President Trump signed an eviction moratorium order that effectively bans evictions nationwide through the end of the year. According to the Centers for Disease Control and Prevention (“CDC”), the moratorium order has been issued to provide housing stability and to prevent the further spread of COVID-19. However, it is important to note that rent is NOT cancelled through the end of the year. Let’s dive into how this order effects landlords and owners of real estate…
According to the moratorium, there are stipulations in order to receive this “eviction protection.”
Those who are eligible must meet additional criteria before presenting their landlords with a declaration, which will be made available on the CDC website. This criteria includes:
The resident has sought all available government rental assistance
The resident will earn no more than $99,000 in 2020 (or $198,000, if filing jointly)
The resident can’t pay their rent in full due to a substantial loss of income
The resident is trying to make timely partial payments, to the extent they can afford to do so
The resident would, if evicted, likely end up homeless or forced to live in a shared living situation
What to do if you (the landlord) receives a CDC Declaration from a tenant?
According to Colton Addy from Snell & Wilmer Law, if a landlord receives a CDC Declaration from a tenant, the landlord should respond in writing to the tenant to encourage the tenant to make partial payments of rent (and similar housing-related payments) to the extent the tenant is able, in accordance with the CDC Declaration. Additionally, the landlord’s written correspondence should remind tenants that the rental amounts are not forgiven and will ultimately need to be paid.
Additionally, many tenants may not be aware of the government assistance programs that are available to tenants to help tenants pay their rent during the COVID-19 Pandemic. Landlords should include a list of available resources that tenants can use to pay their rent. The Department of Housing and Urban Development (HUD) has stated that nonprofits that received Emergency Solutions Grants (ESG) or Community Development Block Grant (CDBG) funds under the CARES Act may use these funds to provide temporary rental assistance to tenants.
The following websites provide information on federal assistance that is available:
Additionally, landlords should include other programs that may be applicable in their jurisdiction. Landlords may also consider filing an eviction proceeding for one of the reasons permitted by the CDC Order, but landlords should use caution in pursuing such actions as eviction proceedings in the current climate are likely to draw additional judicial scrutiny.
Penalties:
The penalties for individuals who violate the Order are severe, including:
A fine of up to $100,000 and up to one year in jail, if the violation does not result in a death; or
A fine of up to $250,000 and up to one year in jail, if the violation results in a death.
The penalties for an organization violating the Order are even more severe.
In summary, the moratorium order provides temporary relief to those residential tenants facing eviction who submit the required declaration, through the end of the year. The order, however, does not absolve a tenant from paying rent or restrict a landlord from applying penalties, interest, or late fees on the tenant’s account for non-payment of rent. Additionally, the order does not relieve landlords of their debt service obligations if a tenant seeks relief under the order.
Disclaimer: The materials contained in this blog post are for educational and informational purposes only. Nothing in this blog post is to be considered as the rendering of legal advice. Readers are advised to obtain legal advice from their own legal counsel. Additionally, please note that the orders and laws related to the COVID-19 Pandemic are changing on a daily basis and your jurisdiction may have stricter rules related to evictions in place. Please verify the rules currently affecting your property at any given time.
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landlords will still be permitted to evict tenants in certain cases such as instances which the tenant has destroyed property or poses a threat to health or safety of neighbors. This is a story about a dude named Lane moved to the mainland em, but one place to stay. And then one day he went try to rent them
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out. And then he became one
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we live this domain.
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Alright, let’s get started here. So this is the September 2020 monthly market update. We go over the latest headlines and some findings that I go over every month. You can find this at simple passive cash flow calm slash investor letter free giveaway for you guys is we’re giving away the E course. For trade lines. If you guys submit your lucky number which is zero to 99 to me at latency Passive cash flow calm before September 15. I’ll be making that giveaway. On that day. I’ll let the lucky winners know. And the straight line course if you guys haven’t heard of it trade line is a great way that I made 10 grand in 2019 on pace to do that again this year, but I use my existing credit lines, put people on as authorized users and charged them for it and pick up some nice passive cash flow. It’s a great way for non accredited investors and accredited investors to play a little bit of small ball so that you can save up money with or to put on down payment for syndication deals. We haven’t met before. My name is Lane Kawaoka. I put together this simple passive cash flow podcasts. Join our community online on Facebook and check out our podcasts on Spotify, YouTube, Google Play I heart, Stitcher and I too, so few teaching points I want to start off with this month we had Russell Bray, who is one half of the real estate guys, mentor to myself, great podcasts, the air the first half of the podcasts this past month, and we talked about the repo market. If you haven’t heard about the repo market, it still confuses me personally, you guys can check that out. And sort of the conspiracy theory that’s out there is that there was some financial trouble that the country was going through and COVID is the convenient cover up story to put in a whole bunch of stimulus money to put up the fire. whether it’s true or not, the fact remains that there is a whole lot of money being pumped into the system. And neither way you play it is you buy assets and when inflation comes you are the beneficiary. It’s the people that are saving money in the bank account and not doing anything are going to be the losers in the future. The next teaching point wanted to go over was I saw this article by marketwatch. They said that the new savings target is a modest 8 million. This has been going up I remember when I was like $2 million, and it was $4 million. I guess now it’s $8 million. And I don’t know where they get this stuff. Oh, if you can grow your money, with cash flow in art assets, I don’t think you need to grow your money to be too much. Of course, conventional retirement thinking is this idea of the accumulation theory where you need to build up a certain amount, where they’re saying it’s $8 million. Here is a lot of money. And what they say is the accumulate to this amount so you can withdraw at it at a certain rate, say three or 4% a year and live off your day days. In which here it’s about passive cash flow. We actually think the complete opposite and because we are trying to create streams of income today, so that that will further accelerate our passive cash flow and ability to buy more assets. But at the end of the day, that’s the end game, right streams of cash flow. And this is the last teaching point I want to bring up before we get into the news for the month. I checked the news. I try not to check it too much on a daily basis. But this article came up one day and I just thought it was a pretty bad article. This sort of happened in the middle of the month as stocks were rebounding stock market news, s&p 500 NASDAQ hit record highs as COVID-19 vaccine shamans and hopes rise. And let me just kind of highlight here like
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just because the stock market is up.
