teamjoe, Author at Simple Passive Cashflow

Coaching Call – Withdrawing My Retirement Money

https://youtu.be/n0Ysf5G9ZlM

Hey, passive investor out there. Are you tired of going to the same old real estate clubs where you’re just hanging out with broke guys who are trying to flip houses and wholesale so there’ll be other little homes for pennies on the dollars? Why don’t you come and hang out with some accredited investors out in Hawaii?

The HUI 4 is a go which is January 14th to the 17th Martin Luther King weekend, which is a long holiday. Flights are pretty cheap from what I see. And we’ve got the room book pricing at 240 dot folks tonight in Waikiki. We’ve got an entire weekend planned of events. But the biggest draw folks is the network.

Your network is your net worth as we say, and there really is no other passive investor group like ours. There’s a lot of folks out there that try and teach people how to make something out of nothing. We’re just not that group.

The topic materials that we’ll talk about: deal flow, vetting deals, knowing who to stay away from, retirements, estate planning, taxes, and just good old fashioned and getting to know people that are on the same journey as you. Most of the attendees will be accredited investors.

Everybody will be fitted by myself. No randos is my style. To learn more, go to simplepassivecashflow.com/2022retreat registration opens for everybody this week. We’ve already sold out 45 of the seats. Total capacity that I’m shooting for as the very max is about 80 people, because we want to keep things very intimate.

This is not going to be death by PowerPoint and a bunch of random speakers. It is going to be more focused on you guys, building relationships with each other, which is why we have a weekend full of serious and not so serious fun plans. Again, check out simplepassivecashflow.com/2022retreat .

And here is the show.

We are going to be tackling the age old question pulling money out of retirement funds. For lower adjusted, gross income folks under $300,000, I think it’s a pretty much no brainer to not really get started with these retirement funds. But this is the situation for a lot of folks that have been following all that financial dogma, putting your money into these pre-tax post-tax type of retirement funds. And for a lot of folks that make a lot of money, it’s just what seems to be like the best plan at the time because it’s like when you put your money into these retirement accounts, it’s like just kicking the can down the road.

Especially in the beginning when you’re younger at your career, you’re making a boatload of money all your friends are putting their money into retirement funds. To me, all you’re doing is essentially just like putting your kicking the cans down the road. Now, we’re going to talk with Emmanuel right here.

Who’s kicked the cans down the road for a decade or two, and it’s not a coming to Jesus moment. Like he’s known this, the situation has come up and I think we’re going to go through a situation. Every situation is a little bit different. We’re going to try and go through a different twist the situation a little bit here.

But there’s no one way of playing that this is a complete art form. This is where you get around other people that are like-minded to strategize this. A CPA lawyer, if they’re smart they stay the hell out of this type of conversation, because it is a gray area. It is an art form to do this and they will never give you strategy unless they are always a hundred percent correct, this is not a multiple choice test.

This is not something they teach you in high school or college, where there is only one answer. There are many answers and in this one we don’t know some of the variables, like what’s going to happen in terms of Congress tax laws. We don’t really know but what’s going to happen in Emanuel’s future.

So this is where we have to make a best educated guess based on what we know now. But Emmanuel wants you to say hello and tell us a little bit about this predicament.

Hey Lane. Thank you so much for taking my questions. My question to you is as follows. And I think a lot of people would have the same question is that, I’ve been feeding this beast self-directed IRA rolling over some old work 401ks and I’ve got about seven to $800,000 of syndications 100% with almost no cash in it. Probably, $20,000 of cash. My question to you is that, do I jailbreak it, meaning I start once the syndications sell you get about most of them.

30 to 40% of your original cash, including all of the cash on cash. So let’s say, $50,000 of cash coming out after the end of each syndication. The question is how do you reinvest that 50,000 in another syndication? Or do you cash it out? Pay the 10% penalty pay the taxes and I used to be in about 35 high-end tax bracket. Syndications have dropped me to about 20 to 25% tax bracket. That’s my question to you Lane.

In case people missed it. You’ve already invested in syndications because you follow the blueprint, invest your cash, illiquidity first and then once you’ve burned through that, you start investing home equity.

You’ve done that a little bit, but you’ve deployed all that and then you’re low on cash and what’s good thing. You don’t want to be sitting around with cash. And then what do you got in like retirement plans? That’s next on the shelf?

I’m 52 years old. My goal is to retire in the next five years. Retirement, meaning not completely hanging my coat and playing on the golf course, but not having to work for a living of f our or five days a week.

You’re lucky to be in an occupation where you’re able to slowly pull back on your hours work. When I was working, it was either 40 hours plus or nothing so you’re lucky in that type of situation. A lot of couples that make the same amounts of money, t hey can’t really do real estate professional status. They can but it doesn’t really benefit them because one person would have to draw back their hours and therefore they would make less money.

And then they drop out of that highest tax bracket, which is a good thing. For them, it’s they just have to work to a certain predetermined point and then just shut off the engines all at one time and it coast off or go down to part time. But for you, you’re the breadwinner and then you’ve got to figure out what that point is to pull back yourself because you’ve got to keep working.

AGI wise, just the paint the picture you’re in the highest tax bracket. So we’ll just put you in the 400 plus. What do you got in pre tax retirement post tax? So pre taxes, the Roth right?

Yeah. So I’ve got no Roth and I would probably say I’ve got half of them. So just to let the listeners know, I’m 100% in real estate. No, no stocks, no bonds, no mutual funds, no ETFs, none of that. I’ve got probably two thirds of money in syndications. I’m investing through an LLC so all of those syndications are basically pre-tax money.

The only post-tax I have is really an investment in a conservation easement this year. It’s gone. It’s just a promise of a K1 that’s gonna give us probably a 4.6 X passive loss for 2021. So my goal is to drop to even a lower tax bracket.

Maybe like yours, maybe a 4% or 5% and then I was thinking then if I’m at that tax bracket, even if I pay a 10% penalty, then it’s really a 15% hit on whatever distribution before the age of 59 and a half, which was, my question, do I wait until 59 and half? Or do I jailbreak, pay my taxes and penalty?

How old are you again?

I’m 52, seven and a half years of continuing to feed the beast or jailbreaking, cashing out now pay the penalty 15 to 25%, depending on next year’s tax bracket. And depending on what the Biden administration does, are they going to raise taxes? Because I’m right at that 4 to 600 AGI.

Sorry again how much post tax IRA money do you have approximately that you have?

I’ve got no post-tax money whatsoever.

Pre taxes Roth. I think it’s pre tax, but the other one, the regular IRA that you have.

The traditional one, the one I have all this syndications in I would say about 800,000.

Just not to get into the whole big picture, you’ve got a bunch of just non IRA money syndication?

Correct. And that’s invested through an LLC. Again, that’s still pre-taxed, but it’s not caught on put in jail. When those syndications sell that cash I don’t have to wait until I’m 59 and a half. I can pay myself so that I can reinvest that money.

For purposes of this video for folks. It’s the lion share. This $800,000 is like the lion’s share here. All right, here’s what I’m thinking. There’s two big variables here, right? Let’s just start at the most aggressive one and the numbers tell you to do this right.

We’ll start at the most aggressive one and if you just keep it there, what will happen? And then we’ll talk about maybe one in the middle and then you and I can go back and forth on which one kind of appeals the most.

Let’s just say you take out this 800 grand now. Your AGI will blow up for sure and this is where I would suggest making this kind of deployment plan, like where you put the years here, you figure out when you’re deploying or when you’re leaking money out of your retirement. So in this case, I would say maybe not the deployment plan, but remove from IRA.

Obviously as soon as you remove it you’re going to put it right into investment anyways so maybe it’s the same. But let’s just say scenario one next year, or this year you just drop 800 grand out. I don’t know if I would suggest that.

There’s so many different options out there, but one common one and just to make this math simple as doing conservation easements. So if you did 800,000 at a five to one multiplier, you dropped 160 in there to get the deductions to offset that. So you don’t go into the red and do it even that higher tax bracket.

That’d be one way to do it. Let’s add on if I’m forgetting anything is like you got to 10% penalty, right? You don’t have to pay 80 grand and then you’ve got your taxes, but we’re mitigating that by doing the CEs here. But the question is if you pay 80 grand to get it out, we’ll be pooped that by the other option, but we need to compare different scenarios.

So this is the option where you’re going to just take it out right away. This is the option I think most people would do where they would keep it in there until the 59 and a half. At that point, you probably have to do the conservation easement or whatever you’re going to do to mitigate the tax in it but the problem is we don’t know if that fricking thing is going to be there.

Yeah, exactly. We don’t even know, like you mentioned it in one of the videos. You don’t know if they even going to allow us to do syndications in the future.

You know that’s a moot point and then the decision is easy. Whatever cash comes back from selling the syndications and all of that 800,000 is probably going to roll into cash in the next two years. And if we have a grandfather exit then that’s a moot point, then you’ll have to catch up.

Let’s just be like really optimistic and just assume the government’s not going to do anything, call the government, but you’re entirely right. I think that point alone, if I were to play this, I would try and get it out quicker than later in that fashion. But just to play devil’s advocate, let’s just say you left it in there.

I think if you’re in your thirties, I think it’s a no brainer, right? Like you got 20, 30 years to 15 and a half, but you’re pretty dang close. You’re still young man up there, you know that you’re close to the fifty nine and a half and most people like you look crazy and I do this.

I used to do this too. You drive around for like an hour or two to save a little money, or some people don’t drive around for four hours, two hours to go save a $25 wire fee silly. But in the same line of thought, like people, they don’t want to pay the $80,000, 10% penalty. But if you paid the $80,000 penalty, which I call the ticket to the real debts, now let’s just say that this investment grows.

What do you think that you get in if you left it in here in the IRA?

Just to make the math easy. Let’s say I keep doing syndications, right? So am I including the cash on cash? And then when everything sells out, what are we thinking? 180 to a 100% return after three to five years, right? That’s probably average.

Or it’s called a 15% per year. You’re already using your retirement fund to be in private placements, but I’m just outlining this example for the average guy. Who’s probably just going to put it into some mutual funds at 8 to 10%. Let’s give him the benefit of the doubt. Whereas the syndication investor, if you unlocked it, maybe you get 15% to be conservative. The Delta is 5% so that person would be forgoing 5% of 800 grand every year.

What does that opportunity costs? Yeah, that’s 5% of 800 and not even in compound interest, right? To me, that break even point is in year two by just pulling the plug on it now. Now that’s all the way there I think that this seems to be the better way of doing it, but then here in lies, the problem is you have pretty good deal flow.

You know where to put your money, but the point 800 GS in one year. It’s a pretty big feat, right? So maybe more practice, practical game plan would be to leak it out slower like 400 grand this year, next year, and then the other path, the year up pass.

That’s probably what’s going to happen, right? Because 800,000 let’s say just to make the math easy, let’s say this. Eight syndications at a hundred thousand each. I don’t think syndication on they’re going to sell more than three, maybe four year. So that’s going to return to cash and I probably 300 at the most $400,000 in cash coming back to a year.

So the 800 per annual, i t’s not like I can hit a sell button and all of a sudden all of my positions turn into cash. I have to wait for the syndicators to sell the assets.

This will be naturally be spaced out for you anyway.

Exactly. It will be a jailbreak over probably two to three years, maybe five, it depends. Some syndicators might want to keep the asset longer.

So let’s say, your dog eats a biscuit when is it going to come out the other end? You put in 800 in different periods. The dog ate the biscuit awhile in the past. You know how many biscuits he ate, when do you think it’s going to come out here? But how much do you think in 2022?

I think in 2022, we’re going to see quite a bit, so I don’t know. Let me just make some numbers here. Does that sound about right? What you think will come out the other end since I like that.

What number did you come up with?

I think next year we’re going to see a lot of this stuff come back. Are you thinking 300, 300 next year, then 200 to 200.

Why don’t you do it life easiest for the math, just do 200 times four 800.

So the question is that, do you leak out the 200 pay the penalty plus, whatever my tax bracket is. Now then, 10% of 200 is 20,000, plus, whatever the tax bracket is. So that’s the cost of basically breaking in a jail.

Like what the tail end of this thing pushing through, and maybe coming out 2025, 2026 you’re getting really close to the point where you get the free jail card or you save the 10% anyway.

Also what listeners needs to know is that once that money is jail broken then you can use the passive losses to offset your passive gains, which tribes your AGI even further. Which right now cannot do, because it’s pre-tax money, but now I’ll be using post-tax money for it, that makes sense.

It gives you more options and levers to play now. Another kicker, this one isn’t as a huge game changer as our private placements even allowed in IRAs is the conservation easement around after the year 2022. I’ll remind people again, right? Emanuel doesn’t have mutual funds and crap like that in his IRA. He’s all private placements and syndications.

But do you think if you were doing the mutual funds and all that stuff. I think it’s a no brainer. Get jail break that stuff and give it up now. But Emmanuel created a little bit of a pickle for me. I don’t know which way to go. I’m kinda like just, let’s just split the difference here, right?

Like maybe you naturally let it flush out and then you take it out slowly as it comes out and that’s the last hurrah. Some would say you’re already to the end, the terminal point already. You might as well just stay on the bus so the whole way. You definitely don’t want it all to go at the same time, whether it’s 2028/ 2029/ 2030 because it makes your AGI go up. So we need to leak it out slowly so we don’t get into that predicament, which every other person in frickin America is going to that and you don’t want to be that guy.

No. And I agree with you Lane totally leaking it out, actually makes sense especially because my tax bracket is a little bit lower. If I was still in the, whatever 35, 42%, whatever the Biden administration wants to do, then it’s really painful because you’re taking a 40% on tax bracket and then another 10% of penalty.

So then you are, not exactly, but you are technically 50%. Where if you drop tax bracket, like I said earlier, 5%, 10%, and then you add the 10%, then you will be in a hole at about 15, 20%. But like you said, it’s going to hurt in the first two years break even and then after that, I think it’s all gravy, right?

I know your situation personally so like here’s another, like just let’s zoom out a little bit. You’ve already mentioned that you want to like work less, right? This is a good thing because as you start to leak this out y our AGI is going to be quiet. Let’s just say you go down to part-time 20 hours a week, two days, two long days a week, right? So you’re making salary cut in half, basically. Your AGI goes down to 250 and you go on this plan of leaking out 200 every year.

Starting this year. You’re not allowed to work more than three shifts because it’s a tax den and then that way you don’t have to do as much fricking conservation easements, which is already a risk too. Eyes wide open work with the right people but it is a bit of a risk there too.

I think it’s a good risk. I think that this also brings in lifestyle too. I think this might be that we’re suddenly, take your AG up to 400, 500, just get a little bit of land conservation easements to bring you down back to 300 land or two hundreds and just do this naturally as the deals cash out and you’ve jailbreaked it out. Maybe around fully by 2026. What normal people would have been, they would have been screwed come to age 60 cause now like all this money and they would have to take it all out anyway. Sure. They don’t have to pay a 10% penalty, but the 10% penalty is nothing in the whole grand scheme of things.

They’re doing exactly what the government wants. Now, they’re handcuffed. They’re taking their $800,000 at age 60 at the highest tax bracket. Sure. You’re not going to be working at that point already. I think you still want to work past your 60, right?

Oh, totally. Richie’s not to work 12 hour shifts, times five or four. I don’t want to clock in 60, 50 hours a week. I wanna clock in 20.

Most guys, they would say I’m quitting in your 2025. Therefore let’s just break all this out 2026/ 27 or just wait till 2028.

But just the lifestyle, you’re more smoothing this all out. So this to me makes more sense.

Yeah. And just doing one conservation easement while I’m jailbreaking this make sense and I wasn’t going to do more than one per year, maybe 50,000. 50 times four as a 4X, we’re doing 200,000 passive loss. That’s more than an offsetting the actual taxable income so that would keep things low and then like you suggested leak it out 200 grand a year. At year four, you’re completely done and you would’ve broken even at year 2.

Conservation easements to me are driving 65 miles an hour in Hawaii, where the speed limit’s 50 and it’s probably like for you guys driving 85 miles an hour. It’s illegal technically, but not unsafe, in my opinion.

You mentioned that it’s like a shot of lipitor just get that shot. Just shut up and do it and we’ll talk later about syndication.

That said now that we’re like getting down to the nitty-gritty here, I’d like to know your thoughts. Could you probably know this a lot better than I do? I don’t do conservation easements. I just use bonus depreciation and my AGI is already low. What are your thoughts on getting this conservation easements all as soon as possible, right before things change? Cause you can bank the losses, right?

That’s right. So I just did one a few months ago. So it’s basically going to be for 2021 tax year 51,000 at the 4.6 X, and of course I still have passive losses from the syndications that are not in jail. That’s another 1.5 and I think I would be able to get to that 10%, maybe even below that in a tax bracket. So jail breaking next year would be great.

You liked the idea of getting it all now as opposed to something like this, like spacing it out or what do you think?

I’m thinking, again, just to make calculations easy, two or three syndication selling out of a year, 200 grand, jailbreaking that taking the hit on taxes and penalty, and then just be completely out, in this model in four years, maybe five years at the most.

The new cash don’t invest that in another syndication because obviously that’s going to just keep kicking that can down the road, that was my feeling and the purpose of my call to you today is to figure it out. But realistically, it’s not like I can jailbreak 800 tomorrow, it’ll have to be leaked out.

Let me just play devil’s advocate for you, right? The best time to invest those when you began yesterday. Yeah, exactly. The money’s already invested, so for you, it’s no different what I’m talking to are the people who have the 800 grand in their silly mutual funds, you’re making subpar returns.

For you, the best time to have these passive losses and these levers was yesterday. But then again, you already have a boat load of dry powder of that passive losses to use at your disposal. So maybe it’s not that too big of a thing. But it’s hard to quantify, right? Like one would think that it’s better maybe jail break the money now and get it into deals now, instead of spacing it out into the future.

But I guess they’re already in a deals, right? Yeah they are, like you said, conservation easement is on the risk meter. It’s definitely higher than let’s say syndications. So the key is, as I leak out that cash 200 a year, put that back in and to let’s say two, three syndications.

Take the passive losses apply that to future taxes and then I don’t have to do any more conservation easements and decreases my, risk is that what you were alluding to a little bit Lane?

Yeah, it seems I get the same way, like the conservation easement, the best way that best time to do it was yesterday before they close the door. Yeah, I think for many reasons, I like this general plan. Again, if somebody was not like Emmanuel in private placements with this IRAs already, I would probably urge them to do something more aggressive like this. And I agree with you. Now that I know, if my money was in stocks and mutual funds probably I will jail break that as soon as possible.

Again, leak it out. I dunno. Like you said, if let’s say if it was all in an ETF or stocks or whatever, then you press the sell button. And I think what, within three days everything’s in cash, but, taking an $800,000 cash out would be, it would just the adjusted gross income. I think even if you sell it, even if somebody is on stocks and bonds and ETFs, maybe still leak it out, either way.

Let’s talk about this. I’d like to get your input, cause there’s a lot of your coworkers who haven’t figured this stuff out. This scenario right here is a guy with 800 grand in his traditional stocks, bonds mutual funds. He finds alternative investing. Here’s how I would do it. And I’m going to also add in this, I don’t want them to invest a hundred grand right away especially as you’re a new guy, you know what the heck you’re doing, but this is where infinite banking comes in.

This at least allows you to fund this. So what I would do maybe remove 3, 400. We’ll take it out in two years. I’m interested in how you would do this iBC. So like when you create an IBC, you got to sign up for a six year window plus or minus a year. If you set it up like a 70/30, 90/10 split, you’re going to hit your necessarily deposits into this thing in the first year and a half easily. So I think people get freaked. I would get freaked out initially when I was like I need a sign up for something I can hit because we’re good boys and girls, we need to hit our quotas. But it’s not the case. As long as you fund your first year, you’re good.

You don’t have to really worry about it, but still, I would still try to abate the plan as much as possible to size it the right way. So what I would be doing would be maybe. I’d be putting 200 a year for six years. Because the 400 grand that’s already all right here. So that’s accounting for. This, if you don’t fund it, who cares, but I’m sure the money is going to be rolling in, or this person has likely making money to put into funnel through here. But this way, at least this stuff is baking.

While it’s just sitting there, maybe I would even have them play the game or they fund us two times in a six month period, depending where your birth date is you can o verfunded in the beginning to jumpstart this. But something like this and then I would deploy 200 every year for handful of years and, you could get a conservation easement like this, or you can not do a conservation easement if you freaked out about it. How would you do it?

That’s exactly how I would do it. Of course, you’re not leaking out 400,000 tax-free so you’re losing, you’re getting hit by, let’s say 20%, so you’re still losing, what is it like 80,000 a year.

That’s why that guy’s doing this, the conservation easements in the first year.

Exactly. So you have 200, I would probably say, so do the IBC, then you borrow against it. Then you deploy your dry powder at about, I’m thinking four syndications per year at 50 each.

So you can spread, even if you stay with the same syndication you could just, spread your risk four syndications per year. And then after four years, you’ve got four times four, you’ve got 16 syndications. You’re golden then.

Yeah. Maybe at once you get a few years down the road or maybe a year plus or met them, you doubled up.

Yeah. You get to the point where you can’t track those dividends and those key ones get really annoying. So I probably would say maybe get a dozen syndications and then double up, like you said. Instead of doing 50, do a hundred because now you’re more comfortable about, the PPMS, the syndicators and so on. And then you’ve got probably the same returns, but with less hassle. Less dividends to track,less K1s to pass on to your accountant.

Yeah. And this is where people can go on download the K1 tracker. Go to simple passive cashflow.com and then search for K1 and then try to pull it up. Now, show people what the heck it is.

I had 16 K1s for this year.

It’s not pulling up, but you can see it here. It’s just a spreadsheet. I’m your CPA is going to do all this stuff for you, but I tell everybody to just tabulate yourself. So you kinda know what the numbers should be plus or minus 10, 20%. Ultimately, you’re going to have to go to your CPA and say, oh, Hey, what’d you put? I thought it was gonna be around $80,000 in losses. Can you just show me on the form where you tabulated it that. Oh, you forgot about it. Oh, shoot, man. It was like, when we used to do like the engineering stuff, like I was always a project manager.

I don’t know how to do all this, like the technical stuff. So same thing here. I don’t know how to do all the forms, so that’s a CPA’s job, but I’m smart enough to know how to get the wrong answer, to know what it should be to play stump the chump come fact checking time. Part of that’s my construction background. We don’t do it to publicly humiliate them, cause that’s their job.

Yeah. It’s crazy because one missed K1 is like the hundred thousand dollars, $150,000 of like passive losses.

Which is even at the most tax rate, that’s 20 Gs right there that’s probably what more than that, like that guy saves every year that CPA. That’s a good idea to track it that way.

And part of that is to learn right. The first few years, I’m still learning what is being included, what is not being included sometimes. What are the check boxes on the thing?

It just helps me follow that chunk of money around. And I said I thought it was going to be like $180,000 of losses. How much did you use? How much did you keep suspended? I’m just following the large sums of allocations. Yeah, you’re exactly right. It’s very common, right? These guys, they just forget one but it’s a big feed, like 20 grand.

Yeah, that’s huge. 20,000 is $20,000. That’s, whatever, half a syndication at 50.

Yeah. It’s hard to see here, but like the dark part is like last year’s one and then this one is this year’s one. Even if you get that big bonus depreciation lost your first year, the rest still trickles in every year.

Yes, it does. But that’s why for the listeners, that’s why you want to do, four or five syndications a year, because you always want to get that big one year or first year bump bonus depreciation. Now whether the IRS is going to allow us to do the bonus on their cost segregation that’s yet to be seen. But at least for 2021, it would be still. Yeah, as my understanding, and I’m not, neither of us are CPAs or lawyers just a couple of guys who learned some things from various people, and still rely on our professional providers, but bonus depreciation is phasing out 20% every year.

I think starting into your after 2020, which to me. I see your guys’ K1s. You guys will never use the passive losses really. I think still by the year 2024, it should still be great benefit. Yeah, but maybe after 2025, it’s kinda not as good.

They still won’t get rid of the actual cost segregations so we’re still fine. That regular depreciation will typically offset your cashflow in most deals or you’re going to run dry is when the deals cash out. But when the deals cash out anyway, you’re going to have to pay the depreciation recapture any of that.

Yeah. That is not the end of the world, because when that’s indication sells, you’ll be two years later, you should have another eight, maybe 10 syndications to offset those gains. So like you said, those losses are just going to be kicked down the road and your tax bracket should remain pretty low by then.

