Ultimate Living List of Self Directed IRA Custodians

List of SDIRA Custodians in no particular order based off feedback from other Hui Deal Pipeline club members.
Accuplan
Advanta IRA
American Estate & Trust
American IRA
Asset Exchange Strategies
Broad Financial
CamaPlan
Capital IRA
Central Bank
Checkbook IRA
Community National Bank
Crowdfund IRA
The Entrust Group
Equity Trust Company
First Trust Company of Onaga
GoldStar Trust Company
Guidant Financial Group, LLC
Horizon Trust Company
iPlanGroup
IRAvest
IRA Advantage
IRA Club
IRA Express, Inc.
IRA Innovations
IRA Resources
IRA Services Trust Company
Kingdom Trust Company
Lincoln Trust Company
Madison Trust Company
Midland IRA
Millennium Trust Company
Mountain West IRA
Nevada Trust Company
New Direction IRA
New Standard IRA
Next Generation Trust Services
Nexus Direct IRA
NuView IRA
PENSCO Trust Company
PGI Agency
PolyComp Trust Company
Preferred Trust Company
Premier Trust
Provident Trust Group
Quest IRA
RealTrust IRA Alternatives
Safeguard Advisors
Self Directed
Self Directed IRA Services, Inc.
Sense Financial
Sovereign International Pension Services
Specialized IRA Services
Summit Trust Company
SunWest Trust Company
Trust Company of America
uDirect IRA
Vantage IRA
401kCheckbook
The Self-Directed IRA Graveyard
American Pension Services
I don’t personally like these accounts for my own investing even though the future gains and withdrawals are tax-free because you can’t use the best Fannie Mae or Freddie Mac loan products when investing in your IRA.
Unless you are using a QRP (Qualified Retirement Plan).
With syndications using leverage (as most good deals do) you will be likely opening yourself up to UDFI etc taxes.
In the end, I want the freedom to enjoy the money now and not have to wait till I am 60 something.

133 – Veteran’s VA Loans & Other Financial Wisdom

SimplePassiveCashflow.com/133va
David from Military to Millionaire
Currently still enlisted in Army and spent some time as a recruiter
Don’t blow you money on a nice car
VA Loan – 0% down home loan for a primary residence with no private mortgage insurance (PMI)
You can buy up to a 4 unit
Move and buy at each difference duty station
Generally, 410K loan is the max with exceptions for high price areas like Hawaii
Relocation benefits
Do you stay enlisted in the military
Don’t underestimate the tax-sheltered allowances and perks

134 – Investing in Diamonds

I currently have a verbal agreement to put together a long-term joint venture.

I’m engaged and in the due-diligence period with multiple extensions.

Traditionally a down payment for such a transaction is a ring. Hopefully, if you have not gone through this experience before, you will learn about procuring this rare commodity. If not, I hope you find it entertaining.

For those who haven’t caught on yet – I’m talking about diamonds.

I think everyone knows that you get ripped off at a retail brick and mortar jeweler… even Fred Meyer Jewelers because you have to pay for all the overhead and compete with unsophisticated buyers. Plus I don’t like all the sleazy sales tactics and it is a huge time-sucking experience.

In the back of my head, I know the diamond market has to be rigged sort of like the sunglasses world where all the brands are owned by Luxottica and there is price rigging involved.

Now some people say they can haggle for a better price in person, but that takes time. Also, I am in the “first stage” of learning: I don’t know what I don’t know.

I turned my attention to the top 3 sites using Google and Reddit forums.

1) Blue Nile

2) James Allen

3) Rare Caret

I was happy with getting approximate “market value” on the website. I trusted the overall grading system in an online store.

What I really like about these websites is that they allow you to sort hundreds of diamonds in online spreadsheet form with a sort feature based on different attributes.

This might be review but the big four C’s are Carat-weight, Colour, Clarity, and Cut. Unfortunately, you cannot buy the 5th C – Confidence.

(Not to be confused with the three C’s of evaluating people into your network: Character, Competence, Commitment.)

If you would like to know more than the 80% of people, take 10 minutes to read this article to determine the quality & value of diamonds, via the famous 5cs of diamond grading.

Now, in my humble opinion … real talk here…  the most important factor is size. So Carat Weight is numerouno. Most people cannot tell you the difference between the other three attributes; they only see how big the freaking thing is.

