HELOCs in Hawaii

The following downloadable cheat sheet was made for Hawaii residents but the concepts discussed are typical as it is a confusing game.

What is a HELOC (Home equity line of credit)?
A line of credit where the collateral is the existing equity in your home. Think of a credit card where your max limit is a portion of your equity in your home with some actually good rates.

Pros:
It’s a line of credit where if you don’t use it there is no interest being accrued.
Low-interest rate because it is seen as a low risk loan from the banks perspective
A good way to get access to liquidity in a pinch. Especially when starting a new investing strategy and need proof of concept.

Cons:
There is a possibility of the bank calling a loan due or changing the terms as the economy changes
Its not the best way of using equity because you should just sell the asset and be deleveraging into more fixed debt (very counter-intuitive I know but most things are)

What is LTV?
Loan to value. So if your home is worth $100,000 and you have $50,000 left on your mortgage then your LTV is 50%.

I’m confused… this all sounds great but just tell me what to do
Option 1: Initiate a HELOC with Aloha Pacific CU for 1yr @ 0.5%. Then either go with ASB or CPB. They both will cover up to $500 for early termination with Aloha Pacific (which would be some of the closing costs that were waived) and no annual fee. For ASB, as long as you have $2500/month in direct deposits then there are no other fees – setup an automatic transaction from another bank recurring every month to take care of that, extra credit if you send that same $2,000 right back a few days later (that’s almost like money laundering). At the time of origination, can check rates to see if you go with another 1 yr (with ASB) or 2yr (with CPB). If you need to do a third time – a few years out, then go with whichever one you didn’t go with for the second HELOC. These rates change and so do the fee structures so try to learn this stuff and connect with other investors. A good way to do that is come to have a beer with other sophisticated investors at ReiAloha. Notice CPB is put in the 2nd order because they will waive the cancellation fees from the host bank prior. Yes, we thought this out like the Sunday arm chair quarterback strategies-out the running back rotation of the Denver Broncos.
Option 2 (for the lazy): Although this is not optimizing the rates this method is a little simpler if your time is so valuable like you are coming up with the cure to some rare form of cancer. Take the lowest of the 2-3 year HELOCs and just go with them. This minimizes movement and makes your life simpler. Perhaps it makes your life so simpler that you free up time and mental bandwidth to invest in real assets such as rental real estate or passive syndications?

I’m still confused… walk me through a real-life example
Someone who just did this with a credit union… for a $200k loan, the closing cost was about $1200 (which were covered by the cu) and he paid $700 for an appraisal. He intends to hold for 3 yrs, so he didn’t get much details on how much of the closing costs he would have to pay back…. for this scenario, we estimate that all $1200 and would have to be paid (which $500 of that would be covered by the new lender).

Thoughts about appraisals
In order to cut costs some banks will do a desk review to determine the value of your property. This usually is more conservative figure and hurts you because you want your home to appraise for the most that it can in order to qualify for the biggest loan. These desk reviews utilize the tax assessed value which usually lower than if you paid $500 for a real appraisal or a cheaper “drive-by” appraisal. Sometimes it might be worth it to pay the extra fees to get a real appraisal instead of the lazy man method. It might be obvious but have a conversation on which appraisal is being used or be disappointed like when Coke switched your C&H sugar for corn syrup.

What about for a high leverage option (above 80%+) and low leverage option or will all of them not touch higher than 80%?
Higher leverage HELOC are available but not openly published. The author of this guide did not want to waste their time finding such fringe data since it changes so much and did not want to wait of a consultation from another bank employee. The collaborator did note that Hawaii State FCU was one of the few Credit Unions that openly published a higher LTV (up to 95%). Note – Hawaii banks are much more conservative on appraisals and terms than on the mainland. You may want to have a bank on the mainland if they will give a HELOC out of state. Typically anyone can get into most Credit Union after all they just want your money to sit in their bank paying you 0.01%. Sometimes you just have to donate $10 to some friends of the library account to gain membership.

Thoughts about fees
Be cognizant of closing costs are. The credit unions don’t have an early termination fee, however, you got to pay back closing costs. For the banks, there is a $500 termination fee and rates are higher, but maybe a better route if you got to pay back waived closing costs with the credit unions… especially since ASB and CPB will cover up to $500 early termination.

Why are you doing this?
Equity in your home is lazy money. It is not yielding a return and in fact it is a liability for lawsuits. The wealthy try to control everything and own nothing (encumber their assets with debt). In addition, typical investment yields range from 12-25% for stable, cashflowing assets, that hold their value even if the economy weakens.

Fine tuning:
“At some point you are going to ask the following: Assuming the delta between the one and two year helot is 1% and we are talking about a 200k loan… That’s 2k. Is it worth it to run around one afternoon and move stuff around online???

Are you going with the one year one first then get the two year from the next one? At this point it may make sense to get on a coaching call for 30 minutes to get an expert opinion.

Also it is possible to get a HELOC on a non-owner occupied home (rental property) but if you are considering so read this… simplepassivecashflow.com/roe”

Conclusion
Overall the process is pretty painless. You might have to run around looking for your mortgage files, HOA documents, or insurance but once setup it works just like another checking account.

Download link

Additional reading…

Webinar – Hui Webinar – How to pay your 30-year mortgage in 4 to 8 years with Mortgage Rate Arbitrage – https://www.youtube.com/watch?v=yysbua0nOaM&t

SPC105 – Jordan Goodman – Affiliate connections + mortgage rate optimization + Dolphin mentality – http://simplepassivecashflow.com/podcast-105-jordan-goodman-affiliate-connections-mortgage-rate-optimization-dolphin-mentality/

Here is the download link for Jordan’s text on the mortgage rate optimization strategy: https://drive.google.com/open?id=1XajKX3Otl9egfIbTnPBsr49wf7pDZHsO

Podcast #115 – Flipping to passive rentals with Mark Ferguson

YouTube 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________

Aside from blog, owns 15 rental properties in Northern Colorado generating $7K/mo passive income.

Harder to cash flow around Denver. Looking out-of-state.

Since Sept 2015, has not purchased new SFH. Focusing on commercial, flipping, which was best use of time.

Always demand for low-end flips (less risk v. high-end).

Write own goals, don’t rely on other people, and think differently to develop himself.

Don’t C.E.F. – especially if you’re not a contractor.

Some opportunities in purchasing primary residential properties, but not going to stay there forever.

If you want to be creator and sell houses full-time, get a real estate license. If part-time, not really recommeneded unless you own a couple properties already and can expend time.

Goals for more passive income ($100k/mo) and freedom = happy.

Change your mindset and try. Otherwise, you’re stuck where you are (ex: frugal). What’s your motivation and dreams?

Let people drink their haterade.

Tough to let go, but happier to save time by hiring out on blog, website, e-mail, property management, etc.

Not a tech-savvy guy, but build blog and all that SEO!

Wished more good people to hire directly instead of 3rd parties.

Don’t force yourself to buy something – especially in a sellers market.

Are you taking action that’s getting closer to your goals or treading water? Take time for yourself.

Always lot of stuff to do, but don’t stress about it. A couple mistakes or not getting things done will not ruin you.

First blog comment was fulfilling. Drives motivation on how to help give back to others.

Check out www.investfourmore.com and podcast. 453 articles and 117 podcasts.

Contact info: Mark@investfourmore.com

 

Podcast #114 – Jennifer Beadles – Turning Active income into passive income in a Primary market

YouTube Link: https://youtu.be/KrOhA6xv6rc? sub_confirmation 1

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________

Income has a cap
Bought first house at 21
Take business profits into buy and hold rentals
Say out of Seattle
Mount Vernon WA
Tell the agent in super simple terms
Comments on meetups
Should i get started now?

Podcast #113 – Buck Joffrey – Medical Surgeon gets fired and goes into freefall

For the limited offer coaching from Buck and program: Simplepassivecashflow.com/buck

Video Version: https://youtu.be/jq0MhXDEzzA

Audio Version: https://youtu.be/TUmVLqNNtlE

 



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________

 

We heard you on podcast 17 and you told your story – http://simplepassivecashflow.com/podcast-17-serial-entrepreneur-dr-buck-joffery-wealthformula-podcast/

Hearing your story high paid doctor. Describe yourself as an employee?

