. Congrats!

My recommendations

I recommend for investors to get their feet wet with investing in single-family properties first. Yes, I previously noted issues with single-family homes, which you will experience at some point. But there is no better way to learn and build up the war chest as a prerequisite for more scalable investments and private placement syndications. I believe that once an investor understands this and can 1) build some sort of liquidity and cash flow and 2) be able to call BS when a syndicator starts to use bogus proformas and assumptions.

Keep in mind that entering larger syndications requires serious capital. As guidance (not a rule or SEC law), let’s say you have $100,000 liquidity as a non-accredited investor and are ready to invest in syndications. You will likely only be able to do a couple $50,000 investment deals, which sounds great. But without adequate cash flow coming in from other investments you are a sitting duck for a year or two – the education process stops. So, if you encompass some experience investing or renting out single-family home rentals, are employed saving at least $30,000/year, and/or have some substantial liquidity (over $200,000), the transition would be smoother in terms of liquidity management and education progression.

If you are a tables and graphs person check this out to see a loose rule on when to make the jump to syndications.

In terms of returns, being the direct operator normally produces higher gains. Generally, 25-35% a year on paper if purchased correctly. However with my track record I consistently lost money on 3 out of ever 10 rentals, but overall I hit my anticipated $200-$300 per month cashflow per property. Throw in the chance of a disaster tenant in there like my $30,000 repair bill and a few months of vacancy and you can see how you can quickly go into the red. The only way you can protect from this volatility is to… get more properties! Something to think about in a correction if you are buying turnkey/retail properties is that you will likely be in the red with equity as unlike being a passive in a syndication you are not buying with forced appreciation.

Returns from syndications usually run in the range of 80-100% return in 5 years or 17-20% a year. This is less than being your own operator on a small rental. In terms of risk you are putting a lot of risk that the General Partners will uphold their fiduciary roles. Assuming you mitigate this as best you can by checking backgrounds and only working with those you know, like, and trust with one degree of separation, the volatility of returns is much less than the smaller rental variety. What I like about syndications is that a deal is not done unless there is a lot of meat on the bone which helps protect your equity position in a downturn – just beware of the loan terms and if it is a recourse or nonrecourse loan.

I would say 80-95% of LP investors don’t know what is truly a good deal and invest off what other LPs say (who don’t know either) and pretty pictures. How do I know well I talk to a lot of LPs so that’s why. And a lot of people only invest off the executive summary which does not include the T12 P&L (Trailing 12 month Profit and Loss statement) and rent rolls. Crazy huh?!?

Here is a shotgun spreadsheet that will get you 10% of the way there but in order to truly vet a deal you need to build your network to vet the person via conferences, masterminds, paid coaching from me which I could walk you through a deal.

Another example of trick and games being played:

What is “Cap Rate Gate?”

It’s when a syndicator manipulates the reversion cap rate to greatly influence the total returns, so they can attract investors to a deal. 

Cap rate is the market determination of how much you should pay per NOI. It is what it is and Class A is lower than Class B and Class C. An increasing Cap Rate means it’s a softer market and you are not going to be paid as much for you NOI. To be a conservative underwriter you like to see the Reversion (exit) Cap rate +1.0% higher than the starting cap rate. For example if your starting Cap Rate is 6.25% then you want to use 7.25% as your reversion cap rate.

The Reversion is a “wild-ass guess” to begin with. That is why you want to be conservative as assume you will sell in a softer market. By using anything less than +0.75% is simply “kicking the can” down the road. Likely what the syndicator will do is just blame the missed targets on the economy where it was just screwed from the get go.

See below how much it impacts the total return. This is why you need to look under the hood and stop taking the “sticker price” for face value.