For those who know a thing or two about diamonds, Cut is the second most important thing. Cut is the sparkle-factor, how much the diamond shines based on the angles of the Cut. I went and got the top grade Cut because that is a big wow-factor (second to of course how big it is).

The other two attributes, Colour and Clarity, I frankly don’t really care. Some people could actually like a little color or whatever that clarity thing is. So I set my search criteria to have all the levels in those two categories. One exception is that I just did not put the worst-grade Colour and Clarity in my selection. This for no good reason other than not wanting to have the worst one (as vain as it sounds). Call me dumb, but I feel embarrassed when I order the cheapest wine on the menu…I always go for the second cheapest.

Rare Caret seemed to have the best selection of diamonds, but their ring selection seemed to be lacking. So after a side by side comparison of Blue Nile and James Allen, I found James Allen to be ~5K cheaper for the same diamond.

At the end of the day, I knew what my budget was so I was just trying to get the best bang for my buck. In other words, the money was allocated and this is how I mentally process non-income producing assets.

Unfortunately, I was not able to use Mr. Rebates – a go to for getting a few percent points of cashflow by going through a simple shopping portal. Nor was I able to find many coupon codes using RetailMeNot.com or navigating their email digital marketing campaign. Most sophisticated marking emails are laced with smart links to kick out a discount coupon based on what links you click in the email and if you do not buy right away to get you off the fence as a buyer.

Sign-up via my link for all your future online shopping: http://www.mrrebates.com?refid=413597

You can spend a fortune on Carat-weight, Colour, Clarity, and Cut…but the most important 5th “C” of all, Confidence.

A lot of my high net worth single friends (who by the way get a lot of dates) don’t see the value of getting married in this modern era (other than if you would like to have kids). I definitely understand that perspective to some extent. This makes buying an archaic stone that may or may not have been a blood diamond just another thought to complicate things.

But as a recovering cheapo – simplepassivecashflow.com/cheapo – I understand that money is not evil and can buy a variety of things including freedom, time, and happiness. This purchase is a perfect example of that.

The way I see it, marriage is a lot like playing with leverage. It is a little more risk than going it alone, but the reward (if done right) is disproportionately greater (per the Shape Ratio’s risk-adjusted return).

My first plan was to make the big reveal in a new Honda CRV. Note – at this moment I’m over the whole Mercedes, Tesla, wealth-based off of the car I drive. Instead, I am striving to achieve the financial freedom level I am looking for.

I even had my VA scrape a lot of Honda contacts to do my normal email blasts to put multiple dealers against each other. By the way, I lease cars because I did the math and it makes more sense for sophisticated investors who get higher than average returns.

I got the car but scrapped the idea because my buddy mentioned… “dude – you don’t want to propose at a car dealership.”

Takeaway here is that everyone has a blindspot and its good to have people around you to bring up counterpoints.

Thanks for following Simple Passive Cashflow. Onward and upward.

 

Opportunity Fund Zone

I did some research on this new Opportunity Fund Zone tax benefits. Below are some notes and ideas. Updated 12/3/18

I’ll be hard at work tracking down Opportunity Fund Zone deals in 2019 since I will be selling four more of my Turnkey rentals.

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 of 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.

Of course, the news is blowing this out of proportion to sell attention. Wall-Street Journal article.

WSJ 2

WSJ 3

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.
Here are some other notes that a buddy of mine took:
  • Temporary tax deferral on reinvested capital gain until 12/31/2026 (from stocks/sale of a business/real estate partnerships/direct real estate sale)
  • Elimination of a portion of the reinvested capital gain over the term of the investment.
    • 10% if invested for 5 years
    • 15% if invested for 7 years
  • Permanent exclusion (100%) of gain on appreciation in excess of initial capital gain investment if held for 10 years.

This means if you have sold an asset whether it be real estate, stocks/bonds, partnership interest, cryptocurrency or a business, you can reinvest that capital gain within 180 days and defer taxes, reduce those taxes by 15% after 7 years of holding and eliminate any capital gains created on the new asset after 10 years.

Post-tax Internal Rate of Return (IRR) increases by a staggering 50% when you invest in a Qualified Opportunity Zone Fund! 

This is different from a 1031 exchange which only allows you to exchange like-kind investments and also requires an intermediary (this program does not need an intermediary).

It’s worth noting that the intent of this tax incentive is to help spur development and economic activity in “distressed communities”.  So this really is an opportunity to do good and do well.  