Great butt kisser

Lane’s getting fired story

So you were fired what gave you the security to not go back?

Lane’s getting fired story

 

http://richhabits.net/catastrophes-reveal-inner-greatness/?mc_cid=610082b2da&mc_eid=a129173ca3

 

Why professionals are trained to go through the system

 

The two excuses why not to leave the professional system

 

Wealth formula – Mass (money) x Velocity (Leverage) = wealth

 

You need to make money

 

What happen to assisted living project?

 

Taking shots and trying things out? Where is the transition point from taking singles to going to homers?

 

We are talking about Jorge from Simplepassivecashflow.com/ahp

 

SPC listeners are usual creatures. Get me in a room with a bunch of W2 workers talking about their frequent flier miles and their cars and I’m completely turned off. What are your thoughts on coping with this?

 

What are some ways you teach the entrepreneurial spirit with your kids?

 

What if they just want to work for the man or do peace corps?

 

Simplepassivecashflow.com/buck to get the free 1-hour coaching offer from Buck.

—————————————————–

 

Our worst W2 moments which were our Han Solo Moments

 

How to make it as a medical professional? – Kiss Butt 😁

 

We are robots.

 

For more content go to Simplepassivecashflow.com/buck

QRP – Qualified Retirement Plans & Free Book

If you have a 401K or Roth or IRA you need to start using a QRPs or qualified retirement plan!

If you are running low on cash because you have been picking up deals left or just broke because you have been listening to mainstream dogma and you have money in your retirement plans this is for you!

Damion Lupo was a previous guest on episode #40

Here is the webinar! Enjoy and send me questions to post the answer below.

If you are late to the game of investing in alternative investments like real estate (imagine that) and already have a large 401K over $100,000 then you should convert it to a Solo401K or Solo401k Roth version. At that point you can slowly take money out to minimize your taxes (not go into the highest tax bracket) and invest in the meantime as you “leak” the money out of the Governments control.

***Updated 9/2018***

My order of contributing to these (future money) accounts after you take of (today money) regular liquidity. [I suggest per hour Coaching]:

1st QRP – contribute at least until the match.. 100% return

2nd IRA – Flexibility to self-direct

3rd SERP – liability of the employer.. pays out when you leave or after retirement age or a designated age in the future

There are a couple caveats to point out:

  1. When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using the QRP loans get you the second tier financing options, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!
  2. QRPs like your 401Ks or IRA accounts is pretty much locked up until you are “old”. There are some provisions to get the money out when you are 45 years old but you need to eat today. So I recommend a holistic strategy of blending your investment funding from both QRPs and you regular liquidity. We can likely discuss this in a quick 1-hour coaching call.

Info on using retirement funds for syndication deals:

Question: I am considering investing in a 506c investment on a multifamily property. They are raising a 1 million from investors, then getting a loan and making improvements to the property and repositioning it over 5-7 years. I wanted to use my funds from my SEP IRA which is currently in a qualified intermediary trust. What is the UBIT tax? Will I be subject to that on this deal? Also, should I set up an LLC that then loans the money to their LLC? How can I structure this for tax and liability benefits?

Answer [Note: From CPA and not this is NOT legal or professional advice]: When you invest in a business (syndicate = business) with your IRA, the IRA will be subject to UBIT (unrelated business income tax) and UDFI (unrelated debt-financed income).

For our purposes, UDFI is produced when an IRA uses debt to purchase real estate. Essentially, the portion of the property’s income considered UDFI is based on the percentage of rental income derived from debt.

For example, Property A is purchased for $100,000. You put down 25% of the purchase price as a down payment and finance the remaining 75% with a traditional mortgage from the bank. The property produces $10,000 in net income for the year. $7,500 (75%) of the net income is considered UDFI and is subject to UBIT.

There is a deduction for the first $1,000 of income subject to UBIT. Income subject to UBIT over $1,000 is taxed at trust rates. For 2017, trust tax rates start at 15% and max out at 39.6% after just $12,400 of income subject to UBIT.

UBIT is paid by the IRA account. If for whatever reason UBIT is paid directly by the taxpayer, the amount paid is considered a contribution to the IRA.

Follow up question: Is there any difference in how the UDFI will apply for these:
1) SD IRA
2) SEP-IRA
3) Solo 401K
4) SD IRA (operated as an LLC) so this one is confusing… My LLC owns an LLC (syndication) which owns a property such as 150-unit on 123 main street

Question: I’m trying to decide if one is better than another for tax purposes?

Answer: The solo 401(k) is not subject to UDFI but it subject to UBIT. The IRAs are all subject to UBIT and UDFI. Note that generally the passive income flowing back to you is very low and the, as a result, we don’t see a huge UBIT tax.

Another idea would be to take a debt position (lending) rather than equity. The interest you would receive is free of UBIT and UDFI tax.

(This suggestion of a “debt” position or note investment with the SEP IRA to avoid UBIT and UDFI tax is a creative one… but it’s a very low chance of happening because it’s just too complicated and honestly not worth the effort from the syndicators’ side. It’s a very similar case of to a Tenant-In-Common (TIC) arrangement where an investor has 1031 exchange funds and wants to parlay that money into a syndication. It’s possible but from the syndicator’s perspective a lot of unneeded work when you can just raise the funds the traditional way. Caveat: if you are bringing in a huge amount of money say 50% of the raise then that might tip the scales in your favor)

Ask you can tell this is a really grey area. One CPA mentioned, the answer depends on how you structured the syndication, UBIT may or may not apply for the real estate holding for solo 401k. I would really try to toss the Operation Agreement to your individual CPAs to examine and determine ahead of time as I am not a CPA 😉

Caveat: If you are late to the game and already have a fat 401k then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it.

So if you are going to have one of these QRP accounts since you have an old 401K or old retirement accounts want to self-direct it in good investments and don’t want to take a huge tax hit right away set up a Solo401k or Checkbook control.

Action Items:

  1. Get a quick pay per hour coaching call to see how this plays into deals coming up in the Hui Deal Pipe Club.
  2. Get set up here or ask me for a warm email intro.
  3. And get the free book on QRPs!

 

Here are the podcast notes:

To get to know Damion more go to SimplePassiveCashflow.com/damion

I have been having a lot of calls with listeners having exhausted their liquidity and have money in their 401K or IRA’s still in Wall Street Investments.

One of those ways to get the money out is via a QRP or Solo401K.

Today’s guest Damion Lupo with discussing – SimplePassiveCashflow.com/qrp to get a free copy of his book

I cashed out my 401k because I figured I was going to pay the taxes anyway and my tax load would be a lot higher in the future and I wanted access to my money before retirement age.

Visit CrowdfundAloha.com – a website dedicated to helping hard-working middle-class people build real estate portfolios.

$26 trillion in retirement plans. You have all sorts of money that can be tapped into, but fear holds you back.

As an investor, Damion has purchased 150 houses in 7 states ($20 million portfolios).

2008: went from $20 million to -$5 million. Had to start all over.

Beyond money, find out your why. Read Simon Sinek “Find Your Why.”

Mission Statement: Free 1 million people from financial bondage.

I.R.S takes 70% of the average person’s money.

The QRP (Qualified Retirement Plan): “The Ferrari of 401(k)’s.”

You probably haven’t heard of QRP as Wall Street tends to control your stuff.

QRP allows you invest in many real estate options (syndications, lands, rentals, apartments, commercial, international deals, HML, etc.).

Total control, fixed fees, endless choices, and FAST with QRP v. Self-Directed IRA. 10X contributions and control with no custodian.

SDIRA will lose 1/3 of profit as UDFI triggered. QRP – Roth has no UDFI – keep 100% profit.

Can keep 401(k) at W-2 and sign up for QRP. Max contribution would be $55,000 in combined plans – $28,000 in the QRP.

QRP can hold other non-real estate investments, such as gold, silver, Cryptocurrency, etc.