In this case, we’ll call it PALs passive activity losses cause they’re a pal. If you put in 200 grand, you might see a hundred, 150,000 of losses the first year, then you get another 150,000 and then 150,000, the 50,000. But then, so you’re walking around with maybe 500,000 of passive activity losses by the year 2025. So let’s just say one of these deals cash out and you have minus 150,000 and you still have a surplus. But then you take that investment, you can put in something else, and then you end up with even more eight passivelosses to begin with and this is where you keep the good time.

Yeah. And then in your model, you’re just looking at whatever we’re jailbreaking, which is what I call old cash, the new cash, which you should be investing. If you’re still young, then the new cash is on top of. No 200 and that will generate even more. So that’s when your net worth becomes exponential.

That’s right. But for your example, passive activity losses are passive. They cannot offset your ordinary high adjusted, gross income from your day job. You’re not doing a real estate professional status. That could be another thing you do, that’s another option.

Yeah, when I draw let’s see halftime. If I do retire in five years, spouse, but do it for you. That’s right. No, not married. Yeah. Part of the team, they got to pull their own weight now. Have you thought about that or? And that’s that’s probably another call that we could do together or maybe through the FOOM group, we can look at that see if I could qualify or if Ashley can qualify.

Cause you’re probably walking around with a half a million. Maybe you’ve been dealing with passive activity losses at this point. Right now there’s a barrier that we can’t use that to offset your ordinary income every year and that’s why you’re stuck doing these kind of up in the air conservation easements, but if you were to do the real estate professional status, various ways of doing it you got to jump through some hoops.

Now you don’t have to deal with this low risk and you can use these passive activity losses but then that’s another discussion for another day by is it worth it for you to burn this stuff up? You’ve got a lot, so you could like. My CPA, what he does and I fought him on this initially be burned by passive activity losses up.

So my AGI was like nothing so I didn’t pay taxes and I was like, Hey man, like at some point in 2023, 24, 25, all these things are going to come back at me. I’m not the pay, my depreciation recapture and all that capital gains and you’re giving up like dry powder man. Yup. But then his reasoning was like you’re right. But I think where you’re at, and I think where a lot of other people are at arguably, you’d rather have money today to invest. And you’re going to make a hell of a lot money in the first now the next few years than you are paying incremently 10 to 20% less tax taxes on that gains in the future, and that’s where we don’t know, right? This is part of the art, which how you want.

That’s been super helpful Lane. Thank you so much for your time. How would you do it if you were, let’s just say magically, boom, you are a real estate professional. You got your spouse to do it for you. Would you burn up your passive activity losses to pay no tax today? Or how would you?

Yes, I think so.

That’s the YOLO lifestyle, right?

Yeah. Money, save his money earned, if you can save now I say save now, take the hit now then you’re less at the Beck and call of the government, right? Because once you have those traditional IRAs, they still have you on the hook where that money is in the bank personally, then it’s free. The profits are still taxable but the ability to invest or the vehicles to invest that increases your ability to get there.

But that’s another wrinkle in here, right? When bonus appreciation army does fate starts the sunset. Let’s just call it after your 2025. You’re not going to be getting 150,000 of losses. You might be getting like less than half of that so it’s looking like this. If you aren’t in those professional status strategy, it makes sense to get it all done now and pull the plug as opposed to that strategy we were talking about earlier, right? I think this is what you’re ultimately going to do but if you think that they’re not going to renew that bonus appreciation on which I don’t think they are, I think it’ll come back in our lifetime at some point.

And you and I will be jumping for joy and getting in there when the opportunity comes up. I think they’re going to take a break from it for a little bit. So with that thought I would argue, Hey Emmanuel, maybe just get it out aggressively now. The only reason is to get the passive losses, grab it while you can because after a while it phases out, and this is if you’re doing with professional status strategy.

Yeah I personally can do it myself, but my wife can, as of let’s say, she probably could qualify in 2022. And if I do retire and drop my hours in five years, then by the time, things are phased out, then I could just do real estate professional status and that guy would just keep gravy going.

I would push you more, I would say go after rep status, yeah as opposed to this. I think this is your baseline. But if you’re going after real estate professional status, get it out sooner than you think, maybe in one or two years so that you can take advantage of the maximum amount of losses.

So use it to learn income now, or at least keep it because if you wait more than a few years, this thing is going to go way down. I would think about again, like many different paths to go down based on your assumption of what are the tactics. And you have to guess in a way. I’m going with the hypothesis that I don’t think bonus depreciation is going to get extended.

Therefore, get it while the getting’s good and combo with real estate professional status and therefore that’s why we back. We backwards engineer that. Yeah. Get it out now.

Yeah. That makes sense. For me, it really depends on syndicators, selling those assets and basically converting that to cash and then cashing it out.

But you’re stuck. Here’s why I like that strategy. I guess it doesn’t apply to you cause you’re already stuck in there, but for people with a clean slate, like one big thing. I don’t know. Conservation easements plays a part in it, but what if it doesn’t next year?

Or in three months they put the kaput on that type of stuff. This is the plan, but, or like a wild cat in football. We’re going to give it to the running back so you can run it and do the conservation easement but you can also throw it if the conservation easements gets cut off. By doing this, you’re able to have this A,B plan. Once you start to take out the money.

Ultimately, staying flexible and keep in touch with what the tax laws are going to be for the following year and just adjust yourself to that.

I’m more confident that they’re not going to renew the bonus depreciation a hundred percent past 2024, 2025 than I am.

I think that there’s a better chance that conservation easements are still going to be around in some form.

No, that’s what I’ve been hearing too, but again, the depreciation is going to be phased out. They won’t like completely go away but the cost segregation will stay. The constant easements, I think, they’ll stay but I think the IRS is going to be scrutinizing. So getting up, 8 to 10X return losses, I think those deals are going to go away.

The more conservative underwriting’s at about 4 to 5X. I think those are probably more viable and probably safer for everybody. So I have to agree with you on that one.

Yeah. I agree too. I think it might go down to 3 or 4X, which is still on average. It’s still plenty.

Just a couple of guys making some educated guesses. If you guys take this as legal advice or tax advice, don’t do that. You’ve been idiot to do that. Everyone’s situation is different and this is why you got to build a community around yourself.

Any last parting thoughts, hopefully that gives you some clarity.

I’m good man. Thanks for the help and bouncing ideas. I’m gonna think about it and probably do one of those options, man. Thank you so much.

For Beginners: Get To Know Your Credit Cards

https://youtu.be/uv2iOi6T4N8

Who are in this hobby are really frugal and they’re just like savers by nature. And they don’t like to go out and spend the points, but it’s not like money. You don’t save these points until retirement or something. You want to earn the points, know how you’re going to use them and then know how to get more points.

try to rent them out and

If you are a very beginner, like this is the first you’ve ever heard about this, the most popular beginner card these days is the Chase Sapphire Preferred and as ofyesterday or two days ago, March 21st, they just increase the sign up bonus to 80,000 points instead of 60,000 points that’s worth more than a thousand dollars in travel credit.

So Chase Sapphire Preferred is one of the most popular ones for beginners these days. We always recommend start with your Chase cards instead of starting with American express or another family like that, because of something called the5/24 rule, which says that if you have already opened five or more accounts with any carriers in the last five years, Chase’s just gonna reject you if you apply with the chase card. So it’s good to get the chase cards out of the way first.

And then you can move on to American express that doesn’t have this rule. You can move on to Citi cards, bank of America something else like that.

Good advice. I have a love & hate relationship with Chase . I do the tradeline hacking thing where I kind of piggyback authorized users of my cards. People want to learn more about it. Go to my simplepassivecashflow.com/trade and I had a little e-course on that. But chase cancel all my cards. So I’m not in the phenomenal rewards, credit cards. Great place to start there.

Why did they cut off all of your lines, too many authorized users?

Yeah, it was getting a little ridiculous. I was turning people a lot quicker than I do these days and I have flagged on about it. It’s good that you see a company actually has checks, so it make sure that there’s no weird activity such as mine so I think it’s good business. It sucks for me , but I applaud Chase for doing it,shows that they have their S together.

How many points did you lose when they shut you down?

I think at the time, I think I lost myself west point 200,000 points. Goes to show, right? Savers are losers, just like people with all this equity in their house or the bank.

There is a strategy called churn and burn where earn and burn where you’re earning points really quickly and then you want to use them quickly as well. You don’t just want a whole bunch of points sitting there in your account not being used because a lot of airlines will de-value their awards programs. And so if you just have hundreds of thousands of points sitting there and you’re thinking, okay, it’s like around the world trip or something is going to cost 200,000 points and then the next year they’re like, oh, now it cost 250,000 points. And your points were just sitting there and never used.

This website offers very general information concerning real estate for investment purposes. Every investor situation is unique. Always seek the services of licensed third party appraisers inspectors to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here in information is not guarantee as in every investment there is.

The content found here is just my opinion and things change. And I reserve the right to change my mind above all else. Do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best in.

BIG MISTAKE in Managing Real Estate Property

https://youtu.be/3tRnTjDXY2s

What are any lessons learned to open up the spending money stuff? Because I think you’re a big inspiration and building your portfolio but I think people here they’re already doing that. They know it works but how do you take it and get from scarcity to abundance mindset.

Yeah. I think part of it is there’s two ways to go about something. You can try to figure something out on your own, and certainly you can do it. There’s a lot of free resources out there but you’re probably gonna make costly mistakes. It’s going to take you a lot longer. And this is a lesson I’ve had to learn. There is such a thing as being too cheap and too frugal. And if you’re not willing to invest in yourself or invest in a way that can help you grow and get ahead or just invest in the right things and not be cheap, then you’re really going to be holding yourself back.

A perfect example of this is when I first wanted to hire a property manager. I was trying to look for ways that I could do it frugally and not give up so much of our rent money. And we had these two people that have been working for us really hard workers. They did a lot of the cleaning and the maintenance at our properties.

They seemed really intelligent, always went above and beyond, and we decided to hire them as employees of our company and train them on how to be our property managers. Everything started out great but then six months in my husband went to the rentals to collect rent one day from the lockboxes. And he realized there was a lot missing and it wasn’t just the normal tenant paying late.

It was a significant amount. So we come to find out that the property managers stole $6,000 in rent that month and run away. We still don’t know where they are to this day. And we found out they’d been squatting in vacant rooms and units in our properties for almost a year. That was awful like such a violation of trust.

The huge moral of the story is there are certain places where you don’t be cheap. It doesn’t make sense to cut corners because being cheap can end up costing you a lot more in the long run. And we definitely should have hired a reputable, licensed, bonded insured property management company and then that wouldn’t have happened.

Yeah. I call it CFE cheap easy free. Anytime you try and do that, you get burn. And I started to adopt this maybe four years ago, maybe I think five or six years I was doing. I had a dozen rentals at lease. I don’t know what the hell I was doing, but like I was doing the dog sitting thing. I was watching other people’s dogs because I like dog.

But this one dog attacked me and I was like, what the hell am I trying to do? Trying to make a few hundred bucks every other week. And I have this scar on my leg that helped me understand that yeah,don’t be cheap, easy and free. And also, I think you’re seeing like the syndication world, like a lot of this building networks or other peer passive accredited investors. Accredited investors can smell cheapos from a mile away. They know for sure.

For sure. I think a big difference between non-accredited and accredited investors is that there’s different goals. I think when you’re first starting out, you don’t have any money, but you do have more time and you’re willing to hustle and work harder and maybe self-manage and do things that you wouldn’t be willing to do later.

But then when you get further into your realistic, investment journey it flips the other way. Where suddenly you have a lot more money and you don’t have a lot of time. That’s why we’re actually selling some of our rental properties right now and transitioning all of that money into syndications because I’m sick of dealing with him.

I’m sick of the liability. I’m sick of having tenants. I would rather make a little bit less money. You still make great money in syndications. I’d rather make a little bit less money and literally not have to do a thing. What we found is that investing in syndications aligns so much better with our passive income goals.

Another thing that accredited investors realize is relationships are the currency of the wealthy, but the right relationships with also abundance mindset at people and if you want to call it accredited investors too. Non accredited investors, not saying they’re bad people, but they just don’t have money and they run on a different operating system.

Yeah, and I used to be one and I totally see now how my mindset has changed over time. And it’s really fascinating. I just had different values and goals then, and definitely was more in this scarcity mindset. Now I’ve totally flipped in the opposite direction, but surroundingyourself with people you’re absolutely right.

Is the most important thing. And that’s another thing I’ve had to be okay with investing in is especially with growing my business with my books and my courses. I definitely hit a wall because I’ve been trying to figure it out all on my own. I was like, what do I do now? And I ended up investing into a mastermind that really helped me strategize and be clear on where to go.

In my opinion, I want to be the dumbest person in the room. I want to surround myself with people who are already five or 10 steps ahead of me so that I can mimic everything that they’re doing.

December 2021 Monthly Market Update

https://youtu.be/JHE1Mpe408Y

It’s December, 2021. Welcome everybody. This is the monthly market update. Here we go!

Easter eggs for you guys starting out. If you guys are checking this on the podcasts go on over to simplepassivecashflow .com/ 2022 retreat. The retreat is on, in-person not virtual like we’ve done last year, but in-person in Waikiki. Check us out the full itinerary, January 14th to the 17th. Again, simplepassivecashflow.com/2022 retreat.

If you guys are tired of kicking tires of the bunch of broke guys at the local real estate club or the free online forms out there, you got to check out our group. Everyone’s vetted before they come. This is not going to be a bunch of randos meeting up in Hawaii. Only people who are coming are people I know and it’s a good group of folks we have about 75 people signed up nearing the head count, soon. You checking this out on the YouTube channel. We’ve got a lot of different slides and graphics going to be going through a bunch of articles and I’m an engineer so I like charts.

A bit of my background. I’m no longer an engineer, no longer doing the project engineer stuff bought my first rental in 2009 and over 6,000 units now. We just closed the deal on Phoenix yesterday. I think 6 or 7,000 units at this point. If you guys haven’t heard of me before, check out simplepassivecashflow.com, which is my blog and check out the simple passive cashflow podcast on iTunes, Google play.

And if you guys are listening to this live, feel free to drop a comment below or question we’ll try and get to it as we go along. All right so first teaching point here, inflation is upon us if you haven’t noticed. All these things going up beef 24%, gasoline 51% hotels and motels all the stuff for the rich folks, right?

Because if rich folks aren’t really impacted by the old recession call it what you want. To me it’s a little sad. But again, it’s the rich get rich and the poor getting poorer. A lot of these energy commodity is going up for 49%, used cars and trucks going up 26%. I just sold a car. Sold my car a couple of weeks ago, I bought it for 53,000.

I sold it for 60. Used cars going up and it’s hard to get a hold of new cars. Here’s another graphic here showing some of the increases in poultry on the slide is what was up 44% since two years ago, fruits and vegetables up 18%. Inflation is coming to get you. Maybe it’s only going to get your mom and dad who are just sitting on their home equity, paid off houses.

That’s the people that it’s coming after, or the poor people, who don’t buy assets and the reason why you want to buy assets is because it goes up with the pace of inflation. In my opinion, you don’t want to buy gold because it doesn’t really do much does, has no utility and it doesn’t cashflow make income.

It said buy real estate, which is the best of both worlds, goes up with the pace of inflation and it produces cashflow. All right so let’s get into it. Some of the reports here, Blackstone the big company that we’d like to follow because they’re the people who are smart with money they just bought Bloomberg entertainment for about $3 billion.

Now, if you haven’t been noticing, Netflix kind of started with the streaming service, but apple TV, disney plus all these streaming services where you control the channel and you control your audience essentially control your platform, right? Facebook did. Now, Amazon is doing with ads.

If you control where people go, you can somehow monetize it today. Gone are the days of NBC, Fox, CBS, and channels and you want to control the media channel or in terms of streaming services and, Blackstone sees playing that said Moonbug entertainment. This is one of those news where it just like sucks for the small guy, because folks like us, we’re not able to play at these types of institutional assets.

We like to play in apartments, which is somewhat attainable to the average million dollar $5 million Joab. But it’s not like y’all can buy an entertainment company, but just for food for thought here. CVS health plans to close 900 stores and focus more on their digital strategy.

I think we’ve talked about this on earlier investor reports, which you can get all the past investor reports go to simplepassivecashflow.com/investorletter. We’ve been talking about how Amazon was trying to get into the pharmacy business. CVS has a stranglehold on there but as business think of Kodak or MP3s, if you don’t change your business, you’ll get steamrolled.

And CVS is closing brick and mortar stores to focus more on their digital strategy. ULI forecasts the transaction volumes posed to bounce back to pre pandemic levels. US GDP strength 3.4% in 2020 as expected the first economic contraction since 2009. Recovery from the pandemic is expected to occur dramatically faster than what transpired following the great recession of 2008 according to Washington DC group. You guys are probably thinking captain obvious, but they’re expecting a bounce-back and growth of 5.7% expected at 2021 with the continued growth of 4% in 2022.

The outlook is optimistic for most sectors of commercial real estate. The hospitality industry is still showing signs of struggle. Hotel revenue per available room, which we call is RevPAR saw one of the starkest numbers in ULI’s presentation following a 47.4% decline. RE business online reports the American Liberty hospitality opens a 300 room dual branded hotel in Houston.

So the bite we just mentioned with some hospitality, struggling big companies are opening up these hotels 64 Alameda road, that’s supposed to be a combined Hilton garden Inn and a hotel, two suites by Hilton, 300 room.

Now there’s a reliability of small multifamily tenant base fuels recovery from Arbor, which is a big commercial lender so we have a lot of good neutral information. Sometimes you got the news from multifamily housing news, which is more of a pro industry type of news, where the lenders, they show things how it is for the most part.

But they’re showing here how the year-over-year change been leveled off since 2014, which is consistent. However, the origination VAT value, a year of your change has been going up and up steadily. Analysis of work from home trends finds that small multi family properties may be less affected than larger properties because fewer tenants can work remotely.

Smaller multi-family cap rates filled at 5.2% in the third quarter effect the unchanged for the last quarter. Asset prices rose 2.9% from a year earlier at 7.7% over the pre endemic levels. One complaint I hear a lot the cap rates are compressing. Yeah man, that’s been happening since 2008 and it’ll continue to do that.

But the whole point as an investor is you’re doing value add, and you’re making money off of the spread between the cap rates and interest rates and as cap rates go up, so as interest rates go up. Sophisticated investors don’t really care because again, they make money off of the Delta and they value add to transcend what’s happening in the market.

Yardi Matrix reports that gateway markets rebound and when we’re talking about gateway markets, we’re talking about those California markets got a beat down at the recession. Demand for rentals of the United States has been extraordinary this year. With over half a million apartments being absorbed, which already topples 2018 single year high of 370,000.

So over a hundred thousand units than the last previous high, which makes sense. 2020 was a year of a lot of traction projects, halted projects that were just completed, might have been paused to lease up and everybody just stayed in place, but now you’re seeing a lot of this train slack come back. Moving on to the more residential side article for Redfin saying home sale prices up 13% from 2020 they’re outlaying 2019, 2020, 2021 on this nice little graph.

It takes up the seasonality of the thing. The thing that you could see, especially at 2021 is after February, March, April, when the vaccine started to roll up, you really started to see that built up demand come through. Median home price increased 13%. Like I said, this is up 30% from the same period in 2019, two years ago, asking prices on newly listed homes are up 11% and on average, 4.9% of homes for each week had a price drop.

Now, this is coming from a real page, going back to the commercial apartments, luxury apartment rents premiums going up once again. So this answers the question what’s better with class A, B or C. If you look at the graph, class C rents have been very slow linear growth or class B and A rents

you’ve seen a nice little tick up the last half of the year. The difference in effective rents between the two products segments went up just over $300 in 2010 to a whopping $500 in 2020. So that gap is growing as it should. It’s you know, this is if you’re always going to have higher rents, classA, B to C that makes sense that gap is going to be growing.

The difference in rent then slipped by just under $400 by the end of 2020, but steady pricing power in the most upscale properties in 2021 as push a difference back to $449. The class C average rent price is 1189 now $358 under the class B. Again, this goes back to the unfortunate reality, which is the class A renters and class A folks are typically peachy in the aftermath of the recession, or it’s a class C people that have the most difficulty paying rents.

I would probably extrapolate at class A people can work from home, class C people are more of the service sector. Maybe they had shut down, some close business sectors.

Rent still rising but growth slowed significantly from apartment lists. The slightly significant slowdown rent growth has continued to exceed its pre pandemic trend. To make more clear. The chart below thoughts are national median rent estimate against a projection of pre pandemic. The national rent rose to 1312 this month, which is $107 greater where we projected it would be if the rent growth over the last year and half had been in line with the growth rates, we saw 2018, 2019.

I think we can safely say that I wouldn’t say it’s slowing down, whereas it’s going backwards. Look at some of these rents going up, I go back a couple slides. The rents are just going up too high for a short period of time. It’s cooling off now a little bit, but it’s definitely not declining.

Here’s a chart of 10 of the top rent growth market. Tampa, Florida, Gilbert, Arizona, Glendale, Arizona, Mesa, Arizona, Chandler, Arizona, and all those four Phoenix right there. Boise, Idaho, Henderson, Nevada, which is Las Vegas, north Las Vegas, Nevada, and St. Petersburg, Florida. All those 10 have gone up 32% to 36% since March of 2020.

Absolutely crazy. Normally, when you’re doing your normal conservative projections, you’re assuming that the rents are going to go up to 4 or 5% at extreme levels in the past since March of 2020 you’re talking 30%. That’s pretty crazy. The markets remain extremely tight.

We’re now seeing the first signals that pressure is beginning to ease.

It’s also important to know that 35 of the nation’s hundred largest cities have seen rents jumps by more than 20% since the start of the pandemic. Even if the rent is finally cooling, this year’s rent boom has already added significant housing affordability for American renters. But hey, they’re just pumping in a whole bunch of fake money in anyway with all these stimulus plans.

What is the buy back America or infrastructure 1, 2, 3, 4, 5? Rent data tech cities are back in the country’s major tech centers. Rents are making up for lost time with record growth. Again, the same thing we talked about, the last one. This is from realtor.com. This one’s looking at more from a national taking into account all markets. They’re putting a retro thing from 11 to 13% year over year.

And what they say is the rise of remote work filled this migration continued declining for rental housing i n urban areas, particularly in heavy tech markets like San Francisco and New York. However, the rising vaccination rates of many major company signaling a returned the office, the demand for urban housing has been recovering quickly in just the past two months.

Rent growth has surge in tech centers around the country. I’ve had a lot of investor calls from you guys lately and one of the sentiments I’ve been hearing is ” dammit, they’re making me come back to work screw that. I quit!” Just kidding, you guys get paid too much because they’re going to just suck it up and it worked for a few more years more, but yeah, it’s tough to take back that freedom when you’ve been given it that long.

Just reading, going down this list. We won’t go down that list, not that important. Inclusion and incentives zone in 6 New England States. We’ve talked about in the past, how you’ve got zoning restriction and tax restrictions in California. You’re starting to see some of this in the new England states where they’re breaking down the not in my backyard type of restrictions, where there’s so much pressure in all these markets for cheaper housing, more affordable housing for regular people, not just rich people.

Where they’re bringing people to live in those types of areas where more the old school mentality, the last 20 or so years, 10 years was they try and segregate people and rich people. Obviously that creates a bunch of projects for the bad areas. Maybe if you’re a rich out there, you probably liked it.

Cause you don’t want poor people nearby. If you’re trying to run a city or a nation in m y opinion it’s not the best thing. You need a little bit of mix. So you don’t have all these Banana Republics and these ghettos all around the place. But whatever, I don’t care. I spend my time not on politics but investments that will make me money and folks like yourselves. But this is just one article showing that how this stuff is popping up so something to be aware of.

Pricewater Cooper. They came up with a report where they mentioned climate change is hitting the property sector where they surveyed a bunch of folks, the top cities: Nashville, Raleigh, Phoenix, Austin, Tampa, Charlotte, Dallas, or Atlanta, Seattle, Boston are kind of places people are moving to they say.

The impact from the pandemic was less than the real estate industry expected at this point last year. Now that the industry should use its good fortune towards both preparations and continued uncertainty and making strides towards ESG improvements.

Yeah. Sometimes you’ve got to scratch your head on that, those high-end accountant’s reports. Especially if you’re investing in workforce housing, you sometimes you got to take that stuff with a grain of salt. That said, here from glowbest.com, why invest in lower middle class housing to hint is that the hedge in case of a recession, but also to capitalize a current momentum. Now, in most recessions everybody’s impacted the rich people are impacted. They lose their jobs. They moved down to the Bs. They move down to Bs and Cs different thing that happened in this pandemic where the A’s are pretty much unimpacted, the Bs and Cs are more impacted. I still believe that in most cases and economic recession, I think it’s prudent to not stay with the luxury type of stuff.