Four ways Sophisticated investors diversify in syndications:

1) Different leads/operators

2) Asset classes such as MFH, self-storage, mobile home parks, assisted living

3) Geographical markets

4) Business plans (5-year exits vs legacy holds)

Whatever you do, try to stay as close to the investment as possible. Knowing your syndications’ operating team is the most important part of the deal. Do not invest with random people. Even if the operators are good, there is the chance that good operators do bad deals and you need to be able to be on the lookout for the “money-grab.” You want to have the experience to understand their offering at the surface level as opposed to blindly jumping on board because of the promised return on investment. And to do this you need to analyze the Profit and Loss statements for the last 12 months, rent rolls, and pull your own rental comps. These items are typically never disclosed to investors. As you can see it’s a game of smoke and mirrors. The less data they give you the less questions and the less question the more likelihood of you investing.

Crowdfunding sites are great in theory but sort of like online dating websites for syndicators who can’t find funding. Do you really want to work with these people?

Well online dating really isn’t too bad and in some ways become the normal from 2010 on but Crowdfunding sites are still in their infancy.

In the end, do not forget your end-goal. About 80% of investors who stumble on Simple Passive Cashflow want passive income. Folks start drinking the Kool-Aid, and will be financially free in 4-7 years pending taking action. Always keep your end in mind by taking a more passive approach and start designing your ideal lifestyle today.

See chart here for further visualization

Beware of going the Mom and Pop route

Thinking about flipping houses? Do so for the fun of it but for most high paid professionals when you factor in your hourly rate and the risk of market volatility you are better off staying at your day job..

You’re competing with the pros.. People who spend all their conscious and subconscious time trying to source the best properties and managing people correctly. You may kick butt at work but often managing white collar subordinates does not translate to leading blue collar personnel.Many deal hunters I know spend off hours taking brokers out to lunch or a Dallas Mavericks game frequently to get to the top of the list for the next deal.. Your competition also has overseas virtual assistants combing seller lists for the next deal. Not saying you cannot find a deal on your own but who are you kidding?

Lets assume at one in one-thousand deal falls into your inbox.. This is at best because I personally get over 20 deals in my inbox a day and a few syndication deals that has met their minimal deal standards (however they may be).
Where do you live?
I put great emphasis on having a deal sponsor be local to the property where they can passive birddog the property and respond to an issue.. Some investors I know say its a total deal killer not to have the person live there their whole life.
You cannot have a property management company be your eyes and ears.. Maybe this strategy has worked with 1-8 units in the past but those properties are very forgiving.. In the end ask yourself the question…. are you ok letting a $12-15 an hour person (who is constantly looking for a better gig) manage your $3M asset? No, there needs to be a general partner local or making routine trips to oversee progress.. Especially when there is other peoples money at stake!

Mom and pops – you have to love them! They go into single-family homes and scale up to duplexes, triplexes, quads, and to 8 units, 16, 20…

They read something like this and they think they get some property management ($12-$15 an hour employees) and think they are good. #BiggerPocketsBro

Here are more reasons why this path is flawed:

  1. Lending terms over 4 units and under 1 million dollar loan size is no man’s land for lending. Banks know this because amateurs do these types of loans and the failure rate is so high. Worse rates, terms, and resource debt.
  2. Mom and pops have all their money (100-400k) in one deal. This is not diversification.
  3. A few years ago me and my partner had the idea that we would just pull our money together and go into one of these under 50 unit apartments since at the time we were a still wary about trusting another person. But as we started looking for deals and running the numbers we realized that the pricing was worse than the over than 60 unit deals due to the competition of unsophisticated mom and pop investors.
  4. Mom and pop investors usually suffer from trust issues. They have severe blind spots and it is rare that they are a sophisticated well connected investor. Yes they take painstakingly care of the property and pick up trash when ever they are there but that only takes you so far.

What I like about mom and pop investors is that they eventually screw up and sell to us sophisticated investors at a discount.