Build-in credit line in a QRP. Up to $50K in cash.

Investors, self-employed, and family members are all qualified.

Properties you have or use right now cannot be placed moved in a QRP.

To fund, can rollover any IRA, 401(k), +TSP, 403b, 457.

66% people are worried about not having enough money for retirement.

Free copy of QRP book at www.simplepassivecashflow.com/QRP

SPC110 – My Story – Evictions, Flip Project, Market Updates

YouTube Link: https://youtu.be/BXbgwbCcTnw

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________

Dealing with an eviction:

“Hi Lane! I delivered an evection notice to tenants yesterday and had the opportunity to speak with husband at the door. He stated that he and his wife had both started new jobs and would be able to make one full payment in a week (this was the story for seemingly a month or two) and would be able to make a partial payment in 10 days. Before we proceeded forward with an agreement, wanted to see if that works for you. They are currently $3,000 behind before for a total of two months.  

Here is what I did…

I okayed the concession to give more time. I requested some sort of proof of new job status (a hire letter or email). I am more than willing to work with people… These have been long tenants of almost a couple years and B+ /A- home that rents for $1500 a month.

Caveat… I am really near to selling these properties this year and don’t really want to rock the boat in terms of enforcing long-term behavior.

Revamping my turnkey rental content – simplepassivecashflow.com/turnkey

I have currently sold 2 of 10 SFH rentals (P&L offer)

One of them Columbia is had $27K to get back online. Going to pay 37K to sell retail.

Another property Riverwood just went vacant. Going to pay 20-30K to sell retail too.

  • Talked with my team – PM, Contractor, couple other hui members
  • Is it a good area to go retail
  • Will I recoup capital overlay based on comps

Soon I will unrolling my private lending platform. CrowdfundAloha.com! So if you are looking for a 1st lien property with my partners let me know. We are talking about even providing turnkey services.

This is not really a money making things cause the margins are just really tough these days.

After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees… For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you… but just remember why we got into this… To be free from a JOB. A lot of us (80%) who stumble upon simplepassivecashflow.com and start drinking Kool-Aide will be financially free in 4-7 years pending taking action. So I always urge people to start with the end in mind and take a more passive approach.

Do the math here… you with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

Looking at some deals. So folks in the Hui Deal Pipeline Club (who have reached out to me and built a relationship) will see those really soon. 😛 I hope I have enough liquidity… I might need to borrow some money 😛

Single Family Homes becoming a legitimate asset class – Spring 2018 Conference

The lending requirements and new loan products is slowly changing. I know a lot of you have heard that Short Term Rentals (Air Bnb) income is starting to become part of the loan calculations.

Something I’m following is lending on large portfolios of single-family homes. Some of the highlights:

1) up to 10-year term with 1.25 DSCR

2) portfolios minimum size of 50 properties

3) assumable

Pilot program details download here – https://drive.google.com/open?id=1aTIbru2HEPbw_KLHTvU5-Iyk0aoQB8Gx

Look even a SFH conference – https://drive.google.com/open?id=1cI15DnBUn8LRA54NTCh667exeR3OtlIu

Other Fannie Changes – https://drive.google.com/open?id=1WumUWsduuLnHqDi6IJXNipX7IsT9AUFa

AirBnb lending requirements loosening

I read this following article that described rent concession in a few major cities that I like as apartment markets.

http://www.nreionline.com/multifamily/more-apartment-landlords-offer-free-rent-lure-tenants

Here is another article citing industrial as the sector to be in:

http://www.nreionline.com/industrial-cre-market-study/exclusive-research-clear-sailing-industrial-sector-through-2018

My takeaway is that this is important to monitor especially if you are developing because this is a leading indicator of softness in the market. It might be economic reasons or just because a bunch of new build inventory is coming online in that area. Either way…

Robert Kiyosaki has a saying, “there are three sides to a coin”.

People argue that its a good time to buy or bad time to buy. For example “mfh” is overheated or commercial is getting killed by Amazon and e-commerce. I think these are mental justifications by tire kickers not to do anything.

Sophisticated investors live on the edge of the “coin”. They buy deals out our reach of amateurs due to the lack for network/knowledge. These opportunities are undervalued, with undermarket rents, with value-add opportunity.

They are patient and don’t stray from standards that make them get crushed in a market correction. (Cashflow from other investments make 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 crushed a market.

The trouble is as an outsider is figuring out which of these deals transcends the two side of coin and is on the edge. And starting out its going to be slim pickings due to lack of network but you have to push through this rough part.

I am from the camp that you need to become an expert or get beyond the surface level investor stuff in some freebie pdf guide or video. Or just find the right people to work with. To many people get shinny object syndrome and float from sector to sector, from a money-making activity to another, read book after book and never get anywhere. You see these people at a lot of networking events. There is a lot of movement but no tangible results. This is where coaching comes in but for some people not able to get over having another person call them out on their BS you need to get laser focused and take massive action or quit fooling yourself.

I’ll be at the notebuyerbootcamp on the panel for syndication in Chicago next week. Notebuyerbootcamp.com

Turnkey Rental Wisdom (2012-2018)

Dear prospective turnkey investor,

The following is my constantly updated guide to turnkey. (Updated 4-2018) Email me for any additions or feedback. In the spirit of the Hui Deal Pipeline Club where we crowdsource due diligence together!

I don’t flip or wholesale or do any of that. I have a w-2 job and not looking for another job or chore. I am all about leveraging my money and more importantly, time. For people like you and me who live in places (Seattle, West Coast, Hawaii, East Coast, to name a few) where the Rent to Value ratio is 0.5% or less we have no other option. It drives me crazy when the Real Investor Peanut Gallery (internet forums know for big pockets small wallet) say we are overpaying… well if I didn’t have a life and I had the time to lick stamps and swindle distressed buyers I could buy a distressed property at discount too and probably do it better 😉

I don’t know about you, but I have full time professional job that earns more per hour than most folks even in real estate and more than these Turn Key providers do. So I’m like sure… I’ll pay retail and rely on their volume and expertise. But you have to find the right ones. Investing for cashflow is not a get rich quick schedule but a prudent way to build lasting wealth a few hundred dollars at a time.

Update – 8-2018 – Almost done selling the rentals on Roofstock!

Today I buy apartment buildings like this 193 unit in San Antonio where I work with deal finding specialist on my team but it took me almost ten years to get there.

 

When I started this blog/podcasts I was totally into these Turnkey Rentals. I even started to blog on a couple of them in detail:

Rental #4 – Birmingham

Rental #5 – Birmingham

I moved onto bigger more scaleable assets mostly because of stuff like this happening every few months:

“I do have some unfortunate news.  My crew showed up this morning and there was an empty police car in the driveway along with a note from the officer.  Overnight, the outdoor section of the AC unit was cut and stolen (no sign of breaking in).  My crew said he spoke with the neighbors (to the right of the home) and at about 1-2 in the morning a black truck was going around the neighborhood cutting AC units and taking them.  The neighbors called the police and they came out to do their work.  I called the Dekalb County Police and asked them what I would need to do and what the next steps are.  They said, if we want a copy of the police report to come down to the office and present them the case number and if there is any news they would let us know.  I have attached photos of the card the police officer left along with photos of the damage.  It is very unfortunate and I do apologize this happening.  The AC just got inspected and serviced yesterday and everything else is running smooth.  I am waiting to hear back from the HVAC tech about what it is going to replace the missing unit and repairs to the lines, once I receive the service report.  I will be sure to keep you up to date with any news or information.  Please let me know if you have any questions.  Once again, thank you for your time and I do hate that this has happened.”

As much as I poke fun at the asset class and jokingly call it “turkey” instead of turnkey rentals it all started here and is the foundation of my investing portfolio.

 

When I first started buying the rehabs done by the turnkey guys in the blue collar areas, if you posted “hey I’m looking for turnkey” in the forums you get the usual suspects soliciting you for marked up properties. It’s off market because they rehab it for the investor with more durable and less visually appealing materials than your normal retail product. I’m all for the wholesaler to make money because they do spend a lot of time and money on mailers and advertising but the layers of middlemen who add no value is excessive and is almost as bad as Wall Street.