For the majority or your portfolio so they’re saying here, despite the uncertainty within the market class C properties are being taught as the best position property for an economic slowdown by experts in the market during a panel discussion at the national globe street multi-family conference here in Los Angeles. Panels discuss the gap between rent rates for A and class C properties and viewed some of the current trends within class C properties.

ATTOM reports that seller profits increase across US in third quarter as national median home prices reached another record.

Worldpropertyjournal.com reports 30% of us markets to experience double digit rent increases in 2022. Again, a lot of what we said here, just a little bit different graphs. If you guys check this up on YouTube channel. That way, you know I’m not making this stuff up. It’s multiple people saying the same thing.

12 month absorption of apartments. The top are Dallas Fortworth, Houston, New York, Los Angeles, Washington, DC, Atlanta, Chicago, Austin, Seattle, Phoenix.

Dallas business journal reports that rents in Dallas-Fort rocket 15.5% in a year, even with the increases, Dallas is still more affordable than most comparable cities across the country. And like Dallas, many US cities shall start increases. Phoenix was up 27% year over year in September, New York rolls 18.3% and Nashville jumped 17.5%.

And just to speak about a real world example, comparing Phoenix and Dallas. Phoenix, you’re buying maybe class B assets for about 200,000 to mid $250,000 call it that. For the same price, you’re buying more A-class assets in Dallas. Maybe it’s just too many Californians moving to Phoenix.

They needed more to Texas Dallas, but that’s where the pricing is. If you want to buy a class C property in Hawaii, you’ll probably pay 300 to $350,000. And that is Investing 101. Does that make sense for that income stream?

REBUSINESS online reports, demographic economic trends, like they sustain build for rent sectors for growth. A lot of people it’s going to be coming more of our renters nation and it doesn’t make sense to do build for rent. I’m not a huge fan of it. I like more mature neighborhoods. I don’t like all these like new houses all in one area because when a recession comes, that’s the first place where the water retreats from.

I think we saw it a lot in the great recession. If you can remember that old movie, The Big Short, the big tracks of homes in Florida, right? Like the build to rent type of stuff makes sense in theory, just like hotels do. But in recessions, I don’t feel like, I’m not super comfortable doing that type of stuff.

National multifamily housing council reports, how will President Biden build back better framework impact the multifamily industry? They’re saying the plan is to offset by tax increases on corporations, wealthy American. Including changes to like kind exchanges increases the ordinary income taxes at general 20% capital gains tax rate that carry interests for sponsors, 20% pass-through deduction and taxation unrealized capital gains at decks.

A lot of these things didn’t come through permission. They didn’t touch them. Everybody got up in arms about changing the self-directed IRAs but a lot of it didn’t really change. We got to see how it goes through the Senate at this point but maybe it’s on a chopping block later.

At this point in time nothing super huge in my opinion. We keep it simple. You don’t care about stuff. You invest good stuff that cashflows grows your money and gives you like passive activity losses to lower your passive income, that’s what you got to do. That’s the low hanging fruit right there.

And then you don’t have a high income. The only people having high incomes are people still working their active jobs and that’s what you got to try and get away from.

Also expanding on how the $1.2 trillion infrastructure bill impacts multi-family. The infrastructure bill will repair and upgrade the nation’s roads, bridges, mass transit, high speed rail broadband, power grid, water pipes, electrical vehicle charging stations on for critical infrastructure. We have a breakdown on the YouTube channel here of all of this. But to me, it’s just basically a way to just dump a whole bunch of money into the system, paying ourselves basically.

Commercial property executive identifies three trending demands in commercial real estate, which is the evolving hybrid workplace, post pandemic office. We don’t know exactly how that’s going to be, but definitely we’re not going to be going back to the office a hundred percent as Adam and Eve had eaten the apple and have proven that they can eat the apple and work from home, potentially.

I am still a doubter, I think, especially in the coastal areas where you have a lot of tech markets and more independent white collar workers, I definitely do think that they can handle themselves and manage themselves appropriately where your sub hundred pay workers. I still think they got to get to the office and be managed and supervised.

Another trend is supporting employee wellbeing, being thoughtful design real estate can incentivize employees to return to the office. So what you’re seeing the new builds or the office stuff is a bunch of other services that attracts people to them. The incentive to get on the bus, get on the train, get in your car, to come to work for the socialization, other facilities and the demand for warehouse continues to increase.

Commercial real estate applauds $1.5 trillion infrastructure plan. The big thing here is infrastructure and housing are intrinsically linked and this is our president investment in our nation and will help lift communities industries throughout the nations. The president of the NAA and CEO.

Four ways Phoenix benefits from the infrastructure bill, climate protections, the infrastructure investment jobs act will accelerate Phoenix efforts to complete transportation projects along with many of the city infrastructure priorities. These projects will call to create high paying jobs and connect with more families with economic opportunities. Transit south central extension and downtown hub will connect with the current light rail system in downtown Phoenix and operates south. Roads Phoenix adopted the ‘co-payments system which will apply reflective coating to the neighborhood streets, the lower the extreme surface temperatures around the city.

Other initiatives include cool corridors, which is the plant and Jade trees into the neighborhood and along with city streets. And jobs, the nation’s growth is set to increase 0.4% compared to Arizona, which is showcasing it analyzed growth of 1.6%, about three times, at least three times more.

And the other thing I’m personally following, not on this list is a TSMC and Intel building a whole bunch of apps to make all the chips that are in shortage. We don’t want Taiwan to make all the chips because those Chinese guys are always flying airplanes around their space or supposedly near their space. Not violating any international laws of course, I think what 80% or so of all the smart ships, the really good ones, not the dumb ones that go in your kids toys, but the smart ones that go on your iPhone pros are made at Taiwan and the ideas that want to repatronize some of that back to American. Places it’s going is Phoenix.

Inflation’s influence on multi-family home buyers this is from multi-housing news. Higher spending rising energy prices reduced rising housing prices, low inventory across multiple inputs.

Higher wages need to be kept and filling employee shortage, shipping delays, and other factors are issues we face today. Despite all that effective breath growth growing 11.2% nationally in 2021 quarter 3 so cheers to all the landlords. Boo, to all the tenants up there, they don’t like that. You don’t want to pay more rent, they want it for free.

ATTOM they report the U S foreclosure activity continues to increase nationwide. Now this kind of makes sense. After all of the rent moratoriums going away or the foreclosure moratoriums going away nationwide one in every 6,600 units. States with the highest foreclosure rates are Illinois, then Florida, New Jersey, Nevada and Ohio among the 220 MSA out there.

Those with the highest foreclosure rates in October, 2021 were St. Louis, Missouri, Trenton, New Jersey, Miami, Florida, Chicago, Illinois, and Cleveland Ohio.

How the pandemic has impacted the movie theater property values. The cinemas emerge far behind the pack of other businesses in a race to resume normal operations. Cinemas were already difficult to value because they’re unique. A uni Tasker, right? This big building, the only people who want to buy that building was Toys R Us and they went out of business. Just joking there, but it might be true.

And the lack of comparable transaction data across the country makes it hard so the ticket sales give appraisers and taxes are the big hurdle in valuing these movie theaters. So if you guys think of a good idea, what to do with these big movie theaters, other than that Toys R Us, let us know.

Join the Facebook group, join the community, create a discussion, or just buy rental properties and afar the other day. Because a lot of these other ideas that I bring up like industrial storage, buying movie theaters what’s the other one big office complex it’s out of the reach of the average Joe under $5 million. A lot of this is institutional type of money that has access to it.

Dallas business journal reports at San Francisco and Los Angeles among regions, losing workers to Dallas-Fort Worth. San Francisco bay area took the number four spot last week. Last month, the region wasn’t even in a top 10 prior to the pandemic.

The numbers were another sign of a growing number of companies and workers moving their home bases from places such as California and New York, to Texas. Lower costs and taxes for businesses, as well as those that employ are driving the shifts. One thing I would mention, like the people will talk about like taxes.

Just because a state has no income tax , like Texas doesn’t mean that’s a good place to invest guys. Like that’s say I don’t know. That’s just not a good way to invest because yeah, sure. That’s one of the many factors of picking a good market to invest in, but really what you should be looking at the property to look at these one-off types of things that may choose to investor from time.

ALN apartment data construction times have continued to climb, but for the first time in more than five years, average lease up duration has decrease. So what that means is that the average time that it takes to lease up one of these things is deficient because more demand for apartments for renters.

Rent cafe says that millennial home buyers feel the rise of lifestyle renting in 2021. Yeah. sucks to be a millenial. Sucks to always be the new guy, right? The top 10 largest city for millennials over $50,000 versus Indianapolis, Las Vegas, Phoenix, Oklahoma city, Memphis Nashville, Charlotte Columbus, San Antonio, Texas,

Louisiana, Kentucky doesn’t necessarily mean that they’re good investment areas just saying that these are where the percent change in applicants among millennials making a 50 grand. That brings us to the Easter egg, which is if you guys want to get access to my free book r eleasing this month, we had to delay it a month.

We got busy because we press go on the retreat and I got busy with that so we delayed it a month, but go to simplepassivecashflow.com/book. The free audio book is on there folks and if you guys like it, you guys like the book, please shoot me an email and I’m looking for people to help me out and write some reviews for me so that we can get some more eyes, ears on the good work of simple passive cashflow the journey to that on Amazon when it finally releases.

Shoot me an email at Lane@simplepassivecashflow.com if you’d like to help out. If you guys are tired of hanging out with a bunch of broke guys and you guys want to talk to other pure passive accredited investors, go to simplepassivecashflow.com/journey.

Check out the family office Ohana mastermind, really no other group out there like it. We gotta change it, there’s about 80 members in here now and then every year the price goes up.

Now I’m going to be going into some of my personal stuff. Again, if you guys have any questions, type it into the chat, but I was defined six ways to for my own personal development.

So in terms of growth, we hired the chief operating officer. He starts today is December 1st and more staff is being hired in the coming months. Some of you guys have applied some of y’all, I know you just don’t like your jobs, but we got you on the list. Should an opening come up and this is going to help, allow me to travel and join other groups, get around other circles and find and source the best practices, how do you build wealth pass the five, $10 million stage.

As far as contribution back to the world, that’s what simple passive cashflow is for me, right? If you guys haven’t seen the mision, check it out. It’s simplepassivecashflow.com/mission, but it’s all about bringing like-minded people together. The first conference I went to was way back when in 2016, And I was like, whoa, this is crazy. People are buying.

At the time I was buying little rental properties, turnkeys. I was like, wow people buying properties, site unseen for cashflow 2000 miles away like me, this is crazy. Then I realized there’s a lot of other people doing this. There are a lot of people like yourselves out there, especially accredited investors during this buying, going into syndications with a bunch of seemingly random strangers.

But if you want to make the world a little bit smaller, associate the names of face, get to know me a little bit more on a personal level, and more importantly, you meet other passive accredited investors. Come on to retreats or simplepassivecashflow.com/2022retreat . We’ve got about 75 people signed up at this point. We do have a strict cap due to strict COVID measures here on the islands.

As far as significance, keep closing more deals , more value add stabilize apartments. I haven’t updated this matrix that I did for myself. There’s gotta be three or four slots missing here, but this is how I visualize my investing.

I try and scatter it from class A to class C buildings, maybe a little bit less class C these days. And that’s a lot of this cluster here is how a lot of the first deals where we start. But you also spread it around from the yield place to heavier repositions at develop. And some of you guys, I don’t want to put the cat’s out of the bag, but we’ve got a lot of sales coming in early quarter 1 2022. Time to cash that money.

As far as uncertainty though, h ow do I counteract that? I’m doing a second infinite banking policy and I’m wondering where do I put my money when I’ve maxed up my infinite banking policy? I get a lot of liquidity anxiety when I money’s sitting around, especially large sums of money sitting around not doing anything.

So I’m pondering doing some crypto staking, maybe a hundred, $200,000 to start. But this is where I rely on my family office Ohana mastermind. Some of you guys will email me asking what I’m doing. You guys got to join the family office group. That’s where you’re going to find the good stuff. If you got a hundred thousand dollars and instead of making 0%, you make 10%.

You do the math, that’s a thousand bucks right there that you missed out almost every month, times 12 that’s 12 grand, maybe 15 grand, just only on a hundred thousand dollars. It is silly to just do it on your own and how do I get some certainty? Close a deal recently, and we are looking to sell 3 Texas apartments and another development for more than preforma so that’s cool.

And love and connection, I’m super excited. Super, super excited that y’all are coming to Hawaii, January 14th until 17. Cause it’s not free check it out at simplepassivecashflow.com/2022retreat. But if it was free, you probably wouldn’t want to go in any way because it probably be just another bro fest at the local Reia with a bunch of people who think real estate is the way to get rich.

Just for fun some doodads that I’ve been buying. I’ve been using this whole foods a lot to not waste my time grocery shopping. It also helps me control my spending, buying things I shouldn’t be buying. You guys have seen these bone conductivity headsets. It allows you to hear what’s going on around you so you don’t get hit by the proverbial bus.

As we all joke about a lot and then you get paid out through your infinite banking policy hopefully if you have that all set up. If you don’t know what we’re talking about, check out the infinite banking e-course simplepassivecashflow.com/banking.

You gotta put in your email to sign up for that free course. Of course, I have to have my mic because I’m on the phone all the time. Hopefully, this will prevent me from getting hit by the bus when I do not go golf shoe shopping or outside of the house, I’m a little worried that my wife will now know that she has access to me at all times, even when I’m on the phone.

And I cannot use the fact that I have my apple AirPods pros in my ear, filtering out outside noise. For you golfers out there. I’m not a big golfer, it’s a waste of time. But when I do, I hit Titleist Pro V1 the best ball that you can get your money on, get your hands on. I feel like $4.50 cents per ball’s a little expensive

so my little hack here is I go on Amazon. I used to do this on eBay, but E-bay is a little strange these days. I like Amazon better so I can buy used golf balls but there’s a grading system, I guess there’s single A, AA, AAA, all the five A. Go look it up guys every golf ball provider of these used balls has a different grading system, but you can pick up these semi nicked up balls for about half the price of it.

And when you’re like myself and you just lose them half the time, it takes a little sting out of the whole thing. But when you hit a good one, there’s nothing more pure than hitting a Titleist Pro V1 and getting those extra 20 yards bonus roll off the thing.

That’s it. Thanks for listening folks and we will see you on the next report.

Why You Should NOT Do 1031 Exchange! Instead, Do This!

https://youtu.be/0rl6Vn9GlZc

Hello simple passive cashflow listeners. Welcome to another show. Now we’re going to be answering a very common question , should I be doing a 10 31, exchanging my property for another property? Quick announcements: we are going to be doing the 2022 mastermind retreat, open to past investors, family office members, and select you.

We members out there now to learn more, go to simple passive cashflow.com/ 2022 retreat.

This is going to be January 14th to the 17th. We have a pretty packed weekend. A lot of happy hours on a time for you guys to get together, meet at the bar over a meal, over a long day of masterminding, especially on Sunday, which is the workshop day, and fun stuff like hiking.

We’ll definitely be doing a luau, but really getting the group of mostly accredited investors around the table and interacting and building those organic relationships, which is critical to being a passive investor. Finding where to invest, where to stay away from, tax, legal, infinite banking, and a lot of those more softer conversations about legacy planning, building your family office.

A lot of those are the conversations that’s going to be coming out in Hawaii for those who come. Again, check out the website, simplepassivecashflow.com/ 2022 retreat to you there.

Now what I’ve been up to this past month I’ve been freaked out with Biden changing the regulations on the estate taxes. Now I’ve been looking at ways to get money out of my own personal estate by doing an irrevocable trust. Now, there are a couple ones that I’m looking at either it’s called the HYCET, you have your cake and eat it too, or this BDIT.

No, I’m not an attorney and I’m still learning this stuff, but this is the thing with, high net worth investors is first to go talk it out with other people. Of course you have your estate attorney helping you along the way, but a lot of these ideas, you need to work out with other people in your similar net worth range.

We’ll say a accredited investors, of course, discuss what is going to be the best fit for you. A lot of this stuff can be very expensive, but sometimes it’s just finding them loopholes of the system. It’s what the wealthy do.

Cool idea that I heard lately was making BDIT where you’re making an irrevocable trust . Putting all your investments in it, creating that trust into a suit, a real estate professional status. For some of you super smart people out there who understand that once you’re a real estate professional status.

You’re going to have your passive losses offset your ordinary income by doing a few things on your taxes. But what’s really going on is when your real estate professionals status, all your passive income, passive losses is ordinary income, ordinary losses. So follow me on this. If you have your BDIT trust a real estate professional status.

Therefore shouldn’t all the income and the passive losses coming from it be ordinary income, ordinary losses. Get your head scratching there. Coming over to Hawaii, we’ll have that great conversation with amongst other financial fanatic friends out in Hawaii. And I will talk about brainstorming ideas like this so we can take it to our tax and estate attorneys, professionals to put and implement because to me the best practices come from folks just like ourselves.

And then, be educated and take these ideas and then put them into reality with the right professionals. But again thanks to guys for a listing and hope to see you in Honolulu, Hawaii, January 14th to the 17th and enjoy the show.

All right, so you guys are jumping into a live coaching call here, and this question comes up quite frequently. As most people out there are running around thinking about these 1031 exchanges, which I don’t know why anybody does this stuff because you’re at this 45 day rule where you have to identify properties.

And I don’t know who the heck can find a good deal in 45 days unless they blindly trust real estate agent and they just go into lukewarm crappy deals. But anyway we love 1031 buyers and sellers because they’re desperate and we know we sell it for a stupid price to them because they’re desperate.

But anyway, we have our friend Steve Vollmer here from state of Washington, I’m going to be talking about their situation and we’re going to walk through the pros and cons and how it works for taxes. As I prefaced all this stuff here, I’m not a CPA, not a lawyer, but this is what I did with all my properties.

In 2017, when I sold, seven or eight of my turnkey rentals, I had a capital gain and I had a depreciation recapture, and we’re going to go to these numbers in this example of $200,000. But I had been going into syndication deals that did cost segregation. I had maybe a few hundred thousand or maybe even more of passive losses.

So I just brought over $200,000 to suspended, passive losses, offset the gain. And now I was able to diversify instead of being like trapped into one or two deals, which breaks the Cardinal sin of mine never go into a deal with more than five or 10% of your net worth depending on what your net worth is. Hey Steve are you there?

I’m here.

I really appreciate it and we’ll get into the whole analogy with the hot air balloon. In case you still want to go down this route to at the end, but why don’t you give us some round numbers on what the situation you’re in so you’re going to sell this property. What did you buy it for? And what do you think you can sell it?

Sure. So I bought a couple properties and since I’m Steve Ballmer let’s say that I bought them for about a $1.7 billion sold them for $2.5 billion. Is this really 1.7 million? Or can we go with that 1.7?

Okay. So would you say 2.5 minus 1.7 is the capital gain.

Sorry. What was it again? 2.5 minus 1.7 so we’re talking about a capital gain of 800 grand.

Yup. Now, there were some sales costs, of course, but there’s also about a 200,000 of depreciation that I’ve claimed.

So we have to add on top of that point, do you know? And so that puts us up to $1 million.

It might be a little bit less than this because all the commissions and stuff like that can be deducted too. But let’s just go with a million dollars because this is a great round example. Let’s not try and create any brain damage for ourselves during this recording.

So we have a million dollars of depreciation capture and capital gain that we have to offset, which on the one hand is good job there, Steve. But how are we going to offset this so that it’s not a huge capital gain? A million dollars is a lot of money to offset. Most people are looking at maybe a hundred to a few hundred thousand dollars of capital gain and that’s what I was then in.

But, are these like kind of the true numbers, are you really looking at a capital gain depreciation recapture about million dollars or is it really less?

I hadn’t run them by a CPA.

You don’t need a CPA. This is ain’t rocket science here.

It actually is 200,000 a depreciation and it was 790 as capital gains.

Okay, so let’s just call it a million.

I’ve got 170 in deferred passive losses.

Okay. So that’s on whether 280 or 285 form.

Exactly, I look at it earlier.

For you, those you guys listing what that form is Steve has accumulated passive losses from previous years that he wasn’t able to use. So they stay on his books as suspended, passive losses and they’re very deep within this was an 280 or 285 form. Is that the right one?

Yeah that sounds right.

So most likely your CPA will not give this to you because they want to know when you’re trying to shop around. But you’re entitled to this as a client and you want to know what this is as an investor. If you dump out that bucket, you’re looking at what you had what 200 grand and of 80, under 80 to 85 as suspended, passive losses.

I said 170 but we can be round.

Yeah, let’s go around and let’s just call it 200, you got to fill the gap of 800 grand, not impossible. And it is, this is just one property, right? There’s another?

Yeah, they were two properties that sold as one part of one deal separately.

If you wanted to offset this via cost segregation, by going into syndication deals, of course, this is the big disclaimer: Every deal is different, varying amounts of cost segregation or deals, different ages of properties, different geographic locations, many factors. But for the most part, like in multifamily value add class B, class C, I see whatever investors put in, assuming that there’s prudent, leverage, 80,70% of the value maybe you see 50% to 80% of what you put in as first year losses. I’ve seen it come back over a hundred percent too, there’s this run with 60% just to be conservative.

Oh, wow. Yeah, that was one of the big numbers that I was wondering if I bought into a syndication that did cost segregation with X dollars. What percent of X might I get back in losses?

In theory, you could go invest like 1.2, 1.4 million and knocked this 800 grand out. I wouldn’t suggest that. That’s a little ballsy to just go and you didn’t call me, I guess so. And you’re a high roller there. I was actually behind you in Starbucks, one of these days in Bellevue back at the thing before you bought the Clippers.

But anyway, so yeah, like you could go onto you could deploy that much money and do that. Not recommended, I have people in my mastermind group, they’ve done it because they armed self with the right investor group and go off of referrals and deploy very quickly. Personally, what I see a lot of people do and what I would do is just go in to a few deals at the minimum. Test the relationship out. Unfortunately, that means maybe if you do a hundred grand a few times, that’s 300 grand, that’s not going to get you anywhere $800,000 of passive losses, maybe by investing 300, you get 200,000. Does that kind of make sense? In theory you can, but let’s be real here, right? You don’t take me as I just jumped into the abyss type of guy.

No, I’ve never seen on any of your other coaching calls. You give that advice to anyone.

Have you sold the subject property yet?

You’re going to love this one. All the proceeds are sitting in QI accounts as part of a 1031 exchange.

And these 10 31 guys drive me insane because like a lot of these things, like all these self-directed retirement accounts, these other solo 401k accounts that people tout as all these snake oil type of products. They’re good in the right situation. They’re all tools. Same thing with 10 31 exchanges in the right situation. They make sense. You have until the end of the year to accumulate $800,000 of passive losses.

Yeah. That’s the challenge.

This is just for the viewers, right? I don’t want you to get down on yourself, but if you would’ve done it, like the way I would have preferred, it was like, all right, let’s wait until like January, February of 2022 and that way we have all of the remaining of this year and next year to build up 800 grand of passive activity losses.

How do you turn that kind of a sale? So it turns out that it was actually in about January that I went to my real estate agent and said, “Hey, I’d love to talk about what these would be valued with” and by the time that conversation resolved and as a buyer was found and three or four months dragged out. We got to June before closing actually.

You haven’t sold this thing have you yet?

Yeah, I have started the process in January, but it took six months to sell. So you were trying to time it a sale to land in January. How would that even be possible? You seems like selling it.

You sell it that you sell at the end of the year, right? Or you delay it or you you lead with, let’s just start off getting passive activity losses as much as we can first. And then we go and sell the asset, ideally in the beginning of the following year.

Okay. So you put it on the market in November, October, so that closing happens in January?

Yeah or you just wait until middle of quarter one. If you wanted to do this the smart way, you don’t do this until you’re at the end of your quest for $800,000 of passive activity losses.

So you know what it might sell for, and then you build up the passive losses ahead of time?

Yeah. It’s not a guessing game, right? You don’t need CPA to do that. You and I just did that right here. Maybe it’ll come plus or minus 15 grand. But go get close to $800,000 then let’s get our calculator. It’s all water in the rich now, right now. Let’s not worry about it. But in case this happens again, you don’t have another one of these types of properties. Do you just got everything locked down?

No, I had all my real estate portfolio in those two properties.

This is the analogy why I don’t like these 1031 exchanges in it. I don’t like the strategy of putting all your eggs into one basket, like how you have. The obvious thing is you want to diversify, which is why my rule for 5 to 10% at most of your net worth and to any one asset, because things happen, locations changed.

I don’t think would find a nuclear bomb and Tacoma or whatever Pascoe who knows right. Things happen. This is why I like to diversify over a few major markets and stay away from a complete tertiary market portfolio. But nevertheless, it’s like the analogy I use is like a hot air balloon.

