QRP – Qualified Retirement Plans & Free Book

The following is my guide to QRP / Solo401ks and a light discussion of SDIRA or Self Directed IRA for retirement or tax-sheltered plan.

What is a QRP Retirement Plan? It’s a tax-sheltered investment vehicle that you can invest in pretty much anything where your money grows tax-free but it is intended for retirement and the downside (why I don’t do one personally) is that you can’t touch the money until you are old 🙁

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

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

Damion Lupo was a previous guest on episode #40

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

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

***Updated 9/2018***

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

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

2nd IRA – Flexibility to self-direct

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

There are a couple caveats to point out:

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

Info on using retirement funds for syndication deals:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hey Lane! I asked my CPA [who actually knows what they are doing… let me know if you want a referral] and here is what they said… [my additons]

If you are going into a deal with your Self-Directed IRA, you won’t be able to use passive losses to help offset W2 income or taxes due on early IRA withdrawal. We would rather see you take a withdrawal to invest rather than invest within the IRA.  [If your 401K or IRA has more than 90-120K you may want to keep it or start-up a QRP. At the very lease consider taking out withdrawals slowly as to minimize your AGI creeping up to higher tax brackets] They said the first two years will not be any UDFI as Bonus depreciation will offset it within the IRA.  In the long run, UDFI will become substantial plus the taxes due on retirement withdrawals.  Just pay the tax, either way, the only real present-day penalty is 10%.

Action Items:

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

 

Here are the podcast notes:

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

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

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

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

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

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

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

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

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

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

Mission Statement: Free 1 million people from financial bondage.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rental #5: Birmingham

This is the first property in a series (1 out of 9) of acquisitions that resulted from a couple 1031 exchanges.  If this is your first time reading this post I suggest you read these few prefaces first.

  1. The inspiration to go for cashflow vs appreciation
  2. The introduction to the 1031-O-Rama: 2 -1031s, 9 properties, in 5 months to convert my Seattle portfolio to cashflowing (low appreciation) boring rentals
  3. Why ladies and gentlemen I went out of state AHH SO SCARY! Sight Unseen SO WILD I KNOW!

This property was put into service in October of 2015 (I know a little behind but I’ll catch up in the next few months). I  acquired the property from a marketer that makes connections with the rehabbers in certain markets and finds buyers such as myself who are typically located in low rent to value ratio locations (this does not necessarily mean high-priced locations) such as California, New York, Hawaii, Seattle, Portland, and basically the coastal areas where all the cool kids what to actually live. Marketers have their place if the buyer is totally clueless but once you purchase a few of these properties the marketer really does not offer much value. The only thing I see that they would offer would be someone to be the bad guy role in a negotiation but many of the marketers are buddy-buddy with the rehabber because of their business relationship and won’t stick their neck out for you. As the buyer, you need to take ownership of the due-diligence process and negotiations because that marketer is not a licensed agent and does not have a fiduciary responsibility to you.

Why Birmingham?

Check out my previous post for a bit more context. My goal was straight cashflow so Memphis and Birmingham were at the top of my list as opposed to Atlanta/Texas which seemed to trade off some cashflow buffer for appreciation potential. I was comfortable going with a seemingly grungier city because I was going for cashflow (rent/value).  A wise mentor of mine told me once “the security of your investment in a market correction is how much cashflow/buffer there is from between your rent minus expenses… when bad times come, how much can you lower the rent to ride out the bad times.” I think most people get wrapped around in analysis paralysis over the plethora of data such as crime stats, employment trends, population trends, etc.  Those indicators tell part of the story but for me the reason I moved forward was just talking to a couple of people who were (not referral based salesmen) investors with disinterested agendas that said “dude, just buy it (from the right people), it just works”. If you have ever heard the saying “stand on the shoulders of giants” that’s what I did – if it worked for these other investors then I’m just going to start where they left off – after all every month I delayed action I lost a potential $200-300 of cashflow.  In the end, maybe it’s just because of my personality, I chose Birmingham because I heard so many podcast ads for Memphis and saw all the investors going there.

Due diligence:

I apologize, it has been so long that it’s hard to remember (again I will get better at this, scouts honor), but I can’t really remember much because there were really no huge exceptions in the due-diligence process.  I did a 3rd party inspector that I got off a referral from other investors. Remember do not take a referral from anyone on the sellers side as that is a huge red flag for their integrity due to the conflict of interest. A big difference in my growth as an investor is running these processes together with the lender’s parallel process and being able to effectively negotiate additional renovations or contract terms. Looking back I probably over paid a few thousand at least more than I would have today with my experience because you just can’t read about this stuff. Also it’s worth noting that you always should connect with a few property management companies and interview them early in this period. In addition, use them to validate your rental numbers and property location.

Closing:

I paid cash for the property initially because it was the sellers terms. I would never it do it again this way since I basically waived my right to a property appraisal. The next step was to refinance the property with a convention Fannie Mae mortgage to pull out most of my initial investment. We had a lot of trouble getting the property to appraise for the value due to the technical processes of the appraisers. Finally, after the third try I finally got an appraisal number that I was able to live with, but the damage had been done and I had to have all my cash tied up in the deal for 2-3 months. Lesson learned was to always have a financing/appraisal contingency to ensure that the property that you buy appraises and that what you pay is what it is worth. This is another example of a standing on the shoulder of giants, when you are financing from day 1 the bank owns 75-80% of the home via the mortgage and they are doing their due diligence too via the title work and appraisal.  Therefore use the banks process as your friend. I got a lot of help from my lender in this transaction as they were the ones behind the scenes working the appraisal issue. This the difference between going with any big bank lender and a lender that works exclusively with investors. Again the golden rule is to always go by referral by another investor.

After the smoke cleared I was out of pocket $27K and had a $50k mortgage. The interest rate was a little under 5% but that does not matter. Sophisticated investors do not look at interest rate and the amount of debt instead they focus on cashflow and effect on net worth because after all who cares if your interest rate is 8% if the deal is returning 20-40%.

Operations:

After all the closing issues got taken care of everything else went pretty smooth and the property got filled by a nice family. Here are the numbers:

5 Rooms/3 Bed/1Bath, 1 story, 1008 SF

Built: 1967

The Story: A nice suburban home in the Center Point area. The property was picked up as a distressed seller and rehabbed

$875 Rent per month

– 10% Property management

–  In the first 18 months I have less than 400 dollars of repairs total

– $395 Mortgage/Interest/Insurance/Taxes (PITI)

I typically get $300-400 per month after expenses. Please note: Make sure you are saving 30-50% at least in reserves for cap ex, expenses, repairs, vacancy. I have had good luck these first 18 months however the law of averages will catch up.

Knock on wood – it really does not get any better than this property because in the first 18 months of ownership I have experienced no vacancy and only $300 of repairs. 🙂 So yea things are pretty boring on this one.

Link to the lively the BiggerPockets Peanut Gallery

2015 Metrics: 22.4% Total Return = 18+2.7+1.7

  1. Cash on Cash %: 18% = 5000 (cashflow) / 27000 (out of pocket)
  2. Mortgage Paydown %: 2.7% = 750 (principal paydown) / 27000 (out of pocket)
  3. Tax Breaks %: 1.7% = 500(25% x depreciation write-off) / 27000 (out of pocket)
  4. Appreciation = ??? I don’t really care but this can potentially be a lot
  5. Inflation = ??? I don’t really care but with all the bailouts and artificially low-interest rate this can be plenty

SPC GIT ‘ER DONE PLAN:

  1. Just do it. Every month of not placing your money into something you lose a potential $200-300 per month. Homes aren’t getting any cheaper and every day you risk a stock market crash.

Start Here

“My wife is officially is quitting her job at the end of this year. Thanks for helping us be able to do that. One of her friends had to go back to work 10-weeks after having their second kid because they need her income to pay the mortgage. It makes me cringe just thinking about that.”  –Hui Deal Pipeline Club Member

 

The typical SimplePassiveCashflow tribe member asks a lot of questions..

Why do I have to work 40 years at my JOB? Why do the wealthy always get ahead? Why do I stay up late at night reading Quora?

Alexa, why does Dave Ramsey think I’m dumb? (Revisions below)Are you broke? Don’t have $20,000 to start buying a rental – learn here.

 

I know I was beating the drum of the Turnkey rental a few years ago but now investing in Syndications. (Turnkey rentals are not passive and still a PITA) I am admittedly a work in progress and this website/podcast is my journey.

Mainstream investing (401K, stocks, mutual funds, 529, IRA, or anything retail) is based on investing for appreciation. You know buy-low-sell-high …. usually based on factors wholly outside an investor’s control.

Then one day (when you are grey and immobile) retire and live off your nest egg at 4% withdrawal rate. We (us sophisticated investors) call this gambling not investing.

Buy-low-sell-high trading mentality encourages the churning of holdings … which generates commissions and short-term capital gain taxes. Which is another reason why we do not like commission based Financial Planners or Registered Agents. Some of these guys use hard-selling techniques. If they make enough phone calls, eventually they get someone to purchase a stock and make their commission.

“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway” -Warren Buffet

In case you have not seen this whole financial world is an engineered system by Wall Street firms and the government which protects them, to prevent Main Street investors to building enough passive retirement income in you 30s/40s as opposed to your 70’s. The mainstream financial news never talks about yields (coming from cashflow – income minus expenses). Discussions focus in the context of share prices.  It’s pattering you to think buy-low-sell-high. Churn and cha-ching for those executing transitions in the industry. And for most people who are confused and freeze that’s why there is a hidden asset management fee which is an above the line expense to you.

The secret… Is not about appreciation but cashflow. Creating multiple mini-pensions today as opposed to hoping and praying you have enough to deplete from during your dying days.

Many predict 2020-2030 as the year when many pensions will go under

Financially independent or the truly “wealthy”  look at the world VERY differently than those in the corporate rate race or Wall Street fun-house.

For real estate investors, it’s all about acquiring streams of cash flow …

…. collecting contracts (leases) with people and businesses who work every day and send us a piece of piece of their production.  It’s based off sound financials where you make more income than expenses and not off fake company evaluations and perceptions.