I bought my first couple rentals back in 2009-2012 in Seattle (Primary market/no cashflow). As the prices started going up I was forced to go out of my comfort zone and purchase out of state rents because I needed cashflow in order to achieve my goal of replacing my W2 income as an engineer. I bought one I Birmingham, without seeing it and set up a professional property management company to manage the day to day. That was proof of concept for me to sell my two Seattle rentals and buy 9 Properties in 5 Months via 1031 Exchange.

I work with a lot of engineers and a lot of them say they get analysis paralysis because they like data. I call them out of it and tell them they are just scared and losing $500 of opportunity costs and time per month! A real engineer would look at the numbers. IF rent minus expenses (with contingency) minus mortgage is greater than THEN fricken do it!

Example of capital expenses that need to account for in your expenses and contingency.

Let me be clear, I don’t flip or wholesale or do any of that. I have a W2 job and not looking for another job or chore. I am all about leveraging my money and more importantly, time. For people like you and me who live in places (Seattle, West Coast, Hawaii, East Coast, to name a few) where the Rent to Value ratio is 0.5% or less we have no other option.

It drives me crazy when the Real Investor Peanut Gallery (internet forums) say we are overpaying… Our time is better spent at our high paid professions that we busted out buts going through a couple decades of schooling for.

My full-time professional job that earns more per hour than most folks even in real estate and more than these Turn Key providers do. So I’m like “Sure… I’ll pay retail and rely on their volume and expertise.” Its all about leveraging your highest and best use, which maybe your day job.  Sorry.

The problem is that you have to find the right property and people to work with. And have a mentor so you are not getting screwed. Investing for cashflow is not a get rich quick schedule but a prudent way to build lasting wealth a few hundred dollars at a time.

When I first started buying the rehabs done by the turnkey guys in the blue collar areas, if you posted “hey I’m looking for turnkey” in the forums you get the usual suspects soliciting you for marked up properties. It’s off market because they rehab it for the investor with more durable and less visually appealing materials than your normal retail product. I’m all for the wholesaler to make money because they do spend a lot of time and money on mailers and advertising but the layers of middlemen who add no value is excessive and is almost as bad as Wall Street.

“I don’t work with top tier turnkey providers…. For the same reason I don’t buy a Dyson Vacuum.. I’m cheap and buy value and buy the sub-100 dollar Shark brand from costco with the excellent return policy.”

These days’ people in the Hui Private group are not on internet forums. They say its 95% of active people who are not high paid professionals and marketers. Here is some of the chatter:

 

The most important thing to do is to grow your network.

So you can bounce ideas off other investors and not a salesperson. I still do free calls but please review the free content I have put on this website first. No, I do not just give recommendations to good people to buy from because things change and I am not going to throw my brand around like that. And by the way that’s an “ask-hole.” I know your character and the trajectory of your success but how you add value to others first instead of taking first. Some people are unaware of this which is why I’m saying something so I aplogize. This could be the reason why people are not helping you out and you feel like a lone wolf.

Webinar with 2018 trends is sent out to Hui Deal Pipe Line Club members sign up below:

I don’t really see much difference in the secondary markets with robust economies (Memphis, Kansas City, Birmingham, Atlanta, to name a few). I have tried to set things up so my different markets complement each other. For the most part I buy in the 1.1-1.3% RV range. I take home 70% in 2015 but now in 2017, I buy in the 0.9-1.1% RV range and take home 60% of the rents after all expenses (vacancy and Cap ex).

I made this diagram in 2016 and it illustrates some of the popular “secondary markets with robust economies” that a lot of out of state turnkey buyers like to invest in. Things have changed a little but as you can see you can either have appreciation or cashflow. It’s tough to get the best of both worlds.

I stress NOT to spend too much picking a market. If you sign up for the newsletter as a Hui member you will get more than enough data to create analysis paralysis. The biggest thing you can do is vet the people. As you can see the same principle is what I use in my syndication due diligence: 50% people & 50% the numbers of the deal.

There are three ways to purchase a turnkey rental:

  • Marketer – I would not recommend going through a marketer, they don’t even invest themselves and they did not add any value. The only one I can recommend is Marco but that is because I know like and trust the guy. By the time I bought my 3rd rental I knew way more than those folks did. Unfortunately, I probably overpaid by a few grand on each of those first few properties not knowing what I don’t know, Work with me only if you want to compress time and want me to look over your shoulder to get my unbiased opinions and guidance. Plus you will be setup with a plan and not shoot yourself in the foot like I did by buying a dozen non-scalable investments.
  • Direct from Turnkey Provider – You cut out the middleman and go direct to the source, theoretically getting the best price. Just know that you are not represented by a broker who supposedly has a fiduciary responsibility to you. (BTW never trust a broker) The transactions are done with their paperwork and their rules. They are the pros and it’s dangerous for a newbie to go down this route. There are household Turnkey Providers (TKPs) out there but I call them the “Prada of Providers”. You pay for what you get and often times more than what it’s worth – I’ll just say you are paying over 105% of retail.
  • Hybrid method – When I was going through my buying spree in 2015-2016, I was going (off market) via an agent that had a fiduciary responsibility to me to check all the BS that the providers give you – this is what I recommend only after going through the process a few times. Usually, the agent helping you is not an investor and does not really know what type of amenities/floor plans and locations are best for rentals. You will need to drive the ship. Note: I see brokers all the time trying to sell junk to new investors.
  • Another cool site out there is Roofstock which is where I sold my turnkey rentals to step up to syndications. Use the link get a $500 credit when you register… They give me $50 credit but I don’t think I will buy another turnkey rental again ;P

You seemed bored reading… There is no such thing as turnkey. Check out these disaster photos from an eviction that ended up being a $37K repair bill… https://photos.app.goo.gl/R4PZLuOLGHONO5Rl2

As I was in the middle of my 1031 buying spree (#6 of 11), a lot of TKPs started to come out of the woodwork and offered their properties to me and gave me the royal treatment (discounted prices from what they normally offer). I got to meet a lot of them via meetups and national conferences because I had this podcast and they were interested in getting at the Hui Deal Pipeline Club ecosystem. Since I was pretty experienced and they liked working with me they offered me referral fees to simply send guys like you over to them with a simple “CC’ed” email. Sort of like a referral source where they would give me $1000 per home sold. I thought it made sense for them because it was a lot cheaper than paying $6000+ to a Marketer (#1 above), but as you know when you go with a marketer or this sort of referral program the buyer (you) don’t really get any value add. That said if you want $500 credit at Roofstock use this link.

Personally, I’m not really into picking up $1000 referral checks and passing you off to the TKP (never to hear from you again) since I’m more looking to give back to other investors and build my network for my larger syndication deals in the Hui Deal Pipeline Club. I think turnkey rentals are ok for people starting.

After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees… For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you… but just remember why we got into this… To be free from a JOB. A lot of us (80%) who stumble upon simplepassivecashflow.com and start drinking Kool-Aide will be financially free in 4-7 years pending taking action. So I always urge people to start with the end in mind and take a more passive approach.

“I have B- class rentals and high that rent for at least $900 a month and I am still having a hard time selling dang properties to other cheapo investors”

 

Do the math here… you with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

I currently work with one business who I can align with because they offer sort of a hybrid between the marketers (I know you know the reasons why to stay away from them) and going straight to the TKPs since you lose a lot of the protections when you do that and it’s sort like signing agreements in the “wild wild west”. The reason I do it this way is that I get a licensed agent that has a fiduciary responsibility to your best interests and guides you through the transaction as you buy through the TKP. Basically, it’s like having MLS agent to cover you for the off market deals. All the properties are aggregated from only the good TKPs and the same price that you will find on the weekly digest that is sent out by the local TKP. This is the way I buy my properties and if nothing else it’s good for browsing what’s out there.