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And because of all the government stimulus and everything Despite that, unemployment still very high. Because all that’s still going on. It does not mean that it’s directly related to a COVID cure along the way. Remember, these news people, they’re just trying to sew headlines and they are trying to correlate what happened today, where the stocks actually went up this day to something that is happening in the news. It’s very often it does not horridly or caught causation, is in fact, it might be a correlation. Yes, today, there might have been an ace ball, one off headline where they did some research and this vaccine did move past to another scale of testing. But that doesn’t mean that that was the reason why the stock market went up. 400 points that day. But news does this all the time and I just wants to point it out because as sophisticated investors you guys need to fix me. watching the news is one thing being informed but being able to pick apart kind of nonsense like this article on August 24 is important. And for those of you guys checking this out on the YouTube channel, I have five wealthy billionaires and what their biggest purchases for this past month and what they were selling. Or Buffett picked up gold and he’s selling JPMorgan Chase, or George Soros. He bought t mobile and the biggest cell was peloton interactive, the the biking people car iPod, he got LNG and he sold hp. David Tepper bought t mobile and T Mobile again he’s biggest sellers on Amazon. Call john Paulson biggest purchase was Bausch health companies vhc. And he sold fire call. Now the teaching point here is just because a big whale is doing something doesn’t mean that you should be doing it. These guys are wealthy billionaires. It’s very different from what 100 millionaire family office should be doing a $10 million net worth guy, a $1 million net worth guy and possibly what you are doing at home, there’s always things that are kind of going on the background, and people have put a lot of emphasis on things like this, and I don’t really pay much attention to it. I mean, it’s it’s interesting to see some correlations, but I don’t trade stocks. So that’s just me, but people talk a lot about Oh, what Warren Buffett. What, you know, some some they’ve just pulled some random quote from Warren Buffett, but I think it’s always pulled out of context. I mean, you can pull his whole Good quotes just like the Bible, from Warren Buffett’s bag of quotes, and you can have it neat and anything more Buffett does essentially his advice companies with good management. Last time I checked, a lot of us don’t have enough money to do that. Then investing with hp since 2017, buy distressed mortgages and discounts to offer struggling families sustainable solutions to stay in their homes. When homes were vacant. He recognized that lenders frequently struggled as they tried to limit their losses. That’s why owner George Newberry founded pre reo, a platform that gets these vacant properties into the hands of local investors like us during the foreclosure process, which mitigates losses to lenders and accelerates returns for investors a win win. I’m very excited about this platform that connects local investors with board appointed receivers in their area to cost effectively repair, lease and maintain and rent vacant homes during the foreclosure process and all We make a profit. I’ve been checking out local properties here in Hawaii and I think it’s a great way finally pick up my home to live in. Even though I think homes the buyers aren’t probably the best. You can learn more about pre reo by going to simple passive cash flow calm slash free reo. All right now we get into the news on the middle of August, s&p rose to touch record levels yet again. So if you haven’t heard it, drop 30% in the start of COVID. And now it’s been retracing back up and we are right back up to all time highs now, which is great for you guys. Hopefully you stayed in it. You got out. Well, sorry. But hopefully you went into some sustainable asset like real estate that you actually understand because this makes no sense to me. Right unemployment is that a spike because of all that’s going on with a pandemic that’s still lingering
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This next article came out very recently a renters in the United States cannot be evicted through the end of the year due to Coronavirus CDC order states. So
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I’m going to read some of the highlights here. So this is us as best efforts to obtain all available government assistance for rent and housing. The individual cannot expect to earn more than $99,000 in the annual calendar year for 2021 more than 198,000 if joining tax return as a couple. So basically, it’s trying to exclude wealthy people. They’re trying to help out the people who need it the most. They’re saying the individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income loss of income. compensation hours or of work or wages, a layoff, or extraordinary out of pocket medical costs. I believe that they’re going to make the person who’s kind of using this to get out of jail card, they’re going to have to sign something or certify that this was them. They’re still recommending individually using best efforts to make timely partial payments. Who knows how that’s going to be enforced. And then this is supposed to be to protect those who would be evicted and would render the individual homeless or forced individual move in and live in close the borders in a new shared living situation, because the individual has no other options. It does not apply to evictions for things other than non payment of rent and it does not prevent charging late fees. Big news. There was one little dewfall that I saw in here landlords will still be permitted to you evict tenants in certain cases, such as instances which that tenant has destroyed property, or poses a threat to health or safety of neighbors. So all you guys out there, you should be having your own property management on the front binds, because most of us here are investors. We try not to be landlords, of course, talk to your own legal counsel, but that might be an opportunity to still get out people out who are posing a threat to health and safety of neighbors. But yeah, tough times, right. It’s unfortunate, some people are really taking advantage of the system. And they have the means to pay. They spend they just don’t pay it and are kind of gaming it. I have a little map here on absentee voting regulations. So just check out what states are in some places have moved entirely to absentee male voting some happens. Check out your state, but yeah, get out there. votes I pulled this