Coaching Call – Remote Investor Incubator Student Round Up

What’s up everybody? This is episode 300. We’re going to be doing a little giveaway if you guys stay to the end of this, but where we’ve been in the past, what we started this podcast in 2016, and back then I was still buying little single family homes. Obviously, you know, I came in as an accredited investor and kind of left that world behind.

 

I think, investing in large multi-family apartments or other syndications where you’re a passive investor is the way to go because you’re turning your ordinary income to passive income, you’re getting a lot of passive activity losses with cost segregations bonus depreciation.

 

Pushing forward the cans down the road, leaving a world behind of 1031 exchanges, which I think are obsolete unless of course you’re having a gate of more than a few million dollars of capital gain depreciation, recapture. If it’s all garbled gibberish to you, go to simple passive cashflow.com/tax.

 

My little tax notes there, some of my old tax returns, a lot of good stuff there. We started the HUI  pipeline club thus far and brought in over $140 million from folks like yourself, a billion dollars of assets under ownership. A lot of people getting started today are still under a hundred, $250 million.

 

We’re well over a billion dollars at this point, 7,800 units or so, and I just realized these large crowdfunding websites, which spend a lot of money or venture capital back so they can pay for customer acquisition.  And we’ve raised like half of the amount that these large groups have been.

 

Lowly old me from 300 podcasts to go. It goes to show if you start something and you chip away at it I can grow this something big, especially when the mission is to get you, the high paid working professional out of the day job. And it’s finally taken me 300 episodes to really get this formula down, but it’s a simple 1, 2, 3 step program.

 

First invest in deals where you’re going into value add. So you can get the passive activity losses. So then you can play these tax games that the wealthy do. And thirdly, infinite banking. And I always say, thirdly, because some of you guys have lower net worth out there. Geek out on infinite banking or even if you’re above one to $2 million net worth, a lot of you guys will geek out on that and spend too much time and we have the free infinite banking e-course if you guys want to check that out at simplepassivecashflow.com/banking.

 

You guys can get free access that takes a couple, two or three hours from are all about infinite banking. As opposed to just listing a bunch of podcasts and hearing it, the marketing pitch from the life insurance guy, learn about the pros and cons. That’s been my thought process from the beginning. There’s so much noise out there. IRA, self-directed IRAs, solo 401k, all these things, when you keep things simple and it’s geared towards the high paid working professional things are very simple.

 

Now, along the road, right? We teach you guys that, paying on your house, paying down your debt. The best part about this stuff may not be the right decision to buy your primary residence. To me, in my opinion, some people will call me crazy for this. I don’t think you should buy your primary residence until your net worth is two to three times that of the house.

 

Therefore, if you’re in your thirties or forties buying a $600,000 house, I don’t think you should be buying a house until your net worth is like a million half, $2 million net worth, which I know it ain’t, if you’re buying a $600,000 house, now, maybe I’m just getting old 36 today going on 37 and I feel part of this was to give back.

 

So on today’s podcast, you’re going to be hearing a coaching call for a program that I used to do that we don’t do anymore, which is called the incubator. The incubator was meant for lower net worth folks under quarter million, half a million dollars to buy their first single family of all remote turnkey rental.

 

That is how I got started, back in 2009, I bought a bunch of rentals in Seattle, and then I went out of state for cashflow. I bought 11 of those rental properties and realized there was a total pain in the butt to manage. And all your returns go away. It looks great on paper, but all the returns go away and the headaches magnify themselves, but tenants move out.

 

You got a big cap ex tidal wave. If you’re out there having a couple of rental properties or even eight plus rental properties, at some point that cap ex is going to get you and you’re going to have, an eviction here, there and, a small fraction of those evictions is going to end up into a five $20,000 repair billing, or you’re wondering why, like, why are we doing this again?

 

Don’t take those pro formas  for those turnkey guys, they’re just trying to sell this stuff guys. But anyway, how do you educate yourself? We did this incubator. We have the remote investor e-course and we have the incubator. So for the people listening to this you’re going to get a sample of this at the end, but if you want to email us at team@implepassivecashflow.com subject line 300, we’ll hook you up with it.

 

But you gotta be part of the investor club to do that. Go to simplepassivecasual.com/club and join our database right there. That’s how you get all the pool insiders. And part of the bonus for this episode 300, put that in the subject line. We’ll hook you up with that because we’re moving off of buying little rental properties and moving more to the accredited investor stuff, which our curriculum and ecourse

 

syndication course for passive LP partners, how do you do your best due diligence? Whereas the incubator and investor force is more like what’s in the black box, right? How do you go buy a remote rental source or property manager or get a lender or do all this pain in the bud stuff? Which I feel is the foundation.

 

So not to alienate the accredited investors who are like, yeah, screw that stuff. And I would probably agree. That’s no way to build less lasting legacy wealth when your net worth goes over a billion dollars or you’re making more than a hundred, hundred $50,000 a year. Buying little rental properties is a waste of time, but it’s a great place to start.

 

So for some of you accredited investors, I think it’s a great idea.  To go buy your kids a little rental property, let them mess it up, let them learn. That’s the way you learn. I think if we have some investors that will bring their kids into some syndication deals. I feel syndication deals make you dumb really fast.

 

It’s a great way to live a nice passive investor, simple passive cashflow lifestyle. But if you’re trying to pass off the wealth, which is really the focus of a lot of us, who’ve found financial freedom and are funded in such a way where, you know, in five to 10 years, if you’re doing it the right way, stop doing all the 401k nonsense.