Although equity is nice when it happens we know REAL equity growth is driven by cash flow.  More cash flow equals more equity. Cashflow is the oxegen to survive in order to partake in equity growth. And Cashflow today literally puts food on the table, gas in our cars, clothes on our bodies, shelter over our heads, and a nice vacation if we have extra.

The best part is that we control multiple streams of income and essentially our own destiny as opposed to giving up control to a corporation that is dependent on the overall national and world markets.

As the Cashflow affords us the means to sustain, surplus cashflow and equity allow us to acquire even more cashflowing assets.  It’s a virtuous cycle of compounding wealth. But the good kind.

According to the 2017 American Association of Individual Investors Asset Allocation Survey, the average individual investment portfolio consisted of about 66% equity, 16% fixed income, and 18% cash.

Large institutional investors or “Smart Money” asset allocation models contrast that of the average retail investor.

According to a January 2017 report from the National Association of College and University Business Officers (NACUBO), university endowments report average asset allocations of 35% equity, 8% fixed income, 4% cash and 53% alternatives.

With 401(k)s and IRAs heavily invested in mutual funds and with investment advisors heavily skewed towards equities to drive up fees, it’s easy to see why individual investors prefer the convenience of Wall Street.

Why does the smart money allocate a majority of their assets to alternative investments?

The simple answer is the returns are better.

Alternative investments are shielded from the volatility of Wall Street.

The JOBS ACT opened up syndications so that the playing field is finally leveling.

Learn more about Syndications… with the SPC Ultimate Guide

Join us on the Quest for the Uncorrelated Assets!…

The “Bread and Butter” investments:

High-level snapshot of the current cap rates

Exotic Investments:

Oil & Gas
Website/Online Business repositioning
Life Settlements
Conservation Easements
Diamonds (Just joking)
Why I am not a fan of Crowdfunding Websites

Tactics of the Wealthy:

Captive Insurance

Tradelines – “Piggy-backing your credit”

QRPs and Solo401Ks

Leveraged stock investing

Surviving the W2 Lifestyle

Other Resources:

Tick, Tock: Timing of the Next Downturn and What it Means For Commercial Real Estate – Yardi Article

Go Bigger! Diversify your money! Invest alongside the pros!

Four ways Sophisticated investors diversify in syndications:
1) Different leads/operators
2) Asset classes such as MFH, self-storage, mobile home parks, assisted living
3) Geographical markets
4) Business plans (5-year exits vs legacy holds). And take advantage of the overall scalability and Cost Segregation & Bonus Depreciation

One of the cool things about investing in real estate is that the properties create a paper loss. For single family homes, you can take 1/27 the value of the property (minus land value because that does not devalue over time) per year for 27 years. This is what is shown below. A cost segregation juices this deduction as it puts the asset on a more aggressive depreciation schedule which front-loads as much depreciation as the tax code allows. This is one of the reasons why bigger deals are better because they can support a 5-8K cost segregation study.

Check out the SPC ULTIMATE GUIDE TO TAXES

Paper losses due to depreciation!

*Usually I see investors place no more than 5% of their net worth into anyone deal

Sign up for the mailing list and join the free web course “Journey to Simple Passive Cashflow.”

The group coaching is something that I have been trying to put together a couple years now after I accumulated a lot of content and got a feel for coaching students these past few years in a one-on-one setting – see here.

The new Mastermind: “The Journey to Simple Passive Cashflow” is open and it will consist of:
1) 27 weeks of curated content with concepts building on top of each other
2) Participants go through those modules together and are able to interact on the Bi-Weekly Call and the Private Facebook group in a “group study” environment
3) Bi-Weekly hour power calls switch between the topics of a) Acquiring your own direct investment and b) more high-level wealth building concepts and syndication education

It’s going to be a really cool format where people take the journey together. Think like a Fraternity/Sorority without the weird stuff. When I was going through programs it was most beneficial to connect and climb the ladder with quality people. Who knows someone of your Cohorts might do a deal together or become lifelong friends or accountability partners.

Get on the waiting list here.

Program Contents:

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.

A free T-Shirt too!

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.

All too often I see hard-working people with good jobs struggling to get by.

These are the same people who are forced to take stressful promotions at work, commuting in the car for a couple hours a day (hopefully listening to the SimplePassiveCashflow.com podcast), going home to the home they think they own but in reality, they are just a slave to the mortgage company.

These “good citizens” are victims of an engineered system to keep then investing in 401Ks, mutual funds, and stocks.

This financial system is setup where the insiders are stealing the majority of your returns (and you take all the risk – to learn more about this go to SimplePassiveCashflow.com/FP).

After over 2,000 calls (Now available to Hui Deal Pipeline Club members) between 2016-2018, I have found that most people Major in the minor things…

For example, if you are trying to clear space in your iPhone. #FirstWorldProblem

You are wasting your time with this…

When you should be spending time on this…

And don’t get me started with mentorship. Most people are worried about how much the shovel costs when they are trying to dig a hole.

I am trying to lead folks out of financial entrapment! Let’s get out of the rat race together!

 

Welcome to the website and join the club!

 

****Quick Start List!!!****

Welcome if you are new! And welcome back… here is what I have been working on…

1 ) Just closed my second syndication in my own name. If you want access to these opportunities they are only available to folks with a pre-existing relationship. So sign up for my Hui Deal Pipeline Club and setup a time to chat.

Hui Deal Pipe Club acquisition stats (Estate-2016)- Acquired over $90M dollars of total real estate and $12 million dollars of funds raised.

2) Working with my coaching clients and Starting group coaching. Honored to be part of this paid Mastermind. Email if interested.

3) Moved to Hawaii! Waiting for the right deal to come along in this sellers’ market and ponder life.

4) I stopped looking for deals… I only hunt the hunters to partner with if the deal makes sense. Not to sound high and mighty but after doing this podcast thing for a few years I have reached “critical mass” for social capital and deals are now coming my way. There are about twenty deals I get from brokers in my email everyday and a few syndication deals that are pitched to me every month.

5) I’m just trying to find happiness. Read along on my personal newsletter by signing up here.

Goal: Turn “C” and “B” class properties, 60-300 units (stabilized with value-add opportunity) with at least 75% LTV/25 year amortization. We plan to hold 3-6 years and sell when we have doubled our investors’ money. Utilize Non-Recourse debt for extra security.

Buying Criteria:
Seeking MFH at least 60 – 250 units.
1. Value-add component: typically 85-90% occupancy for non-recourse loan & discount based on condition or motivated seller
2. Price: $1,500,000 – $9,000,000, per unit cost under $55K.
3. Location: secondary and tertiary markets (Not WA, CA, HI, NY, or any other primary market)

4. Class: D/C/B Property in a B/A neighborhood

I read a book called, “The Millionaire Next Door” and it explained why my pain points were motivating for me, and how I channeled that  frustration into something productive…the desire to make my family proud and ‘come up’ in life and pull my family into a better socioeconomic situation, and to ‘have what others have but i never could’ but somewhere along the way, I learned quickly that the ‘having of stuff’ is not what brings happiness so I dont pursue the shiniest of immaterial things… just the MED…. minimum effective dose of what I truly want which is surround myself with a few quality people and necessary things to subsist on than a bunch of trendy new things and fads that will fall off eventually” .  –Hui Deal Pipeline Club Member

Discussion on what markets to invest in

The biggest macro influencers for a good rental is a growing population and a strong economy.

Bigger Pockets is filled with (mostly #BrokePeople) newbies announce that they’ve found a great new market with high cap rates.

It’s typically a midwestern Rust Belt city. Where the population is declining from the peak of the auto industry.

Buffalo, NY: Peak population, 580,000 in 1950. Now 258,000.

Cleveland, OH: Peak population, 915,000 in 1950. Now 385,000.

Detroit, MI: Peak population, 1,850,000 in 1950. Now 673,000.

Hometown Locator gives great stat. It’s a federal government website containing data on pretty much every place in the United States. www.hometownlocator.com

Another good one is City-Data.com.

Secondly and I believe is more important is the marco factors which is having a good relationship with those on the ground.

Pick any strong secondary market like: Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, where a lot of us are buying turnkey rentals. It’s more important to find people who (aren’t tied to a commission) to let you know if that house has a crack house up the street or next to an abandoned home.

 

Salt Lake City Tops U.S. in Diversity of Jobs; Las Vegas Is Last – [Economic diversity is important] – 19.02.20 – Bloomberg

Networking with other Buy-Hold investors I discovered 2 things:

1) Passive investors are hard to spot out among the typically ‘active’ RE crowd that are the majority at most local REIA meetings. Trading best practices was very difficult and I got lost in the fix and flipper group think mentally too.

Always consider the source of your advice.. I think we can all agree that going to your mom/dad for financial advice may or may not be the best place to go.. Sure they may be retired but consider the path the took to get there with different circumstances.. In 2015, I started to realize that going to my local Real Estate investing group was probably not the best place for me to go.. I started to pay a lot more to get into more qualified groups and conferences and I found that mostly everyone were real investors and not just Wantrepreneurs.. I got even more focused and as an engineer still working the day job I sought out groups with other investors who were primarily working professionals (doctors, lawyers, accountants, engineers).. A lot of these people were a little older than me which helped me find my highest and best use as an investor but gave me a high-level view of how to put together a holistic life plan.. An example of this happened the other day when I asked my guy at the Mercedes dealership what other people do with their leases do at the expiration of their contract.. Notice I would not ask that at the Honda dealership because people there don’t lease their cars.. By the way I don’t know why you would want to buy a card…. I did the math.. The takeaway is find people who are similar to your pedigree in terms of time/money/knowledge/network and use those as role models.. Grant Cardone has a saying “who’s got my money” which I think is misinterpreted as a war cry to get out there and make money.. I take it as a subtle hint to find those who have what you want and they “type” of money (active or passive).

2) Passive investing is often boring since this is not a get rich quick method of building wealth and uneventful (if things are going well there aren’t too many cool stories).

