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
Do you stay enlisted in the military
Don’t underestimate the tax-sheltered allowances and perks
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.
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.
Of course, the news is blowing this out of proportion to sell attention. Wall-Street Journal article.
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.
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
Article on Opportunity Fund Zones – https://drive.google.com/open?id=1F8wDToyb9olvq52U9LRMD8cBrJILm8q_
***If you are a Hui Investor please email me for the secret report on these Zones***
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…
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.
“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”
To join our Hui Deal Pipeline Club and stick with the group join below:
Just got back from FinCon2018!
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.
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…
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.
10am meet at HopMonk in Novato
10:00-11 Drive to Buena Vista
3:45-4:15 Back to HopMonk
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.
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:
[This is the millennial version… cause they can’t seem to afford (or want) to own anything]
Typical business plan:
Miscellaneous ideas for thought:
Real Estate terms:
Gross Market Rent:
Deductions that can be taken from the Income types (can also be called Efficiency deductions):
(Loss to) Lease:
(Loss to) Vacancy:
(Loss to) Collections:
Effective Gross Income (EGI):
(Above the) Line:
Net Operating Income (NOI):
Capital Expenditures (Cap Ex):
Cash Flow (CF):
Debt Services Covered Ratio (DSCR):
Reports for your digest:
18.11.15 – 3Q18_US_Multifamily_Capital_Markets_Report
18.11.18 – Yardi Monthy Report