from the yardie matrix national multifamily report. It kind of shows how rents have been tracking through this COVID era we’re living in on the left is the year to year rent growth for all asset classes. So that’s if you called everything up in one on the national scale has gone down point 3%. So pretty much staying rightward is the middle row is the lifestyle asset class. This is more of your class, a higher end type of rentals. And then on the right side is more where we try and stand which is the renter by necessity and asset class, which makes sense renter by necessity. The national average there is it’s still going up by 1.2%. Phoenix, Inland Empire, Atlanta, Indianapolis, Sacramento are in the top five those are well above 3% ranking pieces per year. Still the big losers all the way bottom are Los Angeles, San Francisco. San Jose for the renter by necessity asset class. Of course, you might have Dallas as on here, it’s still a little bit better than 2% rent growth the year but it’s important to note that Dallas is a big MSA you really should be looking at your more sub market data. And more importantly, your sub market which could be 20 or 30 miles wide. You really should be looking at or you are an actual lock, john burns consulting, releases a nice map on market opportunities that they seed Sacramento and Inland Empire a little bit more on the California State for California, probably due to people running away from San Jose in the Bay Area to a little bit cheaper places in Sacramento and moving away from Los Angeles Inland Empire. Phoenix, Arizona is on here, Austin, Dallas Houston are on here. And in the southeast. We have Nashville, Atlanta and Tampa Bay get the bus multi housing news. dot com reports that how multi families defense, nature holds investor interest. So in look at the big landscape of all the real estate ish type of things to invest in, you’ve got all sorts of things like office space retail, you have workforce housing, you have luxury housing, you have all sorts of student housing, assisted living. The big losers are by far the retail strip malls and balls and office space and a little bit of living. But I think the darling out of the real estate world and possibly out of all asset classes on our multifamily real estate, I don’t only just kind of lucky but I count my lucky stars that that’s what I happen to invest in. And I quote here the sector’s resiliency is also illustrated by prolonged performance and durability since the onset of the virus in majority of markets rent collections are robust and occupancies are stable. And I think what you might see is, everyone’s going to start to see how stable multifamily is and maybe in the next six months to a year, people will start to move away from those other or non pandemic proof asset classes and find a safe haven in multifamily business now reports that New York City apartment rents are dropping as reticence leaves in droves. And this is also happening in the bay area that we showed last month in the last investor letter. A New York extends eviction moratorium. We start at the top with the National eviction rules. Each state has their own individual ones. So I suggest and checking out how it is where your rentals are, but they might have different kind of moratoriums to some may not have, but they may have the board’s close which is sort of essentially the same thing where it’s not processing that type of work, the time another example of people running away from San Francisco, Pinterest, The tech giant, if you guys don’t know what Pinterest is, it’s kind of like a social media channel where it’s just a bunch of pictures are actually kind of useful if you’re trying to find some good ideas on how to make your closet or arts and crafts or Home Improvement type of projects will pinch us walk away from their lease, which is a big deal because they have to pay at $90 billion cancellation fee. But they’re like, we don’t care. We’re out of here. Pinterest is actively recruiting across a range of roles where they’re evaluating their strategy to be a more distributed workforce across geographical locations. And this is also happening. A lot of other tech companies to multi housing news reports that classic vacancies rise and rents fall have been crisis this goes along to what’s been expected you’re very very high end Class A suffers and these type of situations. I would say that when I think what they’re talking about in this article is your your age plus class your luxury type both properties like if you guys just google Amelie am Li, they had very high end apartments. These are the ones that can kill first, as people kind of go to market value base type of living conditions. In any event, the search team, quote here, Class B and C vacancy rates also grew, but at a much slower pace. You can see a little chart courtesy of Marcus and Millichap or a broker, real estate broker how the vacancies have kind of tracked for class C, B and A in relation to each other. There’s some more stimulus coming out for all that’s going on hundred reveals almost 500 million for Corona virus relief. I put this out to the Facebook group I don’t really understand what is this exactly money going to always see these headlines but trying to figure out what exactly but money is going to try to position yourself in such a way to capture this is always difficult because there’s also a lag in terms of timing to they might sign something into law. But as I’ve mentioned, I still work on construction projects that took stimulus money, and it took like five or six years before the shovel on the ground, but I believe this is going to section eight housing, whatever that form may be to bolster reserves there or to expand the voucher program. I do not know. But money is coming out there. Multi housing news also reports that they interviewed the Amelie man Man, we will. Again they Amelie runs very luxury high end apartment complexes, I would call operator of class Bay. And, and some good insights in this article. So they said economic forecast released earlier in the year have had to be erased and completely withdrawn. And they asked them what’s your outlook for the multifamily for the next two years, they said, well, it’s roughly flat this year with an uptick next year and a nice abouts in 2022. As supply likely lessons, and I’ve been talking to a lot of investors in my club this past month and just kind of getting a poll out there informal poll and it just seems like those who are the term comes up a lot of just hunkering down financially, trying to build up capital just trying to see what happens to the election or whatever. Those are typically the low net worth guys, and maybe that’s causation or correlation. Maybe I should write a Article on that, but