This podcast and blog are meant to distill content just to the golden nuggets for the passive Real Estate Investor.  I plan to go beyond the newbie tips that clutter the internet and cocktail parties because lets’ face it, as a passive investor your time should be spent on things that you love to do and those who are important to you (not trolling real estate internet forums or making makeshift plumbing repairs on your property).

Even Turnkey rentals are a bit of a PITA.

As I get more experienced, I recognize that there are a lot quicker ways to make a lot of money in Real Estate such as apartment investing, flipping high-end properties, or development but for the time being I have a full-time job that is alright and until that changes this is the path that I have zeroed in on. So if you are like me, join me on this train and if you don’t like your job and want to quit you can get on board too we will wake you up when it’s your time to escape the rat-race.

Side note… why would you want to flip properties?!? Its a terrible risk adjusted return and a strategy used by broke people. You take on all this risk to make money and then have to pay back the government with taxes on a large portion! Now I get that it makes for a good presentation but sophisticated investors understand the power of investing with taxes in mind. On larger deals, we do cost segregations to write off most of the profits we make and sometimes even some of our W2 income! But that’s getting more into the weeds with taxes.

Not making any promises as depreciation amount is primarily based off building specifics and amount of leverage used in a deal but here is a real-life example from a $50K investment in the first year K-1 in 2018 utilizing cost segregation.

Passive Losses!

Note this is a Class C apartment deal

Real Estate has empowered me financially I wanted to give back to the investor community.

“Overwhelmed by the amount of stuff is on SimplePassiveCashflow.com? Don’t know where the heck to start? Text the word “simple” to 314-665-1767  for the curated course to get you up to speed on the past two years of content.”

My Motivation For Creating this Site:

1) Begin with the end in mind and decide now what you want your obituary to read. We are only here on this earth for a finite period. I like this picture because this is what will probably be on the welcome table at my funeral. I hope you can make it! Rich Cohen wrote that there are four rungs of being remembered after death: “newly dead; dead but remembered; dead and all those who knew you dead; dead and all those who knew those who knew you dead.” In terms of YOU…All that matters is what happens when you’re alive. Your legacy will offer you no pleasure after you’ve passed so live how you dream but know that there are some unconventional paths that you have to take (like buying cashflowing rentals not in your home state). And for myself…fame will do you no favors for me once I die but at least people can use SimplePassiveCashflow.com to get out of the rat race. And if that does not get your going listen to the wisdom of Frank Ostaseski.

2) Create a repository of information where my unborn children or others can reference with some context into what I was thinking. Similar to Seattle Seahawk, Marshawn Lynch’s “Beast-Mode”, I have tried to live my life in “Legacy-Mode”. And I really want to have a real book!

Why a Podcast?

I jumped on the podcast ban-wagon in 2007 while I was working on the road when I did not have a friend near me. It got me into Crossfit in 2008, Paleo in 2009, Real estate investing in 2010, intermittent fasting in 2013, internet marketing in 2015, and led to meeting and creating friendships with a lot of you because we are aligned on the same wavelength. Yes… The phrase “we met on the internet” is totally acceptable! Obviously, a few of these interests have come and gone but in the macro sense, podcasts have instilled a lifelong interest and ability to learn.

Vinney Chopra calls it Automobile University.

When you ask a kindergartner how do you make money? Why don’t they say “invest in cashflowing real estate?” Because their parents don’t have a clue!

3) While I am alive I want to teach/empower others to fish for themselves. In real estate, we use leverage and by teaching others, I am leveraging other people to achieve their financial goals in hopes that they will pay it forward. I poke fun at MLMs a lot but I would like to create a pyramid scheme of philanthropy.

What is the change that you want to make in the world even if its a 1% move in the needle?  Financial education – people have such struggle so much to make ends meet.

I was baptized on Easter 2016 and searched for a way to give back.  I want to help others but I struggle with giving money away because I know I can grow my money much faster and I am much more frugal than any philanthropic organization. Bill Gates gave back only after he amassed a fortune. Tithing as you go along has a smaller cumulative impact. My end game is to give away my wealth to rightful causes via a Charitable Remainder Trust.

4) I hope my blog/podcast will help families realize the powerful wealth-building effects of real estate so they can spend their time on more important, instead of working long hours and worrying about their financial troubles. There are a lot of successful families with good jobs (teachers/engineers/programmers/finance) yet they struggle to make ends meet financially. It is their kiddos who ultimately get the short end of the stick(Cool graphs on this subject) Being a Latch-Key Child growing up, both my parents had to work and I was left home alone after school to fiddle with my thumbs.

With Real Estate you are able to grow your wealth exponentially faster than the conventional 401K’s and stock investing, therefore you are able to escape the dogma of working 50+ hour weeks at a job that is unfulfilling. And if you are one of the lucky ones who happen to do what you enjoy… well good for you 😛

Money is not everything but it is important because it gives you the freedom to live life on your terms. And we are being misled by the Wall Street institutions and prevailing dogma. Don’t listen to your financial advisor who gets paid based on commissions.

Cambridge Associates, an index that tracks private equity performance, reports that since 2000, Private Investments experienced an impressive 16% annual return compared to 7.4% from the S&P 500.

As a great time in history to be alive with general peace and technological convinced, I see a silent war being waged upon the shrinking Middle Class. This is the Civil Rights movement of my time. In a way, people are having a Stockholm Syndrome with Wall Street profiteers being the captors. Let’s work together to redirect money from the Wall-Street casinos and corrupt financial institutions…To help the endangered ‘Middle Class’ savers find safer, more profitable investments in Main Street opportunities benefiting local communities.

“I wanted to say thank you to all of the Simple Passive Cashflow listeners. The content has been all over the place from Turnkey Rentals to Turkey Rentals and now to syndications and private placements. The feedback from some of you is that it has been a bit of a roller coaster or “Korean Drama” to follow the websites content. To memorialize the past and de-cuttler the past two years of content I have created a FREE web course to get you up to speed by texting the word “simple” to 314-665-1767.”

Why this podcast/website/syndicating deals is the perfect storm:

Self-awareness is truly the most important aspect of being an investor/entrepreneur. My job being a syndicator is to find opportunities and lead other investors like you to them and using my podcast and experience makes this a logical step for me. I always encourage folks to find out what their competitive advantages and disadvantages are. I can usually help point people in the right direction in a 15-minute free chat – Click here to schedule.

SPC followers are typically younger than 30 or older than 35. My observation is that when people have kids, that takes all precedence.

By doing the podcast I found that there was a lot of things and people that I did not know. As Robert Half says, “When one teaches, two learn.”
What are my downfalls?
Being an engineer and introvert communicating was something I was never good at. However, I think I get it after hearing these “straight from the 1990’s salesmen.” I don’t like to waste people’s time, no tricks, no games, the deals should sell themselves.
What is my competitive advantage?

1) I don’t have kids. After learning about hundreds of listens situations via free calls I hear that this sorta complicates things… 😛

2) I am an ISTJ (introversion, sensing, thinking, judgment abbreviation used in the publications of the Myers–Briggs Type Indicator). I don’t really know what the last three manifest in my life but I am a recovering introvert – a side hobby is this group I started to help others get out of their shell. I believe an introvert has nothing to do if you like people or if you are loud and annoying. Your affinity is determined where you derive your energy. Going to the day job and working with you know “others” was really tiring for me. The weirdest thing is that when I talk to others over the phone or in-person I get so excited and sometimes a little too passionate. That’s how I knew I was on to something. I’ll say it many times but what really fires me up is redirecting money from the Wall-Street casinos and corrupt financial institutions…To help the endangered ‘Middle Class’ savers find safer, more profitable investments in Main Street opportunities benefiting local communities. And it would be awesome to help out people in Hawaii where I now live where so many struggles with finances. I’m not looking to change the world just a portion of it.

3) I do recognize that there are seasons in life and right now I am accelerating my syndication business along with my own investments via my Hui Deal Pipeline Club. Sign up here.

Right now my goal is to get to $10-15k per month of passive cashflow as fast as I can. Once I get there, I plan to put things into cruise control. Sophisticated investors call this going from the “growth stage” to hitting “critical mass”. At that point, I will continue to help others get where they want to be via my syndication business which creates good options for passive investors with so little time on their hands. I trust that at this point deals and opportunities will fall into my lap and the Hui.
4) Some people say they work smart. Bust guess what? I work smart and work hard (2-4 hours every day after I get home from the day job). Right now I am working at a pretty unsustainable pace but I am motivated by being so close to activating cruise control.
5) I don’t think binary. I see the world as shades of grey and zero-sum trade-offs when win-win deals can’t be made. I am able to evaluate deals analytically and make holistic decisions. I seem like a machine sometimes but don’t act like one 😉 Robert Kiyosaki says “there are always three sides to a coin.”
6) Integrity – Through these podcast interviews, I had the idea beat into my head not to chase money. I did it in my W2 career in construction management trading money for a poor quality of life working in something I did not like with people who were jerks. Being a younger investor, I realized that was going to hit “zero-gravity” or financial freedom well before my 40s. And then what the heck would I do??? I plan on doing this for a while… at least a few market cycles. I always wanted to act with my investors best interests in mind. The last thing I want to do is not act ethically and have someone put a hit on me as I check my mail at my PO Box.

“I started the Hui Deal Pipeline Club because I want to see each of you get to your goals financially so you can focus on what is really important to you. There are other fundraisers out there that will train their investors down to 10-15% IRRs on crappy deals and do “deals to do deals” or to pick up acquisition fees. Between investing alongside you folks and wanted to grow my track record the right way with the best product I know you guys will keep coming back and bring your friends.”
“Are you absolutely bored at social gatherings because everyone is super passionate about their JOB and too shameful to get naked and talk about their finances? Been drinking the SimplePassiveCashflow Latte (got your own coffee parcel) and feeling a little lonely? Re-engage your friends having them text the word “simple” to 314-665-1767 to begin the Free web course “The Journey to Simple Passive Cashflow” so they can get back up to speed with financial independence and investing. Remember if you don’t tell them now about it who are you going to have mid-day lunches with when everyone else is still at the day-job.”
If you are new to the site here are the recommended posts to read if you had a couple hours:

 

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

SimplePassiveCashflow.com is for working professionals who are looking for diversification and better returns outside of traditional investments such as mutual funds and stocks. The Hui Deal Pipeline Club is a free investor club where I filter investments and underwrite the numbers and partners myself. Unlike other investor lists and groups, my investors have personal access to me and know that I personally have skin in the game investing alongside with my investors.