So maybe 5, 10 years ago, you got it. You bought the asset, you bought the beginning assets that started this. And the hot air balloon goes up and up. Maybe when you had a hundred, few hundred thousand dollars of capital gain, the hot air balloon was like eight feet up in the ground. You could probably jump out and you’d be okay. The real Steve bomber probably, twist an ankle.

You’re pretty energetic guy.

That’s what I did. Like when I sold my seven rentals, I had a $200,000 capital gain depreciates recapture. So maybe I was 10 feet up in the air but by having all these suspended, passive losses built up in my 280, 285 form, it was I took a bunch of pillows in the ground. I have 300,000- $400,000 of passive activity losses pillows. Then when I jumped out 10 feet out of there, the hot air balloon, I just land on a bunch of pillows in a pool.

In this case, you’re rolled that hot air balloon up. I know you want to call like 70 feet up. Nah, I don’t know 40 feet up there. It’s going to hurt but you’re probably going to live and this is why I like this analogy. Here’s what I really suggest real time, look I’m not a big fan of like easily investing but you got to get going right.

You’re going to get some damn pillows under you, because if you fall out of this hot air balloon at 40 feet up in the air, there’s a good chance that you’re going to die. We know for a fact, you’re going to pay a boatload of both taxes on $800,000 capital gain, most likely 50 cents on every dollar that you don’t put to protect yourself when you fall out.

For the next six months, you need to be running out there and at least trying to go into deals with get a lot of cost segregations that get bonus depreciation to save you 50 cents on every dollar we know for a fact you’re gonna pay for that. Obviously, you don’t go into bad deals with bad people, in a way it makes sense. This is why a lot of my guys will use like conservation easements is another exotic thing that you might want to consider in this situation? Cause you’re screwed. There’s a lot of scrutiny over conservation easements. When you Google it, you’ll get red-flagged all over the place.

A lot of my guys do this. A lot of my doctors, they do this kind of every year, they make $700,000 and they each bring their AGI down to 400 to save. They spend money but to get that tax break and it’s like they spend a dollar to make $4 in a way. And that’s what you might have to do here.

You may have to take an extra chance to save money on taxes, which you know is going to evaporate.

Would it make sense to focus or to go look for development deals or something that would have a higher loss up front? I don’t know if development has a loss of higher loss up front.

Good question. So you cannot take depreciation until your asset makes a dollar. If you’re talking ground up development, you can’t take the depreciation from that until that thing gets built and making money. So that’s typically that might put you in 2020 to 2023.

Or higher value ad plays? If there’s currently a break even but there’s 60% occupancy and they’ve got to do a major reno to convert a motel into apartments.

At the end of the day, essentially, what you’re discussing about is stretching your dollar and getting more leverage on it by going into these crappier more distressed deals, which in theory it works. So to answer your question, yes. Another option might be the opportunity zone funds type of deals and they’re both good ways of mitigating the tax. But personally, I wouldn’t do either hairy deals.

I don’t want to go into hairy deals, especially if you’re an accredited investor already. Like you want capital preservation, you want to be going into good deals and solid locations and opportunity funds. The reason why the government gives you such a perk there is because it’s in a really crappy area so you have to ask yourself. I had another guy in my group

he still a franchise and he hit them both load of capital gains. We’re talking like millions. So he’s desperate. Instead of you looking forward to feet down this, guy’s looking at 200 feet down on the hot air balloon. He’s screwed. He’s going to die, jumps up. So he was looking for all kinds of things.

And I advise some, don’t do the opportunity zone fund thing, because you’re not an operator. You hadn’t really owned properties out of state for goodness sake. I think you, Mr. Steve Ballmer, based on your experience, you said I think you have at the aptitude to do that but this particular guy had no real estate operation experience.

So that’s why I was so strongly against it. Now a year and a half later, the person’s like, this is the pain in the butt there’s a reason to why. So the lesson learned is don’t let the tax tail wag the dog. What do you think of that? Those are options.

It sounds like I got to sit down and do some math and decide whether, like maybe you break a leg jumping, but weight heals and you can run from there versus, if there’s some amount of risk to take upfront. I guess another question would be since the proceeds are currently in 10 31 accounts, if I can find 10 31 deals, if I could like for a third or half that money, then I’m only talking about half the amount of capital gains that I have to pay taxes on.

And going back to the analogy, this is you’re 40 feet up in the air. Let’s just throw 20 feet of pillows in there 10 feet of pillows. It’s better than nothing.

So I could be a little bit of a distressed buyer and a little bit of a smart investor. And then next time I roll things over try to be smart about how I do that.

Or you just get out of that stuff all freaking together, right?

I guess the question is how much pillows to throw under versus how much pain to take now?

If you want take a blended approach, maybe you try and go into a few hundred thousand dollars of syndicated deals and you get like a couple of hundred grand of passive activity losses there.

Maybe you do a 1031 but do 1031 to a smaller property and maybe you do some opportunities zone and some distress stuff. If it were me, I would do the land conservation easements, take the gamble there, the tax gamble on the audit, and also try and do as much syndications as possible.

That makes sense. Plus I love running around outside so land conservation easement sounds like something that would support that community.

There you go. It can feed the ducks. Of course I will say this is recorded in 2021. There’s a lot of scrutiny around this. There are some simple types of arrangements where they’re supposedly less audits, but, we go into this very in detail with my mastermind people along with the right people to work with, which is the most important thing.

If somebody is just listening to this on the YouTube channel and not paying anything. That’s where the danger comes in when you’re just blindly start to jump into these types of things. Maybe here’s what I would do a little bit about your situations Steve.

What I would do is try and go into a few deals, before the end of the year, try and put, maybe you get a couple of hundred thousand dollars of passive losses. And then if you find a good property and the next is your 45 day period over?

No, I’ve got about 20 more days.

You’re screwed man.

Let’s just say you find something or maybe you find something and you’re like, dang it, like this thing sucks, but whatever. I’d rather go onto a crappy investment that paid the government, which some people believe, believe maybe you shelter a little bit there and maybe you throw in 50 grand into a land conservation easement to get that 5X multiplier to get $250,000 of losses and you break it up a third.

Or worst comes to worst maybe you don’t get that property in the middle and you don’t do a 10 31 exchange and you just suck it up 50% on $300,000, $150,000 tax bill. It’s not the end of the world right. That’s how I would do it.

I think I’m seeing a lot of the mom and pop mistakes, come out here.

I will just discuss, people say, oh, can you 10 31 into a syndication? The lawyers will always say, yeah, you can, but they’ll never give you the details of the details as you can go into a deal with what’s called a tenant in common, but it’s nobody does it because it’s super complicated and it’s a real pain in the butt.

No syndicator in their right mind, who is not desperate for money will let you end for less than like a million or 2 million bucks.

Okay, that’s interesting because, my real estate agent that I’ve worked with is setting up a fund and he’s accepting tenant in common to partner alongside the fund. Just the fact that he’s accepting tenant in common, like a little bit of a red flag.

How many deals have he done? What’s this track record with his experience?

He’s been in real estate for about the last 10 years.

That doesn’t mean anything, right?

I know of two or three other large properties that he’s acquired and one that he’s closed. As far as I know, this is one of his larger renovation deals and he’s also offering this on a less of a renovation, more of just buying below market deal in a fly over state.

It’s a wild plan with a really good dumb money investor such as yourself. Let’s just say it’s a good deal, right? I’m actually looking at a 10 unit and Ballard right now. That actually is a good deal.

You found a unit in Ballard that’s a good deal?

Yeah. 10 unit, because Seattle is actually a little distressed at the moment right now.

Let’s just say it is a good deal and you make a bunch of money, but you’re going to be in the same dang predicament when you sell and this is where it’s stop doing the crazy chain. Get off of the stuff. You say you want to move to the more passive thing anyway. And like all these BRRRRs and flips, it’s all ordinary income.

You want to get away from that stuff. That’s like going out partying at 2:00 AM in the morning, every Friday and Saturday you want to get away from that stuff. It’s tiring. It’s not tax efficient.

That’s exactly why I’m looking to get into syndications. I was tired. Being liable for loans and insurance, especially when the property manager sometimes didn’t pay taxes or the post-service slowed down.

And so the property manager that was still using mail and not direct deposit was late to the bank. So yeah, I would love to get into some of these indications exactly. Because I’m looking to be passive. Yeah. Yeah. But I guess to round out this example, Steve is there any, did that kind of capture everything for you?

Just play at all scenarios or anything you’ll want talk through on this tender day? Yeah, I think I’ve been looking for someone to give me a straight answer about how difficult this is going to be to deal with the tax situation and. Cause the, the real estate agent that I was talking to is oh, just 10 31 it and the 10 31, guy’s just send me the property replacement properties.

Here’s some ideas. Yeah. And this is why I fight so hard for you guys. Cause it’s like sophisticated investors don’t do that type of stuff. The people that do the 10 31 exchanges to me are like the really dumb money that like trust fund kids who like inherited. All this money, which I know in your case is not the case.

You actually did a good value to the property and it went up in the right place. But like normally it’s like big families that they pass down a 40 unit or, big assets to their kids paid all paid off. And so I guess the closing question is because my real estate experience has just been through this one agent pretty much he’s.

The deals he’s found in the past have doubled twice over the past 10 years. So I’ve made plenty of money with him. And I’ve got one friend who’s also in real estate. I just don’t have much of a network. I found you because I was two, three weeks ago. And all of a sudden I had money in a forty-five days to do something with it.

I started going through podcasts and you were in interviewed on one of those podcasts. How do you build that out? So do you find deal for, what do I do you make a podcast and started in 2016 where you helped people to get turnkeys? And people think you’re a legit person and they attract them and you have two or three calls with guys like yourself every day, but that’s not practical advice because every makes so podcasts these days.

And it becomes very disingenuous. I think. But I, the only advice I have is don’t go to the local REIA and I know where you’re at, Steve, all these ones are just for broke. Guys are flipping a house, flippers and sharks and wholesalers. It’s not your crowd. It’s not the million-dollar accredited investor.

It’s not the guy for the guys making over 80 grand a year. I was in this case back in 2012 and I felt super out of place. And that’s why I went to out of state turnkeys back in 2012. Yeah. 2012. And it’s, I think this is a point where you got to play the pay to play and this is where, like in 2015, I’ve had 11 rentals and I didn’t start to get into the big stuff.

And so I started to get into these higher level groups and often you have to pay or travel to go and find these other pure passive accredited investors. But sorry for the, I’m not really giving you any advice here, right? Maybe the only other thing is some people say we’ll go to places where rich people hang.

Like the country club or the cigar room, but unfortunately, a lot of those people are just like high paid, like corporate guys or trust fund kids, second generation, third generation wealth, who just invest a little bit differently than folks like you and me who are the people that made their first million dollar in their family.

I guess closing question then is going through your website. There’s lots of, it seems like there’s lots of. Opportunities and educational offerings and meetup things. What’s the difference between a mastermind and a mastermind family office. And it seems like you mentioned potentially doing something, in Portland.

What are those the same? Are they different? I’m a little confused about what all of the networking opportunities related to simple passive cashflow. Yeah, good question. And it’s changed over the years and then probably haven’t updated the website at all. But first, when I first started to do this thing back in two weeks, it doesn’t like 16.

Like it was cool just to meet investors, but then simple passive castle became a thing. We have over 600 investors that have actually thrown in at least 50, a hundred grand into deals thus far. And it has been a huge target on our backs that we are a legit investor group with people would love to infiltrate the group and we’ve had people in the past.

So all the little fun, free things that happy hours, I’ve cut that out. And at this point it’s only people that have invested in past deals. Or in the family office mastermind group. So you got to put up some money to invest, to be in the invited in a way, because I protect the identity and privacy of my group and the members for their own purpose.

And I don’t want a bunch of douchebags coming in and just reading email addresses and phone numbers. I’ll be honest. Cool. I am sure everyone appreciates that. We’ll have to follow up on how to get it. Yeah. But that’s why we do these calls, to get to know each other, build relationships and just see what I can do to help out and see where you’re at and see if you’re a good fit.

Like I kinda ch I see my role as being just that good Stewart that the gatekeepers. Bringing in the right people filtering the right people, especially for mindset, right? There’s some people that are super cheap out there that are just a little weird and they just don’t give back to others and they don’t, they’re not just good community members.

Maybe they’ll get there at some point, but, Yeah. That’s what I wanted, because we joke and laugh about this in all our calls. Our mastermind group calls is who the heck do we talk about this stuff? Our parents still do it. Our coworkers think, we can’t tell our coworkers that we’re gonna pull 50 grand from her 401k, friends and family.

Like I don’t talk to this stuff about my friends either. I’ve always joked that I’ve said Thanksgiving is one of the loneliest times because everybody thinks that like a real estate agent or they just don’t understand. Nobody understands me, but you guys understand me and, figuring out these little hacks for financial freedom, but tax the legal, infinite banking, that’s where it gets all pulled together.

Yeah. It’s like a club for financial fanatics, but yeah. I think that addresses most of the curiosity I had at the start of the call I appreciate the honest feedback. Yeah. And I think thanks for breaking down the 10 31 exchange thing, because I think this is a good call where we finally talk all options. This is a very common question that comes up.

Cool. I appreciate your time.

Real Estate Lending Update + Non Conventional Home Purchases With Benson Pang

https://youtu.be/wlKJQ7M0N2Q

Hey, simple passive cashflow listeners. Today, we are going to be doing an update on what’s happening in the lending environment. Going to talk through the key factors in getting the loan debt to income credit score. Other tips for you guys picking up your primary residence or your remote rental property.

Joining me today Benson Pang.

Hey lane. How are you?

Good. It’s always a funny thing in YouTube world or podcasts world when everybody says something lame oh, I’m walking my friend Benson and that’s a code word for yeah, I just met and I barely had a two minute conversation, but here I actually know Benson.

He’s actually a pretty good friend of mine. Him and his wife run their mortgage lending company nestmade.com. So Benson and Mimi, they lend out of California, but they can lend out of multiple states, but they’re also in the family office Ohana group. You guys can learn more about that at simplepassivecastle.com/journey.

It goes in with our whole, invest and work with people, you trust. I thought it’d be Benson on who does this for a living to break down, what’s been happening with the lending environment and some of these key items to be on the lookout for, if you guys are looking out for your next real estate loan.

Generally, before we dive into some of the numbers how is lending today? I know during the pandemic things were pretty crazy for you guys with refinance, right?

Yeah. Back in March to July there was so much uncertainty last year and a lot of lenders pulled out of lending completely.

We see debt to income ratio, like being pushed lower and lower. There’s margin compression. There’s all kinds of things going on in the lending world. I think the biggest thing is the non QM stuff, like people who have less than perfect tax return, they went like they got nowhere to go because they’re all gone.

Until most recently they all trickle back. We have the last couple of months, we signed up with a lot of new lenders that are doing a lot of the non QM stuff that jumble loans and non QM are back basically.

So we’re going to be going through, the kind of a chart of what are the things that you guys need to do to qualify for the best rate, but to outline this for you guys, listening in podcast form we’re going to be talking about two things here, right?

Owner occupied properties, your primary residence, dream houses for a lot of you guys and the non-owner occupied properties. The biggest one that people look at first is to qualify as debt to income ratio. Maybe explain what that is and what is the percentage.

There’s a lot of talks about what the debt to income ratio needs to be. Before we get into that, debt to income ratio is debt divided by your total gross income before tax, right? So your debt could be your PITI, principal, interest tax and insurance, HOA mortgage insurance all added together plus any of your credit card payments, not balances payments, your student loan payments, and also your car payment all bunch up together.

Let’s say it’s $5,000 and you and your spouse make a $10,000. That’s 50% debt to income ratio. Okay. Right now, if you have a great credit score, like 740 or higher you should be able to qualify at 50% debt to income ratio. In some cases where the credit score is lowered or your LTV or loan to value ratio is higher.

Meaning you put 5- 10% down that might get pushed down to 45% or even 43% to get a DU approve eligible.

Now a lot of people listening are engineers. You are an ex engineer yourself too. Do you see any like mistakes that the weekend spreadsheet junkie that makes their own debt to income calculations, and then you guys run it.

Are there any kind of common mistakes you see the folks at home banking and they’re calculating this stuff and then you get all upset when you’re there like I’m 51%, right? How’d you get 47%?

Especially the ones who already own one or two investment property. A lot of people think that they can just use a gross rental income. A lot of times it’s really if you own a property for a year or two, we actually go off of your schedule E and there’s a very specific calculation. It’s really not that hard. It’s your net income, you add back your taxes, insurance and mortgage interest.

And that’s your total gross income. And then you subtract your actual expenses. So super easy, but people, it’s actually, even on the Fannie Mae website guidelines, they’ll teach you how to do it. If not, you guys can reach out to me, I’ll let you know how to make that work.

And the second thing is a lot of people think that a student loans, just because it’s zero payment, a lot of people are on deferment or forbearance on their student loan. We still have to assume a number, cause eventually you’re gonna have to start paying again. So Fannie Mae and Freddie Mac, they each have their own calculation.

One is half a percent and one is 1%. Personally, I like to use the 1% to be more conservative.

You need to be able to show what bank statements or W2 statements to show this.

So for W2 employees, we asked for one year W2 just to show the history. So you need two years of working history. Now with that same company and student, you working as a student counts too. So if you graduated from college and now you got a $200,000 engineering job, we can use that $200,000 right away.

And what about like you’re a business owner, you don’t have those clean.

So if you’re a business owner, typically we asked for two years of self-employed history and we look at two years of tax returns. There are times we only ask for one year of tax return when you have the business for five years or more.

And then just, say your debt to income is all right. Again, what are the kind of the credit score ranges that you’re looking for?

So when you’re looking at credit score, a credit score is going to do two things for you. One is if you’re eligible for that program or not. So some programs have a minimum of 660 credit score, 620 credit score it depends on what you’re trying to qualify for. Number two is it’s credit score affects the risk of your loan and the higher the risk the higher the interest rate or pricing for that loan. In fact, a lot of people, a lot of us get conventional loans, so if you were to Google, Fannie Mae, LLP loan level price adjustments. That’s actually where you see all the price adjustments. So if you have a 740 credit score, will typically give you the best interest rate 720, 700 and then 680 so it goes up and down and 20 points increment.

Maybe if you can help demystify this, I still am confused when you get your rate sheet, right? Like you might have a lower rate, that’s competitive with other folks, but you also have to look at the fees. That’s how lenders make money on loans and that’s how they keep in business, right?

Yeah, absolutely. Man, who doesn’t want a 1.8, 7, 5, 15 year fakes, no point no fee, right? It’s all over the billboard. But you’re driving 60 miles down the freeway and you’re looking at the billboard and actually the fine prints are so small. There’s no way you can see the fine print.

But basically you gotta look at your situation is, and then you needed to have someone to help you break it down where the points of the loan, the lender fees, and also do they have other junk fees or appraisal fees?

You gotta be put it side by side, a lot of borrowers that when they come up to me, they’re like, oh, what’s your APR? Like personally, I’m not getting a credit card. So I don’t really look at the APR, I actually looked down into all the nitty gritty numbers and put it side by side and match it up.

But it makes it hard, you go on LinkedIn, you typed in the word lender and there’s like instilling in mom-and-pop daisy chain lenders, that may originate one or two loans a year, one for themself, one for their bop, their fees are all over the place.

I think that’s in every field, right? Not just in lending and real estate, there are real estate agents good, bad, and engineers, there are good engineers, bad engineering. So I think in lending you really want to be aligned with let’s think about it for a second here.

You’re going into contract you, your lender and your real estate agent, and then you three against a listing agent, the title officer, the escrow officer and the seller they’re all picked by the seller. You need to be aligned with the best of the best. You need a really good real estate agent to represent you. You need a really good lender to be protecting you as well.

It’s the intangibles, right? Can you close or are they going to say what they’re going to do? Or are they just going to bait and switch on.

Exactly. There are lenders out there. I’m not gonna say who, but you just gotta be careful who you’re aligned yourself with and you want to be aligned with someone who has a track record and have your best interests in heart.

Is it similar a lot of people do the infinite banking? In the beginning, you don’t know what kind of like rates and fees you’re going to get like you gotta unfortunately get that, have that nurse come to your house and you get your physical first. Is it the same thing with the lending? They’ve got to run your profile for a couple of weeks and then you get to that point where you see the whole picture?

The good part about lending is there’s no blood draw or lab work to run your credit to run your interest rate, we really only need four or five items, right?

Your credit score, what you think your credit score is and obviously if you’re saying you’re 740, we run it at 720, that would be different in interest rate or pricing. So your credit score, how much down payment and then are you buying a single family or condo?

Is it owner occupied or not and your zip code? Like those few things will basically give me enough information to run a quote for you. And that quote should be able to stick with the whole transaction throughout.

Let’s get to some of the problems you’re seeing through transactions. Maybe we’ll break it down on owner occupied and non-owner occupied too. But like the first one is when I was buying a lot of these rental properties, of course I was using my own money. My parents never give me anything and nobody gives me gifts. But some people when they’re buying their primary residence, shoot, what kind of 20 something year old kid can afford $200,000- $300,000 down payment.

All these guys are getting it from their parents. What’s the best practice is there to work that in?

A lot of people when they come to me obviously there’s some gifts involved. But for gift letters for the most part, conventional loans are pretty easy. They make it really easy for us lenders and also the borrowers. I typically suggest there are two ways of sending money into escrow. You can have the donor write a check and deposit in the borrower’s account, but you would need a lot of documentation showing how the money is deposited.

We’ll ask for a canceled check or check image and the transaction history, sometimes it takes now three or four days for it to clear. So depends on where you are in the contract. You might not have that luxury. The cleanest way, I always tell people is to have the donor and wired directly into the escrow’s account.

So this way, there is a receipt and there’s no way that money is going wrong anywhere. But for FHA loans do know that, we will ask for the sourcing of the donors funds. So meaning I will ask for two months of bank statements from the donor.

I’m trying to sharp shoot this. If I get a random check from my friend or my parents two and a half months prior to when I throw this money into escrow does that nobody checks. Or there’s nothing I need to write that this was my money?

In the real estate industry, and I hear a lot of real estate agents would say oh, you need to have two months of bank statements, clean bank statements or seasoned funds.

Really that’s a myth. But it really depends on what the deposit is for. We call them large deposits. So large deposits definition is basically any deposit. That’s more than 50% of the total gross income use on the loan application. So let’s say if you and your wife combined $10,000 gross rent knowing gross income on the loan application.

So anything higher than $5,000 deposit into your account. We just have to know what it is and why is it deposited? We just want to make sure it’s not, you’re not loaning a $5,000 to go buy this house and now you have to pay it back and we need to add it to your debt to income.

Or it being a gift or cannot be a gift?

And we just need a documented, source and explain.

I just got it from my block 5 man.

Or crypto deposited from Coinbase. We can use crypto as down payment.

I’ve got this other, like one guy it wasn’t he wasn’t annoying, but the bank was being really annoying. They’re like, oh, we see her in these private placements a nd to make sure like LPs don’t co-sign on the debt, they’re passive investors. But they’re asking all these questions. Any thoughts on that other than finding a new lender?

He can explain all you want but if met with an underwriter that won’t let go sometimes it’s just easier for you to change lenders, to someone who can get that scenario ran by their underwriter. And if you get the, okay, then resubmit that application over there. That’s what we do as brokers.

Sometimes we run into cases like that and lender aid doesn’t work out. So we quickly, we have your application. We it’s so easy for us to go. Go to the second lender, go to the next lender. I can get this done ASAP.

For you guys, this is how the industry is made, right? Like you have lending brokers and you have the people on the, kind of the sales side interacting with you, but there’s a person in the back office.

Maybe it’s an open-ended different company. Whereas the underwriter, now this is where you need to have a good broker or front office person to take your story to them. Now, if you have just some bureaucratic idiot on both ends, you’re going to run into all these types of problems, but you need to have somebody to sell your story to the right way. See, even if you do have a bureaucratic idiot as the underwriter, you can pass all these barriers.

I always tell my clients to give me the full story. I don’t want to have any surprises while we’re in escrow. It’s oh, so you own a house with your parents and you forgot to tell us and we always ask for the full story upfront, then we can know how to what’s going to come our way and how we can prepare you when we submit your file to the underwriter.

And Benson’s a license loan officer so he has no comment on this, but I’ve had clients where they’ve changed jobs the last second and they let it slip on their on email and their lending broker kind of kibosh is the loan. I had to tell my guys as well, if anything like that happens, use the phone.

Yeah. We’ve had loans where we call so a lot of people there are a couple of times where they submitted their pay stubs. We got into escrow, got loan approval and they quit.