a lot of sophisticated credit investors, they have cash reserves and they are investing in the right projects where they are going in with great debt options may not have seen rates as low as like 2.7% or a couple weeks ago was like 2.9%. It’s amazing how low the rates are our business online reports that multifamily specialists remain optimistic predict return to normalcy in 2021. So a lot of these industry news sources are for predicting a flat rest of the year with a strong 2021 and a very strong 2022. The way I am playing in is I am just kind of going into deals that cacheable and taking advantage of the interest rates and pretty optimistic that there will be some kind of pent up demand and Tim serve maybe a year from now people want to get up they want to travel they want to buy things And unfortunately a lot of people were on the C class renter side and below might be, I think they’re slipping behind even further for unfortunate for all of this. But I think a lot of people have good jobs, they’re able to remote work. I think that country is going to get back in going Sam Zell, who is another guy, so I follow the homily a lot because they, they are kind of a leading indicator for the apartment space because they I call them a canary in the coal mine because they do that classmate rental properties. I follow them and I also follow the stem cell character. You can Google him but he sort of like a warren buffett. But I would say he’s probably better to follow than Warren Buffett, Warren Buffett kind of vice whatever. These days were senzel sushi investing off some kind of macro trend. So here he he’s saying that real estate retail real estate like malls And shitballs is a falling knife that has hit a bottom yet. pandemic has accelerated the amount of online retail. And I don’t think it’s ever going to change he added. And there has been dozens of retail bankruptcies and thousands of store closures adopted by Rito. Senior. Well Sam Zell is recognizing that issue but he is not jumping into that space. And another thing I watch is like if you set up a Google birth for Blackstone, yeah, that company they go in like sharks every time the last time this recession happened. They’re buying the single family homes by the truckload. Here’s more data on the dying mid range mall, which is in the retail space. So mid range, you want to think of it like a Macy’s or JC Penney for over 21 these are not your your high end stores. More recently, Brooks Brothers GNC gear one I think what you’re going to see is like one of the high end type of stores survive. But yeah, these mid range type of operators die out Simon adds bankrupt retail brands to shopping cart. So the mall owner Simon malls as far as that jeans brand and closing in on a deal for Brooks Brothers. So this kind of cool, right like a mall is going in and buying these distressed assets just like we buy apartments and I think this is kind of a cool way. It may be maybe it’s a falling knife, but for sure these stores are undervalued. I don’t know if they can go even lower but I think it’s nice to see these big companies take a stand and invest capital where there’s blood in the streets and this works this is how they make a lot of money. Commercial Property executive reports that Amazon unveils is six cities $1.4 billion office expansion. So again, like office is getting killed. I see some office deals out there and I’m like, geez, it’s a hard thing to sell right now. It’s like selling ice in the middle of winter. So Amazon is going in and actually buying office space in Manhattan, Dallas, Detroit, Denver, Phoenix, and San Diego, which we this is a well capitalized company and it’s super smart what they’re doing they’re buying stuff while it’s cheap. And some of them again, Manhattan, Dallas, Detroit, Denver, Phoenix, San Diego is where they’re buying and we’re kind of hitting the halfway point if you guys haven’t gotten the key one tracker for you guys can shoot me an email Lane at simple passive cash flow calm and I can shoot it over to you guys if you guys who deal pipeline club. You can join our club at simple passive cash flow calm slash club to get access to this but I made this little chakra form because I got a lot of key ones coming back and I just got to make sure that my CPA kind of captures all these dozens and dozens of K ones. So I don’t lose out on my sweet deductions. So I put all my k ones, all the deductions, and then your GP LP or whatever it is on there. So that I kind of know in my head, where to double check my CPA against they captured all these deductions. And I think they like it because I put the link in there where I put all the K ones on my Google Drive. So this way, it’s a great way for you to keep track of what you’d have going on to. You also get additional cost StG study articles and sample k ones to take a look at if you haven’t been in a syndication deal before. But yeah, that’s my key one trucker form sheet but I’m going to wrap up here with my little personal updates or things I’ve been doing this past month to get a little enrichment in my life. So the first one is growth here. So I’ve been stuck at home here in Hawaii. They just started another two weeks stay at home order. I started improv class every Monday we do this for a few hours. So there Why am I doing this? I mean, if you guys haven’t done improv, it’s super fun. I mean, when you first do it, it’s very nerve wracking for sure. And but I think it’s, I wish everybody did it. One thing that a lesson learned is, like this concept of Yes. And it’s, you know, those people at work who are so difficult, and they’re always like Dr. Nolan, like you always talk to them. And it’s always like, well are, but bla bla bla No, or, you know, just, I don’t know, nobody likes to hang out with these people. And you start to get really conscious of this when you do improv because in improv, you have to accept the readings If yes, and if somebody is doing something in like a skit or improv like rowing a boat. You have to just go with it is yes, no So I think if more people did that, I think we’d have less headaches and less people problems. So but the first reason I did this is just getting a little play. I think as adults, we don’t play at all, just mostly work all day long, and have to consciously put play into our schedule. Secondly, listening skills with improv the most new people when they do involve they’re always thinking, what kind of clever stuff they’re going to say, which is totally not worth what you’re supposed to supposed to listen, and then just react. You can’t react unless you’re listening. Maybe that is like talking to your spouse like you don’t listen, and just try to decode what you’re going to say to cover your butt. Right? Well, here’s Listen, listen, let’s