Wall Street is rigged and it is rare to find people who have a “system” for beating the market

Let’s work together to redirect money from the Wall-Street casinos and corrupt financial institutions…To help the endangered ‘Middle Class’ savers find safer, more profitable investments in Main Street opportunities benefiting local communities.”


This site is just my method to make passive income via real estate. It’s a N=1 kind of thing for you statisticians out there. This is my path and does not mean it’s for you or your situation. This website is not the bible for real estate and not even the model for buy and hold investing, but at the very least use this site as another data point and get some of my lessons learned.

Traditional options from a financial planner (just another commission based sales person) or options from your Vanguard/Fidelity type broker offer do not fit any of these criteria.

My three rules of investing:
1) evaluate income and expenses for positive cashflow – Good Rent-to-Value Ratios (More info – https://simplepassivecashflow.com/podcast-3-rent-to-value-ratio/)
2) leverage with favourable debt terms so you maximze the leverage while still cashflowing (we are becoming a nation of renters. The new tax laws are putting the W2 employee even farther behind) – Insomniacs report of homeowner rates

3) hard asset that you understand that is in a secondary market with a robust economy (not one of these secondary/tertiary markets)

What is tertiary?

*gold is a hard asset but does not produce (1) cashflow or (2) leveragable… Of course you could leverage it via Mining Stocks but then you would not be (3) hard asset. Don’t get me started on Crypto but it does not produce income and not leveraged.

Don’t invest for appreciation in primary markets!

International money like to park (launder) money in Primary Markets – Source CPE

 

“Hoping and praying” does not work and those who blindly follow this strategy subconsciously know it and live like Scrooges, pinching every penny they have.

The following is the financial secret that has mislead the majority of hard-working Americans

The system is rigged against you. Dare I say, “engineered” to extract your hard earned wealth from you without even knowing it.

Did you ever see the movie “Office-Space” where the disgruntled trio made a plan to steal a small point zero zero one fraction of every transaction from the big bad company?

We that’s what Wall Street, Mutual Funds, 401Ks, and special interest groups are doing to you. But instead of taking .001 fraction they are gutting you alive often taking over 20% without you even knowing.

This is the reason Hui Deal Pipeline Club members are able to retire in 5 years, instead of 40. Or have one spouse stay at home or work part-time in something they actually want to.

“Majority spend 40+ years building their retirement nest eggs, but have no clue what to do with themselves when they retired.  Because 20 retirement books focus on financials and none of them write about enjoyments of retirement. When men reach their sixties and retired, they go to pieces. Woman go right on cooking. Most become depressed and hate retirement if they don’t have growth mindsets.” -Hui Deal Pipeline Club Member

Warning: If you are broke or financially irresponsible this site is not for you. You need to learn from:

  1. Dave Ramsey, Suze Orman, or the hundreds of personal finance blogs out there that preach frugal lifestyles and delaying gratification.
  2. Meetup and websites for “Broke People” #BP
  3. Or the scammers in the below videos…

As you can tell I’m going to tell it straight. Yes, I raise money for deals but I am going to do it my way and being authentic. And as you can tell when I interview someone for my podcast you are not going to hear the same old boring (limp) interviews of “make your bed in the morning to set the day” then “Blah blah mindfulness thing” and fluff.

My articles will also not suck like some articles just made for search engine optimization (SEO) on their website.

This site is not for those looking for the quick handout or magic pill. There are dozens of other gurus that plague your local Reia that show you how to buy real estate with little to no money. There are a lot of tricks out there and like the cereal cartoon bunny says, “Trix are for kids.”

The content contained herein is for the hardworking middle-class who have been misled by the conventional dogma of study hard, get a job, work until you are old, and only then you can retire and live the remainder of what life you have.

If you are not financially mature, when you find wealth with real estate, you will not be a good steward of that wealth and leave a meaning legacy. Think I’m kidding… Here is the real version of the above video:

Here is what I know about scammy lease options…

https://youtu.be/RsJH72M_naA

 The Real Estate Universe

The Real Estate universe as you know is pretty big… you got flippers, wholesalers, rehabbers, bird-dogs, tire kickers, buy hold, all sorts of strategies that take up various places on the “Passive-Active Spectrum.

I have a pretty busy W-2 job being an Engineer staring at my Microsoft Outlook Inbox most of the day. I don’t flip, wholesale, or do any other active real estate activities. (What’s the deal with flippers and wholesaler calling themselves “Investor”. In my opinion, these are jobs and should be called real estate “traders.” We don’t call stock “day-traders” – “day-investors” do we?) (BiggerPockets seems to be mostly active people rant)

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

ERRR, anyway I guess I’m a tab jealous of active real estate guys since some of them are pretty awesome and very experienced at their craft, however, I don’t have the patience or time to do what they do.

Hi, my name is Lane, and I am a lazy, passive investor because it fits my personality, current lifestyle, and in the future, I don’t want to replace my current job with another one licking the stamps on my wholesale letters or swindling buyers who don’t know any better.

Ok OK, I know I’m being a little harsh but just saying.

On another level, my big beef with the Wholesaling/bird-dogging model is how it is reliant on the three D’s: Divorce, Despair, or Death. I personally take exception to the ethical validity of this type of business. I see it as taking advantage of those in a bad situation. And I see it as a scorch the earth mentality for profit. The active camp will say that your are solving “their problem” and “providing a means out of their situation”… I call that justification BS. Call it like it is and take the righteousness junk out it. Now I don’t think that these people are bad its just not something I would feel right doing.

On the other hand, buy and hold rentals are about improving properties and providing fair housing – the key is being a responsible investor and always remembering that you need to provide good living conditions for your tenant. If you can improve neighborhoods in the process, then great!

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

Who This Site Is For

As I mentioned I am fortunate to have a full-time job, and I don’t have the time to find those amazing deals that you hear about that allow you to source… 100% ROI, no money down, this weekend only for a limited time!

I want to introduce this concept of the “Time-Money-Experience Triangle”.  (Triangle, not to be mistaken by the triangle that ‘Link’ from the ‘Legend of Zelda’ is always searching for or the “Scope-Schedule-Budget Triangle” that I manage at my day job that I search every day for on my computer screen… man it seems like the Legend of Zelda guy has a lot more going for him, he’s always on some adventure. But back to the “Time-Money-Experience Triangle”, you have to recognize what skills you have, your resources, and what you lack. If you have another job, there is no way you are going to do it all by yourself. Leverage your time and money. Don’t be that so-called “investor” who works in your business not on it, in other words, the guy who spends his weekend painting and fixing toilets when he should be finding deals and working with banks for lending. If you are that guy, “when are you going to be an ‘investor’ and stop being a landlord”.

Yes, I’m that 4-hour work week, outsource the most you can person. At the same time, I am also that guy who believes in achieving my best and highest use and spends time on what is most important outside of real estate.

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

You can read more about me in my “about me” section.

This site is for three types of people:

1) Folks who have pretty well-paid jobs. Let’s face it, the reason you came here instead of googling W-2 work ideas on you free time is saying something. You are not the guy googling “How can I increase my leadership qualities to manage diverse employees with different backgrounds” or “How to talk my employee to giving me a raise” or “How can I better network at my year-end Christmas work party”.

2) Another group that should read on and subscribe to free articles are straight up rich people who are tired of getting those paltry return on bond and mutual funds.

3) If you’re a government conspirator who believes the mutual fund and stock market is a big Ponzi scheme, you can join too, just be on your best behavior.

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

The Why

Whatever category you fall under come on and join the party! We all share a vision as being financially free as Uncle Tony (Tony Robbins) defines financial freedom as having the “freedom to do what you want where you want”. What is fundamental to achieving that goal is that passive cashflow is the end game.

You should “start any journey with the end in mind”. <insert corny metaphor of plane knowing where the destination is but not knowing what the exact path is, complete with a diagram of not to scale airplane and a dotted line illustrating a wavy flight path>

I would like to introduce a term called FYM which stands for “F- You Money”. Have you ever seen that commercial with the creepy orange number following the man or woman around supposedly representing the amount of money that person needs to acquire to retire? It’s sort of like that but under the SimplePassiveCashflow definition of FYM, the “number” is more of a “cashflow number” that sustains your lifestyle and the “F- You” part comes in when that day where you get pissed off at work and be like “F- You, I don’t need to be here”. You know at work there is one last samurai-ish 65-year-old co-worker who has 50 years of service (illegally working when he was like 15 years old) with the grumpy attitude who says that he could retire at any time and does not help anyone. That guy obviously wasted his life away with traditional wealth-building methods but he is at a point in his life where do does not care, and you can be like that guy (except without all the wrinkles and the fact that people might actually like you).

Imagine coming into work because you want to, because you choose to, and actually want to hang out with your co-workers. For some, you might just merely tolerate the day job for the stated W-2 income to qualify for bank loans and the fact that you get free coffee and you get to use the toilet for free because every flush is approximately 10 cents worth (trust me I did the math I’m an Industrial Engineer, I took into account the water and lifecycle cost analysis of the crapper and your time to clean the thing). In all seriousness, you might like your job, and that’s great for you, the important thing is to do what you want, on your terms because of your financial freedom.