I know that’s not nice :/

Commentary from other Hui Deal Pipeline Club Members:

“My near term goal (2 to 3 years) is to invest $500k to make $4k to $5k per month of low risk, real estate passive income (if still possible), I was thinking that deploying this as a limited partner over a few geographically diversified multi-family investments was a good way to get started, and to start learning.  One of your first podcasts I listened to (SPC080) was one about when you decided to move to Multi-family from Single family.  I agreed with most of your arguments in that podcast: 1) I don’t want to buy another job 2) SFH’s only scale so far 3) the return on SFH’s may not be big enough to justify the time put in (most of the turnkeys I’m looking at now have pretty low cashflow), however, it is a good small investment to learn the business. The 1st rule, or course is to not lose money…  So, therefore, following your path and taking it step by step is more prudent.”

“Many of the points you hit on are the same pain points that I am currently working through myself in regards to real estate investing. 1)  I’ve invested in SFH rentals currently and in the past, and the cash flow from these deals are great. However, the time commitment to my W-2 career prevent me from scaling this investment model. 2) Syndications are the way to go, and that’s why I’ve sought out a trusted mentor like yourself to teach me the ropes, and to bounce ideas off of to try and mitigate risk as much as possible.  It’s tough giving someone your money in hopes that they will maintain and deliver on their fiduciary responsibilities. If the opportunity is good enough for you to place your hard earned money, based on the trust I’ve developed in you, it’s good enough for me. Right now I’m building my war chest so I can go to battle on financial freedom.”

Other resources:

Here is info in Turnkey rentals or Turkey rentals.

Here is a webinar I did explaining what a syndication is: https://youtu.be/n_qsZHBOCS4

Our latest 253-unit acquisition in San Antonio (Mystery Shopping): (March 2018) – https://youtu.be/vj8ZMteppfg

Post-purchase mid-rehab walk-through (March 2018) – https://youtu.be/-5h2GKZ3I58

Here is another 52-Unit deal in Iowa: https://youtu.be/rzLARk-x0JY

Post-purchase early rehab walk-through (April 2018) –

https://www.youtube.com/watch?v=bgxEV68CWpE&feature=youtu.be

More videos and webinars provided to Hui Deal Pipeline Club Members. Join here!

For actual FAQs from past deals please email Lane@SimplePassiveCashflow.com for the password.

127 – Estate Planning and Asset Protection with Lawyer Andrew Howell

YouTube Link: https://youtu.be/zaHW3_OEU8Y? sub_confirmation 1

Article Link: Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer

For a free electronic version of my bestselling book in 12+ categories text the word “ebook” to 587-317-6099.

Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347

Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club

Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!

________Here are the Show Notes________

Estate planning
Guests I have are giving insights but always hire your own person because these things require personalization
I try to bring guests on and ask the questions that I think you folks would ask.
I believe you need to have a basic level of knowledge before engaging with a professional
For those of you who are in the Mastermind and my current investors you will hear about my Fort Knox strategy which makes LLC enitites creation look like childs play
Email me any questions to feature on the next ask Lane podcast or monthly email newsletter
Andrew L. Howell is the Co-Founder of the law firm, York Howell, with a focus on asset protection.

Many useful tools out there, but where do you as an investor fall on the asset protection spectrum?

Two fundamental risks: 1) Asset-based risks 2) Direct-based risks

Real estate considered as “hot” assets because liability risks are greater – more than equity.

Liabilities both inside and outside the asset.

Typically form a holding company to hold limited liability companies to abate asset- and direct-based risks.

Holding properties in one LLC basket is good, but still risks if something happens in one property.

Concentrate on family protection first (trust, wills, etc.). Then move to next level of asset protection planning.

If own property out-of-state, advise on setting up a parent LLC in states with charging-order protection.

Tough LLC rules and taxes for poor California residents!

Need to do your due diligence on reviewing PPM’s – especially who you are doing business with.

Asset does not create liability risk for LP’s; only GP’s.

If you get personally sued, can go after your MFH syndications and other assets even as LP.

6% of current generation feels obligated to give back to kids. Instead of giving, create a bank.

Create purpose when setting up your trust.

Please reach out to teamandrew@yorkhowell.com and visit www.yorkhowell.com.