 

Stop paying down your debt in your house. You can get financial freedom in under a decade. Some even less than five years, if your net worth is already 1.5, $2 million net worth. So you focus on what’s the next generation so section planning. To me,  my kids aren’t this old, but the best way to have them is to own a little rental property.

 

Now at the last mastermind retreat, I joked around with a lot of people who were two or $3 million net worth. Even buying a little rental property for them is a complete waste of time. Yes. You want the kids to learn about this type of stuff, but maybe you just lie to them and you buy them a fake rental property and you ask them, Hey, Jr. The refrigerator broke. What do you want to do? Do you want to fix it? Or, your tenant might move out? And people joked and laughed that yeah. It’ll be easy to make this stuff. I’ll just look up the stuff from my property manager, all the emails, all the garbage BS that came from there, all the drama that happened.

 

And then the funny joke at the end, when the kid gets 16 or 21, you reveal that, Hey man, I just made it all up. But you learned something about this. But this is what the incubator is. So if you’re already in the club and especially if you’re an investor with us currently, we definitely want to hook you up with the incubator concept, which really doesn’t help you and doesn’t  pertain anything to a passive investor.

 

Even though there is a little bit of a carryover, we want your kids to go through it, right? We’re big on education for the next generation because who cares? If you have $5- $6 million net worth, you put it all into infinite banking and the kids take it over.

 

We all know it’s going to happen. They’re just gonna do cocaine. I forget the verbiage, somebody, I think it’s a warm buffet thing, but you want to give them enough money to be comfortable, but not enough to do nothing. I might be butchering that for a little bit, but.

 

You’ll get a sense of what this incubator content is. Again, for the lower  net worth  guys getting started in today’s podcasts with Marianne is going to help me ask the questions. This is probably like 5% of the whole incubator course. It’s like about 20 hours, but that’s the free gift.

 

And that’s the mission behind simple passive cashflow, right? I am working as an engineer. There’s not a day that goes by that I’m super grateful for starting this podcast, which allowed me to start the family office ohana mastermind, which kind of replaced my W2 engineering salary for me to do something that I enjoyed.

 

And, I want to continue to grow that group in the future. If you guys are, a million, $2 million plus, and you get it. You want to invest in deals, but you need that network around you. You can’t go to the local real estate club. You can’t go to all this online free garbage stuff, because they’re just a bunch of freeloaders there and marketers and sharks out there.

 

I created the family office ohana  mastermind now with almost a hundred members. Learn more simple passive cashflow.com/journey, or send a team@simplepassivecashflow.com an email. We’ll get somebody on our staff to tell you what it’s all about, but that’s where we’re heading off into the future, deals and I like this consulting route, right? To me, there’s no better way of impacting people. And for me, I don’t really like to help the masses. I like to help people that I know. That’s just the way that I’ve felt to give back. I like to know the people who I’m helping and it’s a smaller community there.

 

Again, go to simple passive cashflow.com/journey. The incubator is up for grabs for a very limited time email, subject line 300. That’s the secret code for the team to hook you up with it, but you gotta be part of the club, simplepassivecashflow.com/club. And thank you for listening to 300 of the episodes.

 

If there’s any feedback or anything you guys want to see in the future, please let us know. Thank you for allowing me to quit my day job. If not, I’d probably be out there waking up at 6:00 AM for some boring job briefing and that I don’t want to go and regurgitating the company jargon of, safety first or safety second, whatever it is.

 

But again, thank you everybody. Here’s to another a hundred episodes and  looking forward to meeting as many as your person as we open up in 2022 beyond.

 

 

Hello, incubator students. So we have an old student Marianne here who went through the incubator course. So please go through all the past videos before you watch this video, because it’s meant to round out all the remaining questions and fill the gaps. But thanks for jumping on Marianne.

 

And hopefully this discussion helps give me more insight and hopefully I answered all these questions. Sure. Maybe I didn’t like, understand or needed just some clarification. Yeah. And that’s why we do this right in this format, as opposed to writing down answers and a horrible typer.

 

And I was never good at English. So it’s always better to talk through the answers because a lot of these are more, answers in the gray and stuff like. So the first one here is one of our associations, these are rental properties. Is this charged back to the tenant or can it be tax deductible if it’s a short term rental?

 

So let’s just take out the fact that we’re talking about short term or long term. I don’t think it matters either way, but it’s two things here. So they’ll almost all owner association fees for the most part. You can do it either way. It’s just some people decide that they want to charge the tenants.

 

I think some of us who’ve lived in apartments or houses or in college, it was all over the place so very similar. But most times the tenant is just in charge of one thing, especially in B & C class stuff because dude, you don’t want to give these guys responsibility to do another thing.

 

And ultimately you’re the one holding the bag or interest fees racking up. So if you gotta make it easier for them so they just paid one thing, which means they’re typically reimbursed  for utilities or these homeowners association fees. And then the other question is is it tax deductible? Yeah, sure it is necessary and ordinary for your business.

 

I guess I’ll let you ask the questions here. So actually that was for number one. So number two, in this section, within the turnkey, a course on what markets do I invest in? Like in the course material, how often are the top markets updated? Is it annually? Because it’s due to the MSA data. They’re not really updated.

 

I just cut and pasted this thing right here. And it’s supposed to be just guidelines that these are the types of markets. You’ll probably never see California, New York, Boston, Hawaii, Seattle here. All right. These are all secondary and tertiary markets, if you’re looking for the top 10, this is the clickbait type of stuff that maybe I would be the one thing I would be on the lookout for what markets to invest in.

