Info on using retirement funds for 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 my CPA and not this is NOT legal or professional advice – in other words do your own research]: 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

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.

Networking tips (Just being a decent person)

  1. Giver or Taker part 2

Ex-NBA All-Star gives advice on how to handle the financial and social pressures of celebrity and wealth.

He explains on his voicemail how he wanted people to identify themselves as 1) Addition 2) Subtractor 3) Divider 4) Multiplier. Some of us are unconsciously subtractors and dividers.

The very end of the video, Jalen talks about how to not connect good people with bad people in your network in the “Female Assistant” role.

122 – Apartment Investing with Michael Blank

YouTube Link: https://youtu.be/1N3wBAwPrfw? 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________

Partner with Multi-family Home (MFH) students to close first MFH deals.

Passive Income became attractive after reading Rich Dad, Poor Dad.

Opened pizza restaurants without mentor and lost 95% of net worth after 5 years.

Realize can raise money for Real Estate. Flipped 30 houses in 2 1/2 year but still active work.

Received passive mailbox money for first apartment in 2011 and never turned back.

Combination of doing MFH deals and teaching/helping others is fulfilling.

Stop being a drifter. Drifting keeps us from living an intentional life.

Ongoing experiment to scale business while not lacking quality of deal.

Transition from being focused on generating money to helping people become financial-free.

Do first MFH deal and reduce living expenses to quit W-2 job.

Momentum will build in subsequent deals. But first deal is always hardest.

At peace with things out of your control.

Be sensitive to where your business is to make right investments, such as virtual assistants, salary employees, etc.

Smaller apartment deals (duplex) will kick off law of first deal.

Don’t need $30K to do first deal. Spend on education and raise capital and/or find deals in this seller’s market.

Controlling time is most important resource. Don’t put ladder on wrong building.

Visit www.themichaelblank.com to download free ebook about raising money for MFH apartments.

The Journey to Simple Passive Cashflow – Preview

This course is currently in Beta mode and Beta pricing. Email Lane@SimplePassiveCashflow.com if you want a deal.

Week #1 – Introduction to the “Journey to Simple Passive Cashflow”

Week #2 – Seeing the Matrix – You will know why the middle class is shrinking and what you can do to continue your same standard of living

Week #3 – About Me – Learn about my background and why I have the formula for high paid working professionals to escape the rat race

Week #4 – Real Estate Investing from a 30,000 foot view part 1 – You will understand real estate investing and all the options. We will cut through the noise and identify what are the best options for the high paid professional

Week #5 –  Real Estate Investing from a 30,000 foot view Part 2 – Continuation with the addition of downloadable tools

Week #6 – A free special gift

Week #7 – Fundamentals – You will get to know the basics of what every investor needs to know without reading a gazillion books or going through hours of boring podcasts

Week #8 – In-Field Experience – A guide to effectively network and build your investor circle

Week #9 2018 Trends – The Fundamentals don’t change but the market climate changes so here is the latest market report and things to be on the lookout for

Week #10 – Buying a Rental Property Part 1: Acquisition – Start shopping for deals and refine your criteria to be able to spot out your next addition to your growing portfolio

Week #11Buying a Rental Property Part 2: Lending – You can’t buy anything and use leverage effectively if you don’t know the basics of using the bank to your advantage.

Week #12 – Buying a Rental Property Part 3: Operation – Congratulations you are a rental property owner but that’s only half the battle. Now we focus on managing the manager so we can optimize our returns.

Week #13 Buying a Rental Property Part 4: Mentorship/Networking – You net worth is your network. Don’t be that guy who repels help and good ideas and the last person to hear of the latest trends or work with bad vendors.

Week #14 – Half-Way Point! – Build your portfolio with the end in mind and with a holistic approach

Week #15 Syndications + Apartments Part 1 – Understand why most sophisticated investors scale up to larger investments

Week #16 Syndications + Apartments Part 2 – Find out how you can get access to deals once only accessible to the wealthy within the country club

Week #17 Investor Mindset – Once you get started you realize that the possibilities are endless (I know it sounds cheesy but some people sign the front of the checks and some people sign the back)

Week #18 Productivity – Following up mindset the limiting factor might be the fact that you suck at getting things done. Here are some of the best tips to increasing your output and having more time to do what you want to do.