learn improv. And then the last lesson learned improv is when you set somebody up, you give them a gift, right? That’s the set them up and then the next person is supposed to support and accept it no matter how stupid it is. Or, however, like a dead end type of topic. So I got a couple months for this, but it’s been pretty fun. I urge you guys to do it. I’m always trying to learn more stuff, which is why I went on this virtual sucky tour to Hiroshima. And it was like 150 people on this tour yesterday, but that was kind of fun that I did. Oh, how did I get a little contribution the worldwide kicked off the remote investor configurator and this is for the newer guys trying to pick up their first remote rental property. I kind of broke this group off for the mastermind, which is mostly accredited investors. You guys can learn more about that and credit investor passive, bad simple passive cash flow.com slash journey. But this remote investor incubator is simple passive cash flow.com slash incubator where we think we have like about 15 people in here, but it’s really cool that a lot of these guys are new. They’re really energetic, really motivated to buy their first rental property and for me when I started this journey back in 2000 Nine and I bought my first property, it really changed my life and buying that first property was really how this all kind of came about allowed me to quit my job being getting a little significance in my life. I’m just thankful that I have my job, that my job doesn’t get impacted by COVID. A lot of people out there realize that, like dentists, they want people to work. We had a lot of dentists clients here, and that’s just unfortunate. I brewed a thought that you can see patients for something as simple as cleaning team. A lot of industries out there in the tourist world had we had some like tech programmers thinking and leisure and tour apps just totally to get laid off. totally unfair. I think the lesson learned is you always want to have different streams that can come to counteract this and to diversify your income streams but not just a just taking a time for gratitude and being thankful. That we have we have a big thing. How did I get a little uncertainty in my life? Well, I did the improv class. It is kind of a pain. It’s like a few hours every week and in the evening and it takes time out of like a week, but I do think it’s important. So I scheduled it. Oh, something bad happened with my tradelines Chase. cancel my cards. Yeah, but it was all my wife’s cards. So for things she doesn’t have any introducing cards, they find a way to make it up to her somehow. But yeah, boo Chase Bank, hey, they had really good systems to look for this type of stuff, but still got all the other ones Barclays, Citi, Bank of America, US Bank, all these other banks to choose from. So keep in the good times, rolling with trade lines. Learn more at simple passive castle.com slash trade lines. And if you guys want to learn When the free ecourse that I’m giving away this one, give me your lucky number zero to 99. And I will see if you’re the winner this button.
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How do I get a little certainty in this month? Well, I paid off my students loan. So I had a guest on my podcast, and it hasn’t hit the air yet. But I asked my community for folks that they have worked with in the past. And this one gentleman came up who they use for their student loans. And I guess there’s this world of consultants who consult people on all their student loan debt. Since there’s I mean, I always knew there was some kind of game but then I talked to this guy and I had him on the podcast to kind of tell us some of the tactics and I realized like, wow, there’s a lot of stuff here. Everything from like student loan forgiveness programs to Alright, so maybe the solution is going in refinancing it into different loan options. So this guy, he’ll walk you through all the options. He works as a consultant basis, like he’s not just getting like referrals. fees off of the financing of the home, therefore proceed with just that one option. And he also is able to consolidate on that maybe are a high paid doctor, and you’re kind of weighing the option between maybe do you want to go to work in an underserved area? Get your student loan forgiveness? Or would you rather make top line dollar at somewhere else that he helps he works at so many other people, he sees the matrix and he’s able to consult so I was gonna get this guy I selfish so you can I always have guests and I still have selfish needs where I want to get something addressed for me. And my wife had some student loans and she’s been working as a teacher for 10 years. So I want to see I wanted to just pay him like 300 bucks just to make people work for me. But then it come to find out we only have like less than $2,000 in student loans. So it just paid that thing off. Maybe that gave me out a cost for getting off and chase cards revoked. Last thing loving connection. I’ve been missing a lot of people and I’ve been bored at home. So I did my hair out with a couple cooking with lane videos. I don’t think I’m the best cook, but I’m definitely the most efficient cofeb ever so on. So check this out on the YouTube channel, and I made your coffee here. I am halfway through, I made some kababs with tomatoes, garlic on end mushrooms and steak and bacon. I put them on a ski gear. And then maybe this week, and next week, I’ll make it I froze it so I can make it whatever. So that’s the beauty of this one is it’s kind of one of those things, you can just take out the freezer. So I will do that next. So if you join the YouTube channel and you subscribe there, click the bell. You’ll get notified when I launched that video, some new podcasts and articles that came out. And for those of you guys who are attending, you guys can type in any questions you have at this point but or you have any questions on any of these topics, let me know. So we had the VIX markets guys. It’s a crowdfunding way of investing in all kinds of geeky stuff like magic cards, Spider Man comics, it’s sort of like that wine crowdfunding website that we did the previous one. George Newbery came on the podcast and we discuss pre aureo, which is a great way to find distressed inventory locally. I check it out like once a month and to see what’s around in Hawaii. So pre reo is before it goes to reo. So it is usually in just show states, not just states, wherever he wants a harder. There’s a lot more options for pre aureo in there before the power goes to the court process. My buddy Kyle, he would have stayed jobs. We interviewed him on the podcast there and then also break came on the podcast and we discussed the repo market, the dark world that