And while we are on this subject of working with who you want… Never trust a broker (life insurance, agent, lender). The reason why is the same reason I try to partner with people who are financially free and don’t need the money. They are not about “putting food on the table.” And for some reason, they just are more fun to work with.

placeit

The “Cross-Over Point” is the point at which your investments begin to earn more money than the cost of your living expenses.  At this stage, one has the freedom to leave their full-time job for other meaningful ventures.  Now that you have had 2 seconds to digest that concept, I would like to introduce to you the 2.0 version which includes two new factors: 1) Decreasing motivation (a negative exponential equation contingent to an increasing investment return) and 2) Constantly increasing expectations or also know as the “the boss be getting on my nerves” (a linear climb).

The reason you are working as an employee is because the company is making more money from your work than paying you. Stop working your ass off building someone else’s dream or worse for someone else’s bonus. That said…  We are looking to hire  😉

This graph of the “Cross-Over Point 2.0” that describes your work-life struggle:

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

 

Tell me the fundamental difference what the rich people do compared with the poor and middle class?!?

The short story is Wall Street greed. Wall Street has created this really profitable game for itself.

Here’s how it goes.

They employ the best minds in marketing… not your dime a dozen millennial social media manager.

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

This marketing spans multiple generations and has become infused with conventional knowledge.

Evidence of this are sayings like “diversification”, “how the market typically goes up”, and “save-save-save and you should have enough”.

You work hard to make money. You entrust your money in Wall Street through your wealth manager with hopes that your wealth will grow. But…

There is a hidden 4-5% of fees.

And don’t believe the so-called expense ratio listed on the front page of the prospectus or Yahoo-Finance. Let’s talk about that…

Just google “mutual fund + No 12B-1” – basically paying for them to advertise to more investors.

If we can agree for a second that the “market typically goes up” (deadman’s last words) this fails to take into account, the aforementioned fees of 4-5% which on an optimistic annual return of 10% a year… that’s 50% of your hard earned gain.

You take all the risk and they take their cut. Sort of sounds like real estate brokers who always get paid regardless you make money or not.

Do you not see something wrong with this? How can you not call BS?

Truth is, this business structure is very profitable and scaleable.

Everyone upholds this Wall-Street dogma and relights on the minion sales people who get feed on sales commissions and hidden fees.

I have interviews with many of these financial planners who have once sold these products and agree that it’s a pretty messed up system… usually the financial planners are younger people (who need to pay the bills) or greedy senior managers who are either ignorant to what is going on or don’t care because they have kids they need to put through college or a mortgage to pay. The vicious cycle continues.

Wall Street is over all this and making money on every transaction like how our Government is making money on everything that passes though the “world bank”.

Wall Street is also make big bets with your money so they can make even more money for themselves – almost like it’s not their own money.

When they win, they win big but you don’t get to see the money.

When they lose, they are too big to fail so they get bailed out by you—the tax payer.

What’s that you have a guy? So called financial advisor? Probably a “nice guy” but misguided and is paid off commission and likely to be living paycheck to paycheck too (in the same rat race as you).

The wealthy focus on buying streams of income that produce today which is called cashflow.

The poor and middle class go buy things and hope and pray it goes up in value.

One of the reasons rental real estate is such a popular choice is because it provides cashflow. It’s very Simple, the rents cover the mortgage, expenses including professional 3rd party property management.

The 2008 collapse simply kicked the proverbial “can” down the road…

How else will we pay for artificially low interest rates (quantitative easing) and bailouts of these big banks.

A correction is coming and the sophisticated investors out there investing in real hard assets are going to stay afloat and even excel.

Note: If you are hoarding cash you are playing the game not to win. Robert Kiyosaki’s says “savers are losers.”

Why do the masses keep playing along? If we keep investing and holding on to the debt/money habits that were “inception-ed” into our culture we know what is going to happen, its simple math

Doing the same thing over and over and expecting a different result is the definition of insanity, right?

How has it gone on for so long after? We are smart and educated professionals!

What kind of financial education did you get growing up?

Look what these Kindergarteners said when asked “how to make money?”

It’s funny… but also sad that the messaging is likely coming from the parents who don’t have a clue.

Chances are if you were lucky, you were taught about basic personal finance and not going into debtnot spending what you don’t have.

Often times the get out of debt gurus like Suzi Orman or Dave Ramsey clash with the ideals of the wealthy.

Sophisticated investors do not pay attention to “debt” or “interest rates.” Instead they focus on the “impact to their growing net worth” and “cashflow.”

When we get out of school, what replaces the classroom? How do we make up for what we haven’t learned? Where do we turn to for answers when we need to learn about real life?

The answer…CONVENTIONAL WISDOM! And the 18 year-old heck some 40 year-old “boy-in-man’s-body” goes out and gets a job, buys a big house/mortgage that does not produce cashflow, and gets stuck.

Conventional wisdom is often NOT right. Conventional wisdom once thought that the world was flat.

Conventional wisdom, believe it or not, might not even be unbiased. In the case of money, it is perpetuated by big money, big banks—Wall Street.

Let’s identify the conventional financial wisdom? Let experts invest your money in a diverse portfolio of stocks, bonds, and mutual funds.

Why is that conventional wisdom? Well, my parents got good educations, got good careers, pitched pennies, driving base level Japanese cars, and were able get by to retire their last fraction of their lives.

Not bad, they did make it. And it seems logical to repeat the proven process for my own life.

How many people do you know have gotten wealthy BECAUSE they invested in stocks, bonds, and mutual funds?

The wealthiest families in the world, like the Waltons and Rothschilds invest in mutual funds? Of course not!

For extra credit Google “what do wealth family offices do?

People who come to SimplePassiveCashflow.com are questioners… they think for themselves and opt out of the mouse trap that we are conditioned. We are not mindless drones that grow up on kiddie playground equipment at McDonalds and eat there our entire adult lives.

Does it ever make any financial sense to continue holding a rental property after 27 years once the depreciation deduction has elapsed?

In most cases, if your investment is going well and there is some appreciation you should sell in 3–7 years.

Why?

Because your equity position should go up (which is good) but your return on equity goes down from the start. I usually re-leverage (sell, refi, 1031 exchange) when my return on equity dips below 15%.

Learn more here.

Sophisticated investors re-leverage after their return on equity goes down

The Data

Which investment has yielded the highest returns over the past 145 years?

Researchers analyzed 16 countries and used a variety of mathematical techniques to normalize data over time.

Their returns rates are as follows:

Real Estate – 7.05%
Equities – 6.89%
Bonds – 2.5%
Treasury Bills – 0.98%
The Risk Vs. Reward Trend – Risk Adjusted returnFinancial analysts often speak in cliches. We “Cashflow investors” get lumped into the majority of joe-blow homeowner buying off emotion. Not to mention the house flipper Franks (able to replace his current salary of $45K a year) taking big swings at appreciation plays using other peoples money.
Sharpe RatiosFortunately, you don’t have to crunch the numbers yourself to understand risk and reward. Nobel Memorial Prize winner, William Sharpe, created a system that does just that. The resulting value is called the Sharpe ratio. The way it works is that a higher number signals a better investment.

The following are ratios for three of the assets discussed above:

Real Estate – 0.7

Equities – 0.27

Bonds – 0.2
The conclusion is Simple… Real estate has better returns (not to mention we use leverage) and less risk.

The Data on Money & Love

We all know money is the number one things couples fight about. But finally here is it quantified. Source – https://qz.com/quartzy/1551272/here-is-the-probability-you-will-break-up-with-your-partner/

   

 

Application of These Concepts

Look I’m not saying that I don’t like my job, but I cannot see myself being there forever such as 20-30 years.

Age discrimination does exist and even though you are now a high performing yuppie, some folks won’t want to hire you after the age of 50. Life is too short. I do know a lot of people hate their job not to mention their commute.

I was in a job where the company was very conservative and “that bus” came around and ran people over continuously. It sucked. But little did my boss and my bosses know was that I quietly made more money (salary plus passive income) than both of them at the age of 28. The epiphany occurred one day, why the heck would I want to work 50% harder (deal with 100% more BS working for jerks) and get paid just 8% more (12% if I negotiated my strengths or sucked up to my boss). As a result, I transitioned jobs, took a small pay cut, and started drinking Simple Passive Cashflow Lattes every morning.

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I’m not advocating getting a bunch of rentals, quit your job, and then spend every minute drinking Margaritas/Pina Coladas on the beach. Now when you have the freedom (after spending a few unfulfilling days with Margaritas/Pina Coladas), I hope you devote your time doing good the greater good.

When I don’t have to work, I plan to teach young people about real estate and personal finance. I am thinking of going around to high schools, but no one in their right mind would hire a grown man to teach young people especially for free (I mean take a moment – that’s creepy – like Jared the Subway guy creepy – for those of you what don’t know who Jared the Subway guy was, he was this 3000 pound guy who ate Subway a lot and lost like 2000 pounds, however he still looked like he weighed 1000 pounds but everyone liked him as a celebrity and he used this celebrity status to lure young boy and girls and yeah I’ll leave it at that…another Pied Piper story of luring little boys and girls into a cave). But anyway to get around this barrier I need to write a book – not only any book – but a New York Times bestseller (but I guess I will settle for that crappy e-kindle version). So schools will be like (hey this guy has a book) and then bang… life mission to help others accomplished. To write a book is a daunting task, so I figure with each blog post I am slowly getting better at writing and chipping away my target page count.

Checking out properties with Patrick Herbig

Why people fail/Blind Spots

After over 1000 strategy calls with investors and coaching clients over the past couple of years here are some of the most common excuses/pitfalls people fall victim to:

  1. Health problems/take care of family getting in the way
  2. Ask-hole – there are givers and takers, takers only take and operate with a scarcity mentality operating system. What is worse is these guys are always seeking and not doing. Before you seek out the wisdom of a $1000/hour person and was their time go do the thing that the 5 dollar book said to do or what you said you were going to do.
  3. Never launcher – These guys use perfectionism as their excuse never to launch a product, website, or idea. Subconsciously they are either a coward to put themselves out there or have an inability to get things done.
  4. Debbie Downer/Negative Ned – No one likes yourself. Take a cell phone out and do some camera work to see how unfriendly you come across. You may not want to even interact with yourself.
  5. Worrying about how much the shovel costs when the project is to dig a big home
  6. Misplaced energy – This is the guy who reads all the books, has a vision board, but when you check his facebook it’s all about snowboarding trips every weekend to take advantage of the season.