They told me that I can quit my job and my wife can quit her job so we can get real soon professional status or some other random tax scheme.

Yeah, I know. We actually do a final, verbal verification of employment three days before you close, meaning you sign documents. A lot of lenders, they wait until that last minute, because if you think about it, Hawaii or California, we close escrow in 21 days, 30 days. It’s very typical, but when we’re in the Midwest, other states they might take 60 or 90 days to close an escrow. Heck their appraisal process is probably two months right now.

There’s appraisals shortage right now. So like in two months, who knows if you’re still going to be employed so they always do a verbal verification of employment right before you close. Sometimes Fannie Mae picked about 10% of loans to audit. So sometimes they will call after the loan is closed to see if you still work there.

It’s okay. If you don’t work there, you just don’t want to make sure they want to make sure that there’s no loan fraud, right?

I think they’re just in the back office, they’re drinking Johnny Walker, red label and trying to screw people over at the very last sec.

We’re talking a lot about like primary owner occupied houses. How does this change for you if you’re buying a rental property?

Non-owner occupied. First of all, if you’re talking about conventional owner, non owner occupied no gift is allowed. No gift is allowed.

At least in the last two months, right?

Yeah. We look at your bank statements and and there shouldn’t be any gifts in the past two months. And if you’re looking to do some DSCR loans and for those who don’t know, DSCR, it’s a debt service coverage ratio.

It’s a terminology that’s often used in the part mint and loan world. So they have it for one to four unit for people who don’t want to show their tax returns. And we base it off of the income of the property that you’re buying to qualify you. And a lot of those programs will allow a gift letter or will allow gifts.

So what is the debt service coverage ratio, the magic number they’re looking for?

One, the magic number is one you can do less than one. You just need to take a higher rate.

That’s actually not hard to hit. Like for the larger apartments. It’s usually like 1.25.

Yeah. So commercial loans Fannie Mae, Freddie Mac the multifamily home loans, they asked for 1.25, and the 1- 4 is private investors so they really only ask for one, or even less than one, depending on the LTV.

And, you’re talking about shopping it to different lenders. Does the Fannie Mae Freddie Mac FHA loans always the best?

Oh always. I would say, I like to look at FHA as a band-aid loan. So if you have some sort of history credit history in the past bankruptcy or your low credit score, FHA is going to be more forgiven because they are backed by the government.

And there’s a huge insurance costs upfront and every month. And then and then people typically who are in an FHA loan, they’re only in there for maybe five years or so. And they’re going to refinance out of it into a conventional loan. That’s what we typically see. And conventional loan has slightly higher interest rates just because I think she has a huge mortgage insurance to hedge against the risk.

Conventional still have a very low interest rate, not as low as FHA. And then after conventional, then it’s going to be your DSCR your non QM loans. So people who can’t prove tax returns, income.

And we’ll get to that non QM loan here in a feature gets you on a future podcast to talk more about that cause that’s something I said selfishly and interested because I don’t make too much money on my taxes. So little screwed for getting loans.

Yeah and there are multiple ways to do it. Yeah. Let’s we should get together again.

So you wanted to talk about the second time home buyer tactics, because I think a lot of your clients are California guys. They see a lot of equity, they got a lot of debt equity and they run up, put it into anotherasset.

Yeah, I think the first question when someone come up to me and say, Hey, I want to buy my next house, my next primary home. Okay, cool. What are you going to do with your first primary home? Are you planning to sell? What are you planning to do? And because of, forums and whatnot, how’s hacking, that next big thing. A lot of people want to rent out their first primary home and buy the second house.

I love giving our guys a hard time, right? Like you already got a house and you want to go buy another one. It’s oh, you already got you two Moderna shots or Pfizer shots and you want to get booster shot. Most of the grill, it hasn’t gotten any, but I don’t know. I just give them a hard time. Just to be fun with them cause they get it.

We have a housing shortage, let’s just sell your first house. I get it. There’s some sentimental value, you want to stay in, you want to rent out your first house is fine. But the question is now a lot of people, they’re like, oh, I don’t want to pay interest so they keep dumping money on their first house, the first mortgage so they can have low interest so you paid in low interest on the low interest rate.

Which is not what you financially want to be doing folks.

Yeah. That would be another podcast. We’re in a super low rate environment. Typically I ask people to just make the minimum payment, whatever your PNI is and tuck away the rest of the money and invest it somewhere else that’s growing faster than 2.8, seven, 5%.

So people who are looking to tap into their equity to buy their next house, because they want to buy their next house next year. I like to tell them to plan ahead. Don’t do a cash out refi right before you’re trying to buy your next primary home because when you sign your loan documents, next time when you sign your loan documents, when you’re signing the deed of trust, look at item number six, I think it’s six.

It’s basically telling you that you’re going to move in that house for a whole year, within the next 60 days and move in that house for a whole year and, Fannie Mae is going to catch you. If you’re not careful and that you’re not staying in that house and have you buy back the loan.

So if you’re planning to do that, do it today, take the cash out, put it in the bank and so next year you’re not violating any rules. You can use that cash to go buy your next primary home.

It’s similar to if you get an owner occupied house with some people. Technically, this is fraud, I believe because you can’t get an owner occupied mortgage then move out right away with the intention of doing that, right? If your employer fires you change jobs involuntarily. I think that’s another thing, you said 12 or something like that, like 12, like you’re signing up for this more occupied government like I’m signing off.

Yeah, because your loan is going to be sold to other investors that think this is your owner occupied house, and with a lower risk, give you a better rate. And now, they’re not buying the investors, not buying what they thought they were buying. They want you to buy it back, buy back that investment, which is your loan.

And, a lot of people. Have success sneaking by but with technology today, you never know, right? They have QC department, they’ll check your Facebook, your LinkedIn, just to make sure you’re staying in that house. They, when you listed on the MLS for rental they see it right away.

They have an alert that says 1, 2, 3, main street is up for lease and they’re like, wait a minute. Buy this house as an owner occupied.

People think that there’s privacy and like they hide behind their Wyoming, like LLCs for supposedly. The government knows everything. Even all you guys are signing on like deals as LLC, as passive investors, the government has your social security numbers on there. They haven’t figured out how to use artificial intelligence very well. If you’ve heard about this offensive, but like they audited like pizza chains, like the small mom and paws who are like, those guys typically stuff, they make a dollar, but in the cash register, put the other in their pocket, do that type of stuff.

But they audited like the number of pizza boxes that the chain was buying. And then they look for discrepancies.

You can’t outsmart these guys. In, in our area, Sam Wu is a really big a Cantonese food joint and he got caught there’s another one in Mama Lou’s just recently got caught at the dumpling house.

They can sit out there and count people walking in yeah. Gallons of canola oil or something like that. I don’t know what they use.

So this next one house hacking. You and I are not, we’re a little older these days but at one time we were both broke engineers. And when we would do stuff like this, but now, married, kids. It’s just not cool to have somebody live in your duplex house, but a lot of you, some of you guys, I dunno, I listened to my podcasts. You guys don’t have money, but you might want to buy a duplex.

Stripe books are called live in one side. Maybe you’re weird like that. Maybe talk us through some of your clients doing this and how that works.

Actually I can talk to you like back when I first started in mortgage or even when I was a poor engineer the goal is always to buy a three unit or four unit as my first house.

I was single back then. I didn’t live in a garage. But like your first house was always the, oh, you get it by the two duplex, a three unit, four unit, and then you can live in one and rent out the other three. But in California, it’s just so hard right now. Do three and a half percent down FHA loan lived there for a couple of years.

And until you save enough to buy your second primary house, which is at that point would be an upgrade because you might be going to a duplex or condo. But you gotta keep in mind when you’re doing house hacked is like, what is your motivation to move from house A to house B? And does it make sense, right?

If you already live in a million dollar house and now you want to go buy a $350,000 house to move into. Just doesn’t make sense unless you are in a retirement age and you’re ready to downsize. Your kids went to college and emptiness or you want to buy a smaller house.

Sure. I think that’s when you go downsized, but for people at uni who are just have kids, if you own a $1 million house, you might be buying a one and a half million dollar housing. House hack it that way. So proving of your motivations, always like the number one thing.

You moving closer to your employer. If your employer is set in San Francisco, why are you buying in Los Angeles? So in that case if your employer allows you to work from home, you might need a letter to say, they allow you to work from home, and now you can buy a house near your parents in LA.

I would probably argue, if you’re under a quarter million, half a million dollars net worth will remote buy properties at cashflow. The house hacking, especially in California, primary market, gambling on appreciation. It would probably go up it’s real estate. All the data’s showing, all the historic. How how long are these primary residence loans taking, compared to the non owner occupied these days?

How long is the application to close? The closing period that, if you’re putting in a low offer on a property, which should you account for these days.

I think we’re averaging about 13 days between application to signing loan documents on all primary home or non-owner occupied.

I got a little this question is why I have a friend. So I have a friend that buys a rental property and there is a repair such as HVAC is broken, or there may need to be repaired the roof, right? Say call it 10 grand of repairs on a $80,000 house. Would it be smart or could he work a deal with the seller for the seller to do that improvement? Fix the roof, improve HVAC and increase the price and that way the buyer can lump all those costs into a loan. Instead of dumping another 10 grand Cash is king. Is this something that you can do legitimately in your loan and close your closing or does it need to be off on the side?

You can definitely do it within the closing inside the contract, if you’re planning to just add it to the purchase price, you should be okay. Just make sure your appraisal comps are going to be. It’s comparable, this house 80,000, going to $90,000 is going to be comparable to other homes being sold that’s $90,000.

What we cannot do is add it to the loan. So if your loan is already $50,000, you want to add 10 grand to it that might not work just because the LTV might be too high for the loan.

But if your appraisals or you got some cushion in your appraisals, You can fix a lot of stuff in, yeah. And as an investor or, people who are listening to this podcast is probably smart enough not to do that. Added to the house and now it’s, the praise value’s too high and you have to come up with the difference anyway.

Just to close out this summary. Primary residences, remote rentals or other, not owner, occupied properties anything think that can you’ve seen clients get hung up on in the closing process that just have people be aware.

Yeah. I think one thing that I would suggest is like taxes. A lot of people they ran out the other unit of their property and not report that tax. I’d say go ahead and report it. I don’t think it’s going to do too much of a difference on as far as how much more income tax you have to pay.

When it comes to applying for a loan it’s going to help you in a long way in the long run.

You want to get your contact information out there if anybody’s looking to get along?

Yeah. Man, you caught me by surprise. I would just go on Yelp and type in NestMade Mortgage and you’ll be able to see us on top.

NestMade.com, thanks Benson for joining us and we’ll see you next time on what I got my personal question for those business owners who can’t qualify for home loans and fit in the box. All right, I’ll talk to you soon.

AHP’s New Fund With Jorge Newbery

https://youtu.be/tJ35PBYyIfo

Today, we’re going to be talking to George Newbury, get the latest on his newest AHP fund. The guests that come on, or I would say in any podcasts that you listened to, a lot of people will just go on podcasts, track record and verification, isn’t there like how it is with George, I’m actually investor with him. I’ve been investing in his fund for the past three, four years Monthly dividends like clockwork but just be aware of that.

We bring in people that I trust I think a lot of people listen to a lot of podcasts. You jot down some names and numbers and you feel like not some random person off the street, but in actuality, you are totally investing some off the street that happens to be able to email the podcast calls, to get an opportunity to pitch an audience out there.

So if you’re one of those persons, don’t do that, guys, you will probably win the financial Darwinism award b y doing this, it is not smart. Build the right people around you, organic relationships with other accredited investors. Unfortunately, a lot of these people, they’re not at the local area.

They’re not on the free forms some Facebook groups are not the places to find other pure passive accredited investors, but they are out there. If you guys are looking to join our inner circle, join the family office Ohana mastermind. Go to simple passive cashflow.com/journey.

Thanks for all you guys. Who’ve been reaching out to me. The daughter is about four months old now. Very happy and healthy. We’re very glad of that. For some of you guys who are not parents yet . Oh boy, boy’s life going to change for your guys.

Something that I’ve been thinking about lately is I’m actually deathly afraid of passing down the wealth to the next generation. 90% of wealth leaves families in two to three generations, most likely because I don’t know what it’s, because either there’s no motivation to do anything or.

There is no need to do a thing to get off the ground and moving. But that is why I surround myself with my family office, Ohana mastermind as we source the best practices for not only finding deals, who to stay away from taxes, legal, infinite banking, but more of the soft stuff, right? Like how do you teach your kids?

You give them an allowance, how you teach them about money investing, et cetera, and what actually works. A lot of that stuff just isn’t written out there. And I also feel like a lot of the events that we put together you bring the kids, they see other people different age ranges. I never listened to my parents and I don’t really think that, if you have a voice to your kids who consider yourself lucky, but maybe if you have somebody else in your inner circle that can help translate, investment financial literacy, I think that’s going to be your best shot.

So you guys want more of these legacy building ideas, go to simple passive cashflow.com/legacy. And thanks for those of you guys who showed up to our Saturday cram school to learn about syndication. We posted the video at simplepassivecashflow.com/syndication and enjoy the show.

Hey simple passive cashflow listeners today, we are going to be talking to George Newbury, CEO of Pre REO, or as you guys know, it also as AHP.

We’re gonna be talking about pre REO one of the new opportunities and then the next fund that George is going to be taking you guys keep asking why does the name keep changing?

A lot of these funds there’s just a sunset date on them in terms of sec can only raise money for a certain amount of time. But I guess George maybe take us up to the top. Cause I think a lot of people have been investing in AHP from back in the day, what, 2017-18, and then the names get confusing.

Yeah. So they’re different , I appreciate that lane so yes each fund is a different fund, a completely distinct separate company, and that we raised money for. And you’re right, the sec allows you to raise money for two years or allows us or anyone to raise money for up to two years, if it’s a regulation A-plus offering.

So each of these are raised in the regulation A+ over two year period, then we have to close the fund. And typically we make the funds a total of five years from the date of the original investment. So our target has always been, Hey, if you invest today, we’ll get your money back in approximately five years.

And that’s been our goal and we did for 5 0 6 C funds, which are accredited investors only, although all those investors have been paid back and then we Now we’re working on we have to close funds that are active. One is AHP 2015 A+ and one is AHP servicing.

And now we’re just launched recently launched the pre REO fund and they will have one more coming up. That’s actually should be going Very soon, which is AHP title. Right now today, as we speak, there’s two close funds that are still have investor money in 2015 A+ and AHP servicing and then investors can today invest in pre REO and AHP title.

Yeah. So some of you guys are aware of the A-plus offering. It’s unlike the 506 B and 506 C and you guys probably scratch your head. Why are they talking about deals on an openly advertising podcast ? It’s because the A-plus offering allows you to do it.

And the second reason why we’re talking about is I’ve invested in the first fund myself. I trust George and that’s why I’m willing to have him on the podcast. And I know you guys listen to a lot of podcasts and a lot of these podcasts, they just get whoever your Brony to come up on the podcast and try and sell whatever random fun.

But not bananas in Guatemala or whatever in some other random country. If you guys are going on podcasts, trying to look for your next investment, dude that is not what you want to be doing. You want to be building relationships with real accredited investors instead of trolling up podcast land, because there is little due diligence.

And by honestly, don’t do that guys. You guys will win the financial Darwinism award by doing it and the funny thing is when you don’t know anybody, you got nobody to tell that the deal went south and you got your money stolen from you. And then you feel, you want like one of these people with, no peer group and we’ll just complain on Biggerpockets or something like that.

But anyway, I trust George and this is why we’ve brought him. Several times and I’ve invested my own money with them. And I put enough to initially you guys paid my car loan for quite some time, but getting a new car, maybe I got to put more money into the next fund to make that car payment.

Let’s talk about pre REO crowdfunding.

Sure. Let me backtrack real quick to give people an update. Cause I know a lot of investors have invested in AHP 2015 A+ and AHP servicing

Actually that’s me I’m interested. So exact money in that one in 2017-18.

Exactly and the market everyone knows it’s not news to anybody that the market is just red hot right now and that includes for mortgages. We have millions of dollars in modified mortgages. These are families who we’ve modified their loans for that we are now selling and we’re selling them at a at 90- 92 cents of unpaid principal balance, which historically we would sell these in the sixties and seventies.

So it’s just a dramatic uptick. So we are selling everything we can we have enough money right now to catch up on all the redemptions from the COVID era. So it will be completely up to date with the redemptions. We expect to the next few weeks to announce to investors that we’re going to start redeeming all the first investors in both funds.

And we expect to redeem on an accelerated schedule over the next several months. And my goal is to, and we expect to do it is in 2022 that both the existing funds, 2015 A+ and AHP servicing will be all those investors will be fully paid off. My concern in the market right now is it is very hot, but that won’t last forever.

And I don’t want to be looking, a year from now. It could be looking back and say, oh, if only we had dispose of our loans in the first quarter of 2022 or the fourth quarter 2021. We could’ve made this and today we’re going to have to settle for this. So I’m trying to avoid that.

I may be getting out a little bit early, but we do have an opportunity to take advantage of the market that it exists today and repay all the investors. And that is our goal over the next late fourth quarter, 2021 through 2022. So that’s an update. So people should expect their money back early, earlier than the five years in most cases.

The good news is we have pre REO and another fund upcoming AHP title, which they can invest, roll that money into if they so choose.

We talked about this on the last time you’re on the podcast, but to the financial audit, you took us to the audit and then you, at that time, I think that might’ve been half a year ago.

And I think that the climate is still the same in a way, right? You are talking about selling off assets to take advantage. So it’s not much change there, but for the pro tip for folks as if you’re in the fund that it’s going to be exiting soon. It makes sense if you want to stay within the AHP family is to get it out now before George is forced to give it back to you in the fund closes and perhaps get it into the next fund that’s coming.

And the good news is the two new funds we just opened up. They’re open for two years. So whether you’re out in two months or in six months when you get redeemed, it you’ll still get your arm. You’ll still have the ability if you choose to roll them into one of the two new funds.

Your team just sent me an email saying, Hey man, like if you want us to put the dividends and roll the dividends over into the new one that’s another idea.

Yeah, absolutely. This is one which we didn’t do before. We can just now do it, is that if you aren’t a best from 2015 A+ or AHP servicing, then you can’t reinvest those dividends any more because the funds are closed.

However, you can direct us to reinvest into pre REO or AHP title, if you choose. So you can, have the option of making that selection. If you don’t choose either, then you continue to get them in cash.

And at one time it was difficult to do it, because people had to resigned docs every single time. It wasn’t that hard but now

It’s a one-time yes. They go in and sign the new investment docs one time and then we’ll continue to do that until they tell us that an investor chooses not to do it anymore. Okay so let’s talk about pre REO, I think is an interesting, probably to your audience for two reasons.

One is as a crowdfunding investment opportunity, and two is as an investment opportunity just to buy pre Oreos, which we now have people who have bought. And I know we’ve talked about this before. You were actually one of the first to share the news about pre REO, but we now have a lot of repeat investors.

We’re getting a lot of sellers on there and we have some investors who have made, because many times they bought, in the last year and some have exited already. Some of them are doing extremely well with pre REO. So I’ll share how this works, how pre REO works and then talk about how people can participate, whether it’s crowdfunding or directly in pre REO.

I’m sharing some slides that often do to you too. I utilize to introduce pre REO and a brief history. Many of you know this, but in 2008 I founded American homeowner preservation, which was a 5 0 1 C3 nonprofit, which had a mission of keeping families at risk of foreclosure in their homes.

Now we had thousands of families come to us. We were only able to help a modest percentage. And what we did is we found that many banks, mortgage holders, servicers were not receptive to solutions that really made a lot of sense. So we changed our approach and we started buying the faulted mortgages at discounts, and then sharing those discounts with families typically in the form of favorable modifications.

Is where the investment opportunity began. Hey, we can we money to buy these mortgages and we need investors. And 2013, we started crowdfunding. But one asset typically performed the worst out of these pools that we bought. And these were first mortgages secured by vacant properties that were in judicial foreclosure states.

Now we could connect with the homeowner and pay them cash for Edina loo. We could do well Coleman or was PA had passed away or there was no one we couldn’t reach the homeowner, then we’d have to go through foreclosure. And the problem with a first mortgage secured by a vacant property is that we would need to maintain the home.

We can’t, the homeowner’s gone. So the city looks to us or whoever the mortgage holder is to maintain the home. And this is as simple as cutting the grass or shoveling the snow. But also if the property is broken into or falls out of compliance, the city can actually require us to bring the property up to code.

And sometimes we were doing all the work to these properties and making them essentially rent ready. And then they’d sit there for six months a year, sometimes two years a while it went through the foreclosure process. And typically some states that are non-judicial like Texas or California, Arizona, the foreclosures move pretty fast.

You can get them done in six months, but in other states where you have to go through the court system, which is like New York, New Jersey, Florida where I am Illinois, Ohio, and states like. It can take a year and sometimes in, and the extremes will be New York and Hawaii which can take 2, 3, 4 years to complete a foreclosure.

Right now my latest research I saw Hawaiian Yorker kind of neck and neck is the longest foreclosure states to the longest and most expensive states to complete a foreclosure in so this property. think about that. We’ve now the city has ordered us to bring a vacant home, into compliance, make it essentially rent, ready, a home that we don’t own.

We just own the mortgage. So we came up with the idea of, Hey What about if we appointed a local real estate agent as a receiver and they could get a court order, which allows them to do any repairs that are still needed and rent the property during the foreclosure term. And if we could do that, then the rent that’s collected will help offset the costs of any maintenance taxes, insurance go be applied to the loan.

To the extent there was excess. And most importantly it’s a lot easier to maintain an occupied than a vacant one is much less susceptible to vandalism and things like that. And also the the insurance is cheaper, just so many benefits that we can get it occupied. So we started doing that and we had some success with it.

But one challenge we had or one concern was because we’re in Chicago and these properties, mortgages and properties are scattered across the country. We would sometimes think we weren’t sure if we were getting the best prices on, contractors, sometimes they take advantage. We felt like they were taking advantage of us a little bit because we were, a thousand miles away.

So in my mind, I thought, Hey, the ideal solution here is to have a local partner. Somebody who knows the market knows contractors and can help and can have a financial interest in the outcome of this, and they could be our partner on these mortgages. And that was the vision that created pre REO in 2020.

And the goal was to get first mortgages secured by vacant homes, into the hands of local investors during the foreclosure process, instead of waiting till it becomes REO, they could actually get control of the property during foreclosure and that was the original vision.

We’ve talked about this in the past and just to connect the dots for people like the large institutions, they bought a whole bunch of little rental properties back in 2010, and now they’re doing a lot of this build for rent things.

And in my opinion, they’ll probably go through a lot of groaning cranes because large institutions just they’re not good at operating stuff there. People don’t care. They’re just people in suits in Chicago and New York just clicking buttons. And they barely want to go to a lot of these flyover states and we’ll buy a lot of these properties from insurance companies or these kind of more institutional sellers.

Because they don’t have too much skin in the game from a management perspective. So this is exactly like George and his company is like an institution right. They get great deals than the mom and pop investor can’t get access to. And that’s their competitive advantage. If you’re, if somebody’s buying 1, 2, 5, 20 notes, you’re just buying junk from some other guy or with George passed up years, dozens of hand handles and Daisy chain deals over.

But the problem that the institutional guys have is they don’t have foot soldiers. And that’s the kind of the bridge that as an entrepreneur, that’s the segment that you’re trying to cross that gap.

Absolutely. We’re trying to get the institutional seller, provide them a vehicle so that they can connect them with with a local investor. That’s what we’ve done. Right now it’s actually working. We have an institutional seller so originally it was mostly AHP assets on the platform. But right now we have some of the biggest funds that are backed by some of the biggest names on wall street that are posting assets on pre REO. Now the majority of the assets come from third parties from institutional funds rather than from AHP.

So we seeded it to get it going, but now it’s going, which is great. We’re the marketplace and in the middle collecting a fee on each transaction and more we had a one of the keys I’ll get to it as financing and that’s where the crowdfunding comes in. But let’s talk about pre REO the marketplace.

So this is actually, people ask what is pre REO? Pre REO is an online marketplace that connects local real estate investors with lenders. And these are, again, typically institutionals institutions that are looking to sell them. When it first mortgages and REO properties, and these are all over the country.

We’ve had a bunch of Hawaii. We’ve had there we’ve had some million dollar homes. We have some homes that are worth, under $10,000- $20,000 and everything in between across the country. I think we’ve offered in more than 40 states. Originally I envisioned mostly lower value.

But today we just listed to a $4 million homes in in New York, on long island. And there again they’re the first mortgage that’s secured by the formulate our home on long island. So we’re seeing some, and we have some in Brooklyn that are million dollars and all over the country.