Can you please recommend a good turnkey provider? You said you would help…

The short answer is not really. A provider will try to size you up and try to pull a fast one on you when they get the chance. I will not endorse anyone! The only way to protect yourself is to network with other investors by providing value first – if you are a cheapo. If your net worth is over $300K, have at least $50k liquid, and have a time crunch (kids) I think it’s a no brainer get me on your team and stop screwing around.

There is really no reason why you cannot put in an offer on a property and start collecting $300 a month with a $25K down payment in under 90 days. Someone who is still “reading”, “contacting investors”, or “picking a market” frankly lacks focus (finish one course until success) or scared of making a move. Every day you don’t do anything is $500 a month of opportunity costs!

My rentals in Seattle were cash flowing each with $600-800 a month but it was because I bought at the right time and I did not look at the numbers like a sophisticated investor does. Although my cashflow was good (bad in terms of percentages) I realized that my return on deployable equity was very low, in fact it was under 5%. Now each rental I get typical cash flows by $350 but I think of it like $250 to be conservative and more importantly, my money is not being lazy. I think if you’re making less than 8 percent you’re better off in the stock market despite my aversion toward stocks or mutual funds. A sophisticated investor does not say “well… at least I’m able to cover my mortgage”. They are constantly monitoring their return on equity.

I wasted a lot of time in 2012-2013 looking for rentals in King, Snohomish, and Pierce County (Washington state) and nothing cash flowed. I still have the spreadsheets where I underwrote how crappy the Cashflow was. Now prices are even worse.

I helped dozens of people with this out of state investing game and have pretty much figured it out after making a bunch of mistakes that I didn’t realize till later – this is why it makes me laugh with the “do it yourselfers”.

One mistake I see people making is going after these sucker properties that only can be sold to “Californians,” “Hawaiians,” or any rich person not from the area perceived to have trees that money grows on, from a trust fund, and drink seven Mai Tais on the beach everyday. (Personal Note – I have lived in Hawaii for about six months now and I have only been the beach twice).

These types of people (not follows of SimplePassiveCashflow.com) like to pay a plumber for ten hours to fix a small toilet leak.

Sucker properties are in the wrong area that none of the locals would touch with a ten-foot pole. They are C or D class properties that the Broker calls “B-Class or good area” and usually cost sub $60K for $750 rents a month.

“It may look good on paper but stick to rents that are higher than $900 a month”

The second thing I see newbies doing is buying 2-8 unit properties after hearing all the good things about multi-family and scaling. I think most highly paid professionals will graduate to syndications (which is why I structure business and own investing around them) and therefore will need to sell these SFHs to move up. The exit strategy on selling 2-8+ just is not there. They look good on paper but the exit strategy kills you. If you are thinking you are going to hold on to these properties for cashflow for 7+years think again because that is not what sophisticated investors do because they monitor their ROE and they know the cap-ex tidal wave will hit them in year 5-12 taking back all those profits from the earlier years.

How many turnkey homes are people buying. Here is one data set I found from one popular turnkey provider. Takeaway – most (82%) get a few properties and the rest don’t get it or are too lazy.

The main thing is building the relationships and knowing who has the integrity out there. More importantly, you have to buy a few and go through the process of buying/selling and operating a while to learn how this mouse trap works. Tactically, it’s no different than what I have learned in corporate America (although I’m trying to leave the rat race) by setting expectations and keeping people accountable via email remotely. Trust but verify and financial freedom will be yours.

 

Frequently asked questions:

FAQ from past coaching clients and questions you ask:

Where is your spreadsheet with turnkey providers because I am lazy and want to just copy what someone else does?

That might have been smart a few years ago but things have changes and good providers have gone out of business or more expensive. You don’t need to be a super active investor but by not putting a minimal amount of effort you are shortchanging yourself the necessary lessons that will minimize a big mistake down the road. If you need the provider list sign up for the Hui Deal Pipeline club and it is in that share drive.

What’s the deal with REI Trader and the partnership with Simple Passive Cashflow?

I would do your own due-diligence and learn about rentals by talking to as many people as you can.

I know eventually you will find that working with my team is the going to be the optimal path forward as I am committed to mentoring you as an investor so you will continue on this investor journey to bigger and better deals.

I stand behind REI Trader and support you through the entire buying process – I don’t just pass you off to the Turn Key provider and say peace out…

The properties have good value for the purpose of rental real estate. The due-diligence that we do after the purchase contract is signed is the secret sauce and the unfair advantage over other turnkey options. Yes, there are a few perennial Turn Key companies however you will pay over market rates (110% retail).

The broker that helps you with boots on the ground with REI Trader is property agnostic. In fact, they don’t care if you buy that property or not.  We know you will buy the right one eventually.  We want to build a relationship with you the investor. Most clients buy one property, come back for more, and tell their friends.

Where do I find tax information in Birmingham?

http://eringcapture.jccal.org/caportal/CAPortal_MainPage.aspx?IsHTTPS=0&IFrameURL=CA_PropertyTaxSearch.aspx

Should I be concerned about a septic system?

Do you know if it was inspected after you purchased? What future maintenance should I expect? Will the property management company know when it needs regular maintenance?            A lot of properties have septic in Center Point and most PMs have this down to a system. We went through this including myself as before.

On another property the investor hired his own septic tank inspection. They checked in and said it was not working but when we sent our own service out to reconfirm, it was working as required. Often some of these third-party services are not as honest as they should be with out of state buyers. Regardless, the home warranty you receive covers septic service. This is just an FYI for future purchases where a septic tank is involved. This property is on city sewer so we don’t have these issues.

How much and what comprises the attorney’s fees that will be split 50/50?       

Typically, on financed transactions it’s about $650 split 50/50.

What if there are issues getting an inspection(s) completed with tenant in place?           

This is an issue with the seller not being easy to work with and could be grounds for you to back out.

If there are delays, we then have both parties agree to an extension of the inspection period with an addendum. Only time this happens is if your inspector can’t inspect and provide report back within the 14-day period.

How do I decide on an offer price?

Property in good condition and in a good area that meets the preliminary numbers go fast. Dude, it’s a sellers’ market and anyone can swoop in and grab it. I have seen the amount of turnkey buyers go up exponentially in the past few years as everyone is jumping on the band wagon. News flash incase you missed it… Real estate has been good for the past decade.

From the rehabber/flippers prospective to complete project geared more toward the retail buyer to take part of the emotional buyer market. Selling to cheapskate and annoying investors like us just does not make sense on many fronts. So don’t we a whinny investor and don’t try to make like you have leverage.

Properties that have a tenant in them are often owned by investors and non-owner occupied owners. The good thing is that it’s a numbers game and they have a profit that they are looking to get. The bad news is that the property performs as an income producing asset (that’s why you are buying it) and the sell is content holding on to it indefinitely – after all it cashflows.

Turnkey sellers will allow minimum flexibility on their pricing. Remember, they don’t have to sell and sometimes it does not make sense so move on if that’s the case. That being said, the average discounts I have seen is about $1500 off asking price. Seller is asking $69,900 and I would suggest initial offer of $67,000 and see how he responds. Point is know what is a deal and know the price.

How to handle property inspection report          

You really need a mentor or have someone look over your shoulder who has done this before and knows what is fair. Here is my advice:

Have a 5-10 minute call with the inspector. Tell him “look I know we aren’t going to get much more than 2-4K of repairs” so…

#1 would you buy this?

#2 what repairs will bite me in the next couple years?

#3 what is the best use of 2-4 of work?

#4 do you have any contractor contracts I can have?

Take this to the seller and negotiate but just know they have a line around the block waiting to buy their property sight unseen. Even without appraisal and all cash.

I want to make my own turnkey company? I know a rehabber?

Here is a spreadsheet with the math behind making your own turnkey company.

I think multi-family properties are my future 1-2 years from now.  Would you start 4-8 units or get a partner and go bigger?  