Week #19 Taxes – You will learn what you will need to know to prevent legal churn from a lawyer who does not know what they are doing

Week #20 HELOCS/Refinancing – A great way to find lazy money to put to cashflowing rental real estate

Week #21 1031 Exchanges – Don’t be fooled but this talked about tax strategy. It is often not what cutting edge investors use.

Week #22 QRPs – Got funds locked up in retirement funds? Lets free that lazy equity!

Week #23 Life Insurance Banking – Its called life insurance but its use by the wealthy to bank from yourself and avoid taxes.

Week #24 Other Financial Hacks – Other secrets I pick up by hanging out with wealthy people

Week #25 Covering your assets – You will learn some ways to build legal protections around your financial empire

Week #26 Conclusion – Pulling together the basic and advanced topics for you

This is the stuff you don’t hear talked about from co-workers!

Most so-called financial planners don’t even have a clue – although they are probably a nice guy.

These are the secrets of the uber-wealthy and specific mentorship groups that I have spent over $40,000 to learn over the past few years.

Banking from Yourself & Leveraging/Hedging Stocks

This page is still under construction…

Last year I learned this cool financial hack utilized by the smart money. By being your own bank and using the Infinite Banking Concept you can create a dividend-paying whole life insurance. Its called life insurance but its just a tax code loophole to make a tax free yield in an account that is sheltered from lawsuits and creditors. I can assure you this is another thing you financial advisor or life insurance sales guys just does not get… likely because they are still working for a paycheck and it actually decreases their commissions.

And for you high-net worth folks still dabbling in paper assets you won’t want to miss this other trick that I will reveal on there too.
For a warm intro to the guys I recommend email me at Lane@SimplePassiveCashflow.com

Wealth Formula Banking w/ Lane Kawaoka Outline

 Downloadable excel example

  1. Purpose statement: Wealth Formula Banking is how cash flow investors enhance the investing they already are or will be doing
  2. Vehicle:
    1. Net 5–6% Return
    2. Tax-Free
    3. Safe / Predictable
    4. Liquid
    5. Loan Provision
    6. Death Benefit / LTC
  3. Strategy:
    1. Same dollar creates value in 2 ways
      1. Simple vs. compound
    2. Replace the bank
      1. Opportunity fund
      2. Safety
  • Liquidity
  1. Higher return
  1. Real life example: WFB vs. Bank

 

Next up is this method of hedging yourself to a 0% loss. So if the stock market goes down 10-20% in one year you lost 0% 😁

Unfortunately, by taking this type of deal (that the rich do) you cap your upside at 12%. So if the market goes up 14% you only get 12%.

Here is where the strategy comes together… We leverage your investment by using 3X leverage. So if the market goes up 7% you get 21%. In that case, where the market goes up 14% you only get 12% you actually get 36%.

I know it sounds crazy. It’s like bowling with the bumper rails in place.

 

Velocity Plus w/ Lane Kawaoka Webinar Outline

  1. Purpose
    1. Leverage
    2. Max income w/ least dollars
    3. Alternative for retirement plans
    4. Great for groups
  2. Concept Structure
    1. Leverage
      1. $100k for 1 property?
      2. No. $100k for 4 properties
  • Do the work of $400k
  1. Years 1-5: Policyholder and bank contribute
  2. Years 6-10: bank only
  3. Ratio: 25% policyholder, 75% bank
  4. No collateral needed beyond policy
  1. Product: Indexed Universal Life
    1. Use an index
      1. Cap
      2. Floor
    2. Capture 80% of upside
    3. No downside
    4. Policy structure: max cash growth/min costs
  2. A Look at the Numbers
    1. 46-yr-old
    2. $1M total going in
      1. $50k from policyholder / $50k from bank
      2. Then bank takes over total
    3. @ year 15—pay off bank loan
    4. Age 65-90—tax-free income of $115k/yr
    5. $250k goes in, total of $3M comes out!
  3. How it Works—Leverage Throughout
    1. Spread—growth vs. loan interest
    2. Leverage the bank for 15 years
    3. Pay off bank loan using policy loan
  4. Leverage Throughout—A Snapshot
    1. Example numbers at year 15 after we pay off bank loan
    2. Figures:
      1. Total Cash Value: $1.8M
      2. Loan Balance: $1.2M
  • Net Cash Value: $600k
  1. Let’s say we get a 10% credit the next year:
    1. $180k (calculated from Total Cash Value)
    2. Loan grows by 5%–$60k
  • Growth in Net Cash Value–$120k
  1. That’s a 20% gain on our net equity
  1. Overall return is 18%!
  2. Estate planning
  1. 2 Primary Risks
    1. High Interest Rates
    2. Poor Performance
    3. “Stress Testing”
      1. 80’s interest rates–$98k/yr income
      2. Great Depression–$78k/yr income
    4. Baseline income was $115k/yr