 

The one thing I would caution people about is to stay away from those very small markets like Boise, right? He’s making a lot of headlights now, but it’s only a quarter of a million people. It’s under that. I wouldn’t invest in anything less than half a million or certainly 300- 400,000 thousand population or less.

 

Okay. When you’re talking those bigger medium, large size cities MSA now, like there’s not really much. For the most part. That’s exactly why you pick investing in Phoenix or Houston as their major markets. They don’t really around too much. I would group B&C questions together.

 

Can we correlate a short-term or vacation rental kind of market with Regular turnkey market? So for instance, like Jacksonville, Tampa, Florida, and Arizona, would you say those are, I guess safer  markets? Cause you could either go on vacation or turnkey.

 

To me, like the short term rentals is an entirely different business. It’s a very, and I say that, it’s a seal, like people are living in your box, right? So from that respect, I think that’s where you can say it’s the same, but the way I look at it, it’s very different because the clientele that you serve is very different.

 

Term rentals are more discretionary it’s people on vacation. Just something like, just to prove my point, like very similarly, like a mobile home park. Is for like class D class C type of tenants, but then you have RV parks, same structure, but two very different clientele RV parks are more for the families that like to travel.

 

And they like to go to the parks and on vacation, like two very different clienteles. I just don’t even like to intermingle . Like that. I think you got a good idea there, right? And you’re like, oh wow. If Jacksonville is a place where it’s traditionally been a great secondary market, with a lot of long-term rental short with long term rental market, and people happen to travel up the panhandle up to Florida, to go on vacation because they can’t afford to go to Disneyland or go to international travel. And that’s where. Those types of short term rentals come in. But I guess I was just thinking more of an exit strategy if I need any in future.

 

Would it be an easier exit, but that was my thought. Oh, okay. Yeah. But the problem is like if you’re buying a class B house it is a piece of crap. In terms of short-term rental vacationer standards. You say you’re looking to get a long-term rental and then sell it retail to some sophisticated Airbnb owner.

 

Is that kinda the idea? If we have to exit, for instance, like the pandemic light turns different or at least at the beginning of the pandemic, we are unsure. And this was the other way around like short term people are looking at long-term or maybe, I don’t know, with, meaning futures.

 

Long-term going to short term. I don’t know, but just if I had to exit a turnkey, I was thinking if, having it somewhere that may be short term interest too, if that’s safer. Yeah, it’s just your run. Long-term rental, your class B rental. It ain’t going to be in a place where people are going to be vacationing.

 

And I think a lot of you guys in the incubator, it’s great ideas, but this is where you got to get some on the ground and actually go travel and want to go visit these properties because once you visit the stuff. Shit, that ain’t good. A good idea, right? It’s not dangerous, but nobody in their right mind would come and vacation there for a day or a week.

 

No way. It’s just not gonna happen. Yeah I don’t know if Seattle, right? It’s kinda like you traveled to Seattle. There’s no way in hell. You’re gonna go and get a short-term rental in Auburn, Kent or Renton, no way that’s not going to happen. Or where you’re out in the world.

 

You’re not going to go get an Airbnb in Baltimore, hell no.   It’s the same thing. Or maybe those are bad examples or kind of extreme, but it’s what I’m saying, at the same time to your point, we never knew what was going to happen in the pandemic. Traditionally or especially in Florida, a lot of the people, they’re Airbnb shutdown, but around the summer times, those people were making a killing firefly with their short-term rentals because people couldn’t go to Disney world. They wanted to get the heck out of their houses. And you know how Florida people are right.

 

They’re anti-vax. They want to get out there. The only place they could go was to a little Airbnb in Jacksonville or on the coast. Who knows? But I think, separating the short-term long-term, it’s just two different clienteles, two different asset classes. Got it.

 

Thank you so much, Lane. Okay. I know you’re thinking. I like how you’re thinking too. You never know. Yeah. I was thinking more like airports and stuff too. But then again, how do we correlate the best real estate markets with the rise by sector? I guess as things expand off California and Seattle.

 

What cities are startups, starting to lay down their roots and are any of these new cities in the appreciation market or in those markets where we are, we should look at for short-term rental or long-term? So you’re thinking like the tech markets or any other things that are moving out of California or Seattle, right? Like where are these people going? Boise, I dunno where else they’re going. Analogy that people use is that the Bay Area was like a pressure cooker and it just spilled over, in probably the 2010s, it was spilling over into Seattle, Bellevue, Kirkland . And then in the last decade, also it spilled over to Salt Lake City, Phoenix.

 

And then with the pandemic, with the remote working where a lot of these tech companies said, you can go where the heck you guys want. Now it’s spilled over to these other or tertiary markets like Boise, people are coming to Hawaii here. Because they don’t, they have no need to go to an office anymore.

 

So they’re going all over the place. I’m not in tech, so I don’t know, but the traditionalist inside of me still feels like these people need to be physically located in a city hub. But every city is telling themselves that it has a little tech sector, Atlanta, even places like Birmingham, right?

 

Like it’s everywhere, right? Like the Delta variant it’s everywhere, it’s your fault. Okay, thank you, Lane. I asked specifically about Texas because in question E because my husband just moved to Texas this year, where would you recommend to invest in Texas? And does it depend on the year, like in your copy and paste above, you mentioned that’s pretty general, a year does not matter.

 

Yeah. Texas is on fire. You see all the stats every single month, the people will be from everywhere, especially California, pro economy, more of a red state, except for Austin, Texas. Everything is new out there and from a traffic engineer standpoint, like you can build roads how you want it.