This depends on your trajectory (how much money you have and earning ability). High paid professionals I work with are going to go into bigger deals I would recommend going with SFH because you will likely sell in a few years and vault into bigger stuff. 2-8 units have a horrible exit strategy as only people who want them are cheap investors. “looking for a deal man!”
My buddy FI Fighter also calls these Turkey rentals too but I disagree with his sentiment about going for the “best assets.” I believe you can invest in undervalued value add Class C and B assets as long as you have a capped time horizon. This is why I like to look for 1975-1990 properties because our business plan is the squeeze out the last of the value of these properties with still having high single digits of cashflow as the hedge to a downward turn in the economy. You can’t really do much with a 1960’s property. You really have to go through 500-1000 deals to find one of these and you are not going to find these being in the game with only 6 months of experience and no track record. This model is not infinitely scalable (and too small for the institutions to bother with) but what small sophisticated investors are quietly doing in the 2-8 million dollar asset range.
Setup a short coaching call because it will be worth it. Don’t be like me and buy 10 of these sfhs because it will be a pain to sell them later to go into more scaleable syndications.

 

Here are more resources:

  1. *The Analyzer Video Walk Through- https://youtu.be/qr8M6NMBhRw
  2. *Download 2018 Buy & Hold Analyzer Spreadsheet – https://drive.google.com/open?id=1kMAn962d52UN-ObKNWmjT11z6gqATR1I
  3. *SPC005 – So you want to buy a Turnkey Rental – http://simplepassivecashflow.com/podcast-5-so-you…a-turnkey-rental/
  4. SPC014 – 22 questions to ask a turnkey provider – http://simplepassivecashflow.com/podcast-14-22-qu…turnkey-provider/
  5. SPC015 – 9 Turnkey listener questions Part 1 – http://simplepassivecashflow.com/podcast-15-9-turnkey-listener-questions-part-1/
  6. All the SFH related material – http://simplepassivecashflow.com/tag/sfh/

Refer me to a friend via email and I will personally send you both my spreadsheets of usual suspects of turnkey providers plus the questions I used to ask them for due diligence. And let me know if you would like a referral to my exclusive partners.

Here are the books I think you should read before moving forward.

***Put a red circle on your calendar 60 days from now and see where you get… and how much of your family’s time you waste as you consume websites, books, and podcasts.

You know what I mean ‘Jelly Bean’

https://www.youtube.com/watch?v=BOksW_NabEk

“I started the Hui Deal Pipeline Club because I want to see each of you get to your goals financially so you can focus on what is really important to you. There are other fundraisers out there that will train their investors down to 10-15% IRRs on crappy deals and do “deals to do deals” or to pick up acquisition fees. Between investing alongside you folks and wanted to grow my track record the right way with the best product I know you guys will keep coming back and bring your friends.”

Loan Consolidation

Do I pay off my student loans or invest?

It depends… What interest rate is your debt and how much is your return rate if you invested.

From the macro sense if your rate of return from investing is higher than the rate of interest you pay to your debt servicer then you should invest. Duh. It’s simple. If you don’t get that then that’s what’s coaching for.

Sophisticated investors are able to make 30%+ annual returns with simple rental property (More info – http://simplepassivecashflow.com/returns/). The right choice there is… Invest! What are you waiting for?

Beware your problem might be lazy equity (SimplePassiveCashflow.com/roe) and the opportunity costs are eating you alive. Oh, the cost of ignorance!

All too often I just see this “student debt” or “debt” as a really lame excuse not to get started.

Below are a few affiliate links to loan consolidation companies that can help simplify your debt payments and get your focused on making more money instead of paying off debt.

I tell people you want to minimize your money paid upfront and put money into investing so you want to structure your payments to be more drawn out. Don’t worry too much about the interest rate. Loan consolidation also makes things a little easier because time should be spent on more meaningful things than sitting in front of a computer getting a handle on this stuff. This concept was discussed on Podcast #60 – #LaneHack – Lease Don’t Buy, Push money into the future and invest – http://simplepassivecashflow.com/podcast60-lanehack-lease-dont-buy-push-money-future-invest

Company Discount
ELFI $100 back to you
SOFI $300 back to you
Common Bond None
Lend Key $250 back to you
Splash Financial $250 back to you
Laurel Road $200 back to you

Feel free to share with that young guy at the office who is buried with student debt and looking down the barrel of a 40-year career.

 

 

Quantitative Tightening in Early 2019

Quantitative Easing created $3.5 trillion from 2009 to 2014

Now “Quantitative Tightening” is coming and will drain liquidity from markets

No launch date but says late 2018 but here is the Fed’s schedule

 

Do I think there will be a slight correction but the FED is trying to get back some “dry powder” to be able to stop a monumental slide? If there is a 10% plus correction the FED will go back to QE3-QE4.

In the end, don’t freak out just buy investments that are undervalued. If you are new well sorry you need a mentor or you need to push through lukewarm turnkey deals as fast as possible.

Podcast #109 – Fundamentals – Comparing Crowdfunding websites with Andrew Savikas

YouTube Link: https://youtu.be/gaPmkHukwiM

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

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

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

I’m doing some research on Crowdfunding sites (although I always prefer working directly with the operator as opposed to using these middlemen platforms). A lot of Hui Deal Pipeline Club members have been collaborating on this.

Have you used any of these platforms? Lets crowdsource deals and due diligence!

Here is a podcast I did with RealityShare – http://simplepassivecashflow.com/podcast-97-investing-via-crowdfunding-sites-open-country-club-chat-reality-shares/

As a syndicator I don’t like using these sites to raise funds because 1) I don’t have access to the investor contacts which totally kills the referral marketing for future deals and 2) we tried it on a previous deal where the Crowdfunding site committed to raising a small portion of our total raise and they fell on their face.. Not saying that the Crowdfunding sites will never be effective but at this time it is not a useful means for experienced syndicators who already have investors of their own.. So beware as an investor… its like trying to find a mate on Tinder (this is a controversial subject I know) but for many there is a reason they are on the “open market” and cannot attract “capital” on their own from their own personal network.. Just saying… 

“In the end, you want to buy direct as possible. Buying REITS is the same thing as buying mutual funds with a bunch of middlemen. Crowdfunding sites remove a few layers but as a syndication working with a Crowdfunding site is very expensive way of acquiring capital. Sometimes I wonder who are the people using this high cost of private equity… Perhaps they are “desperate syndicators?”

Fundrise & Realty Mogul have launched “eREITs” which tries to tackle investment vehicles other platforms are not capitalizing on.. It’s interesting to watch how they trademarked “eREITs”.. Definitely a sign where investing is going.. Again institutions controlling and taking a cut away from the little guy.. 🙁

Blackhat tactic 😉 – Some deals are put out to private networks (like the Hui Deal Pipeline Club) and these crowdfunding sites simultaneously.. Many times the crowdfunding site offers a 7% preferred rate where the direct source offering gives a 8% preferred rate… tricky tricky if you ask me.. Now one could backwards engineer this all and go around the crowdfunding site but still like I always say YOU DON’T KNOW THESE GUYS.. Syndicator’s are running around out there without any operator experience or portfolio of their own and doing deals with people just off referral.. A recipe for disaster if you ask me..

Here are comments from Hui Members:

“I’ve invested in 10 you have listed and am familiar with quite a few others.  The best on your list are yieldstreet.comgroundfloor.us and streetshares.com. I have had 12-14 % returns with all three.  Hedgable.com is also a good site for investing in the stock market.”

“Some of the companies have questionable backgrounds make sure you google ‘company name + sec infraction;'”

“Just too much default rate”

“You are right! If you can find private placements skip these sites altogether”

“Sometimes you can use these CF sites to find the deals and google the operator. Often times if the CF site has it as a say 8% pref, going to direct to the operator will give a 9% pref”

“Groundfloor – I have not invested money in them but I have taken 2 loans on the borrower side and the experience has been mixed. They are fairly young start up and have many of the issues associated with that – high staff turn over and regular process change which has made the process a little frustrating. The sales person who managed the start of the process moved on half way through the loan being set up which resulted in the amount of the loan being incorrect, the structure of one loan was correct and the other wasn’t (interest paid monthly not accrued until the end) and the timelines were off. The good: the interest rates are low in the space so they offer good value (6.5%), the points paid are reasonable (I paid 2) and the loan is not income dependent but based on credit score and the LTV and project itself which was helpful for my borrowing criteria. You have to provide a monthly update on the project and they hold you to this and so I get the impression they do a good job of protecting investors money. Would I use them again? I’m not sure! It has been a pain but I also appreciate that they are committed to doing better. I now have a good private lender which is easier for me to use so would probably go that route and use groundfloor as a back up if needed.”