Once in a while, you’ll see these million dollar homes. Now pre REO has evolved, that original vision that I shared, it was a first mortgage secured by a vacant property. But now it’s evolved. Now it’s first mortgages that are delinquent secured by vacant properties or occupied properties.

There’s you know, as we talk to more and more institutions, they’re saying, Hey the mortgage is backed by vacant properties. That’s maybe 15% of our portfolio. There’s a whole nother 85% of our portfolio. That’s occupied by owners or tenants. Can you list those? And we started listing those and those were bid on just as aggressively as the vacant ones.

So it’s become a marketplace, right? For simply delinquent first mortgages. And now we actually, next month, we’re listing a, we’re entering a new marketing agreement with a a group that does small balance commercial loans. So these are like strip malls, small office buildings retail, stuff like that.

Tons of defaults in that arena right now. And so that we’ll start seeing creeping up. There’s some hotels, I think, in the first batch that are going to creep into the onto the platform shortly as well.

So here are all the problems that we’re trying to solve with pre REO institutional sellers. They often realize that by selling to the local real estate investor, who would bought, who really would be comfortable owning the property that buyer is most likely the best buyer for the mortgage. But as we talk to sellers, the vision was, Hey if I get to sell my mortgages to a hundred different buyers, then that means we have to do know your customer checks on a hundred different buyers.

The big institutions usually have to do backgrounds on each of their of their buyers. That’s a hundred different KYC checks. It’s a hundred different contracts and they thought there’s no way it’s whatever gain we get by maybe selling for an extra 5 cents or 5%. We’re going to get back with, going back and forth on all these different contracts.

Not worth it. We’re not going to do it. So we came up with a solution and the solution was to put all the loans that are transacted on pre REO into our trust and the trustees U.S.Bank. And so now going to the sellers, okay. The buyer is only one buyer for all these loans. And it’s a trust and it’s U.S. Bank as the trustee.

So they know your customer checks. It’s fine. It’s only one contract. And then we sell a participation interest to each of the local ambassadors, and it’s a participation interest in a specific asset that’s held in the trust. And so that was really the key component that has made this really buyable.

And the other problem that the trust has solved is that about half the states in the union require that you have a license to hold or enforce a mortgage. So I’m in Illinois. If you want to start foreclosure on a mortgage here. You need to have a debt collectors license. And if you don’t, you can’t foreclose.

Now, if you did foreclose , then that could be used as a defense by the consumer to delay or stop the foreclosure and also potentially regulators could find or otherwise provide come after you. I haven’t heard of that happening in Illinois, but I have heard in Pennsylvania, there’s been a number of smaller investors who bought defaulted mortgage loans in Pennsylvania, and they’ve ended up getting fine sometimes substantial.

$50,000 and orders to divest themselves of these mortgages. Some servicers have some smaller servicers and mortgage buyers just aren’t buying in Pennsylvania. Georgia is also enforced this. Massachusetts has enforced this other states. Don’t enforce it proactively, but it is still a big risk.

But the great news is if a loan is held, a mortgage is held in a trust and there’s a national bank trustee. Just like how we have it set up then that compliance, you don’t need a license that complies with all states for the licensor requirements. So it checked that box as well by holding them in a trust.

So now an investor who buys just one loan can be compliant in by holding it in our trust. That’s the other problem that we’ve solved. The other big one is that Difficult historically, to borrow money, to buy mortgages or to against a mortgage. So think about if you like all the properties that you buy Lane, multi-family properties, you oftentimes are getting a mortgage and they record a mortgage when you sell the property or refinance.

The mortgage is recorded there, you gotta pay it. But if you want to get a loan against the mortgage, that has been historically difficult. You’re trying to collateralize a mortgage. By using the trust, now we actually take title to the property, provide the participation interest to the local investor, and that allows us to finance.

And if they were to default, there’s a rapid 30 day forfeiture action that we can take. We basically send a notice to the investor. Hey, you’re in default, you have 30 days to bring the default current or to cure the default. If they don’t do it, then they forfeit their participation interest.

It’s something where we don’t get bogged down in a longterm foreclosure or some other type of court action like that. And all these investors are putting down 25%. So the likelihood, especially in today’s market, if anyone defaulting is very modest. The final problem that we solved as local investors.

Today, our star for deals the REOs with the foreclosure merge moratoriums and all the competition in the market. It has been very difficult to have a steady flow of real estate opportunities if they’re buying the properties, but if we move them up the food chain and start buying defaults and mortgages, there are a lot of opportunities and at significant discounts, the average note on our platform is sold right around 75% of the value of the underlying property. So if a property is worth $200,000 that’s probably being offered at $150,000 to buy the mortgage.

So basically our pre REO is providing the opportunities. So you can go identify mortgages that you want to buy you. We also provide you the capital? We provide resources like a service or a law firm. A trustee that can all help throughout the process and a compliant holding vehicle for all the investors.

So it’s really solved a small mortgage investors even a smaller funds, their challenges at finding opportunities, finding money and finding a vehicle to hold the asset. We right now both on the buyer and seller side, we’re seeing a lot of interest next month. We expect to list over a thousand properties in one month on the platform, which is a huge infusion for us this month in October, we should list several hundred next month to be first time we go over a thousand and That is just in time for year end, where we think there’ll be a motivation for funds to sell these at attractive prices. So we do see a big opportunity in the next time and the next 60 to 75 days where for the year end, there’ll be some great deals for investors.

This is where if you people have been watching my monthly updates like Adam came up with some data that saying those people who are house flippers their return on investment is almost like a 10 year low, because so much competition in the market.

So if you’re looking for a different faucet for deal flow, this is where to get it. Granted most, you guys, my audience George, most of ’em are high income earners, passive investors. So they’re more looking for the fun.

Absolutely.

The appeal to the other guys that are more passive investors is maybe it might be a great way that you can find something in your backyard, that something to tinker around and get to get real estate professional status, some kind of thing to screw around with to get that 750 hour.

So you use the passive losses to possibly lower ordinary income, or maybe I buy a house one day here in Hawaii, but I want to get a good deal on it. That’s where maybe it might come down. Like one of these days. Although that one a Millani on there has been on there for, I don’t want to live in there. It’s too close to my parents.

It’s odd. I wouldn’t have suspected. Hawaii has as many assets as we see. We see a lot in Hawaii which historically is not a place that we see a lot of non-performing mortgages, but there’s been a lot especially condos but also some houses.

I want that house that’s $6 million that was worth 10 million that the bank foreclosed on.

You never know. We had two, $4 million assets that weren’t in Hawaii today. But there are some multi-million dollar assets that have been listed on the platform. I’ll tell you there’s one gentlemen, one pre REO buyer who said the best deal he ever did in his life.

And he’s been doing this for a living for years, was on pre REO. He bought the first mortgage secured by a a home in singer island, Florida last year. And I think he bought it for. Under $2 million, just under $2 million. He thought it was worth 2.5 to $3 million and six months later he completed the foreclosure, the tenant.

He paid the tenant $25,000 to vacate the home and he got excited. He called me a few months before it was foreclosed on and said, Hey, the broker says I can probably sell this for three. And then right when he got the tenant out the broker said, Hey, list is a 3.5.

He ended up listing at 3.8. He ended up listing a 3.5 and getting multiple offers and taking off at 3.8, made over a million dollars on one single pre REO asset, which is just insane. And that’s the record deals that I’m aware of so far. You should have got an equity on that line. Cause he essentially, you guys just play as the 12% note we get.

Today we get $2,000 of 2% of the acquisition price. Plus we get the 12% then he put on 25%. So in this case it was a half a million dollars on that he put down. So he put down it’s a big amount of money. He was the risk position. That’s, I think what’s attractive, especially going into a potential, uncertain market of the future, where there’s an investor putting down 25%.

There’s a discount of 25% off the current value of the property. Then the local investor puts up 25%. So the money that we’re putting up is in a pretty secure position, even as this market starts getting on, getting a little shaky in the next year. Which is likely to happen.

I think we’ll be in a very protected position and hopefully everyone does really well, but ultimately there’s going to be a downturn. And I think that 25% discount plus a 25% down payment will keep us in a very protected position and still generate a good return for our investors.

Be good for folks like myself, have trouble qualifying for mortgages or car loans because of our business owners, you guys, it says nice. You don’t have to Dick around with a bank. You guys are just the private lender.

Exactly. We do some very basic qualifications but if you have decent credit and if you’re an investor, the things that may.

Yeah, too many properties or whatnot that may bar you typically, that’s not going to be impediment with us. We’re making common sense logical decisions and in our underwriting, and basically we feel very comfortable the 25% down payment on something that’s already discounted and something that we could forfeit within 30 days of you ended up defaulting. So it does have a a lot of protections for the lender.

Can you take me through maybe not that particular Asur, maybe it is, but like, how does that note trickle? Like where does it originate from what was it in like a lot of 500 to bot.

No. Initially some, most of the ones came from AHP, so they were in like a big pool that we bought and maybe they were vacant initially were all vacant.

So we take the vacant ones that were in long-term foreclosure states and put them on the site, with anticipating people would use the receivership actions. Now from third-party funds, some of them are laid in the foreclosure process. Many of them are occupied. So receivership doesn’t apply on those, but people are just buying them.

And so they may I think for the sellers in their minds, they can pick up more and more or less 5% more than they could buy simply selling it in a big pool to a national investor because that national investor is going to say, okay, if I foreclose on this, I’ve got to pay a commission. I got to do this, that and discounted a little bit for a local REO ambassador here.

We’re selling it to the local REO investor in many cases. So they are comfortable with, paying a little bit more, but now they’re buying the mortgage which they otherwise couldn’t do. The sellers that we work with, none of them would be selling these individually. It’s always going to be in pools of, a hundred or even 500 or more.

And now they’re selling them, effectively one by one, and they’re get taking bids one by one. But the key is the process is that when we close these, we’re typically closing multiple ones at a time and we do one or two closings a month with each fund and so we grouped their assets together. So for them it’s not burdensome to have too many contracts or anything like that.

So I’m just going walk to the steps. It’s hard to follow for myself. So like I go to the website, I look for a property that I’m like, Hey George, I like this one. It’s a million dollar property.

I think it might be worth maybe a little bit more, hopefully a million and a half. But I put down 25%. And I, which is 250 and I pay your guys’ listing fee of two grand, right? So 250, 252,000.

Actually it just changed. So now we got 2000 or 2%, whichever is higher. So in that case you actually played 20 grand. I we’re seeing traction. It makes sense. It’s still a great deal.

I give you about 250 for that property. I take ownership over it is somebody still take ownership for them? To be clear, you’re buying the mortgage. So you take ownership or participation interest in the mortgage. And as part of the cap, the participation interests, you have delegated authority.

So you make all the decisions. Do we proceed with foreclosure? Do we take a modification if the homeowner asks for that? Do we, what do we set if it goes to foreclosure sale? Bidding, where do you set the bid at? Okay. Now it’s foreclosed on, do we sell it as is? Or do you want to do repairs to the property?

These are all decisions that you get to make on the loan. So you’d work with AHP servicing. The servicer will be in constant contact with you in terms of, what. What’s needed, for you to approve, because you’re basically controlling the destiny of this particular mortgage, but yet that’s what you own.

You own a participation interest in the mortgage and after we’ll get the 12% Everything else goes to you. So you get all the upside. So that guy that made a million bucks, we got 12% on our money. He made, a million plus bucks and that is, he gets to keep the upside and that’s, just like when you buy a house or a multi-family building, the lender gets a predetermined return and then the owner takes the risk.

They can make a lot of money, they can make a little money, they could lose a little, lose a lot. That’s what the owner gets, but ultimately the mortgage holder or the debt provider gets a predetermined return. And in this market, that’s where. That’s the way to go in and out in uncertain times, that’s the position that we want to be in the investor that takes it over.

What are most people doing? They can’t do the heartless fraud and. AHB serving. We want about, Nope. I want to make deals. What are the percentage of where people are doing? Yeah. Good percentage. We’re just going to go through the process and go to foreclosure. They’re already, almost all of them are already in foreclosure.

However, I’d say there’s going to be 25 to 30. At some point, want to do some kind of deal like a mod. And my messaging is if a homeowner says they want a mod and they qualify for one we’ll present it to the investor and I encourage them to take it. Or if it doesn’t make if it’s not quite rich enough financially, they can counter it.

But. Reject it. And here’s why, because if a homeowner really wants to stay and the investor really wants to get them out and get the home there’s a reasonable likelihood that Comodo will get an attorney and fight the foreclosure, which could add months or years to the foreclosure. And in those, in that period, the homeowners.

Tourney not paying you. The lender is the investor will then be paying the attorney as well. It will not be a happy outcome. So my, my purse, what I share with most investors is that if you do five of these, you probably get REO on maybe three of them. There’ll be two where you do a mod or some other, maybe a deed in lieu or short sales, something like that.

And that is you have to account for that and be prepared for that. And that really is the right thing to do. And the other part is the investor will say wait, I don’t want a mod because I need to be collecting payments for the next 20 years. I want to get in and out of things, make my money and do it again.

And I say, okay, wait, look at it a little bit differently because today, if you do a modification about on a loan, which you just bought it, let’s say 75. And the homeowner gives you a down payment. Maybe they may give you a lump sum of five grand. Then they paid monthly payments for six months on time.

Maybe you’re getting a grand a month when that started. They made six payments on time. You can sell that loan at probably 90% today. We’re selling our performing loans at 90, 92%. And that will so you’ll make a profit. So you’re starting to make money now. Quite so much as if you actually got titled to the property where you’re going to make a good return.

So do these on an ongoing basis. You get some RTOs, you’ll get some mods, but in all cases there’s opportunities to make money in HBS servicing. We’ll do. We sell it alone. Okay. Actually, I wasn’t aware of that exit strategy, so yeah. And this is an odd one and that came out of pre REO.

So the institutional buyers, when it’s a non-performing loan, the best buyer is the local investor. But when the, when a low, a smaller seller is trying to sell a re-performing loan. Selling them one by one. You’ll probably get the worst price. The best price will be if you can aggregate a large pool of them.

So what we’re doing now is some of the premier investors have agreed to modifications on their loans. And now the people have paid several months on time. We’re putting them in large pools that we offer, which are, they’re not as large as I’d like, but maybe they’re $10 million. And it’s a combination of HP owned assets plus pre REO investors, even some other smaller investors.

And then we offer them to large institutions to. To buy. And when they buy when they make a bid, we’ll come back to the investor and say, Hey, do you accept this? They accept it. And we close. Then we get a 2% fee. And that has worked out well because we’re selling these things at say 92 cents. If they sold them directly on their own a, the institution wouldn’t buy it.

They’d probably be selling. 10 10% less than that. If not even less than that. And I, to give you an example, the last couple of wires we’ve gotten where it came from, Goldman Sachs. These are funds that are backed by Goldman Sachs or other large wall street banks that are buying these these re-performing assets.

And and so that’s. Ultimately pre REO is making money, when they’re non-performing and being sold. And also when they’re re-performing and being coming from institutions and going back into institutions so we see opportunities from both sides. And we educate the investors that this is, you need to be prepared for any of these outcomes and and act accordingly.

But if you do so you can make a there’s the opportunity to make money, regardless of the. Yeah. Cause I, I know you, you have a soft heart, right? Like you want get these things, but you’ve already tried. So it’s Mr and Mrs. Late payments, we want to work with you, but if not, we have to ship you off to our pre REO sharks.

And they’re not, and again, as people, some people will not reach out or respond to. The outreach until there’s Hey, there’s a foreclosure sale next week. And now they want a mod after six months or a year, but that’s what happens sometimes. And again, I still, I encourage investors if we can make it financially viable on both sides to go ahead and seriously consider taking that model.

Yeah. Yeah. Most real estate investors, not in our community. But you know which one I’m talking about. The people that it’s like, they don’t like, they like to be their own landlord. Cause they don’t want the property manager 8%. That’s the scarcity, mind people, typically real estate investors are always the ones that, oh, can I get a discount?

Can I get a discount? Like they’re the ones that the shark. Looking to foreclose these people, as soon as they take over the asset, because time is money and velocity of money, but you guys you keep it honorable, right? Yeah. Yeah. Absolutely. If you do the right thing in the annual do better in aggregate, you may not make quite as much as you could on an individual asset basis, but on the, in an aggregate you’re going to do better.

And as an entrepreneur, George, you’ve done it again. You’ve made little points here and there and that’s an, and you feeling filling the void. So what the needs in the marketplace for the flyers and south and collecting a fee here and there and collecting a spread on the money? It is I actually pre REO.

We see a big. We see a potential for a lot of growth. To the point where right now people are saying, Hey, I bought, I’m buying this loan from some other fund. They didn’t get it off pre REO. Can you provide the financing? And we’re saying, sure, we’ll do the financing. So we’re right now we finance on an off platform deals.

And And, the majority of people are buying on pre REO, it’s not to say every loan is, has to transact on pre REO. They could they may have a relationship at a fund and they want to buy something, but they need the financing. Even a small pools were financing. But again, that there’s a huge need for financing for smaller buyers in this market.

And the buyer doesn’t have to be tiny, even for some buying a few million bucks, they may need financing. So we see it as a big opportunity. If something comes up, man in Hawaii, let me know. And I’ll I’ll do it. I’ll be a Guinea pig for everybody. Absolutely. Go on pre reo.com. I know there’s so I know we’ve had it Hawaii assets.

I’m pretty comfortable. I’m pretty confident that there’s some there right now. I don’t want a three about a week ago. I just don’t want to buy anything on the east side. I don’t know. Hawaiian. Yeah. Yeah. I’m not going anywhere on that side, but So there’s, we, you go through this, the lender, HP financing is the lender, and this is maybe a good transition into the fund. Is that the fund that’s getting these loans? Is that hard for the last year? Yeah, so sure. HP servicing has been funding pre REO loans for the last year. That’s all transitioning right now. They’re all being funded with pre-op by pre REO.

With this new crowd funding offering. So think about that in the past, HP servicing was a 10% fun. So we have money coming in at temper, our repeat behind crowdfunding investors, 10%. And we loaning out a 12%, pretty skinny but it worked right now with the lower interest rate environment we pay crowdfund investors 7%, whereas loaning it out of 12%.

So there’s a five point spread in the middle. And are you guys still doing that? You had that pre REO e-course at one time. Yeah. And we’re doing a new one that is still live at dot com. There is an e-course there’s another one we’re going to do a live one in in December. We record it and share it with make it available.

In perpetuity on online. But yeah, that one, there’s a new one coming up in December. A lot of things have changed since last November when we did that one. So we’re wanna include all the updates in the new one, in the new opportunity. In the new e-course yeah, something I’m thinking of this.

I’m not a big fan of retirement funds, but if you guys got them, the bad thing about note investing is you don’t get the passive losses at the least. But this would be something idea that you would do with in a retirement account, especially when there’s a high potential for explosive gains.

If you were to sell the property. Yeah. Yeah. People have bought P people have bought pre REO with their IRA account. There’s nothing, no problem. Doing.

And let me I got to share about the crowdfunding part of it. And here it is. So this is just so everyone understands on the crowd funding opportunity. It pays out 7% just as all the HP funds, in the past we distribute every month, it’s open. This is key. It’s open to accredited.

And non-accredited investors. That’s a big for regulation. A plus that’s a big benefit that almost anyone can invest. There’s some limits in terms of what, how much a non-accredited investor can can cannabis. But you’ll see that, they’ll see that on the site, the minimum investment, only 100 bucks and that is, we want to make it as accessible as possible to everybody.

And this offering is qualified by the sec to raise up to 75 million through regulation. A-plus. What is that like the BDN or average investor? 7,000 bucks is our average investment. Ooh, wow. Oh and then I guess the other question I had with this prod funding method. Like liquidity, right?

Like when, if the people need their money back, how is that? Sure. This has been a, so historically HP has offered this, I think since 2016, that if an investor needs their money back, we will undertake our best efforts to return it within 30 days and pre COVID. We were consistently able to do it. COVID hit.

We were unable to do it. We just caught up on the COVID air redemptions and the going forward, we don’t expect another situation like that. So we do expect that we’ll be back to returning money within 30 days upon request the or at least undertaking our best efforts to do that. Now, key caveats, all that is if the investment is redeemed in the first.

Year then the return goes from 7% to 5%. If it’s redeemed in the second year, it goes from 7% to 6%. If the investor keeps the the investment outstanding for at least two years, they can request redemption at any time and they’d be able to keep the full 7%. And I think this is for investors.

I think they just need to get a little more sure what this, like these investments, the reason why you’re not making 0% is that there is some liquidity. Like you can’t just assume that you’re going to get the money right back. I still think what you guys do for investors is, pretty amazing.

If you can even there’s even a possibility of redemption. You guys are using in liquid investments at the end of the day. Yeah, investors can’t really expect to get money back and forth and use it like an ATM. Although I know investors have used in the past and they got comfortable with that.

And then when COVID hit, it became difficult to get the money out. That’s something that luckily, the market’s gone the way it has. It’s now gotten returning to the point where, we expect to be returning money early on those two legacy funds.

And I think in the two new funds, I, a pre REO and the soon to be launched HB title, and those you’ll be able to Yeah, I think we’ll be back on track in terms of getting money back within 30 days when needed. Yeah. And everybody asks that question that comes up a lot of times in HP and pro is always in there.

Part of the solution is oh, what do I do with my short-term liquidity before I look up from our longer term or asymmetric type of risk deals? Are those more. And I tell everybody that’s where you guys have to join the mastermind group and stuff’s going around and doing it all on your own, just suckers, like seriously, like you’re not going to find out if it’s different for everybody, finding opportunities is through your network and it’s different for everybody. And everybody’s trying to do this all by themselves. These should be crowdsourcing, best practices for other people. I’m just, I’m not going to tell you guys what to do out there because you, then you guys will get mad at me.

Just like how you got mad at George, because you can’t redeem your $7,000, the first one, right? You guys, these are the tools you guys need to put these tools into the right border and the right name to say and understand what you’re working with. Those pros and cons to everything. I still invest with.

But I have it within my holistic liquidity opportunity fund. I think you guys can still get that article at simplepassivecashflow.com/poolfunds. But as part of the education process, I guess a lot of people alternative investing or private funds are still new to a lot of people agreed.

It’s a new experience and lots of times when things are going well, it’s like today with the real estate market where everything’s going so strong, people forget that, Hey, at some point it won’t be so strong and property values will go down right now. They’ve been going up like you forget people, forget that in 2008 it was really tough to sell properties.

Property values are going down each month and, that went from 08, 09, 10, 11, 12 up into maybe even 13 where things were a lot different than it is today. Remember, all these things are cyclical and that will prepare for the worst, but prepare for the best, but be prepared for the worst as well.

So call to action guys, if you guys want to learn more about this, we’ll stick it in the infoPage at simplepassacastle.com/AHP. We’ve got several other webinars we’ve done on this in the past. And if you’re interested in getting involved in that pre REO thing, us go to simplepassivecashflow.com/preREO and drop a comment into our Facebook group.

I’d be curious. I’d like to find somebody who’s doing and not just, staying to themselves and keeping it to themselves. I’m interested in this type of stuff.

There’s Hawaii on there there’s opportunities in your backyard probably, or maybe your parents backyard.

It’s astounding how many especially when we get the hundreds and the thousand next month, I think they’re going to be all over us. There should be opportunities in the majority of the markets.

But all right, guys. Thanks for joining us. Thank you, George. And we’ll see everybody next time.

November 2021 Monthly Market Update

https://youtu.be/pHJuJvksZU4

Hey, what’s up folks. We are live. This is the November 2021 monthly market update where I quickly go over what is going on is some of the news out there impacting investors, mostly real estate investors. If you guys want to get a hold of my new book coming out next month, I’ll go to simple, passive to cashflow.com/book.

And shoot me an email if you guys are able to help. Need some folks to help me out with the launch. Give me a review, I’ll buy you a book. We also have the the audio version there at simplepassivecashflow.com/book. So help out the cause get the good word out, we appreciate it guys.

And we’ll get started.

If you guys haven’t met before my name is Lane Kawaoka. Currently 6,500 rental units need to update this slide and used to be an engineer. And I show you guys how to escape the rat race, investing in alternative investments and stop doing stuff like buying a house to live in, paying off your debt. Instead buying real assets that produce cashflow and grow for you.

You guys haven’t yet checked out the free podcast, simple passive cashflow, passive real estate investing found on all the platforms. And if you’re tuning in on the YouTube version of this with the podcast version. You want to see the slides that we have check out the YouTube channel and also check out the podcast version.