 

Everything’s bigger in Texas. Traditionally this is as far back as like the early 2000s, they call it the Texas triangle. So that is Dallas, Houston, San Antonio. Anywhere in the Texas triangle, it’s just blowing up. That said, that has been the sentence for the last decade.

 

And now in the year 2021, it’s getting older, especially in Dallas. You have a lot of unsophisticated people just coming in. Oh, it’s really hard to buy even class C assets. It used to be, you could buy it for 40- 50 grand a unit. Now you’re over a hundred grand for some of that class C.

 

Texas is overplayed and you’re probably like five years, to be the first settler. But that said, all the fundamentals are still strong and people are, keep moving in. Rents are still going up. I guess if I’m reading your question, maybe it’s not as hot in Dallas, but maybe people are starting to look in Fort Worth more, which is the sister city of Dallas. They’re running off to Houston. Now, San Antonio was a little weak in the last handful of years, but now these things go up and down. But I don’t think you can go wrong anywhere on like the  or other main interstates, even going out to the panhandle.

 

Okay. Thank you Lane for helping. Moving on to the next section on deal analysis is really just a comment on the deal analysis like excel on the analyzer, I was wondering if we should include some of the assumptions, 5% in some of the fields and then also like color code, like conditional format.

 

So see if I put in certain numbers that all were red. If it’s low, the trash will be looked at. So maybe I could work on that for you, Lane, if you want. Or I could just see for myself. Yeah. I think a lot of people out there want to go based on whether I want the spreadsheet to light up blue or different shades of green.

 

But things change all the time, right? Like when five years ago you’d be looking for properties at the 1.1%, rent the value threshold in a certain sub-market. Now, today that same market, you might be lucky to find rent to value ratios at 0.9%. So it’s a constantly moving target. And if you’ve seen that chart that I show sometimes of like general cap rates coming down, It ain’t getting better.

 

It’s just you did the infinite banking thing and they always change those things. The best time to do it was yesterday guys, and this is why in the incubator group, like we always have people. I always tell people I don’t know what lights up, the spreadsheet, red or green.

 

I say that facetiously because I’m like go out and go analyze 20, 50, a hundred properties. And you go tell me where the scatter chart tells you where the water line is on this type of stuff. Let’s see. Cool. The next one is more just on organizing the Google drive.

 

I think I put it here, should we put it as the suffix rather than the prefix? Because of some of the files, I was like where do I see? Where do I, how do I see the actual file? But that’s fine. It was just my comments on the origin or anything. Okay. Okay. What, like what fall are you trying to get access to Google drive files?

 

Yeah, but which one? Maybe I should email you the record. Cause I put these questions a while back and I forget what the deal analysis is. Sorry. Okay. I think so. I think all the, like the resources and files are just clumped in the share file, but if you go through the incubator course or the remote investor equal yeah.

 

The links are there in the order of progression. So let’s see, I caught it here. You didn’t go through the e-course. I know, like that’s how I would do it. I’m just like you, right? I’m like, all right let me just read stuff as I need it, not go through the freaking order and then let me download this big resource and just go do the research. Like you worked backwards. That’s how I would do it too. But that’s why you have enough problems. Okay. Thank you.

 

Yeah. It’s pretty typical of folks in our group, right? That’s why you’re doing what you’re doing.

So doesn’t that eel hold the same weight as cash on cash or ROI, is NOI, does it hold the same weight and why. Cash on cash. I’ve never heard of net yield, talked about two months, but cash on cash is a very common one. It’s a cash and cost is based on how much money you have if your down payment and then how much ROI getting on it.

 

NOI is how much money you’re making. You’re profiting. So income minus expenses, not including any of your debt service. Because some people won’t use any debt, which is silly to me. Some people will use 70%. Some people use 80%. So in terms of people comparing their investments, they throw all that stuff out the window and just compare the net operating income on a deal.

 

But as an investor, when you’re looking at your portfolio you have three or four properties. Something I suggest investors do every year is prune off the property, one out of the bunch. So the way you’re doing this is you’re just comparing yourself. You just, you’re just in competition with yourself or your properties or competition that gets each other.

 

So you want to figure out what your return on equity is. So part of that analysis is your cash and cash return. Okay? Yes. I think that makes sense. ‘ cause I sometimes am emotional about stuff. I buy mine, looking at it through this analysis. This helps me prune, yeah. The resource for that is simplepassivecashflow.com/roe.

 

There’s a spreadsheet in there where you put all your properties and then you put in like how much equity the schools or deployable equity you have in there. So basically. You have how much property you’re profiting. You are divided by how much deployable equity and that’s your return on equity.

 

And then it compares all your properties. And for most people that they do this especially the ones that have done it the traditional way, where they try and fail debt, which doesn’t take advantage of all the inflation that’s happening. Now, you get killed by hanging off.

 

Now that you’re like, oh shoot, I have this one a hundred percent paid off, even though I’m cash a lot. And it is, it might be a great rental in my portfolio. This is my dead weight right here. This is what I should probably sell refinanced. We keep on first. And that’s what it helps. Helps you make that decision.

 

Okay. Thank you then. I think they are kind of related too, so cat rave, so let’s talk about cat rate. Any, should we only show, talk about cat rate when it’s all cash, since it’s the ratio of net operating income to property value. So if I bought a house at 70 and like the NOI seven, that brings me to a clean cap of 10, right? Or no? So cap rate is typically used in commercial real estate. When you’re buying little rental properties, it really doesn’t. People like to use it to sound cool, but it’s really, to me, not the place or that type of usage of the word, in a single-family home, we mainly discuss in terms of cash on cash return or return on equity, which is more just in competition with your old self.