“Crowdfunding sites allow you to diversify amongst private offerings via the internet.  The website operates as a Broker-Dealer role and the supposedly “vet” the deal and sponsor.. Supposedly… yea whatever in my opinion.”

“Here is my issue. I always prefer working directly with the operator as opposed to using these middlemen platforms.. A lot of Hui Deal Pipeline Club members have been collaborating on this”

The returns started around 15% using my criteria but have leveled off to about 8% since then and I expect it to remain as this level.”

“Lending Club – This is UNSECURED debt. This is also known as peer to peer lending.. Like a guy needs to borrow 3k for a table saw for his business or someone has a broken car.. Good user experience and the information on the dashboard provided is much more readable than Prosper.com.. One user says “my net annualized return is 12.37 % and Adjusted net annualized return is 5.6%.. Both information is easily readable on the dashboard and it gives an easy to read view of the payments of how much principal, interest, late fees.. Also gives a good view of the notes itself like issued, in grace, fully paid, late by 16-30 days.  It has automatic re-invest and liquidate quickly.”

“PeerStreet – Works like Lending Club but is Secured by real estate.. They also give you quite a bit of information on borrower as well as the property details (LTV, Stressed LTV, Improved LTV, borrower’s FICO, etc).”.

“Prosper – It does same as above Lending Club but not as good dashboard information interface.. It has automatic reinvest.”

“Yieldstreet –  It’s for accredited investors only – So basically for people who are Rich already!”

“Some of the more established crowdfunding sites are starting to lower their returns because they have achieved a good sized crowd.. It’s still a wild wild west space with many platforms/website jockeying for position.. Many are offering high rates of return and under-collateralizing themselves in my opinion for market share.. Beware some have fraud in their past so make sure you do a little Google-stalking to dig up the dirt.. When I evaluate deals for the Hui Deal Pipeline Club, I realize there are so many deals out there that if someone has a questionable past, I just move on.. Too many good people doing good deals to not be choosy.. This is a newbie mistake I see a lot in private placement investors that they marry the first deal they get pitched at a local REI meeting.. It happened to my partner who lost $45K and myself who lost $40K.”

“Overall what I hear from you folks trying this method of investing is that the default rate is higher than what is expected and the middle man (crowdfunding site) is getting rich here.. But hey if you are not good at networking these are the table scraps you get.”

Here is the list I am working with:

 

https://alphaflow.com
AlphaFlow helps investors build diversified real estate portfolios across the crowdfunding industry. Make informed decisions, faster.

https://agfunder.com
AgFunder is the premier marketplace for the most promising Ag and AgTech startups seeking to raise investment capital from accredited investors.

https://1000angels.com
Build your own venture portfolio, free of management fees or carried interest.

https://angel.co
Private single-deal VC funds led by top angels.

https://yieldstreet.com
YieldStreet connects investors to originators with deep expertise in alternatve lending.

https://bolstr.com
Invest in businesses you understand and believe in.

https://circleup.com
CircleUp lists companies for you to review across a spectrum of consumer product and retail categories. Browse or search our portfolio to find opportunities that interest you.

https://crowdfunder.com
Venture Capital: Crowdsourced. Invest in many deals at the same terms as leading VCs

https://www.crowdstreet.com
CrowdStreet provides superior technology solutions that enable all investors to directly connect, invest, and create wealth through real estate.

https://equitymultiple.com
Gain exclusive access to high-yield commercial real estate deals

https://equitynet.com
Use EquityNet’s patented technology to efficiently screen and analyze thousands of investment opportunities in minutes.

https://equityzen.com
Where Private Investors Access Proven Startups

https://farmfundr.com
FarmFundr offers an affordable way to own and invest in high quality farmland.

https://flashfunders.com
Invest in Companies You Believe In

https://fundable.com
Fundable is a powerful fundraising platform that enables Startups to quickly engage a large network of Backers to raise capital.

https://fundersclub.com
Invest in the world’s most promising startups. Diversify your investment portfolio with insider access to highly vetted startups from Silicon Valley and beyond in just minutes.

https://fundingcircle.com
Invest in successful small businesses.

https://fundrise.com
Real estate meets technology, with one simple goal: Earn better returns.

https://www.fundthatflip.com
Earn 10+% annual yield by investing in qualified real estate loans.

https://www.groundfloor.us/
Private lending, now public. Earn average returns of 10%.

https://hedgeable.com
We are the only digital wealth manager to offer curated investing in venture capital.

https://homeunion.com
Build a diversified residential real estate portfolio using HomeUnion’s end-to-end services of property selection, acquisition, management and sale to match your financial goals

https://ifunding.com
Revolutionizing Real Estate Investing. Individuals invest as little as $5,000 in institutional quality real estate.

https://investability.com
Find Your Next Single-Family Investment Property Now

https://lendingclub.com
Build a diversified portfolio that can offers solid returns, low volatility, and monthly cash flow

https://lendingrobot.com
Automated management of your existing Lending Club, Prosper, or Funding Circle accounts.

https://lendinghome.com
Build your own diversified, institutional-quality real estate portfolio in minutes. LendingHome offers high returns and durations of just 12 months or less.

https://www.lexshares.com/
Earn returns by investing in lawsuits

https://localstake.com
Connecting businesses & local investors

https://www.macrocrowd.com
We work with investment specialists who have vetted billions of dollars in real estate developments. These industry giants provide us with exclusive investment opportunities for our platform’s investors.

https://microventures.com
Get access to highly curated early and late stage investment opportunities

https://nextseed.com
Invest in exclusive, pre-vetted deals that used to be available only to the wealthy and well-connected.

https://www.ourcrowd.com/
Invest alongside trusted venture capital and angel investors

https://patchofland.com
Earn up to 12% on your real estate investment in one year.

https://peerrealty.com
PeerRealty is the premier real estate crowdfunding platform. Gain insider access to high quality opportunities with top developers.

https://www.peerstreet.com
PeerStreet is a marketplace that provides unprecedented access to high quality real estate loan investments.

https://prosper.com
Investors can earn solid returns by investing in personal loans listed on Prosper

https://realtymogul.com
Commercial Real Estate Investing for All

https://realtyshares.com
Institutional quality real estate. Simplified investing

https://republic.co
Invest as little as $10 in the private companies shaping our future. Pick the companies you believe in and support their mission.

https://roofstock.com
Own an income producing house with as little as $20K down. No hassle.

https://seedinvest.com
Invest in highly vetted startups.

https://seedups.com
Connecting Investors with Technology Startups

https://selequity.com
Selequity connects accredited investors with the sponsors of commercial real estate (CRE) investment offerings. Our national network of accomplished real estate professionals assures you’ll have unique access to investment opportunities.

https://sharestates.com
Invest in real estate with as little as $1,000. Faster access to capital for real estate developers.

https://startengine.com
Invest in companies you believe in

https://trialfunder.com
We make access to the lucrative legal funding industry possible

https://upstart.com
We go beyond FICO scores to finance people based on signals of their potential, including schools attended, area of study, academic performance, and work history.

https://wefunder.com
Back founders solving the things you care about. Grok the risks, then join 93,004 investors who funded 155 startups with $35.5 million.

https://www.wundercapital.com
Invest in solar projects. Do well and do good.

https://crowdsourcefunded.com/
Where entrepreneurs and investors source the wisdom of the crowd.

https://dreamfunded.com
The New Way for Everyone to Invest in Real Estate

https://equitybender.com
We seek to help Software and IOT companies raise capital online and build shareholder value.

https://fundingwonder.com
Invest in loans that help small businesses grow

https://gridshare.com/
GridShare enables everyday people to invest in renewable energy projects and cleantech companies.