126 – Gino Barbaro talks Apartment Investing


YouTube Link: https://youtu.be/lvd9F9OmDI0? sub_confirmation 1

Article Link: Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer

For a free electronic version of my bestselling book in 12+ categories text the word “ebook” to 587-317-6099.

Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347

Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club

Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!

________Here are the Show Notes________

Jake and Gino have a great podcast and definaetly fit in the category as guys who are growing and doing things right
Let’s work together to redirect money from the Wall-Street casinos and corrupt financial institutions…To help the endangered ‘Middle Class’ savers find safer, more profitable investments in Main Street opportunities benefiting local communities. Join Hui Deal Pipeline Club and check out the sSimplePassiveCashflow.co/mission

Gino Barbaro from Jackandgino.com who focuses on MFH real estate.

Group owns 848 units valued at >$50 million. Expecting to go up this year.

Took 5 years to get $25K-30K/month in passive cash flow.

Fumbling around in the beginning with smaller cash flow amounts, but snowballs over time.

Came from the corporate world to managing a family restaurant. 2008 transitioned to real estate to make better use of time outside of the kitchen.

Highly recommend reading “The E-Myth” by Michael Gerber. Need a visionary, manager, and technician for any business.

Believes you need a Connector, Executer, and the Backbone. Can’t do all 3 – pick 1 or 2 and hire out.

95% of blocks are internal. The rest are external. So, focusing on resolving limiting beliefs and get a life coach.

Google Tony Robbin’s 6 human needs. Have to continue to grow and contribute in a large way.

Relocated to Florida and aiming to obtain $40K/month by end of this year.

Have lifestyle work for his business; not his business work for his lifestyle.

Becoming more efficient by hiring a VA and Digital Marketer for jackandgino.com. Wants to spread content and message; not work on menial tasks.

Focus on 1 or 2 niches for real estate and become an expert at it.

MFH has more barrier-to-entry v. stocks, crytocurrencies, etc. The more people in it, the less profit margin there will be.

Share weekly successes. It’s not bragging, it inspires people and surround yourself with the right people.

Be present in the moment. When you’re at work, with family, etc. focus on dealing with that situation.

Visit www.jackandgino.com. Also on FB, LinkedIn, Twitter, and Instagram. E-mail works too: gino@jackandgino.com.

 

 

125 – Living the FI dream abroad with Jeremy Jacobson from Go Curry Cracker

YouTube Link: https://youtu.be/3NQ0agjuxXY? sub_confirmation 1

Article Link: Text “simple” to 314-665-1767 to download the Hui Google Drive files and the 2018 Rental Property Analyzer

For a free electronic version of my bestselling book in 12+ categories text the word “”ebook”” to 587-317-6099.

Please help the show by leaving a review: http://getpodcast.reviews/id/1118795347

Join the Hui Deal Pipeline Club! SimplePassiveCashflow.com/club

Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math!

________Here are the Show Notes________

Went on normal path. Got a job after college, house, and fixated on paying off student loans.

Aggressively paid down student loans, but motivated by people who retired early.

5 years ago, both quit their jobs, traveling, raising family, and living their dream.

Ruthlessly slashed expenses and saved 70-80% after-tax income.

Max contributed to 401K, IRA, HSA, and after-tax accounts.

Short-term joy = trading years of financial-free opportunity.

Actively chose lifestyle. Traveled internationally by arbitraging where they lived with low living expenses.

Didn’t listen to mainstream advice of owning home. Choosing a renters lifestyle to not get “”stuck.””

Both have blogs and garnered new friendships; not the “”Seattle Chill.””

Finances on auto-pilot. Can work on growing family in Taipei and doing creative things they did during childhood.

Two types of things preventing people from being financially-free: Afraid to take leap to be financial-free and long-term goals to strive towards.

People don’t change minds because you provided info to them; they change when they’re ready.

Visit www.gocurrycracker.com and social media accounts on FB, Instagram.