117 – Assisted Living Facilities with Loe Hornbuckle

Edited audio version: https://youtu.be/r2O7mQ_g4Ug

YouTube Link: https://youtu.be/LOORnE1rWFk? 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________

Different types of Assisting living

The boutique ALF method

How Loe got started investing

10 percent higher than average rents of 5500 a month in TX

ALF business plans

How to find a home for mom and dad

Find Loe at http://thesageoak.com/

Time is the most important thing… If not now when?

Time is the most important resource. You can trade time for money and vice versa. It is pretty rare that you can not throw money at a problem and make it go away.

Some hacks I have implemented updated 8/1/18 (See how far I have come

  1. Using disposable chopsticks, plates, bowls, clubs, and forks to minimize time to wash dishes and put away. Also need less space for more of this “stuff”. I think we do not realize how much not only time we waste on this but water and electricity go into this.
  2. Use Uber as much as I can to minimize stress, the chance of an accident, 50 cents a mile per the IRS in wear and tear to your vehicle but most importantly you can bring your laptop and get some work done.
  3. Leasing a car – such a great decision. Its fun, the numbers make sense if you are able to grow your money at more than 14% a year, and don’t have to deal with any maintenance issues.
  4. Eat out. It just tastes better too. And no cleanup, prep, grocery shopping, etc.
  5. Send me some of yours!

I stumbled upon a great visualization of your time.  Basically, the yellow below is the time we sleep, blue is leisure, and light blue is at work. See the diagram here http://flowingdata.com/2017/05/09/adulthood-days/

Two takeaways:

  1. If you have not started investing… when the heck when? Get a mentor and compress the learning curve, decrease costly mistakes, and get on with your life!
  2. There is only a limited amount of time to create a legacy… VAs or Virtual Assistants I use.

Fiverr is the world’s largest marketplace of talented online freelancers who pride themselves on
getting things done for you. On time, on budget. Designers, developers, writers – everything you
need for your next project is here. Now let’s tackle your to-dos, today!”

Here is more from Fiverrs website:

“Fiverr’s global community of freelancers have delivered tens of millions of
high-quality Gigs from over 150 service categories across 190 countries.

Fiverr is a global online marketplace offering tasks and services, beginning at a cost of $5 per job
performed. Freelancers use Fiverr to offer services in more than 150 categories, to customers
worldwide. Currently, Fiverr lists more than three million services on its site.
Fiverr is the world’s largest marketplace of talented online freelancers who pride themselves on
getting things done for you. On time, on budget. Designers, developers, writers – everything you need
for your next project is here. Now let’s tackle your to-dos, today!
Join over 11M businesses who use Fiverr’s freelance services.
Fiverr is the world’s home for digital, creative and professional services, providing a one-stop shop
for millions of digital services, all at your fingertips.
Fiverr is a digital marketplace that allows you to make your business better, stay on budget and get
things done in just a click.
Fiverr is the easiest way to get everything done, at an unbeatable value.
Need something now? As the world’s home for digital, creative and professional services, Fiverr
provides one-stop shopping for millions of digital services, all at your fingertips.
Fiverr gives you instant access to millions of Gigs from people who love what they do, in just a click.
Need something done? Let someone else take care of it! Get everything from resume help, to
designed invitations, to cool gifts, all at an affordable price. Whether you’re building a business, or
just looking for something unique, find it on Fiverr!”