Definitions:

Qualified Opportunity Zone Business – A trade or business. • Substantially all of its tangible property (whether owned or leased) is Qualified Opportunity Zone Business Property AND • At least 50 percent of its gross income must be from the active conduct of a trade or business in an Opportunity Zone, • A substantial portion of its intangible property must be used in the active conduct of its business in an Opportunity Zone, • No more than 5 percent of the average unadjusted basis of its assets may consist of “non-qualified financial property,” • Cannot be a golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or any store the principal business of which is the sale of alcoholic beverages for consumption off-premises

Qualified Opportunity Zone Business Property – A tangible property used in a trade of business if: • It is acquired by purchase (as defined in Section 179(d)(2) related party rules, but using a 20% related party test instead of 50%) after December 31, 2017; • The original use in the Qualified Opportunity Zone commences with the Qualified Opportunity Zone Business OR • The Qualified Opportunity Zone Business substantially improves the property; and • During substantially all of the holding period for such property, substantially all of the use of such property is in an Opportunity Zone.

Substantial Improvement Test: • Property is treated as “substantially improved” if, during any 30-month period beginning after the acquisition of the property, additions to basis of the property exceed an amount equal to the adjusted basis of the property at the beginning of such period. • Land excluded

Resources:

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

Kohlers article

National Law Review about Qualified Opportunity Zones

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

Cost Segregation & Bonus Depreciation

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 recent Class-A apartment 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. [And those millennials can’t save] The population is increasing too.

 

[I like to use this image cause I make fun of millennials… this is the millennial version… cause they can’t seem to afford (or want) to own anything]

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 seller’s market because 1) they cashflow and 2) have a forced appreciation value-add component to give you levers to pull in tough times.

Again going back to Mr. Kiyosaki’s three-sided coin quote, investors go through three stages.

Stage 1: Go into MFH… Duh (I did well at single-family rentals let me try apartments)
Stage 2: Be a contrarian investor so go into other asset classes most decent investors are afraid or don’t even know about
Stage 3: Do special projects such as Affordable house taking advantage of tax credits or specialized operators (ie take abandoned big-box space like movie theaters and convert to the latest consumer needs)
Experienced investors who were in the downturn in 2008 say its interesting that the sentiment in 2006 was exuberance that it was going to keep going up. Now in 2018 the sentiment is fear… This is a good thing.
Remember that in this market we still have:
  1. Historically low-interest rates
  2. Historically high rent increases (not 8% anymore but still 2-4%)
  3. Historically low vacancies
Things to monitor if you really need to geek out on numbers:
  • 2 and 10 yield t curve. When that crosses you have just-a matter do time. Because its a measure of fear.
  • Automation and AI – huge shifts in jobs. People need to work but technology has been increasing since the beginning of time.
  • Wage growth
  • Bankers prospective: how deals are getting funded and by who (institutional or dumb capital)
There is a saying out there that real estate is location specific. However, when I invest in more stable asset classes its a National market based on the economy both USA and international. When you invest in a micro-economic fix and flips then its location specific. When you invest in commercial assets it’s with more stable tenants and based on the aforementioned larger economy.
A lot of people point to the Yield-Curve as a big indicator. In the end, I do believe that real estate will go down because of consumer instability. But if you have stocks you should sell those before even thinking of lumping it into cashflow type rental real estate.
“The guy not investing right now and hoarding cash (with net worth of under $1M… because if you can live off your cashflow then cool you can do what you want) is just afraid and lacks deal flow. Its like the person who complains that there is nothing to do during the weekend in LA (insert city with a vibrant scene) when in actuality they don’t have any friends (lack dealflow)… and by the no one likes (has a bad attitude and that person who makes excuses”
Doomsday theory: Everyone talks about national debt but we are far far behind debt to GDP ratio that of Japan. When Japan hits the wall lookout. Her is my theory… watch out post-Japan Olympics when they have to let loose the belt (after a holiday period of excess calories). Leading up to a period where Japan has to save face while they are in the Olympic spotlight (and I’m not being racist cause I am Japanese and it is a thing). I don’t have the latest data but Japan is at around 250% where the USA is at 100%.
Household debt KPIs: student debt, car loans, housing debt. Which is why I like these assets that are used by the poor and middle class! #RenterForever

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

Hui Deal Pipeline Club Shareholders & Investors Mastermind


Everyone was encouraged to mingle and specifically sit with a different person on each bus trip and venue switch.