https://growthfountain.com
Invest in local businesses and entrepreneurs you believe in, starting at $100

https://indiecrowdfunder.com
Equity-based Entertainment Crowdfunding

https://jumpstartmicro.com
Jumpstart Micro brings together investors,

entrepreneurs and innovation in one place.

https://mrcrowd.com
Mr. Crowd is a SEC-registered equity crowdfunding platform

https://minnowcfunding.com
You Can Invest in Real Estate. Start Small, Dream Big

https://netcapital.com
An open market that brings together entrepreneurs and investors

https://smallchange.com
We Bring You Projects That Make Cities Better. You Invest In Them.

https://razitall.com
Razitall. An innovative equity crowdfunding platform. You pitch, you bid, and everyone wins.

https://us.trucrowd.com/
A new way to diversify your investment portfolio

https://diversyfund.com/
The simplest way to invest in real estate. Higher returns, lower fees and start with as low as $5000.

https://www.richuncles.com/
Invest Alongside Experts in Real Estate

https://acquirerealestate.com
Acquire Real Estate identifies, underwrites and pre-funds high quality commercial real estate properties. We then offer the opportunity for accredited investors to invest alongside us.

https://www.wealthmigrate.com/
Wealth Migrate is the leading global real estate investment marketplace, giving investors direct access to exclusive real estate investment opportunities in premier markets around the world.

https://neighborly.com/
Invest in the places you live, work and play. Neighborly is modern public finance.

https://www.iintoo.com/
Invest in Exit-Oriented Real Estate for as little as $ 25,000

https://www.1031crowdfunding.com
We are an online marketplace for 1031 Exchange investments.

https://healthfundr.com
Invest in healthcare’s transformation. Private investing at the intersection of financial returns and impact.

https://www.money360.com
Invest in loans secured by income-producing properties

https://www.propellr.com
A curated marketplace for alternative asset investments

https://www.instalend.com
Invest online in senior debt real estate opportunities and earn monthly distributions

https://www.realcrowd.com
Build relationships with commercial real estate companies and invest directly in their investment opportunities.

https://www.venture.co
Diversify how you invest with access to new private companies in exciting industries raising funding with offerings open to both accredited and every day investors.

https://streitwise.com
A new way to invest in real estate designed to be rewarding and accessible for everyone, stREITwise cuts out the middlemen and passes the savings on to you, the investor.

https://holdfolio.com
Invest in a portfolio of properties we already own.

https://www.royaltyexchange.com
Your online marketplace for buying and selling royalties

https://hotelinnvestor.com/
Hotel Investment Banking – One Innvestor at a Time

https://www.energyfunders.com
Direct Energy Investing Made Easy

https://www.iselectfund.com/
iSelect works with accredited investors to assemble a diversified portfolio of the Midwest’s most promising emerging growth companies through their own financial advisors.

https://www.realtyevest.com
RealtyeVest is an online marketplace that connects investors and sponsors (real estate owner-operators) tocrowdfund exclusive real estate investments.

https://www.equityroots.com/
Become an owner or lender in branded hotels for as little as $15,000 per share.

https://www.arborcrowd.com
ArborCrowd is an online commercial real estate company. By allowing people to co-invest with successful real estate deal-makers, ArborCrowd enables millions of investors to maximize their financial returns.

https://fundanna.com/
The funding portal for all Cannabis and Hemp enthusiasts.

https://www.cannafundr.com/
Join the largest network of cannabis investors and entrepreneurs in North America

https://startwise.com
Revenue sharing deals accessible to Everyone

https://cannacrowd.fund/
Legal Cannabis Investments

https://streetshares.com
Financial Solutions for America’s Heroes and Their Communities

https://crudefunders.com
Using Crudefunder’s innovative online investment marketplace, we provide sophisticated and beginner investors with the opportunity to invest in Oil & Gas Projects.

https://www.cityvest.com
CityVest is an online marketplace where accredited investors can pool their capital to buy shares in institutional real estate investments.

https://www.rabbleworks.com
Rabble is an impact investing platform that connects people with projects that strengthen communities.

https://firstrealfund.com
First RealFund’s Mission is to identify, offer, co-invest, & manage superior commercial real estate investments with capable owners and quality assets.

https://www.cuttingedgex.com/
The Direct Public Offering marketplace connecting investors with social enterprises.

https://www.honeycombcredit.com/
Honeycomb allows local businesses to borrow loans of up to $50,000 directly from their own loyal customers for business expansion projects.

https://www.milkmoneyvt.com
Online equity crowd-funding portal connecting Vermont’s “Main St.” investors with Vermont entrepreneurs.

https://wunderfund.co
Invest in Big Ideas Near You

https://fig.co
A publisher where you can get a share of revenue from game sales – we bring together developers and communities from all over the world to publish great games.

https://www.buytheblock.com
Buy The Block online investing in real estate with your peers. Pool funds, share knowledge, vote on a property to invest, efficiently manage accounts online.

Pardon the grammar – I’m an Engeneer, Enginere, Engenere… I’m good with math! Here are the Show Notes:

Investor, advisor, writer, father. Founder at @yieldtalk. Ex @oreillymedia, @safari. Occasional consultant & speaker. Chronic reader.

1) Your background and your Real Estate investing track record?
Andrew Savikas
andrew@yieldtalk.com
My own journey through crowdfunding, especially real estate
Related posts:
https://yieldtalk.com/my-crowdfunding-portfolio/
https://yieldtalk.com/baby-steps-getting-started-with-crowdfunded-real-estate/
https://yieldtalk.com/why-you-should-care-about-real-estate-as-an-investor-even-if-you-dont-care-about-real-estate-investing/
Importance of new crowdfunding choices in helping fuel entrepreneurism (and overall economic growth), especially serving traditionally underserved categories (eg non-males and non-tech companies outside of Silicon Valley, NYC, and Boston)
Related posts:
https://yieldtalk.com/crowdfunded-investing-democratizes-capitalism/
https://yieldtalk.com/can-crowdfunding-help-close-300b-funding-gender-gap/
Importance of understanding “convex” vs. “concave” risk, and the implications for risk/reward profile of your portfolio
Related posts:
https://yieldtalk.com/diversification-crowdfunding-investments/
https://yieldtalk.com/know-your-alternative-investing-style-zebra-or-lion/
The surprising number of choices out there for non-accredited investors
Related posts:
https://yieldtalk.com/24-ways-crowdfunding-for-non-accredited-investors/
https://yieldtalk.com/5-best-equity-crowdfunding-sites-beginning-investors/
You should also ask me about the time I had to pick between the Google IPO and a new couch (I picked wrong!)

criteria in your site, insights from looking at all though sites, and your recommendation for people to invest in rentals, crowd funding, or direct syndication.

2) Something that you have recently or thought about “burning your cash” on for time savings or an improvement in quality of life.
[Andrew] After leaving my last job (CEO of an ed-tech company for 5 years) right after my second child was born, deliberately moved to a lower-cost-of-living place and dialed down work commitments to have more time with my kids while they’re young. Definitely worth it! But I’ll never forget the night I was putting my son to sleep soon after my daughter was born and contemplating the return to a very demanding job that was only going to get more so, and imagining myself 5 years in the future wishing I could trade the money I’d made for more time with the kids while they were growing up.

3) Something that you changed your mind on? Our ego often gets in the way of greatness.
[Andrew] Having kids definitely changed my perspective about the opportunity cost of my career trajectory. Has helped me see the benefits of a more balanced portfolio approach compared with driving 1000% down one path.
Also, what it means to have a “balanced” or “diversified” portfolio. Was profoundly influenced by Nassim Taleb’s “Anti-fragile” and the concepts of convex and concave risk (and the notion of a “barbell” portfolio).

4) Anything we missed and contact info if you would like anyone to get a hold of you. URL?
[Andrew] I’m a voracious reader, and as a side project I started posting lengthy reviews of books that have shaped my thinking about leadership, strategy, business, and more. I’m also super into meditation and mindfulness, and have written about 10 books that helped me apply mindfulness to my life in general, and doing better work in particular.

And speaking of books, 13 years ago I wrote a book about Microsoft Word of all things.