Some of you had questions about Virtual Assistants which I have had some growing pains with…

Take 1: I went to various countries/regions Craigslist where I heard there was cheap virtual labor such as the Philippines, Ukraine, Latin America, Eastern Europe, Etc. I created a generic posting for a Virtual Assistant and a link to a Google Form that I created that was supposed to farm data of willing workers and ask binomial questions such as if they had experience with graphics, audio editing, Excel, English, and how much their hourly rate was. This was a success and the idea was that I would create a database that I could BCC the emails to competitively bid projects. Unfortunately, when I sorted my list for the desired skill I was looking for, I discovered that many of the potential candidates sent generic resumes back. They did not even read the job description. I guess as the saying goes “shit in shit out.” Tim Ferriss talks about giving strange instructions to potential job candidates such as a requirement to fax in their application (in an age of limited fax access) to see which candidates follow directions and can overcome minor Resistance of not having fax machines.

Take 2: It seems like the tasks are taking a lot more time than it should. To some respect, that is to be expected. What I am trying to wrap my head around is the cultural differences not to mention the language barrier. In some of these Asian cultures, honor and face are utmost importance and sometimes it is culturally the normal to lie to save face. In America, we preach stepping up and admitting fault and moving on which I believe is a true demonstration of high value. So it’s a little frustrating… I know the internet sucks at these places but give me a break. I am just surprised they are not telling me their dog ate the GoogleDoc. Successful people take ownership and I accept this as MY fault in terms of me not having my job scope defined and linear instructions for the virtual assistant to carry out. If my virtual assistant misses on the deliverable or takes too long I take full responsibility.

Afterthoughts: A great discussion at a recent Mastermind I attended around this topic. Seems like a lot of people are backtracking from cheap (sub 8 dollar an hour labor) and opting for higher quality workers. I believe the vision of an employee is to get something done cheaper than your personal hourly rate, also get it don’t faster, and with a “Sir… I was completing task X and I found this wrong in our process so I took care of it and wanted to discuss this with you.” I don’t know if I will ever achieve this level of initiative in any person trading their time for money but one can only dream. Until then I will try to switch to a more project-based system as opposed to having a VA on call for a 10-40 hour set time. The cons of this project-based methods are that it requires more touch points for me to keep micromanaging each project and this is the exact reason I am looking for help in the first place. Time is the most important thing Jelly Bean. https://www.youtube.com/watch?v=BOksW_NabEk

The Random list of tasks to outsource:

1. Organize your travel (including learning your travel preferences). This includes making all your travel arrangements,
organizing all your flight info into your favorite travel app, and even remotely monitoring your travel to be ready to deal with
any missed flights or oversold hotels.
2. Handle billing disputes.
3. Help setting up bills onto auto payment on your credit card.
4. Address and mail cards, letters, and packages. Sure you may still handwrite the thank you, but do you really need to look up
the address and post the letter?
5. Update your contact manager (or CRM database).
6. Screen your e-mail and handle low-level responses. This includes deleting or archiving things you don’t even need to see.
7. Update your blog and social media accounts.
8. Organize and manage your filing system, both paper-based and scanned e-files.
9. Take dictation (either live or via recordings, perhaps using Voxer, one of my favorite apps).
10. Set up appointments and hold your schedule.
11. Gather all the needed data and prep information for all your appointments. For example, I ask my assistant to put to the
memo of any appointment she posts to my calendar any recent email exchanges and the contact information of the person
I’m meeting with. This saves me untold time when you compound this service over 15-20 meetings I hold each week.
12. Daily clean-up of your office, including refilling items.
13. Screen phone and e-mail so you don’t get the interruptions.
14. Take notes at key meetings and follow up with attendees on key deliverables.
15. Keep a master chart/list/calendar of your projects and deadlines and set reminders.