Your network is your net worth… and this will be a “high-target” environment.

We will learn from each other and connect with other high-level investors that you will climb the ladder together.

Some questions that might come to mind is why are we traveling offsite, for so long, and in a bus like little children?

As much as the private bus concept sounds like “captivity” to adults… relationships formed on the bus will be invaluable.

One of the goals of the Hui Deal Pipeline Club was to create a group of investors crowdfunding due-dilligence to find the best means and methods.

Topics covered:

  1. Asset protection
  2. Scaling your portfolio
  3. Roundtable mastermind format

Schedule:

10am meet at HopMonk in Novato
10:00-11 Drive to Buena Vista

11-12:30 Buena Vista Winery – tour, tasting, lunch https://yelp.to/qTKq/9jF7zlz1AQ
12:30-1 Drive to valley of the moon
1-2:15 Valley of the Moon https://yelp.to/qTKq/AezMXT20AQ
2:15-2:30 Drive to highwayman
2:30-3:45 Highwayman Tasting Room https://yelp.to/qTKq/LIPoTCcZAQ

3:45-4:15 Back to HopMonk

4:30-6:30 Dinner and mingle

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 increasing and rising interest rates
  2. Inflation favor hard assets
  3. We are no longer a buying nation we rent (think millennials)

    [This is the millennial version… cause they can’t seem to afford (or want) to own anything]

  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.
  6. The country needs 4.6m new apartments by 2030 (Source). We need more class C and B housing. Our country is becoming more like Asian Countries where the is a bigger divide in the wealth gap and need for low-income communities.

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

Miscellaneous ideas for thought:

  • 2010 to 2015 is the golden era of Multifamily. Many rents were going up 5-10% per year (average 2-3% in a good market).
  • The (Global/National) markets go in cycles, the sub-markets (physical locations) go in cycles (see below)
  • Asset Classes go in cycles but hopefully, you are investing with the pros who transcend the high-level norm.

Multifamily Investing Lingo

Real Estate terms:

  • Pretty simple if you understand the way to utilize them and how they play together in real estate transactions
  • Applies a lot in larger transactions (multifamily), but can be applied as well in smaller (single family) transactions

Income (types):

  • Different ways you can make money on a property
    • Rent – not what is on the contract, but what the market would yield for the space that you have
    • Other Income
      • Pet Fees
      • Laundry
      • Reserve Parking
      • Late Fees

Gross Market Rent:

  • Sum of all the different types of income you can earn from the property

Deductions that can be taken from the Income types (can also be called Efficiency deductions):

(Loss to) Lease:

  • Loss of income based on the market value of the property minus the amount you are renting the property for
    • Example: You have a property you are renting out at $750/month. The current market value of the property is actually $825/month (based on listings in Craigslist, etc.) You have a $75 Loss to Lease per month on that property
    • This is money that will never be gained, as the market changes so much
    • This has to be factored in when looking at properties, and you should constantly monitor the market you’re in to see what kind of Loss to Lease you’re taking on

(Loss to) Vacancy:

  • Especially on bigger properties – you will never have it leased all the time
  • Normally, there is a week or two of vacancy, sometimes more (up to a month or even longer) between tenants
  • A lot of people like to estimate 5% loss due to vacancy, but should be considered more scientifically than just stating a number. For example, if it’s a single family home, you’ll want to factor in at least one month’s rent, which would be equivalent to 8%. If it’s a duplex you’ll want to factor in one month’s rent for your most expensive unit. The more units you have, the more you can expect that vacancy rate to go down. But be conservative when you’re writing up a deal – the smaller the deal, the higher your vacancy rate. So start at 10 if it’s a one or two unit deal, and then drop accordingly.