 

The more subscribers (it’s free people!) to this blog helps me prove my point to publishers that people actually read this stuff.  

This is your "Second Chance"
This is your “Second Chance”

Rules for investing:

1) After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees… For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you… but just remember why we got into this… To be free from a JOB. A lot of us (80%) who stumble upon simplepassivecashflow.com and start drinking Kool-Aide will likely be financially free in 4-7 years pending taking action. So I always urge people to start with the end in mind and take a more passive approach.
Do the math here… with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.
Directly investing in a turnkey rental or small MFH is a good way start learning and build up the war-chest to go into my scalable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. Do not be a retail investor. Put a little effort in and you can do a lot better. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

2) My three rules of investing:
a. evaluate income and expenses for positive cashflow
b. leverage with favorable debt terms
c. hard asset
*gold is a hard asset but does not produce (a) cashflow or (b) leveragable… Of course you could leverage it via Mining Stocks but then you would not be (3) hard asset. Don’t get me started on Crypto but it does not produce income and not leveraged.

3) Don’t work with random (often found in the single family home world) shysters and progress onward and upward – part of the reason I moved from SFH to MFH was that the SFH world was just filled with too many people who were “get rich quick no add value people.” I feel the is a higher rate of people who are needing to “put food on the table” from vendors, brokers, and peers.
Most people in this space are able to make profits off unsophisticated investors. This is another reason why I don’t really like going to local real estate meet-ups or free online forums because of the caliber of people there is pretty poor because the barrier to entry is often times nothing and a 15 minute car ride. I spent thousands of dollars to travel across the country to get access to high quality people who came from the same high net worth professional pedigree and were also taking action.
When starting out you have to start somewhere, but take everything with a grain of salt. Try targeted meetups like my local on in Hawaii for Passive investors.

I started a free investor group ReiAloha for people in Hawaii:
https://www.meetup.com/REI808-Passive-Real-Estate-Investing-for-the-Working-Class/
https://www.facebook.com/groups/SPCHUI808/

Case and point: wholesellers are famous for this. They want a proof of funds and letter of intent to purchase with no access any financials? Who would ever offer on-a property without seeing the numbers first? The reason they do this is because they have a seller who does not even trust the wholeseller and needs to qualify the buyer first. A lot of these jokers will sell a property higher than the past listing price when the expired listing just closed a few weeks ago. Duh. If these Bozos spent as much time building their buyers lists as they did actually looking of good deals… they would likely make a lot of money.

4) Maximize leverage as long as you have a safe cashflow buffer. Cashflow is the oxygen and it keeps you alive even in times of a correction.

5) Sophisticated investors don’t care about debt or interest rate they look at cashflow and increase to net worth. They monitor the return on equity and make transaction accordingly when it out-weights taxes and friction costs (commissions/headaches). Check out SimplePassiveCashflow.com/roe. Smart investors never buy and hold an asset forever.

Join our club to get full access to this “Return on Equity” Spreadsheet and more!

6) Consider exit strategy. Duplex, triplexes, and quads make sense on paper in terms of cashflow in comparison with SFHs but it comes back to haunt you during the sale because you can only sell to a cheapskate investor.

7) Robert Kiyosaki has a saying, “there are three sides to a coin”.
People argue that its a good time to buy or bad time to buy. For example “mfh” is overheated or commercial is getting killed by Amazon and e-commerce. I think these are mental justifications by tire kickers not to do anything.
Sophisticated investors live on the edge of the “coin”. They buy deals out our reach of amateurs due to the lack for network/knowledge. These opportunities are undervalued, with undermarket rents, with value add opportunity.

They are patient and don’t stray from standards that make them get crushed in a market correction. (Cashflow from other investments make this possible) They invest following the macro and micro trends and don’t gamble on gimmicks such as guessing where Amazon’s next HQ is going or where the hurricanes just crushed a market.
The trouble is as an outsider is figuring out which of these deals transcends the two side of coin and is on the edge. And starting out its going to be slim pickens due to lack of network but you have to push through this rough part.

Investing before a recession

8) Always add value and make things better than you found it. Too many people who are new come in and ask too many questions and are drawing a negative social currency balance. Don’t be an Ask-hole! Give without expecting anything back and you will find those who are the good one you want to work with.

9) Use a mentor. You have blind spots. This goes in interpersonal relationships and investing/business. Use this mentor to figure out your competitive advantage and spend you limit time and money resources developing that. In terms of investing only do things where you have the chips stacked in your favor.

10) Only work with people you know, like, and trust. And one degree of separation. Use your network to verify past performance and integrity of people. Also when you financially free you will likely keep those you climbed the ladder with in close company so this leads into Rule #11…

11) Begin with the end in mind. Most people will be financially free in 4-7 years pending taking action. Begin with the end in mind and design your ideal life. (And if better not be playing golf) See rule #8. You are fortunate to be financially free and it is a privilege so please do something with it and make it big.

Having passive cashflow is the Simple part… the hard part is figuring out what meaningful thing to after. Money and time are interchangeable resources. When you start out Money is worth more than Time. But in time, Time will transition to being the rare resource.  

So this is the point where I wrap things up and bring this full circle so you get off your computer, raise your hands in the air, and mimic Mel Gibson in the 1995 movie ‘Braveheart’ by screaming “Lets get rich” )

Here is more about me!

I’m going to try and leave you proudly lazy people with an action plan in each article so you just don’t go about your day as normal but take gradual steps every day. As Arnold Schwarzenegger says “Just do it!” well he does not really say that he says things like “Don’t Be Economic Girlie Men” so please take action. It drives me crazy how everyone reads so much and doesn’t do diddly squat. I host a local Meet-Up and someone will be like (that is a fascinating spreadsheet you are sharing…would you please give it to me”. And I say, “Sure, why don’t you send me an email to remind me”. You know no own ever freaking emails me!

So your homework is to sign-up for the email podcast/website updates.

“I watched another one of those sales webinar (the ones where they talk about motivation and 1% substance) but after the seminar someone wants you to sign up for a package that included a personal real estate profile worth $195 there cost $0, contracts and forms worth $495 there cost $0, 7 insider secrets $1995 and a cd of where to hunt for undervalued property in my area. And if you click “I am in”, we will offer it with a 30 day guarantee – without telling you the cost. The advertising would go on for a period of time spelling out the benefits, etc.  I finally just disconnected. ” –Hui Deal Pipeline Club Member

Please do not sign up for any training if you don’t have the money to get started and as a general rule, if you net-worth is currently below $250,000. You need every dollar to acquire investments not pay for education that is out there for free. Get as far as you can on your own and try to find a mentor by adding value to them. (And be on the lookout for MLM schemes where members get heavy referral checks for signing up more people – when your product sucks you have to resort to these below the belt tactics)

*Update: 1/30/2017 I’m sorry for those who have been listening to the podcast since early 2016. Its been a bit of a Korean-drama going from turnkey rentals to MFH and other syndications but thanks for coming on the journey with me.

Also, sign up for my Hui Deal Pipeline Club to get sent the deals I come across. Or if you just want access to the Google Drive freebies:

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal
And I know there are a lot of text and numbers here but I also do a little poetry! Setup a call looking forward to connecting!

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

Dude, you have to do something!

Government subsidies are drying up.

Don’t believe the government published 2% annual inflation.

Read the facts yourself. Think for yourself with non-Faux-News.

And really you have to get over the perceived risk… the riskiest thing is staying in garbage stock investments. Yes I have had 10-15K repairs but its not like its going to kill you if things go bad.

Doing nothing just ensures that the smart money will take their money out before the next recession tanks everyones’ hard earned retirement.

Legacy Planning

One of the favorite things that I enjoy (for contribution) is to take someone through the steps of wealth creation…

  1. Simple Passive Cashflow (SPC) (negative) -2.0 – Dependance: You depend on others for financial support. Think of the cousin that still lives with your aunty or the acquaintance who does whatever because they have a $4,000 a month trust fund from their deceased parents.
  2. SPC -1.0 Solvency: You have cannot seem to control your spending and in deep consumer debt. You may or may not have a stable job. Note: Don’t be an idiot and pay $2,000-$50,000 on any kind of a coaching program!
  3. SPC 0.0 Stability: You have a good job and have your finances in order although you still might be under $100,000 net worth. You are trying to save $20,000 for that first rental property. You might be saving $2,000 to $20,000 a year… good job! You are focusing on paying off high-interest rate consumer debt and paying the minimums on low-interest debt such as student loans or mortgages (PS you should not be owning your home).
  4. SPC 1.0 Grind: You start adding cashflowing rental units to your name and start seeing the benefits. You stop future contributions to traditional retirement accounts that are heavy in hidden fees and allow you to only invest in garbage investments. You start drinking the SPC Jungle Juice. You have a life-changing phone call with Lane and decide to cash out your 401K to invest in real assets and build pensions that pay out today and start to snowball your unit count. You are by no means financially free but mentally you are seeing the light at the end of the tunnel.
  5. SPC 2.0 Evolve: As you max out on the available Fannie Mae loans and become an adept investor you realize that rental properties are not scalable and start to invest in private placements. You know you are giving up some control but you realize that you are gaining diversification and your life back which was the reason why you started this in the first place. You now joke with the cool friends you met in the SPC Ecosystem how the turnkey rentals are turkey rentals. Although, in the back of your mind you understand that most people need to go through financial puberty (SPC 1.0).
  6. SPC 3.0 Zero-Gravity: You have the financial means to quit your job and experience to do whatever you focus on. Financially you have blown past the $1M net worth mark and focusing on that critical $3.5M milestone where you can pass it along to your kids and they will have a hard time screwing it up. Now that quote from Lane is making sense… “The Passive Cashflow is the Simple part, its what you do after is the hard part.” Retire is not about not having to wake up or golfing. It was about finding your passion, helping others, and finding happiness.