16. Tickler all birthdays and anniversaries, holidays, or other important dates, and even arrange for gifts, cards, or phone calls
that make you look good.
17. Update his or her own “Project List” so that all the tasks and deliverables they are responsible for in one place for you to
review.
18. Get, open, sort, forward, handle, and if need be shred your mail.
19. Coordinate with outsourced vendors when you have an IT issue. You just work from a back-up computer for the day and let
him or her troubleshoot it with your IT vendor.
20. Order things online for you and handle any product returns or service issues.
21. Handle any personal errands or schedule any household repairs. Yes this is perfectly reasonable as it saves you time that
you can reinvest in creating value for your company.
22. Notarize your documents by becoming a Notary Public in your state.
23. Help you to streamline your office—filing, sorting, and systematizing wworkflow
24. Basic updates to your Web sites.
25. Create and continue to refine the “expert system” for how to be your assistant (this one should be part of their job function
right from the start). This way if you promote your assistant they have created the core system for your next hire. If they leave
you to work elsewhere, the transition is much less painful.
26. Dealing with tech troubles on your phone or tablet computers. They can do this during the day when you’re in the office doing
other more valuable work.
27. Any parts of your projects that he or she is capable of doing for you. Constantly be on the lookout for things to try them out
doing. For example, my assistant helped expand the syndication reach of my business articles by over 100,000 annual
readers.
28. Download movies or audiobooks
29. Search for contacts of people you need to meet
30. Bookkeeping with a CPA or without one
31. Edit videos
32. Make calls
33. FInd sellers
34. Take Calls from leads
35. Call banks to find a portfolio lender
36. Assemble a list of podcast guests to contact

QRP – Qualified Retirement Plans & Free Book

I personally don’t like these QRPs or qualified retirement plans (Roth-IRA, Solo 401ks, etc) if you are an active real estate investor. But if you have money locked up in an old IRA or 401k this is a great way to get that money out to invest in your deals or syndications.

 

If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts. I don’t know about you but I want access to this money to play with well before I am sixty-something.

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!

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.

Get set up here or ask me for a warm email intro.

And get the free book on QRPs!

Podcast #111 – Interview – Brent Kawakami – Saying NO to a measly $300 a month & Networking on Facebook

YouTube Link: https://youtu.be/dgdMLNq73TM

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________

1) How much CF are you making today and how are you doing it?
Generally I’ve fluctuate based on buying/selling of real estate. Right now it’s all from passive investments in apartments. My peak was couple thousand a month.
So as I started investigating other investment activities I dabbled in:
P2P investing – Returns were decent (I think I made like 18%), extremely passive once you funded loans. I was fortunate that none of the ones i lended on defaulted so that’s real risk. While you are earning interest payments, it goes back to account so extremely illiquid. You wait out the loan term which can be long. No control. I’d rather do private lending that’s backed by a physical asset.
Dividend stocks – Lot of research, reading investment newsletters, etc. You’re still at the whimsy of the stock market. I could see doing this in future maybe if there’s a crash and you can pick up trophy companies cheap. Again no control.
Gold/silver – I got caught up by the Gold bug rhetoric of “the dollar not backed by anything” “ the crash is coming” “ look how much debt we have” blah blah . A lot of similar stuff you see some Cryptocurrencies saying now. To me you need treat as a store of value and something you don’t care about price. And you need to hold physically. It’s a chaos hedge. But it doesn’t cash flow. And if shit really did hit the fan, you’re not going to need gold, you’re going to need guns, lol.
Internet business (I did sell it later for a small gain). A lot of work…it’s a business. You can get caught up in the 4-hour work week thing, sell your ebook, etc but this takes consistent cultivating like any other business. I had an instance where a change in Google algorithm killed my profit.
Infinite banking (which i’m all in on still) – You’ve had podcasts before on this topic about all the benefits but it’s an amazing vehicle that complements real estate. Personally I don’t think of this as a true investment, it is a savings vehicle. I treat it as my cash war chest and foundation. Downsides to me are that you have to understand and treat as a system otherwise you’ll fail miserably. It’s also literally a lifetime commitment.
Ultimately I settled on real estate starting the single family route in Dallas area (buy, rehab, rent, self manage, etc). I eventually saw the light (What was the light) of multifamily and started investing passively, sold off my single family houses and now a new aspiring sponsor/operator. There’s all the typical things people say (econmies of scale, non-recourse, etc) but my a-ha moment (my 2nd Han Solo moment I guess you could say) was when I started looking for another rental house. I realized adding another $300/mo cashflow wasn’t going to drastically change my life. If I wanted to level up faster, I needed scale faster. Multifamily can do that. When you get a large check for hundreds of thousands from a disposition event on an apartment complex, that’s life changing and can get you places.