 

But when you’re trying to compare all the investors, like comparing each other’s stuff, Ooh, I’m getting cash on cash return. That’s how you typically talk in terms of things. When you find an investor and they stay alive, operating on us for cat five cat, they usually there it’s like one of those people that they want to sound cool, but they really only look like a douche because.

 

Terms correctly. Cap rates are mostly for the commercial world because as I cut and paste this in here, cap rates are severely overestimated. In most cases, especially by brokers, sellers, and syndicators. And your guy who likes to brag about his one rental property, being a seven or 15 cap, I don’t really pay much attention to.

 

The reason why is because typically what’s going on or expenses are always left out or income is slated and that’s what dictates your cap. So when you have bad data, you might as well just throw the dang thing out. So it’s like a top of line calculation. They’re always manipulated, and this can throw your cap plus or minus 2%, right?

 

So an example is a broker will be like, oh, we got it. We got a fifth, 12 cap. First of all, when I see that stuff, I know I’m working with just a douchebag broker, right? Another one of these yo-yos. And I want to work with a broker that shows me numbers and actually is not going to just try and trick me.

 

But ridiculous stuff with, oh, we’re working on a seven chapter eight cap, right? The reason why is because they’re just manipulating, they’re just manipulating, but either income or expenses. And one common way is maybe they don’t show the property manager, the owner is doing the property management themselves.

 

So they’re saving several thousand dollars with property management. But when I take over the property, you take over the property, we’re going to need it. So that nine chap property goes down to a six, five cat property overnight. That’s why I threw the dang thing up, because it all depends on how the seller has manipulated it. Their profit and loss statement. That makes sense.

 

So it’s what do you want, what cap rate do you want to see? That’s why all brokers know that they have a sucker, a buyer like, oh, Marianne, what a cap rate are you looking for? Eight and a half. All right. Let me just change this number here. Like it’s, if you don’t know the difference.

 

All right. Here’s the eight cap. Oh, you like it? That’s good. That’s exactly what you want. Okay. When you’re working with institutional brokers, larger deals where they don’t jerk around. They sell things as they are. Yeah. You still have to be, do your due diligence. And you’re playing a detective to get the cap rate.

 

You have less of this nonsense. But with single-family homes, anything under 60 minutes, this is going to be very positive and it was just why I don’t even look at the cat. Mind blowing. Thanks Lane. Appreciate it. Case study, I have not submitted what he said yet because my husband and I are looking at an investment in Houston or attempting Houston, but the TKI.

 

I think in Houston,Texas, they mentioned that they’re out of inventory. So they’re supposed to send the inventory list this month. Yeah. Which may or may not be good. Because they have so many clients, sucker investors. There’s so many people now that after the start of the pandemic have rushed into buying turnkey rentals.

 

That’s one of the reasons why we paused on the whole incubator program because. I’ve moved off to syndications and private placements. And like the turnkey world is always just always changing people come in, they come out the good ones. If they’re smart, they go to more retail products and they don’t mess with cheapskate investors.

 

Which is hard, right? Like the people that people always talk about on the forums, those are the people just gouging people on prices because they built up a track record. And the sponsored group has happened. But I dunno, I figure out what the property is worth, that you’re actually paying for, not the price that you’re paying, gonna use your deal analyzer for that.

 

So thank you. You have to figure out the comparable sales, right? You get to do that yourself. And unfortunately that’s why I don’t like residential real estate because the price is dictated and comparable sales have nothing to do with the number. So when you’re buying a duplex triplex spot, it shouldn’t go based on the numbers.

 

It should get the price dictated on comparable sales. Oh, he understood. I was wondering in terms of the financing, do you know if you like for duplex turnkeys, if we should even look at FPG loans, yeah. Because if he’s based in one of the units, can I try to receive, we could qualify for FPG.

 

Yeah. You have to be owner occupied and you have to be owner occupied to get that stuff. I’m not super familiar with the FHA. And this is where you talk with your lender because the rules kind of change. But my understanding is that for the FHA stuff you have to live there for sure. On the Fannie and Freddie loans, you don’t have to be living there to be not more occupied, but you gotta come with a full 20% down payment and you’re going to have to pay maybe half a point higher than what you would have otherwise, if it was occupied.

 

But I don’t know. If you guys are accredited investors, to me, it’s a freaking waste of time. What do you do? You do all this work, you do the inspection you buy, especially when you buy it over market price, because you’re surrounded by a bunch of unsophisticated turnkey buyers that just listen to a bunch of podcasts and you’re overpaying by 10 20 grand plus, it all you’re going to have at the end of the day is going to be underwater and you’re going to be making what, $200 a cashflow a month.

 

For younger people, That’s cool. What if your net worth is half a million or your credit investor then? In Hawaii, we call that full whole. It’s not worth it. It’s PETA. Okay. Thanks. Even what the E I D and I think they’ll lower is the FHA we can get in with. And what’s the look at the ROI, the cash on cash, because my down payment is so low.

 

I’m making, I’m just making this up 30% of my money, 40% of my money just in cash, because I only have $10,000 down. But how much are you really making at the end of the day for that level of effort? I don’t know. And then I, especially for accredited investors, You’re going to be living amongst your tenants.

 

This is not cool for married people, in my opinion, but I’m not, this is a lifestyle that doesn’t listen to me. And if I wasn’t a credit investor, I’d want to live somewhere. Cool. Instead of just a turnkey rental, with LVT flooring and indestructible countertops, I’d rather.