These ideals refined from “Work Optional” by Tanja Hester

Creating a legacy with your kids and not just busting your butt to create a generation of useless trust fund kids.

Hire my company remotely for personalization of a plan.

What not to do with FI

In a popular New York Times article on the FIRE movement (Financial Independence, Retire Early) it highlighted some frugal individuals who where able to retire much younger than expected,

Here is one such story:

“Speaking by phone, Mr. Long [said]…that morning, he’d woken up on his own, ‘not when an alarm clock told me that I had a responsibility.’ He’d read the news online for 30 minutes, went on a seven-mile run, took a nap, and ‘watched the ceiling fan spin around for a little bit.’

He had been watching the movies from They Shoot Pictures, Don’t They? a website that ranks what it calls the 1,000 greatest films. He’d watched 600 or so. He had work to do.”

Financial independence is meaningless if you spend it ticking off movies from a list or just golfing.

The same goes for generational wealth. If you are not growing it your are decaying wealth… and that stinks!

Here is a running list of ideas to implement yourself:

  1. Have your kids read a book and pay them ($50) to have a good conversation about the bigger points.
  2. If you are a doctor or high W2 wage worker you can’t pass that on. Buy them a rental or something that is (simple) yet generates solvable problems which is a great way to build entrepreneur confidence.
  3. Email [email protected] if you have any ideas!

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Podcast #19 – 1031 Tips and Tricks (Guest Appearance Podcast)

11 Not So Obvious 1031 Exchange Strategies

My promise to my readers: No click bait here on SimplePassiveCashflow.com – all the tips will be provided on the SAME page, so relax! For real estate investors at some point, you are going to need to do a 1031 exchange.  Having just done two of them, I wanted to share my experience before I forget it (since its sort of a pain in the butt and people forget painful things). Hopefully, it will help you create a game plan going in.

So no investor is left behind, a 1031 exchange is a way to defer your capital gains from a sale of real property. This is one of the advantages of real estate as compared to stocks or other assets. I am no lawyer or CPA, but basically, you have 180 days from the sale of your first/subject property to exchange into “like kind” investments using the proceeds (sale price minus existing mortgage and sales costs). This transaction needs to be done via an intermediary/custodian who sets up an escrow to create the paper trail for your upcoming taxes. This process is something you don’t want to DIY because if you screw up, you are going have to pay taxes on the proceeds, plus all that depreciation (recapture) you benefited from. Oh and one more kicker… once you sell the subject property you have 45 days to create a list that identifies all potential replacement properties, but more on that in a bit.

So now that the newbies have caught up there are the tips:

1) Have properties ready to go:  This means having a purchase and sale agreement signed and having completed the negotiation before the subject property (the home you are exchanging/selling) closes. As the close date for the sale of your subject property gets closer (~2 weeks) and especially if it’s a slam-dunk transaction (i.e., the buyer is bringing cash to close/no financing), you might want to take the risk and execute those purchase and sale contracts sooner. Note that this is a bit shady to your agent because if complications do arise then you will have to cancel your contract and no one will like you L

2) Don’t screw around. Get your inspections done as a soon as possible. Knowing if you are going to move forward or abort the purchase of a property is super important. Remember other than the 180 day time limit the other properties on you 45-day list could be bought by other investors.

3) Work with a real estate attorney who has experience with a 1031 Exchange: Policies regarding 1031s will vary from year to year with changes in the Tax Code.  Once you sell your property, you will also need someone to hold your funds in escrow, because you are not able to take possession of the funds.  If you do take possession of the funds from the sale of your property, the 1031 exchange won’t work anymore. But good thing you found that lawyer that will do this all full service for you.

Rumor has it that the silly escrow rule was created when some guy took the proceeds from the sale of his property to Las Vegas and blew all his money on rocks and hookers.  After that, the Government was like, “These people are idiots, we can’t let this happen.” So that guy ruined it for everyone, and now we have to all follow this arduous process.

Pick that lawyer and have all of the contractual details worked out before the subject property goes under contract to sell. Expect to pay $500-$1200 plus additional fees for each property you acquire. Talk to your lawyer and get educated about all the rules, such as the 200% rule, 45-day list, 180-day rule, what is eligible to write off, and get them to sign off on your plan. Remember these guys know how to do 1031s, and it’s ultimately your job to get the big picture right.  That’s why you’re the boss.

4) The All-Important 45-Day Rule: As mentioned earlier you need to create a list of potential properties that you can acquire before the 45th day after the sale of your subject property. The rules change on these 1031s all the time (see disclaimer below) but I was only able to identify up to 200% of the subject property’s value which for me was eight properties for $800k, since the subject property sold for about $400k. (I don’t know where this rule came from, but it was probably conceived by Vegas, hookers, and rocks) What I would do about 10 days prior to the deadline of your 45-day list, send out an email blast to all your agents, turnkey providers, long lost wholesalers (you know the folks you exchange info and you never hear from again like an ex-college classmate) and basically do a roll call for all properties. This is a time to call (not email/text) to explain your situation. Set broad constraints, and specify that you need X properties from each provider that you will buy X of them. This will let the sellers know that you are serious, and they may move mountains for you and bump you up in the priority line. This may also eliminate the silly negotiation process and get you the best pricing. The beauty of doing this is that you are creating a competitive bid format and will ultimately fill up your 45-day-list with the best candidates.

5) Have a Backup Plan: When soliciting for your 45-day-list, you may also want to ask for properties that aren’t ready to be sold yet but “are in the pipeline.” For example, these are the properties that have just been picked up by the seller from an auction or those where a wholesaler is in discussion with the first seller, and the rehab has not begun. Fast forward a couple months, and suppose a few properties on your 45-day-list fall through due to a bad inspection, you are going to need to go back to your list and if you had properties that were ready to be sold at that time of the 45-day-list creation, a lot of them will be sold by then. In summary, this is where adding in the sleeper picks or prospects makes building your list complicated. You need to really meditate with a “Simple Passive Cashflow Latte” and think of every angle.

6) Your 1031 facilitator, gets paid when you do a 1031 exchange. Your lender gets paid when you refinance. Your Bank gets paid when you set up a HELOC. Each are a tool and every situation is unique. Is a 1031 really your best option? Sorry if this point is a bit late in the conversation, but I am assuming you are reading this article before showing up to the Toga Party with your loin cloth.

7) Do your own research on a “Reverse 1031 exchange”. It’s a bit more expensive but might be the right tool for the job, however, it is not for the situation where you are trading one property for many. Personally, I think it’s a tool for a really unique situation and it’s not worth discussing, but I’m sure a Lawyer will want to tell you all about it at their $300/per hour billable rate.

8) Get Everyone on the Same Page:  Have a good old-fashioned, conference call to get your lender and 1031 facilitator on the same page. Isn’t it great to be the leader of a conference call for something meaningful this time? Funny Video. But what is not funny is getting that call from the lender who uses the underwriter as an excuse for why you can’t get a loan a couple weeks before the close. That phone call is totally avoidable with proper communication upfront to ensure you can qualify for the loans with the proper debt to income (DTI) requirements and Cash Reserves. As of June 2016, you need six months of PITI for your first four loans, but loans #4-10 need six months for ALL properties. When I was trying to close loan #10, I needed about $33,000 dollars of cash reserves just sitting there ($550x6x10). This makes an optimizer like myself really irritated. Luckily you can use ~100% of 401k or Roth accounts.  Just a last month they allowed you to only count 70% so you can see how that rules change. Also in terms of cash reserves, make sure you have consulted with your lender about the required amount of time you need to season the funds in your bank account.

Also depending on your 1031 facilitator, you might be able to talk them into paying the appraisal fees out of the 1031 funds instead of out of pocket. I got my lender to reverse the charges and bill the appraisal fee at closing. Unfortunately, the home inspector will likely want to be paid via cold hard cash because he (Let’s be honest…it’s always a guy) is running a good old-fashioned cash business. Just kidding, he takes credit card too. Did I mention that you should relax through this 1031 ordeal? Now, is the time for yourself to enjoy an Old-Fashion or other alcoholic beverage, you are almost done.

9) Use It Or Lose It: As you are getting to the end of your 1031 timeline and utilizing most of the 1031 funds, you are going to have to decide to use it all or leave some money unutilized. Typically you will have to pay taxes on the remaining (this remaining is called “the boot”). You are going to be faced with decisions to pick up properties that are less than desirable or walk from the deal (and pay the taxes on the unutilized funds).  Case in point, say the last property needs $30K to close the deal but the seller is dragging their feet with final punch list repairs that came from the inspection. The seller is refusing to replace the roof because the roof is 15 years old and has a few good years left.  Therefore, the seller does not want to pay $10K to fix it per your request. Let’s do the math, if you walk from the deal you pay ~25% of the $30k due to tax implications of not utilizing the funds and pay the government almost $8k. Armed with this information, it would be logical to suggest that the seller pays half of the roof costs ($5k) as it is a good business decision for you to make this concession and not pay the taxes on the boot (5K<8K). This is a simple example, but this is how the decision needs to be analyzed. Also, keep in mind, information is power. If the seller knew that you were in the late stages of your 1031 and you did not have any other potential 1031 properties to go after on your 45-day-list or nearing the 180-day deadline you would be at their mercy. But that’s negotiation, which can be a fancy 52-card game of BS.

10) Just take it day by day: It is not easy, but it’s simple…LOL. This is where you are glad you picked an investor focused lender who has done these things before instead of the neighborhood big bank. Again make sure you keep the line of communication open with your lender (every few days) to avoid large surprises.

11) A 1031 Exchange is Not for Beginners: If you have not purchased a rental property before I would try to buy one outside of a 1031 to test the agent, lender, market, and especially yourself. The 1031 is going to require you to have many plates spinning at once. It is best to first figure out the nuances with a simple one-off transaction.

 

Which property class or property value range would be best to put on the buying list?