But before we get going, if you guys have any comments or anything, please type it into the comment box below, we’ll try and answer it if it comes up. So the first thing here, you know what I see a lot of people doing and what I try to do as part of the simple passive cashflow. Just to get people from being victims of the consequences of their own action.

This little picture of this dog who got stuck under a picnic table and it restricted his movement because he went all over and it’s got the leash tangled under all the legs of the table and again, those things are buying a house to live in.

I think if you’re in credit card debt, you need a way to force savings account for your self. Yeah, buy a house because it’s a forced piggybank, but for most of you guys listening, you guys have good financial skills. You guys are the max out, your 401k crowd. Push your money to investments and not necessarily a house to live in.

I still rent today. Next thing is investing in your 401k and getting that company match thinking that’s all cool. And maybe the company matches okay. I guess it’s free money, you’re investing in my opinion, garbage retail investments turbo tax, you guys are just still turbo tax.

You got to get with it, spend some money other than free and, get some deductions in there. But if you don’t have any real estate, go through turbo tax because you’re not going to get any deductions in that thing anyway. And then doing a Roth IRA or any kind of IRA, I just don’t really see the point to if you’re investing in real estate because real estate gives you passive losses.

And that’s what you can use to effectively shelter your passive income. And why are we doing this? Why are we going into good assets? Will inflation is upon us. If you guys haven’t seen here, we’re looking at a little picture if you guys have seen how much a pound of coffee costs in Walmart and it’s not $6.79 anymore.

If you look again, it’s $8.49, the cost of inflation is around us. So here we go. Let’s get into some of the headlines here. Wallet hub released a couple of reports of some of the safest cities in America, and those are Columbia, Maryland, South Burlington, new Hampshire, Yonkers, New York, Madison, Wisconsin, Portland, Maine Warwick, Rhode Island, Raleigh, North Carolina, Burlington.

Think that’s for bond. Winston-Salem North Carolina. Now some of the unsafe cities in America, Lubbock, Texas, south St. Petersburg, Florida, Anchorage, Alaska, Birmingham, Alabama, Baton Rouge, Memphis, Tennessee, Oklahoma City, Oklahoma, San Bernardino, California, Fort Lauderdale, Florida, Missouri.

Some of the people who aren’t sophisticated investors might say yeah, I don’t want to invest in these least safe cities, but I had four rentals in Birmingham. A lot of the investors still go there for rental properties. I have a couple of apartments in Oklahoma city.

I invest in the top 10 worst safest cities in America, and I think it all comes with part of the territory of investing in the right sub markets, even in these bad unsafe areas. You can just invest some generalities of these stupid top 10 list. That’s it, if you’re looking for the safest cities in America.

You’re probably ain’t gonna cash flow there and it’s probably not going to be a good investment. Partly I bring these types of figures up to call up the BS, right? Safest states in America, Vermont, Maine, New Hampshire, Minnesota, Utah, Connecticut, Massachusetts, Rhode Island, Maryland, Washington.

Now you’re not investing in a particular state. You’re investing in a MSA, a city and if you dive down even deeper into a certain MSA or sub market within the market. So for example like Seattle has maybe a couple dozen sub markets within the greater Seattle area. And even within one of those sub markets, you might have a good side or bad side or good block, bad block.

What we tell investors is get away from these stupid top 10 lists and really start to dive in and just know that some of these safest states, a lot of these just won’t cash flow. They’re not going to be good investments. Sure. They’re nice place to live in. And maybe it has a good school district or two, but is it going to be make good investment?

And that is where you separate the real investors to those people who just like to collect houses in random areas of the country, because they feel like it is safe for them. Some of the least safest states in America, Tennessee, Missouri, Florida, Alabama, Montana, Oklahoma, Arkansas, Texas, Mississippi, Louisiana.

If you went off this list, you wouldn’t invest in Texas, Alabama, Florida. I’d say three of the top eight states to invest in quite frankly, so bad data. Michael says he’s jumped St. Louis. It’s only bad in certain areas. So St. Louis and Kansas city, I don’t know what it is about those towns, but man, it isn’t really like block by block those certain areas.

And that’s just go to show you, even in the right sub market, you have to go look block by block.

Okay. Thanks for the comments, folks feel free to drop more comments in, and also if you guys are checking this out on replay, drop the comments below, I might get to it. If I happen to be playing around with social media, which I try not to, I think it feels to me it’s a waste of time. This next slide is some Arbor.

Arbor is one of the the few direct Fannie Mae Freddie Mac lenders that we’ll work with to get these large direct Fannie Freddie loans for apartments, not a good data and newsletters they come up with. So this is an article on affordability and some of the highlights here.

The pandemics economic effects combined with this year, surging rent prices have straightened low-income renters facing housing of 40 back in the spotlight. So as we know that the pandemic impacted a lot of the low end, the class C type of stuff, the class A stuff in a traditional recession, the class A people lose their jobs and move to the Bs and Bs to Cs

but in this particular COVID-19 pandemic slash recession, the A-class were pretty much unimpacted other than paying for a grub hub and not having to go to their college sports games or professional sports games and big, nice vacations. But other than that, they’re pretty good. Some of our class A apartments they ran into a rough month there when a lot of people were realized that

interest rates were low and they bought houses. And this is why it’s nice to invest in stuff that your tenants aren’t exactly economically mobile. Now that could be insensitive, but, Hey, when you’re in an investor, you don’t want too much turnover amongst your tenant.

Next point here reduced business income due to the pandemic and related downturn may decrease the value of tax credits and require affordable developers to seek alternative financing sources. So there’s a lot of developers out there that will develop these properties for the lower income, or it might have say 20% of the units designated to be 20% under the market.

I think it’s a good idea. It’s the government’s way of ensuring that you have ample supply of lower income because even in a good area, someone’s got to take out the trash or do those types of jobs. So it’d be cool if they live close to where it’s at. I think this is a hell of a lot better idea than making a bunch of projects and we’re a bunch of more people are living.

There’s just a lot of unsafe conditions and high crime areas where I think that the it called this the lurk different acronyms L I HTC is another program, but developers will take advantage of these government incentives to build and get either get credits or great loan.

But the give back is they need to have these rent restrictions on a certain amount of units. We’ve got a couple of apartments that have these exact same thing where 20% of the units are designated lower.

The share of the LIC HTC mortgages utilizing the 4% tax credit remain elevated at 40% through the second quarter 2021. Reflecting the continue to attract the of rehabbing versus ground up development. The housing choice voucher program. Another major affordable housing initiative is set to be expanded in the proposal of 2022 federal budget by 5.3 billion.

A 13.3 increased from the fiscal year, 2021 now 3.50 several trillion, still pennies amongst the big stimulus package. So it sounds like a lot of money, but just a drop in the bucket in my opinion.

Now, this article is a doozy here. We’re going to try and break this down. This is from the joint center of housing studies of Harvard university. And if you guys are ever looking to sound really cool and smart in front of your coworkers, friends about investing in rental properties. This is a great source to read about.

So what this article is, and I’m gonna summarize from a real high level here just so you guys have the major takeaways. This is discussing kind of the whole debate, whether you should have zoning restrictions on certain areas of your market, of your MSA or submarkets. Now, if you guys have been paying attention to the last investor letters, the last one we had.

I think it was one month or two months ago. You guys can access the old versions of this monthly newsletter at simplepassivecashflow.com/investor letter. But if you recall, California gotta love California. Probably the most progressive state in the union. They had a restriction on certain single family home zoned areas and due to some of the need for more housing due to high costs, they are starting to break up those traditionally single family home zoning and allow for some more densities and duplexes drop Webster claws or smaller apartments in those.

And a lot of affluent people get upset at this type of stuff. Because it’s not in my neighborhood, right? This is for the rich folks, leave us alone. I don’t know why I say it in that accent, but it’s the battle between the haves and have nots once again, and this has been going on since the beginning of time in the 19th century in America, cities started to itch institutes.

And the builders of homes are lightly regulated in the early 20th century. Progressive reform include the practice of land zoning from Germany in order to provide working class families with low density housing on the urban health score. If you guys are history majors or you love geeking out on this stuff, you guys can look at the 1917 Buchanan versus Warley Supreme court decision which prohibited zone by race.

And in 1926, the courts gave it blessing to zoning that segregated land uses and building types in Euclid versus Ambler. The court endorsed single family homes on the grounds that they excluded parasite apartment buildings that blighted neighborhoods and lower property values. I guess that’s a better term to call those types of the projects right?

Where they just, Hey, let’s just stuff, all the poor people into these really dense populated areas. And I think this is what you think of when you think of the slums of India. I think that’s what they do, generally. The idea and the movement today, at least with the current administration is to break that up, bring spread apart.

People into different areas, which means that the poor people will be amongst some more middle-class people. And then, also the high ends will be intermingled with the middle-class people, single family home at this greatest impact in the suburban boom took place decades after the world war two.

And this is where the FHA, the federal housing administration and the veterans administration. Got together and develop these areas called Greenfield, such as old farms, which generally took the form of single family houses on individual lots. As they say, a lot of the guys who came back from war they wanted to start all life.

And this is where the overwhelming choice to Americans will be to the suburbs developments, cater to this taste carefully Cabernet, calibrating the size of the lots and price point. For these different income levels what the encouragement and approved by FHA such developers, such as William Bevin, explicitly fought barred black Americans.

And in some cases, Jews from buying into these subdivisions. And that was where, we think of it as duh, that’s not right. Back not too long ago, stuff like that.

That Supreme court case Jones vs Mayer prohibited discrimination in real estate transactions. Fun fact, just a little while ago, I saw, I used to have a lot of properties of Birmingham, but Birmingham or the state of Alabama just got rid of a law that said that you could not teach yoga in public schools because they thought that it was the hokey-pokey or kind of mix of churches.

Type of stuff strange, right? This country is so diverse, so amazing, great to live here. So no matter what size of home and yard that possess some urban communities felt like they had a stake in maintaining the social or physical characteristics of their neighborhood to ensure that new development would serve only high income brackets, suburbs, commonly imposed, minimum, large minimum.

House lot size is often up to three acres, but sometimes up to 10 over time, many came to see any new development as a threat to their quality of life. The not in not in my neighborhood. When I was an industrial engineer, we would study things like, they would design like bridges on not really highways, but major thoroughfares to eliminate buses coming through cars.

Buses. So it was one of those like social engineering type of things to keep the poor people out.

Local officials responded by making it more difficult for home builders to obtain construction permits from the 1970s onwards, they implemented measures that impure or block new construction in the name of saving nature. A process that the late Bernard Ferdin a long-time professor at MIT. Describe as the environmental protection hustle, suburban cities and towns became composing outright limits and moratoria on new construction to slow or to scorch development.

In addition, building development, official city engineers, the fire marshals, each impose increasingly demand requirements on new residential development in the 21st century. No large municipalities Metropolitan’s continued to impose non zoning. Anti-growth measures these included, not wanting environments and building Coles, which was their sly way of living growth, but also requirements for project approval from two or more government entities, extracting fees for developers and formal design.

Such restriction, constrained development and thus could contributed to the rise in housing prices. I used to be a city engineer and city controls the permits they can designate who builds and who does it, and they can guide the growth of a city and who moves in and what kind of clientele that they serve.

It’s. So this, if you guys are living in fairytale land, where you believe that, you, anybody can live where they want, you may be mistaken,

but there’s been a movement to increase density and remove barriers to housing developments sometimes called yes. In my backyard has brought about the. Single family zoning fans, as well as new rules to apply accessory dwelling units in single-family houses in states and localities, most notably, Oregon, California, and Connecticut, but the efforts to get rid of single family districts have not addressed the plethora of obstacles to residential development on a scale that would affect housing prices.

Many places have a little. Have failed to increase the level, height or size of the building to allow for more density in Oregon zoning reforms allowed them to Sally’s to acquire large lot sizes, California and new laws allows local jurisdictions to impose more occupancy restrictions on subdivided, lots, these local zoning and design requirements in place and accept lands that have been deemed prime farmland, wetland, or part of conservation.

The new zoning rules usually allow building up to four units on a previous, the single family, a lot, a single number that will remain likely the most development that had been done on one lot at a time by homeowners and small skill builders. Overall, this is a small process. And if you want to grow your YouTube channel and you want to scare people to clicking on your video and watching your videos so you can collect ad revenue that way you scare the crap out of people.

And you tell them that the world is coming to an end, like California housing bubble is going to pop because a handful of inputs are now allowing some duplexes, triplex, or pods to be. As opposed to a traditionally single-family home neighborhood. I just don’t believe that impacts things too much.

That’s why do we need this? Because our country’s population is growing and we need more of this. Value-based. Type of housing to house the Lord middle-class because the shame, the middle-class are dying out. It’s endangered species and they’re becoming the lower middle class and they need, they don’t, they can’t afford these larger single family home lots and generally moving into multi-family apartments.

Last point here merely eliminated single family zoning histories just is light unlikely to increase housing stock. Significant, as I just said, To at least residential development will require peeling back layers of regulations that have accrued over the decades. This could mean reducing minimum, lot sizes, relaxing, overly stringent construction, and site requirements, easing design reviews, and rolling back some environmental controls.

Being certain provisions for wetlands and open space, the political efforts necessary to reverse such entrenched practices, how it will be formidable so that the recent laws against single-family zoning are, but the first steps in a large March. So what they’re saying is, yeah, sure. It can be open to single family home or duplex surplus applause, but good luck trying to get a permit.

Moving on. So the next slide here is taken from the Yardi matrix. A great data source. The image below is basically showing com the January of this year, as the vaccine started to roll out. Man rent increases have been pretty much skyrocketing asking rents nationwide, continue to break records.

Although there is some signs of deceleration, which, normally the rent increase go up two to 3% every year, which kind of goes up with the pace of inflation. You know what I mean? A lot of this growth for the first part of the year, until now, in my opinion, it just wasn’t sustainable. And it’s got to cool off at some point, but asking rents were up 11.4% year over year in September.

Monthly rent growth was 16%. He read a 1%, which is the last month he gained since the housing market began to accelerate in March. And you say, oh my God, we’re going back down. No rent increases kind of goal or a lot more smoother in terms of increase and decrease the fact that it went up 11.4% year over year.

It’s just phenomenal. That’s usually what the top market in the nation. Like the best out of the top hundred, 150 markets did. And that’s what the average is across the country. Just phenomenal. Sunbelt tech hubs are still leading the nation in rent growth as markets in the Southeast and the Southwest benefit from rapid domestic migration and job growth.

The migration story has been playing out for a number of years, but accelerated quickly during the day. Yeah. This is why I used to have apartment in Iowa or we build what best in Kansas city, Indianapolis. I just don’t really like those types of areas. Population growth might be, I might be going up.

I think of it as more stagnant. At the end of the day, the rents are not really increasing too much as it is. The Sunbelt states, your Arizona, your Texas, your Alabama is your George’s Florida. Is your care lines. Single family built to rent continued to grow at even faster paced and multifamily.

The nation rents are up 14.3% year of your occupancy keeps rising up 1.2% year over year. Andrew comments is the build to rent the next phase in your development or an offshoot. So the builds to rent to me is. I just don’t. The big institutions are getting into the space because we’re becoming more and more of a nation of renters.

I just feel there might be a good exit. What is hard to do is if you buy out 50 or you developed 50 houses, the loans don’t allow you to piece off sell a onesy twosy property here, there. So it makes your exit strategy pretty much impossible with that. I’ve looked in. But, with why do we like apartments?

We have one freaking roof, a lot of times, one major Shiller or individual HVACs. Whereas in the apartments, all we’ve got to worry about are the interior walls. We don’t have to worry about all these stupid roofs or all these, like backyard, all this, like landscaping. There’s just, there’s this double amount of things that can go wrong with a single family home.

Other reasons. I feel like single-family yeah. Tenants are a little bit more needy. They’re a little more entitled, right? They, they literally have a Fort to themselves where apartment dwellers, they know their role, they’re renting an apartment, a box within the box, and it’s just easier to keep open mind.

I dunno. I never say never, but I dunno. I just see the large institutions going into it and their property capitalize and they can do things that, the mom and pop investors can do, and they can do things that the private equity guys, folks like us can’t do. No. We don’t build, we don’t build little houses.

I, and I think that’s another thing, right? A lot of this is predicated on relationships. And who do you have in your Rolodex? There’s a lot of house builders out there, it’s just it’s a different type of business. The good.

Bill for. So John Burns reports, the build for rent story, the tenant preferences. So what’s mattering more is spending more money on some pet friendly home designs. So what matters less is don’t spend on head walking and services such as dog walk walking. So for us, we like pets. If it’s in like a.

The plus, or especially a because to me and this one, I’m just speaking in terms of generalities here. So give me a break. If somebody has a house, a dog or a cat, they’re typically a little bit more stable and they’re not going to move with what I’ve, that’s, what’s important to me as the investor.

Whereas you get into the class C housing. Animals are more like guard animals or they’ve you have cats. Now you’re talking about the cat lady at cat dude with 60 cats and they can be destructive. So I think that there’s a different, there’s a paradigm differential between the lower class, the higher class rentals that said.

That’s do cause damage. So it’s supported to collect more rent, which typically anywhere there’s a pet fee cleaning fee and then maybe a bump in rents, maybe about 10% plus every month for those pets, things that other people are looking for. Other high-quality finishes such as a fabulous kitchen.

And this is just, people have been in, locked up in their houses for two years and a lot of people are working from home. So it makes sense to spend a little bit more money than. Typical one-third that your budget kid budgeted, supposedly on your housing, some things that they’re skipping out on a spending less premium Florian, smart tech.

So the premium flooring and the real wood, I don’t know why people would want those. I like the luxury bile vinyl. It looks super cool. It looks sometimes even better than the hardwood and it’s indestructible. And when you get tired of it and if it happens to break, you can just fix it. I think that’s up to the game changer amenities so that people want more relax, relaxation areas and spend less on coordinating social activities.

So if you guys check out my last podcast on apartment life.org. We still feel like the social aspect is really the added value for residents to increase that community aspect of it. So we still like to do things to increase the community aspect or that’s wild seeing why people pay more or stay, they don’t move out because they have a community of friends.

The home office as suspending on a full office or den for single family renters with children, that having met nook is something that we’ve been designing into our new development for that, that dedicated work from home person. But they’re went, they’re seen as lot of people offer that extra bedroom for that.

People aren’t spending the money on. Not spending money on a full office for single and couple single founding renters merchandise, a bedroom for flexibility,

the national association of realtors and an article about renter demand shifts toward more affordable and suburban class B and C apartments. Go figure. They’re setting the apartment demand has surged during the pandemic, continued to soar to a decade high level as 2021 quarter three with a net absorption of nearly a billion units since 2020 quarter to absorption.

Just so you guys don’t know, absorption is new stuff coming online or vacant things be filled up with people or observed. Yearly quarter of a million units in the past 12 months as of 2023, the vacancy rate has fallen to a decade low 4.5%. And the asking rent has soared to a historical high of 10.5%.

So whenever you’re looking at, the demand or the hotness of the barn we look at a lot is not only it is where they asking rents are going. And obviously it’s been on a tear for this beginning part of the year, but what does that the vacancy rates too, can also be an early indicator of, or symptom of a better market or a worst market in the future.

So as vacancy starts to creep up, that’s how you know that there’s too much inventory coming online. And I think at that most cases, in my opinion, you’re going to see that the rent’s late. The vacancy tips. You guys are more graphical people. We have a lot of English in years. So the graph at the top, this coming from the highest 12 month net absorption declining vacancy rate in rapid rent growth as of October 13th, 2021.

So the top growth top graph is the absorption of units. As you’ve seen as of the last 20, 20 quarter three absorption has gone a way. Almost two to three times what it’s normally been. Vacancy rates have also come down. Typically we’re hovering anywhere from six to 10% vacancies. That seems to be the healthy about the vacancy across the board.

But now, Lowe’s are 4.6%, which is indicative of a good, hot, healthy. Asking rent year over year growth, obviously that has skyrocketed 11.4% since last year.

I will just comment, so when the 20, 20, 20 21 quarter one was the part of the pandemic, which you had, and I think my cursor is on at this point, I guess you guys can’t see my cursor. At that bottom of that low scenic rents cuff on a frozen, because what a lot of people, a lot of investors or operators we’re doing is just holding rents where they are.

It was seemed a little unfair with people not working, to bump up the rents. So that was appropriate at that time. At the same time, vacancy remained about the high, it didn’t spike due the pandemic. And that’s what we all thought it would. Maybe thought people were going to lose their jobs are not working, turned out that the pandemic actually froze everything, how it was, which is actually a good thing, right?

Heads and beds rents do collect your rent checks. That was the impact of the pit. That

now this is a breakdown of construction of apartment units by class in 2021 for. And the class is designated by class a, B and C. So eight glasses, your luxury stuff, B class it’s, they’re still pretty nice stuff, especially if you’re talking brand new, definitely not luxury stuff. Class C stuff is your lower income.

And this is why, like, why is there no class C stuff? The cost of that built the dang thing just doesn’t make any sense when you’re billing. Which is why barely any supply comes online. 1.3, 4% of new construction is class C what it is, it’s a split between class a and B, but there’s an interesting phenomenon happening here.

It’s so if you’re looking at the graph, this is probably a graph for a lot of you guys listening on the podcast to go and check out later in the year 2011. You have more class a and class B, but the spread was very thin from 2011 to 2016, they diverged. So the class a share of new construction greatly increased and the class B stuff declined.

That’s the same adverse relate relationship. Now here’s what I’m speculating around 2016, maybe there was just too much nice stuff. Which is why, which is typically what happens when the market gets a little bit overheated. The developers go a little bit too much have on building the class, a stuff that they can’t really get the breaths because there’s too much class, good class space.

So that’s why I think you’ve seen this backtrack and now you’re seeing the class a builds 56% class V builds 42%. They’re coming together against, so one would assume that this is a good sign for investors and the market that this is, will this kind of, this cyclical pattern will continue to have.

I don’t think you’re ever going to get it. It’s just, if I don’t, I never say impossible, but it’s just, it doesn’t, it’s not going to happen where there’s going to be a lot more class B than a, it’s just stupid to do that because you to, again, to build something brand new, it just makes sense that just build it a class.

So I w one would assume that that the just cyclical pattern where it squeezes and expanse will continue to happen over time. It should there be a recession? I, what I would think is the whole quantity would decline, but the percentages will remain the same. This is a graph from ALNF a L N price class averages of effective.

Everybody always says what’s the difference between a B and C D class. One of the big things is, the age of the property. If you want to generalize, I’d say 19, maybe the year 2000 and newer as class, a 1990s, 1980s is more class B 1960s, 1970s, his class C plus D is just kind of garbage.

That’s older than 67 a year. But this is a graph of kind of showing what is the effective rate rents, and you can see how they line up for the class. A slightly above $2,000. A unit class B is around 1700 class C is 1400 in class D is 1100. Of course these are a lot higher because we’re including high priced areas, such as New York, California, Hawaii, Seattle, because a lot of the class C properties that will.

We’re average rents will be around 800 bucks, usually about a little less than a dollar or two, a dollar, a square foot.

If you go by this graph, we’re certainly not buying class D most of the California pricing is a lot higher than this. This is again, we’re an investor needs that, take this all into account and understand this is just the whole United States clumped into one. As we all know, we are very diverse.

Culture political mindedness and also a wide range of housing options. You got a lot of different class, a pricing. Class a and California could mean 3,500, $5,000 a month. And in bourbon, Huntsville, we’re building this stuff. That’ll rent for 1400 to $1,600 for class a, if you guys see that little orange dot there, that is actually.

Percent change of the rents have been changing. And a lot of the increases has been happening in the a B class types of markets or types of assets.

Everybody’s been talking about the supply chains, sorta judges. This is why we like to go into stabilize assets because, and this only kind of impact. Development where you aren’t able to get in front of the problem where the shortages that in our world is 63% are the windows is that’s the primary, the issue getting those windows 17% is getting the lumber.

13% is the engineered wood products. And 8% is the concrete. So it’s. I don’t. I don’t think that this is taking into account appliances. Appliances are another issue too, but this is the building material causing contractor project deletes

overall rental. Market’s been skyrocketing. If you’re an investor being left out or I feel bad for you, jump on board and ride this inflation wave for the next several years. But are the top three challenges for the rental industry, putting out by the multi-housing news. First one recruitment and retention of staff, a lot of people, or if you guys have heard of the great resignation, I’m going to restrain myself from telling you my real thoughts about this whole thing.

People are burnt out. So people are like leaving their jobs. And a lot of it is like lower level staff. Although I’ve have talked to a few of you guys, who’ve booked calls with me. Some of you guys just done. You guys are all white collar workers or you guys are done with it, but most of the people partaking in the great resignation are the, the service workers, the people on the front lines.