 

Living in a nice, luxurious apartment. I think seeing me as my husband, he likes apartment living too, so yeah, but we’ll look and see. Yeah, but I get it right. Like the FHA is, that’s the law, right? You think you’re coming in with 5% down and the wheels in your head or? Ooh, that’s a great ROI, but is it really?

 

Move the needle. And at what point, especially as a credit investor, you start to realize I’m going to get financial freedom very quickly in the next five years. If you’re already a credit investor, why am I doing silly things like moving in next to my tenants? For some of you guys deserve to start living it up already.

 

Nobody ever tells you that, everybody wants you to like, don’t find latte living under your means. Save. Because of that, I don’t know. I think it’s one of those things where if you had parents like mine or you probably are the same, you were rewarded by being very frugal.

 

Yeah. And I guess. At work, if you do well, you get rewarded with more work. So yeah. All messed up. Is that, huh? Yeah. Anyways. Yeah. I guess I was along the same lines as while we already went through. It’s 10% down, not five but 10, but no PMI and sturdy. So we were looking at that too.

 

That, yeah, we’ll go through that. Yeah. I don’t know all these companies there’s or there’s a bunch of these guys there for the most part, I would, they make it really easy to apply, which is nice, but I think you have to be careful that bait and switch, especially if it’s not owner occupied and you have to massage your debt to income ratios in your power profile.

 

They, these guys spend a bunch on ads and they get you guys to apply via their app. They’re typically I don’t think they have as good pricing for the most part. A lot of times this thing. Okay. I guess you’re 2021, for all the listeners. What is the average rate for the third year?

 

For now, I don’t know. I have no idea. Maybe for non-owner occupied, maybe 4% to 6%. Okay. Yeah. What I would do is if you walk into any bank and you look at the really low rights for owner occupied offices, and I think that what does that three and a half percent right now? Yeah. That’s never nobody ever gets that.

 

It’s what it seems like. So it’s that, it’s more like for, so what I’ll do is go plus a half a point because it’s not occupied the beat four and a half.

 

Do you recommend using HELOC or non-recourse asset based loans to like funds to? why not? Do you need to figure out your level of risks that you want to take part in? You want to ask me five, 10 years ago. If I felt comfortable with people getting lots of leverage on top of their leverage, using the HELOC for down payments and more properties, I would have felt uncomfortable with that personally.

 

But today I guess I’ve been desensitized to it and I’m like if you’re buying cash flowing assets, I’ll bad Kennedy. Go ahead and do it, right? Yeah. But most more, most people have just lazy equity, nothing Jack. So I’d like to get that working first, before you start to get key locks and stuff like that, going to the non-recourse asset based loan. They sound foolish and the lenders make great fees on this, which is why they always push the stuff, especially like the all-in-one loans and the portfolio loans.

 

But the Thies suck on boats and their leisurely higher rates. Do you want it? You want to exhaust your Fannie Mae, Freddie Mac volts first all the time. And this is like where the lenders are, they’re not your friend. Make no mistake. They’re not your friend. They’re always going to like it. As soon as they start to see your borrower profile become a little bit squirrely.

 

They’re going to look for the easy way out, just like we talked about like tax professionals, right? They always want to do things the easy way. So once you, once they start to say, oh, your debt to income ratio is anywhere from 60 to 45. I don’t know. I’m just making this up, but oh, Hey Maryanne, maybe you should do a non-recourse asset-based loan, a portfolio loan, think for yourself.

 

Understand the pros and cons of going down that to me, if you have a clean borrower profile and you have good debt to income ratio, Do you use the Fannie Mae Freddie Mac loans, but for some of you guys out there who have California rentals and a lot of equity that mess up your debt to income ratio, because it’s not a good purchase and a, not a good loan, then you pop, you might not fall find, you may have to go down this non-recourse asset based loan, but then again, if you have several hundred thousand dollars of equity in your California rental, you shouldn’t be investing in little rental properties.It’s probably a accredited.

 

Great. That makes sense. I don’t know. I, yeah, it depends where you are and like your profile. So yeah, some options out there but yeah. Do your own analysis. Got it. Hard money. So it says for instance, if you did use hard money, would you recommend paying off, paying it off quickly instead of refinancing because of all of these?

 

Why are you using hard money on these types of properties? Paint the scenario that you do make this with. I dunno, for. I don’t know for someone who may not qualify for a traditional, I don’t know if anyone would use hard money, but I’m not sure. Yeah. Let me give one example and then if you can think of another let me know.

 

So I would think the only reason why you’re trying to use hard money to go after a deal, if you’re buying that deal, is because you’re stressed and you need to close on it quickly, or. Maybe it is a turnkey and it’s a highly competitive environment. You’ve got to go in with a stronger offer, which I would say totally buy the damn property in the first place.

 

Everybody is heavy going off of it. You’re buying it over price period. Don’t do it. It’s not it’s not like an LP feels like, oh we’re having a $50,000 position, but because everybody. I Want it now, it’s $60,000. It doesn’t happen in the world. But that would be the only reason why you’d want to use hard money.

 

And this is we get into the realm of the people doing that BRRR strategy that buy, rent, rehab, refinance, you’re an accredited investor to me. This is just Childsplay. Just don’t waste your time doing this stuff, unless you’d like to feel like you’re making a lot of money and feel like you’re forced.

 

That’d be the only reason why you do the hard money. But that’s up to you, right? Like how do you want to run your finances? Do you want to use Ash or would you rather use a hilar or use a hard money loan and keep the cash on the side? It’s always having dry powder. It’s up to you. Is there any circumstance where you can think where you’d have to use hard money to go after a deal?