happens and then we also had Dr. Kim come in on did volunteer to do and coaching call, she was a credit investor so great to open up the personal financial sheet and kind of see what she’s doing. I know a lot of you guys are doctors out there making a big salary puggy good to take a listen to that we can change your name. And if you want to do like a coaching call where we record it for the podcast so other people can benefit from it. Let me know, shoot me an email plain and simple passive cash show. I think it always helps all people. At the end of the day, it’s kind of like there’s not too many different financial profiles. I see. Maybe like a dozen. It’s kinda like when I go to like Japan, I always see like, the same faces over and over again. Everyone’s got the same, there’s, you know, it was the same. There’s only like 20 or 30 faces like sometimes I see myself out there. I see my doppelganger out there. But yeah, in terms of financial profiles, it there hasn’t been. I’m starting to see a lot of patterns out there. A lot of very similar patterns. Everybody thinks are their special snowflake. You might be but most likely you follow one of these main categories. Check out the in the mastermind and incubator there are some details on it and some cool stuff that I bought this past month, which we call doodads, which I encourage you to put off until you have passive cash flow coming in to buy the stuff Chuck Norris has some bottled water called see force, I bought that and hopefully it gets delivered and all the water is in there and doesn’t break like some of my other Amazon stuff that comes in the mail. And for those of you guys who are on a lot of Zune calls. There is an app called Chris, which I’m actually using right now, which is why you don’t hear my very loud air conditioner in the background today. You guys can get the link to it at simple passive cash flow calm slash lane hack along with other life changing lane hacks out there. You You can also use the app that goes on your phone too. So you sign up for this thing. I think it’s like 30 or 40 bucks a year. To me, it’s well worth it. Actually, like my dog is barking and senses in the in the background for the past one day. And I don’t know if you guys are hearing it right now, but it should block things like that. So it also gives you the phone app and you can make calls from the phone app. And a little bit of a lane hack here is like you can do the dishes all you want. You can probably be on the toilet. I’m guessing I haven’t tried this yet. And you could be on a phone call and it’ll filter out everything that that’s not a human voice is AI. So yeah, check that out. Simple passive casual.com slash ln hat. Dean says he hears the word. One bar. Yeah, there’s several parts in here all those but yeah, here’s legal disclaimer and we’ll see you guys next one.
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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 adviser before relying on any information contained here and information is not guarantee as an every investment there is risk. 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 interests.
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This is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out. And then he became one real investor make
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a simple passive cash flow listeners today we have George Newberry, owner and CEO of HP. A lot of you guys have been investing in that fun for the past couple years. But he is going here to talk about a new business that he has created called pre reo. But and we’re also gonna be talking about what’s happening with hp through the pandemic. We are welcome George, this is a third time on the podcast. I think at least I appreciate you having me back lane. Oh, hope to continue a run of continued appearances. And this is probably like the fourth time recorded because one of the times I forgot about pressing the record button, but it looks like it’s it’s good. So we’re good. Glad to hear it.
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All right, George. So what is this pre Ario? Maybe maybe start the beginning, right? Because a lot of guys, you know, they may not be known investors. So what is sure? Are you absolutely right started? Yeah, absolutely. So pre aureo is a, it’s our term that we made up. But here’s here’s how we define it a pre aureo is a first mortgage that is in default, that is secured by a vacant property. And that property could be a house could be a condo could be apartment building, hotel, whatever it is, but those properties are vacant. So that’s what we described. So it’s likely to become an reo. Hence it’s a pre RTO.
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And, you know, the reason we started this was because we often have as an example, a first mortgage secured by a vacant home in, let’s say, New York and New York, it can easily take two to three years to foreclose, even if no one’s fighting. The foreclosure is just such a slow process and if we have a vacant property that’s out there, it can suffer from deteriorate.
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From vandalism people could break in someone has to cut the grass which is us shovel the snow neighbors can complain and say hey, you know the property kids broken over the weekend. So then the city comes to us and make sure that we do the work. So we do that, but it is a cost and there’s And meanwhile, we’re having to pay for property taxes for for insurance. So I always thought how do we there’s homes there and in some cases they’re rentable. In some cases with some repairs, they could be rentable. How do we make this into a generate some revenue while we complete the foreclosure process? So that that’s that was where the concept came from. So the when a lot of people will go after that’s just the regular Oreos again, that’s where somebody owns a home they’re good they fall behind on their mortgage, and I guess maybe maybe explain to us like what what what distinguishes just a regular Oreo in the pre Sure, sure. So an reo happens if we have a mortgage secured by a vacant or occupied
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property and we go all the way through the foreclosure process. Then we will offer that a home as a reo we now own it, it’s real estate owned, is the where the RTO comes from, and that is offered and that’s typically reo is used when it’s owned by a lender or bank. HP any hedge fund. They always if you buy notes, you’re going to end up with Oreos, but the pre Oreo is is is trying to buy that note before it’s gone all the way through the foreclosure process. And because it’s vacant trying to generate revenue during that,