(Loss to) Collections:

  • Isn’t just money you will be getting back from tenants who are late on payments
  • Includes loss of money from tenants who move out and are not able to pay their balance
  • You need to factor it on your own in the market you are in and what the economy you are dealing in is
    • Example: If you are dealing in C or D type neighborhood, you will have to factor in [Loss to] Collections. If you’re in a B or A type neighborhood, then you can lower Collections down to zero and assume the loss will just come out of Vacancy

Effective Gross Income (EGI):

  • Gross Market Rent minus whatever loss will come out during operations (Efficiency deductions)
  • Real money that comes in through the property
  • From your EGI, you will still need to deduct your expenses (listed below)

Expenses:

  • Insurance
  • Professional Services – Leasing commissions and/or other professional services you bring in (legal, accounting fees, etc.). If you’re an LLC, you will need to put in your budget the cost (tax) for the LLC every year ($400 – $500), IRS
  • Regular Maintenance (landscaping, snow removal, heater service, pest control, touch-ups and minor renovations on unit before tenant moves in, fixes like clogged-up toilets, etc.)
    • Rule of thumb for Regular Maintenance: Brokers will place it 3% of your EGI, but is more effective to think it as dollars per unit.
    • Example: If property is something you bought, did a full renovation on, put tenants in, and then got it refinanced (BRRRR – Buy Rehab Rent Refinance Repeat), your maintenance should be lower because you’ve done everything and should be able to call for a warranty call at the very beginning if it’s something the contractor who did the work on your property didn’t do. If you’re very good at turning these properties over, then you should have very little maintenance going in
    • If it’s a newer rental, could be anywhere from $300 – $400 every year
    • If it’s something you’re inheriting (inheriting maintenance issues as property already has current tenants and will need to deal with it as you go), you will want to go with higher maintenance numbers: $700 – $900 per unit per year
    • Will really depend on how much you project it to be (check out the property thoroughly, and/or if there are existing tenants, ask them what are the maintenance issues) as it can really kill or make you a lot of money on your deal.
  • Property Management Fee – 6%
    • Property Management means looking after the property and make sure operations is running smoothly
    • If you are managing the property, you will want to put that in your own pocket
  • Asset Management Fee – 2%
    • If you are hiring a Property Manager, you will also need to hire an Asset Manager, or you can be the Asset Manager and that money will also go into your own pocket
    • Fee of managing the Property Manager
    • Asset Manager will be the one to pay mortgage, ensure real estate taxes are being paid, monitor the markets and ensure that the right rents are being charged, will also have veto power to veto work orders that might come up that you don’t want to have done because they’re too expensive, etc.
    • Asset Manager is also there to look at the real value of return on the asset
  • Utilities
    • Everything from heat, water, sewer, even CCTV systems, phone lines
    • You will want to look at the prior owner’s expenses for utilities were (around 18 months’ worth), or look to see what the market or other people are paying
    • Make a good guesstimate on what your utility projections are going to be and go from there
  • Real Estate Taxes

(Above the) Line:

  • Term sometimes used by brokers when grouping Gross Market Rent, Efficiency deductions, EGI and Expenses (everything that gets deducted out to determine the profitability of the deal)
  • Note: I don’t really talk in terms of Cap rates because you can manipulate the “above the line” assumptions to get whatever you want

Net Operating Income (NOI):

  • EGI minus all the expenses that can be deducted from it
  • Does not include mortgage payments or Debt Service (money you have to borrow to buy the property)

Capital Expenditures (Cap Ex):

  • Also usually referred to as Below the Line expenditure but is also sometimes considered as Above the Line, depending on whether you are selling or buying a property
  • Long-term improvements to your building/ property
  • Major renovations to bring unit/ property up to market standard (replacing the roof, replacing the furnace, full renovation on a unit)
  • Any expense that will add long-term value to your building
  • You will need to set aside money for this (Cap Ex Reserve)
  • Not taxable as it is just money you are earning but will be setting aside in a savings account

CAP Rate:

  • NOI divided by the price you’re buying the property for
  • Determines the money that the property will give you
  • Example:
    • If NOI is $100k and the price of the property was $1 million, then CAP Rate would be 10%
  • Intended to be used when valuing buildings (especially commercial real estate)

Cash Flow (CF):

  • NOI minus Debt Service
  • Also determines your Return on Investment (ROI) on the property

Debt Services Covered Ratio (DSCR):

  • Looked at by the banks
  • How many times the deal can cover the Debt Service
  • Calculation: NOI divided by debt service
  • Most banks will want to see a DSCR above 1.25%, you will want to see a DSCR of above 1.5% to get a higher ROI

Green Credits:

  • Breaks in your interest rates for employing energy saving means
  • Full report

Reports for your digest:

18.11.15 – 3Q18_US_Multifamily_Capital_Markets_Report

18.11.18 – Yardi Monthy Report