 

Oh, indeed. You want to go heavy, right? Because all the books tell you, if you go on hard money, you can get a 5% discount, which doesn’t happen. That was like 1998 or something like that. It was not really real, especially when you’re buying retail type of products like turnkeys, and I can get no discount with that.You’re already buying it overpriced. Okay. Good to know.

 

 

 

Cash reserves. So like in case of vacancies, I don’t know, like what, how would you recommend whether present teacher number, like in order to handle the loan payments? I, what kind of cash reserves we should have, like a total portfolio in case of emergencies, if we’re doing that.

 

Okay. This is totally up to your personality, too. Some people believe the Corona virus is real. Some people aren’t right. Like it, people, it’s all based on where your personal head space is at. If you want, the bank, where they’re called, smart money or just conservative to criminal we’re conservative.

 

They typically want anywhere from three to six months of principal, interest taxes and insurance. So on a little rental property where your mortgage is 500 bucks, they’re wanting what? 1500, three grand. So we can use that as a starting point. How does that sound to you? Is that, are you, would you like more, which you can, what is your personal comfort level?

 

I guess I would say that class time is six. Okay. And this is where it’s up to your personal comfort level. Like I would say in my experience what’s the worst that can happen. A tenant messes up your property and now you have to pay $20,000 to get the thing back online. There should be other places you should be able to take cash from, to pay for some very low chance of something. But high-impact things like that. What’s going to happen? 80% of the time is maybe a tenant moves out and maybe your property goes vacant for a handful of months and you might have to fix something.

 

So that might be, you gotta pay your debt service for a few months. So 1500, maybe you gotta pay to put in a thousand dollars of repairs. So two to $3,000 is you’re going to be your key in most cases. So I would tell people like, we’ll have at least. It is dry powder, but then it also has to do with your personal cash flow levels.

 

Like we just had in our mastermind group, a guy who makes eight or nets $8,000 he puts that away every month. Old Henry. And he, and I’m like dude, you’re fine. Like you can have a vacancy, every single month, several every month you’d be fine. So he needs less dry powder around.

 

And for a lot of people in our group, a lot of you guys are able to save two to three, $4,000 per month. So that should, you’re good. You can also keep some dry powder and like some IRAs, Roth IRAs or.

 

I’m not saying you should have $3,000 times six. I think that’s a little ridiculous. And then as you get more properties, right? I think your level of dollar per property goes down, because you’re reaching a more steady state. You’re more diversified, right? So it’s harder in the beginning.

 

And when your net worth is lower, which sucks. That’s what’s hard. I bought this whole wealth building thing. And at the beginning, it’s the hardest, but as your net worth grows, as you have more income, more cash flow from just your day job and you have more properties, your level of insurance goes down. And just to use an extreme example. If you had larger companies, they self-insure to a point.

 

Yeah, it’s called the trickle for me, because I use mint to track my net with. So when it drops, the cash side drops. I’m like, oh, I wish he was over here. But yeah, and this is like every situation is different. And what I would say for you, you’re more on the conservative side, but for every rental property.

 

Yeah. This is just me shooting from the hip. Don’t do exactly what I’m saying, because I just thought of it. I’m in it. But maybe knowing your personality, maybe I would get a few thousand dollars per property of cash reserves, but be able to pull a little bit from elsewhere. If you’re able to net three, $4,000 per month, you’re good right there.

 

And then the more properties you have. I would say maybe $1,500 per property. You start to work your way down that way. Yep. I agree. Probably on lending. What kind of lenders should we use to reuse those that are recommended by the provider? Or the turnkey provider or like on your preferred list, I don’t know if we need to like, try to scale to other states, if we should think about that and then yeah.

 

So the way the lending works is the lender, the lenders are a lot of the guys that we work with are licensed in multiple states, like life insurance, right? So those, the banking stuff that we do. The same guy gets licensed in multiple states. That’s all it is. That’s it. And the loans that were getting Fannie Mae Freddie Mac for the most part are federal programs.

 

It doesn’t really matter what state you’re in. So what I would say in terms of the lender, right? There’s two parts of the lender, the broker, right? The sales guy, the guys who tell you all this stuff that they can do. You’re trying to, that’s why you work with referrals, right?

 

Because these guys are not just the stupid salesman that tell you one thing, but then the underwriter in the back room tells them they can’t do it. And now you’re stuck. And then the general rule of thumb is you don’t go to a large bank because typically those people are, might be great at working with owner occupied stuff in the state that you live in.

 

But this non-owner occupied stuff is a little different to them. And I would just not interest those types of people to do it. I would look for people who do own or non owner occupied and rowboat rental property. As their primary business. Okay. Reps, I guess if someone is like 35 to become an inspector with that country threat status doodle property inspector.

 

Yeah. If you’re a real estate agent, you can inspect properties for gazillion hours a year. Play a real estate agent for a gazillion hours a year. But if you’re not actively participating in your personal portfolio, it doesn’t count. I see. And this is where I’m a little fuzzy and of course, none of this is financial advice or tax advice.

 

Go find a CPA. That’s going to sign off on this stuff first. But of course, I always tell you guys to get educated on this stuff and know the nuances. So if you can go and play a little intellectual jiu-jitsu with your CPA. So they just don’t do it the easy way until you know what. To me, if you need to have some active participation in your portfolio.

 

Now, if you’re an inspector, really how much you can’t hit 750 hours inspecting your property is not going to happen man. Okay. So no, but you need to say but how can I? Interesting. Good question. So that’s a difference between yes, you’re doing real estate activities, but has nothing to do with your portfolio or passive portfolio that you’re operating.