And those are the people that typically will employ as the property management staff at these properties and the maintenance handyman staff. So that’s number one, number two. Finding high quality vendors representing the number one challenge, I guess I goes with number one, number two, loss rent, more severely impacting smaller companies.

And there are many positions in this industry that don’t require a college education. They are looking to create programs, promote the industry, to attract workers. There is a lot of churn in the industry as we need to see that labor pool open up. And one way to do that is to advertise industry and all the benefits it offers.

Reminds me of the whole teacher shortage. What anybody wants to teach a bunch of kids and not get paid too much sign up. It’s like property manager, right? Anybody wants to interact with tenants who. They only write two and one star reviews when they are on set, but when they’re happy, they don’t tell a single soar.

They say, thank you. They assume that they’re entitled for good shipments in their $800 apartment. It’s a thankless profession. It requires a lots of tact, lots of project management skills, lots of people’s skills and it’s a very key, critical position in my opinion.

If you guys haven’t checked out the family office, Ohana group, I think we’re getting up to actually, I got to change the site 80 members, or so the initial fee to join is going up next year. So please reach out before the end of the year to partake in 2021 pricing. Cause ain’t going to go down. If there’s one thing that is true in life, it is rents typically don’t go down and the family offers Ohana initiation fee don’t go down either.

Most people who join, should we save them or makeup four or five times that initial fee in their first year. So get on the inside and unless if you’re not tired of listening to the same old stuff, a podcast land, or just to give you just the tip to just get you confused enough to call the guest

and figure out what product and sales funnel you want to fall into. And lastly, help me out and check out my book simplepassivecashflow.com/book. Shoot me an email at lane@simplepassivecashflow.com. If you would like to help me out for a few minutes, giving me a review on Amazon so that my parents can be happy with me.

They don’t know what I do these days they’re upset, or I think they’re just confused I’m not an engineer but unless there’s any other questions, thanks for joining us folks. The legal disclaimer here, of course. Do your own due diligence and think for your guys selves.

Coaching Call – HELP! My Wife Wants to Buy a Home

Takeaways from Recent Family Office Meeting

https://youtu.be/6iE7Fi3C8Lw

On today’s podcast, I’m going to be going over some family office concepts that I picked up from a recent family office workshop I attended.

So in this a workshop, they had a keynote speaker, Tony Robbins, which is cool. He’s been getting involved with cross-promoting with guys like Peter Mallouk. For those of you guys who have read his previous book. I don’t think he works with them anymore. I think he works at the sky agent cooped up, but all these guys advise high net worth, a hundred million dollar families and above.

Here at simple passive cashflow, myself and my other folks in my family office group, we are folks getting from 1 million to $10 million plus. There’s not really any groups for that so I decided to create it. If you guys want to learn more, go to simplepassivecashflow.com/journey.

So a lot of the stuff I’ve been talking about today are geared for those hundred million dollar net worth families and above. So you take it with a grain of salt and I’ll try and add in some color what really applies to the broke guys under $5 to $10 million net worth. For those of you guys checking out the YouTube version of this. This is just a part of the e-course. The ultimate e-course, which I’m going to add in the notes in here later on. If you guys haven’t checked out all the e-courses we have, including the free infinite banking one, you can check that out at simplepassivecashflow.com/banking and check out all the e-courses. If you go to the top, I think there’s a section for e-courses.

But here’s the first lesson that I learned. To get rich, you need to really concentrate what you do first. Now a lot of you listening, you guys are just salary guys. I paid salary guys. A lot of you guys make a hundred, 200, $300,000 a year plus per person. But the concept that they talked a lot about is, if they looked at the people who got up to the Forbes 40 lists. Your top billionaires and then you take a look at the people that left that list. I think you’ll find some very similarities where the people who got up though this, they were very concentrated. And the people who left the lists lost a lot of net worth . They did that because they weren’t diversified and what got them there was ultimately what got him kicked off the list. .

A great example, if you guys are familiar with Forever 21, it was like this Korean couple. They went all in on retail and just expanded like crazy. Some bad luck. Which of 2008 recession happened and the rise of e-commerce. But, what they should have done is they should have found a way that diversify maybe in the same industry to leverage their networks, current infrastructure but perhaps they should have diversified. I think they lost well over half of their net worth. They got a billion bucks I’m sure. But I think the bad way of taking this advice as being like I gotta be diversified. I don’t want to lose my money. But if you’re under like 10 million, a hundred million dollars net worth, I still think you’re in the “hey concentrate how you’re making your money” and you’ll got to that point where you really can diversify. Just important to keep in the back of your mind. Once you hit your end game number and for a lot of us in our family office group, the end game numbers, we’d be up $5 million.

Oh, so what does this mean for us? Since a lot of you guys are just salary workers or entrepreneurs, business folks focus on how do you trade time for money at the best, which is likely at your day job? But invest on the side to get you up to that certain point. Build up a portfolio of concentrated real estate was all a lot of the people on this top Forbes list got their money and they diversified it.

So another point I had here. I don’t have a BlockFi account. I have a BlockFi account but I don’t really invest more than a couple of grand in it. For me, it’s a waste of time, right? My time is better spent finding real estate deals. If you guys are working pretty simple, 40 to 50 hour a day job you’ve probably got some time on your hands. But no offense. Your time might be better spent, learning a little bit about Coinbase, BlockFis, D5 platforms playing a little bit of money on there than to deal with a bunch of turnkey rentals or something like that. If you guys make over a couple of hundred thousand dollars, $200,000 a year, I would say perhaps, unless you’re really ambitious and you don’t have kids, you’ve got some free time on your hand. You’ve got a little bit extra bandwidth and you find it fun. If all those things line up. Then yeah, knock yourself out. Learn the Lord bill bought it. I like the world of crypto was going, but for me, I’ve made the conscious decision as an operator of apartments that I need to focus on that and stay in my lane.

Another thing that they talked about was this concept of avoiding locker room talk or the common guy. What’s a common guy starts to talk about, deals or ” Hey, there’s this great startup company or tech company that’s coming up my friend knows them, he trusts them” or the taxi cab driver talking about some kind of deal, whether it’s real estate or tech or just some business. And you start to hear these wordings of ” we’re going to go eight to 12 X in the next few years but you got to get in now this is the last week”. It’s just a sign of a sucker deal and that’s what’s really hard. When you’re just some average guy, I still put myself in this category, you’re not getting access to good deals. You’re just getting access to these sucker deals. If there were not great deals, you and I probably wouldn’t really get access to them.

Whenever there’s like that false sense of scarcity, right? You got to get in now, man, there’s this crypto thing is going to blow up. That’s a sure fire way to know it’s a scam, multilevel marketing type of thing. We’ve talked about that the past and the investor letters where, groups will pump up one garbage coin and it just becomes like a Ponzi scheme where the first people who were in, they got out and then everything tanked as everybody’s in that kind of investing period.

Another idea they talked about was if somebody came up to shark tank, And with Mark Cuban, Mr. Wonderful and they use that same conversation line that we’re going to eight to 12 X in the next few years, but you got to get it now. You get laughed off the set in that situation.

For a hundred million dollar net worth families. Again, you take it for what it’s worth. The goal is to have eight to 12 non-correlated asset. In your portfolio. First question, what’s a non-correlated asset,? Non-correlated assets are like things that are not correlated with the economy. Now there are different varying degrees of this, but I probably put real estate. Commercial real estate in this bucket to some extent. Other pure non-correlated categories are life settlements. It’s a morbid thing, but you can bet on people dying as you buy out their life insurance and you get paid up when the person passes away. It’s nothing more sure than death and taxes.

Other non-correlated things are this is what the life insurance companies they invest in right. Large institutional class A assets, primate markets. Really nothing’s more certain let lower return than that type of stuff. 8 to 12 kind of seems like a lot, I think what they’re talking about is multiple deals. Spreading your net worth out and having each of those to be non-correlated or to like hedging each other within there.

Me personally, most of my worth is in multi-family apartments, which I feel like is pretty safe. The need for lower middle-class housing. I don’t think that need is going to be going away. In fact, I think that demand is stronger and stronger every day as our population in our country and the wealth cap increases. But, I’m nowhere near a hundred million dollars net worth, but I need to be thinking, all right, how am I going to start to take, maybe I don’t want the best returns, but I just want certainty. I looking for those non-correlated assets in the future. Some of this might be crypto, so it might be gold. I don’t do that stuff quite yet, but it’s something I’m thinking about in the back of my head. The other thing that they said is Cassius trash, and this is coming from the high net worth folks. Inflation is a lot higher than you think. Somebody mentioned that 40 years bull market in bonds in the last year, guys. Where now $128 trillion is globally looking for parking right now and you guessed it, it’s going into real estate. As you’ve seen, Blackstone and just picking up little rental properties, I think they’ll fail. They did this back in 2008 when the big institutions just aren’t really good at managing assets, especially small little ones when they’re all separate around. What they really want to be in is large multi-family apartments. Where they could buy them within big dozens sets.

Another point was don’t chase what is running. So crypto and tech are two things that are running in this point right now. We talk a lot about emerging markets buying in places where the population is growing because of some economic growth and that’s more from a geographic standpoint. But what they’re not talking about is more from the assets sector approach.

Real estate is another place where it’s always been even kill. People think, look, real estate is getting really expensive, but on all the highs and lows are pretty much smooth it up. Compare to tech bubbles and the crypto market. Try and look around what is the things that people aren’t doing? Something that I was looking at was maybe a development deal in New York. I’m not going to do that but like just thinking outside the box, right? Where is it that the unsophisticated money is not going into or is definitely afraid of. Maybe now is the time to go into shopping malls. No, I don’t really believe that I’m just joking there. That’s traditionally been beat up over the last several years, perhaps now’s the time to go into it. Getting outside the real estate world, what is something that people, the rush has got passed and gone.

Another thing we mentioned that the bond market is flipping. If the bonds can’t get the yield we want. Where do we go? So what are the high net worth families doing is they’re buying businesses or alternatives investments, the outer world. That’s essentially the world that I tell a lot of people to get into. Get off of the retail main street or wall street investments where you’re getting killed by all these hidden fees and carried interest.

Get into more alternative investments where you’re directly investing with the sponsors, cut out all the middlemen and get into more non-correlated assets because the problem with all the retirement funds and 401ks and all these mutual funds is you’re in this heavily correlated to the economy types of assets. It doesn’t take a genius to make money. In Tesla, when the stock market is going like crazy, like how it is because of all the quantitative easing and fake money. It’s always going to make a run. The point is you don’t know when it’s going to drop so smart families, what they do is they diversify and like you said, non-correlated assets.

One thing, bonds are a way to get cashflow and for people in our group, once we hit around three to $5 million net worth, our mindsets starts to to change. $5 million for most folks is enough money to just safely cashflow it. Maybe you’re not going to get 12, 15% plus, but you can save the cash from maybe eight to 10%. Take something like AHP, for example, you’re not going to load up your whole entire portfolio with non-performing note fund like that, but it’s going to be a small piece of your portfolio so you can get diversification and it operates like a bond. In a way where it’s just meant for cashflow and security.

But with the bond market going away and where do you go? The high net worth families, they buy businesses. Not really for the growth potential, but the business is producing that cashflow every single month for them. Take it for what it is! Some of you guys are probably taking like that I need to go buy a laundromat or I need to buy a carwash on those drive through car washes. Some of you guys, me personally, that’s what tells me is I’m going to go buy an apartment building or jumped into a syndication where I don’t have to do anything and I can get all the tax benefits without all the headaches.

Maybe some of you guys you’re a little bit more ambitious out there. Maybe you go buy franchises. From another perspective. What you want to be doing is getting away from ordinary income. That’s what you get from your day job, your 1099, as you guys contractors out there, you guys want to move from that spectrum to the passive income side so you can use these passive losses to possibly offset your income on that side.

Ajay Gupta, the guy that Tony Robbins kinds of self promotes with. I think there’s probably some kind of partnership there with referrals. All of these gurus, they’re just marketing referrals to other people in the space. I think Tony Robins used work with that Peter Mallouk guy, but there was some kind of scandal or something you guys can look up that type of stuff if you’re interested.

They asked Ajay Gupta what’s your asset allocation model and we’ll do this in our family office group. You know where it’s more applicable, right. People between one to $10 million net worth. If you guys join up that we’re not going to show you what people in our private group are doing.

But what I’m going to outline here is what Ajay said, what high net worth hundred million dollar families are doing I’m not saying it’s right or wrong. But when I go through this again, make sure that you’re taking it with a grain of salt. Y’all are a hundred million dollars net worth. You guys are barely even five or 10 minute dollars network. Don’t emulate what they do, but kinda take some things and maybe if you can emulate what the high net worth are doing.

First of all, he said 50% of his stuff isn’t real estate and of that the 40% which is the 80% of the 50% is in cashflowing multi-family self storage, like bonds, we were talking about earlier for cashflow. The other remaining 10% of the 50% or the minority port is 50% of his real estate portfolio is in land, which the purpose of that is to preserve value.

This is exactly what I’ve been preaching to you guys all the newbies, they buy land and I’m like that doesn’t cashflow. That’s what you do when you get to be five, $10 million plus, or what Ajay is saying here is a hundred million dollar net worth families. They don’t need the cashflow. They’ve got $40 million in cashflowing, multifamily and stuff like that. That they can afford to have some money just sitting in a land bank, not doing anything. This is what they do. This is probably not what you guys should be doing. 20% of their total portfolio are equities. Now this is the stocks. Probably on their own and mutual funds and stuff like that they’ve probably got private managers to do it.

But this is what the high net worth family is. The very small portion of their money. 20% is in stocks. It’s just, it should be shocking, right? Like, why is it that the average American is like 80 to a hundred percent, this stuff? This is where success leaves clues. Do what the high net worth families do and they are very small minority in equities. Probably because it’s just convenient, easy for them and they’ve got 50% in real estate cash flowing like crazy for them.

The next thing that they have is private equity. So this is approximately 20% of their total portfolio and private equity is seen as businesses, but not necessary the LP part. Now, when you’re a hundred million dollar net worth family and above, you can push your weight around and there’s a reason why you got to that point in the first place. So there’s some kind of operational value that you bring in that you can contribute in some substantial way to the general partnership.

This is where the rich are getting richer. These families will go into the general partnership, not saying it’s real estate. But more like operating business is where the family has built up at the network and the synergies and experience to add value in that system.

So for example, say you are a guy doing a pizza franchise and you make dozens of these things. You’ve got your net worth to 50, to a hundred million dollars. Something that I’m just making this up on the fly. Something that might make sense to you is going and buying similar franchises that supplement either it’s very similar business model to the pizza franchises, or it is a supplement or adds on and augments the returns of the featured franchises.

Maybe you go buy a bunch of breweries, I don’t know, and combine the two. So these are seen as more asymmetric returns. So this kind of counteracts the cashflowing assets the 10% of their luggage sitting in lazy equity and land. This is the asymmetric part of the portfolio where the private equity is somewhat speculative, depending what kind of business you’re getting into.

It’s not really like cash flowing apartments or anything like that. These are more like businesses. It could just fall. But these are the opportunity for them to grow their net worth even more. And but it’s also heads from the other side and in this thing called what they call this tailrace. Or you could think of this as insurance. So this was a new term that I caught on a little bit. So what they said is, Any bet that you’re making maybe take two to 3% of that bet and put it in something that hedges your investments. So that should your investment go bad. That two to 3% greatly increases to offset your loss. I’m not, maybe in the stocks, maybe it’s like kind of buying I don’t know what it’s called. Maybe like a call position or put position and something that does the complete opposite. Or. Maybe buying a business that kind of supplements. Or it’s the opposite when one does well, the other does well. So for maybe if you have a short term. Rental, maybe you have some long-term rentals. So again, this is the concept of tail risk. This is what high net worth families do, right? When you have a hundred million dollars net worth and above. When you’re less than $10 million net worth. I don’t know if you, if a TRS is really that appropriate. I don’t know if putting money in land, is that appropriate? But it’s just something to think about, right? When you go into a deal, what is some way, where are you putting some money? So if the deal doesn’t go as well because of the economy, because it’s correlated with the economy. That piece can burrow and make the hurt a lot less. Just some side notes here. And they said maybe they like two to 3% in crypto. If not real estate. Where do you go for storage of wealth now, real estate just checks all the box off this stuff. It’s a hard asset. But the reason why you would want to do maybe just a little bit of crypto is because maybe you don’t have the ability to operate real estate. Then you get into syndication. But then again, the question is what if you don’t have the ability to find good, honest people to work with? And for those people. You’ve got to look elsewhere. There, there are other groups out there that, they’ll teach people all about index funds all day long because their assumption is that you guys out there are unable to build relationships with people. If you guys have been listened to this podcast for quite some time, and we haven’t talked, you haven’t joined our investor group and sign up for our lists. What are you guys waiting for? That’s probably the majority you guys. I’ve probably have maybe two calls a day with you guys and we’ll continue to do so until it becomes too much. But if you guys are one of those people out there that listing for several years now, and if never really engaged with me, Yeah, like real estate, probably. Ain’t your thing. You’re just not a good people person. And that’s cool. You’re really losing out. But then, yeah, that’s, if you’re unable to play nice with others and build. Real relationships because for high network people, your network is your net worth. Then that’s what you get. You get the scraps go after your index funds and go off of that.

They say two to 3% crypto, if not real estate, where do you get the storage of wealth? Maybe they’re saying gold and silver, which is alternative to crypto. It suffice for the same thing, which is just a storage apart assets. And this is a big mistake I see for people that are under $5 million net worth. They load up on a large amount, maybe like five, 10% plus of their net worth in gold. And this is what I was saying. My first point was just because the high net worth people are doing this stuff doesn’t mean that you should be very careful. The people that you see, the gurus that you see on the internet, a lot of the time ask yourself, how are they making money? A lot of these guys will just be pushing out as affiliate marketers for gold and silver. And just trying to, scare the heck out of UC Bowen to gold and you buy from them that they make their three to 5%. So I don’t have any gold. If I were to, if I really wanted to hedge myself for currency and I wanted to. Just store wealth, which I don’t know if it’s very prudent. If your net worth is under $10 million. I’ll be do crypto. But I don’t trust myself to hold those cold storage wallets. So I’ll be doing it in an index fund, which sure. I’ll pay an expense ratio of 1%. There might even be some carried interest. There’s a lot of good ones out there. There aren’t really that many ETFs really yet. But very soon, I’m sure you’ll be able to get into this stuff where you don’t have to run around with a plate of engrave, You’re garbled means have your password and have to worry about that type of stuff. To me. That’s where I, I’ll pay for that convenience. And at least that I’m not the single point of failure to forget my password. Another important thing that these guys preach was reshuffling your asset allocation. Now this is, I tell a lot of people on our group write every year, take a look at your investments. Maybe 20% off that are your losers that don’t have the good return on equity. I’m going to say what’s return on equity. What if you have debt equity sitting in your homes or rentals? Get that out. Check out thePage@simplepassivecastle.com slash Roe for that worksheet there. But yeah. Reshuffling your asset allocation, figuring out what is your. Your most pain in the butt properties too. And then always be pruning it right. Selling off those assets, putting it into new stuff, keeping it fresh. Same thing that the high net worth do and something that they said that really stuck with me is. Do this, when things are good. Because selling the good ones. Is hard. Because essentially what you’re doing is you’re increasing the losers, right? But when things are bad. You’re going to be really wishing that you did this. Some of you guys might have, you started with, very crude at 5% of your net worth that the crypto. I still think that’s a lot, but now it’s 30 and 40% in crypto and you’re still riding that. But what happens when you lose half of it overnight? You’re going to be wishing you, what you put 25% of your net worth into real estate. Where yeah, you weren’t, you’re not going to make off potentially high return. But in that next. Reshuffle, which will always happen. You have it there. And part of this is just like mindset. If you’ve made a bunch of money in crypto or some other elsewhere or your business. What into somewhere where you can reliably make good cashflow and it’s a good store wealth. I don’t think anything is better than real estate. I doing this. And of course diversify it out over multiple assets. But, it’s kinda like this thing where it’s A lot of the stuff we talked about here from these family offices, maybe don’t apply to listeners here today. You still have to grow your network to me. Until you get up to $10 million net worth. Now maybe $5 million, you should have number, that’s where you’ve personally hit zero gravity or escape velocity. At that point, now start to change your portfolio to more the bond model. you’re going after more cash line businesses for cash flow, you’re going into asymmetric risks or limiting your aims to metric risk types of deals. Going into insurance, oh, yeah. I forgot to mention that. 5% of these guys’ network is in life insurance. That type of stuff. Infinite banking, right? That’s exact stuff we’re talking about. Simple, passive castle.com/banking to read all about that and get the free e-course by signing up there.

They also mentioned there was some follow-up questions too, but like NTS, that’s the big rage right now. And, they said They were very like, timeless about how they gave us advice. Because I think right now you have a lot of YouTube videos everybody’s into NTS is the thing that talk about. Other than AOC stress or write text or rich type of stuff. But they say collectibles have always got up and down and in waves. And, the NTS is just more of a virtual thing, but, collectibles, like art. Wine. Maybe not baseball cards. But the time these are timeless. Rare valuables that always come up in waves. And it’s important to understand when it’s high, when it’s low and now it’s high. So don’t be the. PETA sophisticated investing do not buy now. And they always, they said the same it’s always been a very timeless piece of advice to buy two cases of rare wine. Save one, but drink the other.

And they also close things out. And this is what we talk a lot about in our family office group is, more of the legacy creation teaching the next generation about wealth. All too often, I think what typically happens for first-generation wealth people is that. We spend all this time. Maybe we do it the wrong way. The 401ks mutual funds buying a house to live in right out of college, that type of stuff. Or as soon as we get money, ultimately it just we do this the wrong way where it doesn’t, it takes. Maybe to your fifties, sixties to get finally get financially free for most people. And in that time your kids have gone there. The. Once they hit 15, 16 years old, you’ve lost that opportunity to model the next generation. And that next generation. Sure. You’re going to pay for every means to go to that. To get college educated. But I think the problem is where you lose impact of the next generation on born generations, the grandchildren, because all their parents, all your kids are going to be able to teach them is how they went to college. And that may or may not be their thing. And we all know that what. Where they’re going to be putting their money, investing their money is going to be at the wrong places. They’re not going to learn how to make money. This is why, for a lot of people. That have joined our groups. I tell them, Hey. Give them that incubator investor e-course to your kids have them learn about this baseline level of stuff. They’re not a credit investors. Yeah. They don’t, they shouldn’t be going to syndications yet, but haven’t learned about the basics now to learn what’s inside the black box so that when they are passed on the wealth, They know about how rental property works. They just know basic business skills. And how the world works. And of course the last thing here is, health as well. The difference between somebody with a hundred dreams and only one is. In the, so the difference between someone with a hundred dreams and only one is their health. If you think about it,

Right now, a lot of you guys are healthy. But if somebody told you in the next few months, you’re going to die because you have some terminal illness. You only have one thing in mind, which is your. It’s just surviving. Unfortunately, most people make changes. In life until they’re forced to.

This can be said for a lot of things. Might them something. I’m thinking about lately is, the choice to quit my day job. And do this stuff full time. So people learn about real estate and get into deals. No, that was a big choice for me.

But once I made that choice. My destiny was formed and I moved along this path.

I, in that case, I made the decision. It wasn’t like a situation where things just got so busy and I was forced to do it. Maybe if you guys are thinking in the back of your head or something that you guys need to make a big change on, be proactive. Don’t be somebody who lets destiny force you into making that change. Make it yourself and control and all that. So that’s all we got for today, guys. If you guys like if you guys want me to share more stuff like this, let me know. And we talk a lot about this stuff every couple of weeks in our family office group. Which we don’t have any a hundred million dollar net worth families and above and nor I don’t think you would want to.

I think if you guys are somewhere between a million, 3million dollars net worth, that’s pretty much where the average in our folks are at. Everybody’s still working. Everybody’s really busy. It’s meant to be a side financial club onto already what busy plate you guys are working on. Every group out there they’re trying to teach broke guys how to get rich, doing big deals. There’s really no other group than our family office group where we’re teaching you guys how they just keep doing what you’re doing in terms of your highest and best use at your jobs, your salaries, your businesses. But how do you invest the right way and what deals to go into, who to stay away from. We help cultivate best practices for tax, legal then we connect you with the right professionals to make that happen.

But the biggest benefit is the network and as you start to create your own family office, start to emulate what the hundred million dollar families are doing and above you’re going to meet up to your group, the people that are on the same trajectory and on the same path as you. People you trust that you can rely on. More information on that, visit simplepassivecashflow.com/journey and I will see you guys next time. Bye.