This is ultimately up to your investing strategy and criteria. For me to tell you what is the best is irresponsible and against what I believe, because you should understand the macro (not micro) concepts for yourself and make your own best individual strategy. With that disclaimer out of the way, I originally went (my personal strategy changes over time) after B/B+ properties that rented for at least $1000 per month and had at least 3 bed and 2 bath. This strategy evolves as my portfolio grows. #1stWorldInvestorProblems. Some things to think of when finding your strategy/criteria include:

  • Although I fully intend to hold on to these properties indefinitely for cashflow, I recognize that things change, and perhaps I might want to trade in one “goose that lays the golden egg” for two or three “geese that lay the golden egg” or one “big ass goose that yea you get the point.” To say, “My properties are generating cashflow” is a fallacy. Instead, you have to evaluate what the numbers say on the bottom of the spreadsheet and compare the two situations you are evaluating. You should always be making moves to optimize your return, assuming it warrants the transaction costs.
  • I was using Fannie Mae loans, which are those sweet government subsidized 30-year fixed loans. At the time of this writing (5/2016) the most one person can have is 10 to their name (If you are smart also 10 in your married partner’s name too). Your plan might be to only get one or two homes and sail off into the sunset, but your plan might change and you have to change your plan for the “if” in life. To acquire a conventional Fannie/Freddie non-owner occupied property requires 20-25% down payment. There are also lender costs, which I typically estimate at $5000 +/- $1000. Parts of the lender costs are variable, such as an origination loan (basically it’s their fee to have to deal with you and headaches you cause them). Origination fees are typically a certain percentage (~1%) of the final loan, but the rate varies from lender to lender, so this is something you are comparing. Other parts of the lender costs are fixed costs such as inspection costs, credit reports, and appraisal fees. It is these fixed costs that are the same whether you buy a $40K property or a $140K property. This is one reason I personally went after a more expensive property.
  • By buying 50K properties that rent for $800 you’re like “Hey that’s awesome that’s a 1.6+% Rent to Value Ratio”. But I suggest reading my article about the nuances of the RV Ratio and property classes. I promise you there is a graph and I’ll show you where I think where the cool kids are investing on the class spectrum. Remember the goal is to maximize the profit, which is the rent minus expenses (and the mortgage if you finance the property). Folks get wrapped around all these metrics, but do not forget the goal.
  • This is totally my strategy, but please think for yourself: When I was getting started I went for the higher priced properties (Not the A properties cause there is no cashflow in there). I went for properties that rent for 1100 that I could get for 100K. I would say these were B+ properties (Note: do not take the seller’s definition). My strategy was to find low hassle properties that had better tenants and properties that I could easily liquidate because they were close to the median home. There is a bit contradiction here because yes, they were safer in terms of tenant quality and exit strategy, but the cashflow buffer was less, so I had less ability to lower rents in a market downturn. Now that I have a stronger base in terms of teams, money, and knowledge I try to go for more C properties because I feel I have the experience and risk tolerance for it (although I stated that these could be safer in terms of the buffer in the cashflow).

 

Goal: I am selling my home for 600k, and I want to invest out of state for cash flow at $200/month per door.

I think that the per door $200 assumption is in line. There is a difference if you are buying $60K properties or $120K properties but either way, I think you will be beating the averages of the stock market, and that is why I do what I do. One day I will make a video showing the math on the hidden benefits of owning rental real estate.

This is how it is going to work if you choose to sell and do a 1031 exchange. First, you sell the home for $600k (~10% will go to commissions, etc.), so you are left with $540K. This is how much you have to acquire, or there are tax penalties.  Therefore, if you are looking at $90K properties, you are going to need to pick up 6 of them. Your cash in your 1031 will be $540k minus your remaining mortgage. You can bring cash out of pocket to make up any shortcomings. Check out this article for more info on some 1031 issues and strategies.

SPC Git Er’ Done Action Plan:

  • If you’re not doing a 1031… You will need to do one in the future or you are just being silly by hoarding that equity. Today think about the possibility of this exit strategy as you purchase properties. For example, a lot of people talk about buying duplexes, triplexes, and quads, but when it’s time to sell, there is a fraction of possible buyers. And those possible buyers are all investors who are looking to get a deal.

Podcast #012 – I Bought 9 Properties In 5 Months Via 1031 Exchange

Learn how/why I got out my high priced Seattle (Appreciation) market and into 9 Properties In 5 Months Via 1031 Exchange

Today ends a 9 property, 5 month, buying spree that started back in October 2015 with the sale of my subject Seattle portfolio. I did not know what to call these shenanigans and simply calling it a 1031 did not do it justice. Therefore I will name this feat a “1031-O-Rama” which is inspired by the good old 2008 days where one could apply for a bunch of credit cards with 0% interest. All of you are Real Estate investors and sticking money into a high-interest rewards checking account is kiddie stuff so if you’re ready to go gangbusters here we go…

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

From 2010-2015, my rentals in Seattle were cash flowing each with 400-600 a month (after vacancy/capex/repairs…), but it was because I bought these properties at the right time so when I tried to buy again in 2015 or early as 2012, prices would not cashflow with typical 20% down financing. My rentals were A+ class and were below the 0.5% Rent to Value Ratio… so amateur, I know. I think everyone would agree that like SF, Seattle has seen great appreciation over the past few years due to the influx of foreign money and tech companies. As a real estate investor you need to always be looking at the numbers and in this case the Return of Deployable Equity (ROE=your sales price minus commissions minus current mortgage balance). By sitting on so much “Lazy Money” in the form of equity I was making less than 5 percent in terms of ROE (The IRR metric is when you buy, the ROE is to evaluate the performance once you are in operation). If the ROE is less than 8 percent/year you are better off in the stock market even though I am not a fan of stocks/mutual funds. Let’s face it, rentals have some risks such as unexpected capital expenses, legal liability, and the low level of overall “PITA” (Pain in the butt). Since 5% < 8%, I needed to re-position my money. Now if this were a Las Vegas movie (funny how appreciation is like gambling) I would be grabbing my chips from the craps table, cashing out at the money cage, and retreating up to my room with my winnings and a beer/pizza.

In the end, I traded two properties via two 1031s that cash flowed a total of $1,000 a month for 10 properties that cash flowed over $3,000 a month (after expenses, vacancy, turn over, capital expenses, and property management). Now I beckon the recession to come because I have more than enough buffer in each individual rental to lower my rents by a couple hundred dollars and since pay the mortgage. A mentor of mine told me that the risk is not the interest rate or amount of debt but the lack of buffer in the spread between your rent, expenses, and mortgage.

Throughout the lending process, I know there must be clones of me with all the DNA samples the lenders/underwriters needed from me (well not really) but it’s a huge PITA to go through the Fannie Mae loan process and execute on multiple loans.You think Fannie loan #1-4 is tough, #5-10 is another level. At any one time I had parallel processes of purchases sale agreements pending, inspections, re-negotiation, inspection punch list, property management interviews and setup, contractor logistics, etc. What a mess. A lot of lenders will recommend that you cross-collateralize your investments so you can get more Fannie Mae loan (max as of now is 10) but I don’t think it should be used in all situations. Remember that loan guy gets paid whenever you originate a loan so of course they are going to recommend it. Also the Fannie Mae loans aren’t really that much better than a portfolio loan…just saying (I can expand on this later in a different article).

On a couple of the properties (#6 of 9 and #9 of 9) I actually didn’t really want them because of things I found in the due-diligence process but I had to close because they were on my “45-day Identified Property List”. I could walk from the deal, but I would have to pay taxes on my unused 1031 funds. The business decision was that it was better to overpay by $6,000 and get the property than have no property and pay the government 25% of $30,000. If you are considering this madness, try not to let your sellers know what you are doing because I got bamboozled by sellers since they knew I had nothing else on my 45-day list of potential properties and HAD to close.

All2016 wdistance

People say that the 180-day deadline is difficult but I would argue that only being able to purchase properties off your 45 day list (period after your subject property closes) is the biggest hurdle and should be really pondered over. A good best practice is to line up your purchase and sale agreement for new acquisition(s) when you are 1-2 weeks before your scheduled closing date so when that date comes…boom you have 5 purchase and sale agreements executed and you are off and running on 45 day closes.

Who did I buy from? I can write about this later in more detail on my site but I had to work with 4 agents/turnkey providers. But here is where I bought one in 2014 and basically had my proof of concept before I went balls to the wall on this stuff.

Now I am so relieved to be out of the roller coaster high appreciation Seattle market and in boring appreciation markets. I know that a few years from now someone will read this note that Seattle properties have gone up 2x in value. However, I’m totally content with my passive cashflow portfolio AKA just chillin’ with my yes… that beer and pizza back in the hotel room watching the movie “The Big Short”.

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

PS: Now I know a lot of folks will say that I have bought lukewarm deals and yea I agree. But all I know is that it’s a lot better than the stock market and they were good deals for a passive investor/level of effort to obtain them not being an active investor. Other side notes.

SimplePassiveCashflow.com Financial Freedom Independent Mentor Freedom~Number Value-Add NOI Teams Mortgage Integrity Charity Income Escape~the~Rat~Race Empowerment Equity Portfolio Legacy Entrepreneur Millionaire Ink~it~up Choose~Your~Path Prudent~Leverage Net-Worth Stabilized Appraisal Small~Deals E-Myth Pro-forma Network Turn-key Re-position QVD Appreciation=Icing~On~The~Cake Working~for~the~Man Stocks=Ponzi Who~needs~a~401k Cap-ex Assets Rates Cap-rate Syndication 9-to-5 JOB=just~over~broke Wisdom Risk/Reward Retirement~Now Work~On~Your~Business~Not~In~It No~Crystal~Ball Tax~Benefits Inflation~Hedge 1031 Manage~Team Leadership FYIFV Revenue DSCR IRR LLC S-Corp 1099 Schedule-E DTI FannieMae Good~Times Systems Reserves Note Rich Delegate Market Statistics Investing Strategic Proactive Bucket~System Frugal

For more cool pics check out my website and for the kiddos out there with the attention span of 5 seconds or less there is Pinterest and Instagram.

Also a link to more 1031 exchange tips and tricks.