 

All right. Insurance question on umbrella insurance. Currently, we plan not to have a car anymore. I was wondering, if we should still get an umbrella, neither of us are in high liability kind of professions. To me umbrellas, the first thing you get well before, you get property insurance on your properties.

 

But yeah, you get the umbrella before you get any LLCs, start spending money on that type of stuff. Okay. The umbrella is the one that everybody thinks is you’re driving in your car or you hit grandma, right? Yeah. Even if you don’t have a car, I would still get it. It’s so cheap, like probably a few hundred bucks. Just get it.

 

Yeah. Because it’s supposed to cover let’s just say the insurance doesn’t cut, jump in. Supposedly the umbrella is supposed to be your next layer before you rely on all these entities. But too often entities and all these others. Exotic trusts are sold before this. Hey, it’s you’ve got this armor on, put this stuff on. It’s like just the order where you put it in. Thank you. That helps a lot. And it’s cheap just to get it right. Yeah. Operating the property. So do you think for the turnkeys  we would need to put in things like remote control thermostats or security systems and security cameras, or that depends whether it’s A, B or C type of finishing?

 

Yeah. You’re not going to put a Siri or Alexa thing in that property, class C they’ll probably just steal it or something like that. It sounds cool, but it’s just not the clientele.  My style is like, you hire good people and you rely on their expertise as consultants.

 

And these are your property managers. You know, asked what they think about it. They’re going to give you the best opinion, because they’re set in the ground. They know the clientele, they know the area. But typically not the type of long-term rentals that we’re doing. Short-term rentals probably, but that’s a totally different business.

 

I’m just saying this, but I don’t want security cameras in there. I’m probably going to get sued or something like that for invasion  of privacy or some nonsense like that. Okay. Exit strategy. If we can sell it back to the turnkey provider or should we? You could, they’ll buy it. That’s an option most times is they know that you’re an unsophisticated buyer who’s distressed. So they’re going to buy it for pennies on the dollars, just like the used car dealer. 

 

 And this is the thing, right? That the business model for a lot of these name brand turnkey companies is they’re buying a hundred thousand dollar property for 120. Now, if you come to them and you say, and enough, I don’t want this thing anymore. They’re probably going to fire for 75 and then sell it again to some sucker at 110 to 120 again. Okay. If we have a bad experience with a tenant and want to exit, do we change property managers instead of selling it?

 

That can possibly be a solution. I guess you got to figure out what the problem is, right? Is it your PM or is it just a tenant or maybe that property isn’t very good? And this is where you have to figure things out because everybody’s going to be blaming each other. So for example, the properties manager is going to say the turnkey company sucked because they didn’t fix all this stuff.

 

Or they’re going to blame the tenant, we have a horrible tenant. The tenant’s going to be blaming the property manager and that the property sucks and it’s all brokers, it’s just a constant finger-pointing game. So it’s your job. And it’s three employees that are dysfunctional. No, they couldn’t complain to you as the boss for all you guys aren’t there that are like managers of people, it’s just like the childish stuff you have to deal with.

 

Totally. You think that it’s going to be like a grownup adult and once the kid graduates and goes off to college, no one follows. But maybe there are still some problems. Like when we sell it on MLS, should we target retail or like investors bigger pockets, investors, or would you recommend for sale by owner?

 

I would sell it. If the tenant moves out then, what I would do is fix it up retail. You might spend 10 to $20,000 and then sell that thing to a local broker to sell to some retail owner, occupied buyer, hopefully thrilled with the motion to buy it and will overpay for what it really is. If you want to get rid of it.

 

What I would do is I would list it with a lot of discount brokers that will sell it with a tenant in place to a turnkey buyer. If you guys need a recommendation, you guys can shoot me an email. I can connect you with my guy who does that.

 

It’s kinda like a boat. You’re happy when you get in here, you can have here, when you hold a turnkey rental property, if you’re an accredited investor, like for those of you guys out there who are under half a million dollars net worth keep buying rentals, I always have to put it in because people cannot make that difference.

 

Understood. And would you ever recommend owner financing? Never. It’s like a unicorn. It never happens to these guys and don’t even fall for this stuff. The tenants, like when I left the property, I want to live there. Can we work out some deal, lease option, owner finance. Those are the reasons why these guys are living in class B&C rentals.

 

Their credit report is probably shot. They don’t follow through with things. This is not going to happen, guys. Just stop wasting your time and just sell it to retail or to a discount broker. It’s just like borrowing money. Lending money to you, like your brother-in-law or your sister-in-law is not going to get it back.

 

It’s just not going to happen. I think that’s right. Would you recommend selling to a family? Oh no. Heavens no. And the problem is like you might be in good faith that I’m selling the property. Like I wouldn’t, I’ve done it in the past where I sell properties to people I know.

 

And I always do. Hey, man. I’m just being honest here. Like I fix things up as they need to, but if something should break, I’m sorry. That’s just the risks you take on and so you need to have that discussion. To me. It’s not worth it. And then with the year of the house, be built into key decisions to exit strategy, not really houses.

 

It’s not like commercial assets, where there’s a definitive class A,B & C type of thing with ages when apartments in the 1970s are more like the class B minus type level or class A is getting into the 1980s, 1990s, houses there’s no age on the date for the most part.

 

The bad side of that is you can sink an infinite amount of money into a house too, in terms of repairs and upgrades, etcetera. But any other questions? Good question. Those were all I had as I went through the course, because it was so detailed and I guess answered most of my questions already. So thanks Lane.  We’ll throw this into the remote investor eCourse for folks. Thanks, Marianne.