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that interim process while while it’s being foreclosed upon, right, so once it hits foreclosure, then it’s reo. Then I guess once it once a foreclosure is complete, then it’s Oreo. Exactly. So we’re before the foreclosure is completed, but it’s already in default. So at what point like, is the person late? They’re late or maybe is it like 30 or 60 days and then before the bank
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Or the audio kind of says it’s it’s in foreclosure. That’s when it’s in this kind of this bucket exactly most of the time, most of the banks won’t start foreclosure till it’s 60 days delinquent, sometimes even 90 or 120. Today with COVID, even later, we’d expect, but nevertheless, it’s it. It’s past that period and before the foreclosure is completed, and in some states in New York, Ohio, Illinois, Indiana, Florida, these states are just examples of judicial foreclosure states, we have to go to court and go, there you go, and go to court. And it’s just a long, slow process. In all these, in your example, here, the blue states, Pennsylvania on these states is just going to be slow and average, I’d say is a year and in some states, you know, can be two or three years and that’s that time. You know, time is money sounds cliche, but it is especially when you own a defaulted mortgage, and if you’re going to recover if you’re going to make 10,000
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dollars from this asset and you hold it for two years, you have to pay a couple thousand in taxes and insurance that that will erode your returns. But if you were to collect $500 a month or $1,000 a month in rent in the over those two years that would offset those costs and sometimes even allow you to make money during the foreclosure while the foreclosure process is ongoing. What percentage of pre reo inventory is from judicial states where judicial is harder for the bank to collect? It’s more painful for them. The vast majority I use, most lenders and and funds like HP are going to think okay, well in California in normal times pre COVID. I can foreclose in six months in Texas in most cases, I can foreclose in 60 days or even less. So in those cases, why would I want to go through the extra step of appointing a receiver and collecting rent when the foreclosure will take about the same amount of time and that’s absolutely right. Now today, during COVID its cow
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fornia foreclosures on hold many states across the country foreclosures on hold, in some cases, even if it’s a vacant property. And so you’re just stuck. But in normal times, it’s really much more appropriate for judicial states. And you’ll see you had a map a moment ago. And if you go to the pre our website, it has this map, which includes the entire country, and you’ll see that there’s a whole bunch of dots in the in the judicial foreclosure states, and then you go out west, and it becomes the concentrations become a lot less. Yeah, so we, if you guys are looking at the YouTube channel, have the map up of judicial and non judicial states. Most of us are on the west coast. So Washington, Oregon, California are non judicial states. So it’s it doesn’t have to go to that strenuous process and the courts that we’re talking about, but I think you have to overlay the political nature, right. Those are typically bluer states. So it is a lot more tenant friendly or
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homeowner friendly. Absolutely. Absolutely. So it’s not really
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It’s a republican state or a democratic state, nothing’s really to do with that. It’s just I don’t know, it’s kind of random, right? It is kind of it is kind of random. I mean, what East Coast, there’s more judicial states as you get to the west coast, you know, west of the Mississippi, many more that many more are non judicial states. And it’s a patchwork. I think it’s this is a good example of, you know, who cares about politics. It is what it is, is judicial or non judicial. That’s all right. Lester’s and I was excited to see that Hawaii, for some strange reason is a judicial state. And this is right, I got this crazy idea. Every time you see a Hawaii property, you kind of ping me and you’re like, Oh, this one? Yeah. Yeah. So even there are a couple of out. I mean, I’m pre Ario. A couple of vendors have listed assets in in Hawaii, which, over the years HPS bought a handful of loans in Hawaii. It’s not been a big market for us. And I’ll tell you, it is a slow, expensive foreclosure process in Hawaii. So for those
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Have you in Hawaii ambassadors with all the distress that’s coming up? Yeah, there you go the couple in Hawaii It is something where lenders car it’s going to take me a while to get a foreclosure complete in Hawaii and and that’s when you get a foreclosure attorney in Hawaii sometimes the attorneys you know to pay them to fly between the different islands so it becomes expensive and a hassle. The way I thought about using this is that this is nice because you know I’m not big into like being a bur investor or being a remote investor unless you have a JV partner kind of doing your you know, skin in the game working on your behalf you always want to have go into a deal where you have some kind of advantage in in this case you want to go in with you being able to do physical due diligence on the property and feel it touch it be around it is probably the only case where I advocate for being local to the property. So I the way I thought about it, I mean, tell me some other good strategies, George but the way I thought about it like this would be a cool way for me to actually buy my primary residence. I think a lot of people know
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I’m very against renting or buying a home to live in. It’s better to invest, especially if you live in a primary market like California, Washington, Hawaii, New York. But yeah, this would be a great way to pick up properties. If I wanted to get more hands on or maybe somebody might drop a two $4 million property I can get for a nice discount. Yeah, that’s absolutely right. There are there are some million dollar homes that are listed on the site. Those aren’t owned by HP, generally, they’re owned by other funds. And so there are other funds. So HP 2015. A plus is actually the owner of pre RTO. That’s where this concept was,
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was conceived and but now we see the opportunity to market to other other funds and they’re doing it they’re listing properties and we simply make a $2,000 fee for every property that’s transacted on the site.