(So now you are in the stage where you are doing all the hard work before the success… lets go through this list of things that you are doing… this add value to the listener and maybe we can have a discussion about best practices – Just think in the future when a future investor listens to all the shit you did to get into this)

1) Joined mentorship program (I would rather not say who they were) No problem. Main best practice to me is it’s almost a requirement for MFH. This is a must in addition to all the other education (reading, podcasts, etc)
2) Regularly Contacting brokers/Signing up for lists
3) Evaluating deals
4) Scheduling in-person meetings with with brokers to connect (what did you do). My partner and I specifically reach out to have a meetings at a broker’s office. We’d talk about what we’re doing, looking for, etc and it gave us an opportunity to meet other associates. I’ve tried to do in-person at their office or if I can take them to coffee. For out of town brokers we’d do over phone or if we travel to see a deal (leveraging a current listing of theirs as a talking point to get convo started).
5) Making regular LoopNet rounds
6) Going on property tours
7) Networking on BiggerPockets/LinkedIn/Facebook, etc
8) Going to Meetups, events, and conferences
9) Partnered up with another new sponsor/operator to duplicate efforts, fill gaps, etc (What do you do well and what does he compliment).
My partner is better at making connections and relationships than I am. I’m more analytical and investigative. He’s an eternal optimist, while i’m Mr. Engineer worst case scenario. He can get shiny object syndrome whereas I’m much better at keepings things on task. We’re both at the same level/point in our investing so we have a good synergy with the perspective we’re coming from. One of the things we like is if it takes looking at 100 deals to get 1, maybe us both looking cuts that in half lol.

2) What is your Han Solo moment…

I had two.

1- One was a couple years into my career and i started think there was more than this for 30-40 yrs and began exploring other stuff (as mentioned before)

2- Shift from single family to multifamily. My a-ha moment mentioned before.

3) Worst life/business moment what did you do a er? Lesson learned?

I’ve had those crappy issues that come up with rentals, like plumbing issues, tenant issues, foundation issues, etc which sucked. Although one big one was not listening to my wife about a single family house. I had a tenant turnover in one of my rentals and I had been mulling about selling and focusing on multifamily. Instead of listening to my wife who encouraged that, I did the easy thing which was find a new tenant. I had gotten so in the routine and it was the easy option even though I knew I was ready to step into next thing. It ended up being my worst tenant ever (she paid but was really needy) and a headache. I ultimately sold it a few months later.

Lesson learned: Listen to your wife more. While she isn’t involved directly in the nuts and bolts, she is a better judge of character and intangibles in both myself and others.

4) Current 2‐week experiment and 6‐month project? (90‐180 day goal) A mark of a high performer is to put your ego aside and accept the help of others and mastermind maybe folks can help you by you asking.

2-week: Let’s see when we get there. Lot of personal type things likely going on (not sure if that’s valuable for your audience?)

6-month: Sponsor a 75+ unit, class b/c apartment. That’s my one thing.

5) What is your simple passive Cashflow number? Now imagine you had 2x that amount… Describe your ideal day, detailed rou ne, and what projects you are working on.

6) Something that you have recently or thought about “burning your cash” on for me savings or an improvement in quality of life.

Meal service, not the recipe in the box but the fully prepared, proportioned individual meals. I enjoy cooking but not thinking about what I have to eat is something that I find makes my day easier, especially now that I have a baby. It’s just fuel, i can eat the same thing everyday and be fine. Plus it helps me stay on the straight line nutrition wise.

There’s a good book on this topic called Happy Money I recommend.

7) Something that you changed your mind on? Our ego o en gets in the way of greatness.

2 Things:

1. I used to think of insurance for the financial aspects only but now I think about the riders, disability kickers, etc. Having a kid changes your thought process so now i’m more thoughtful about things like insurance, estate planning, etc. I’m still behind on that stuff, but now these long term planning things are in my thoughts.

2) Owning a house isn’t a big deal. We recently sold our house and moved to an apartment for a number of reasons…yada yada yada. I’m not full Grant Cardone though.

8) In this sellers market… what are you inves ng in? What should a someone who does not have a substan al level of cashflow yet be inves ng in?

My cash value life insurance/infinite banking strategy is my core foundation. I see that as the warchest and can let me sit on “cash” without losing too much. I’m obviously still actively pursuing multifamily, it’s harder of course with the current market, but deals can be found in all markets.

Nothing wrong with being patient if you think things are frothy. 100% of nothing is better than any percent of a bad deal. Being patient is the hardest thing.

brent@hellomultifamily.com