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And you’re right it could be appropriate for us for future owner occupant be a big I’ll let you know though during that foreclosure period, receiver can be a
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pointed to rent it to repair it and rent it to a third party they couldn’t. The investor could not move in during that period. But once it goes to the foreclosure is complete the the investor can direct whoever they want to sell it to. So it could be done that way. If you saw something you want to eventually live in as long as you you can allow some lead time and that could be done. This is a great opportunity for like, No, just one of our common characters of simple passive cash flow group is you know, your tech worker out in the Bay Area. You make over 200 grand a year, you’re pretty busy. So you’re out you’re investing in passive investments like syndications after you’ve gotten your taste and your fill of the turnkey rentals, and you’re doing a little HP but you see a property like this, and you might want to put in a bid and is that kind of like the at one of the avatars you’re thinking, George that this really will appeal towards someone who can be local to it. Yeah, it’s definitely something where the local investor has the advantage they can get better
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Some repairs, they can get better. You know, we pay we’re in Chicago, somebody says it’s going to cost $2,000 to clean out, you know, home, we don’t know if that’s good or bad price. Some of you try to trust the people but it’s you never know they’re taking advantage of the fact that that were foreign, when you’re local and you can actually work with trusted contractors and see the work that they’re doing and make sure their bids are in line. The local person without a doubt has an advantage over HP over any bank or other hedge fund that is selling their assets here and that’s why they sell them because a local can execute this strategy of doing repairs and renting it out during the foreclosure process. Whereas we, you know, it’s it’s tough for us to do it remotely and you know, we’ve tried so we got a lot of Oreos here and there we said, if we only were selling these things, you know, usually in in knock re condition to a local Ambassador who then do some repairs and flip it to a home buyer who’s paying top dollar because it’s now a turnkey home that they can turn into move into and get FHA financing or some other other
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Affordable financing. It’s always tough to execute that strategy remotely or at least it’s not area of expertise, the local guy always has the advantage. Local investor always has the advantage. And that’s I think what we’re trying to do with pre reo is put these during the foreclosure process in the under the control of a local investor, I think that’s a I’m a big advantage. The way to do that is with this receivership, so you can’t just because you buy the note, you can’t just go in and start fixing it up and renting it, you need to have a receiver which is appointed by the court. So this is the step you know, kind of the first step is identifying when you want buying it. And then buying the note is what you’re buying. And then you are working with a law firm to appoint a receiver which could be a local real estate agent, a property manager, who can then work with you to do the renovations and rent the property during the foreclosure process. But you get a court order that allows you to do that, you know, step back, you were in a on the one on Pleasant Hill a moment ago in California. You know, some of these that’s a, what I just described was a fairly active strategy in terms of acquiring these but
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There are some like Pleasant Hill. This one is currently on the market for this is a fixin flip deal where somebody it’s took out a fix and flip loan, but they defaulted on the loan. But it looks like they’ve pretty much finished the property. And now it’s on the market for I think it’s in the 700,000 range. And so here they’re selling the mortgage holder, which isn’t HP is selling this mortgage, in all likelihood, using this one as example. That investor at some point is going to sell this for 707 5800, whatever number they sell it for, and then simply pay off the loan. Now they love they owe us looking at these numbers. Yeah, the estimated value is 796. But the
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they owe considerably, you have to log in to see the amount of the debt it’s probably in the range of 650. So the current owner sells it for 750 you get paid off at at 650 you or you bought it for around 500 that that’s something that local investors is going to be better able to to understand those numbers.
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First, the nuances in terms of what that value is, but they it’s something that would be a fairly passive strategy. And there’s a few like this and it’s very easy to determine which they are. You simply take the addresses which are available once you log in. And then you can go to Zillow and see which ones are currently for sale. There’s even some that are under contract. And that is a that is an interesting it’s in one of the Northern California ones I think was Pleasant Hill. But yeah, it’s a good example in terms of what has Pasadena
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been investing with hp since 2017. Buy distressed mortgages and discounts offer struggling families sustainable solutions to stay in their homes. When homes were vacant. He recognized that lenders frequently struggled as they tried to limit their losses. That’s why owner George Newberry founded pre reo, a platform that gets these vacant properties into the hands of local investors like us during the foreclosure process, which mitigates losses to lenders and accelerates returns for investors. a win win
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I’m very excited about this platform that connects local investors with board appointed receivers in their area to cost effectively repair, lease and maintain and rent vacant homes during the foreclosure process and ultimately make a profit. I’ve been checking out local properties here in Hawaii and I think it’s a great way finally pick up my home to live in. Even though I think homes the buyers aren’t probably the best, you can learn more about pre reo by going to simple passive cash flow calm slash re reo.
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So, another question that comes up and most sophisticated investors will ask, and this is kind of what I always ask is like, how how are you guys making money? Why are you guys doing this? Why would you pass on a deal to me, lowly investor, what’s the catch? And I think if I was reading between the lines here, so HP, the fund that George runs, we’ll talk a little bit about that the end here of how that’s going HP is more of a cash flow.
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type of they make money off cash flow and some of these properties like this one in particular, there’s a lot of value there. But I think it doesn’t really align with your guy’s strategy of, you know, quick, quick, small base hits specific, it’s going to take a while it might be painful. It just doesn’t fit the strike zone. It’s not your guys pitch, right? Is that yeah, that’s absolutely true. And we also have, we don’t have money to buy every loan out there. And what we want to do is we came up with this concept originally for some 2015, eight PLUS loans, but then we thought, hey, this could work for others, and we started talking to other funds about it and they started posting assets on there, we could simply make the $2,000 in the middle and that’s a would be a good
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you know, $2,000 doesn’t sound that exciting, you know, on a one off, but if you’re selling you know, we have one fund that’s putting on, they’re talking about putting on almost 90 properties in the next couple of weeks, all across the country so that it can become a business on its own collecting the
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2000 bar fees kind of like auction comm I think they charge a 20 $500 fee. So it’s modeled very similar to that we’re simply getting a transaction fee on every note that sold here, you know, good market bad market, there’s going to be an explosion in the amount of defaulted loans available over the next next year. And it would be naive for us to think that he could buy them all when I mean, or even some billion dollar hedge fund isn’t gonna buy them all there’s gonna be billions and billions and billions of this stuff. HP was going to be continued to be a buyer. But I think our relationships with a lot of these hedge funds gives us the opportunity to market it to local Ambassador who’s going to be willing to pay more than we would and probably more than anybody because a local investor would be the person who would eventually buy it as an reo. So think about the usual trajectory like we’ll use this one and pass it in as some hedge fund on wall street or buy this loan or currently owns this loan. They would go through the process, you know, in California foreclosures on hold so they’re not going to be able to foreclose for could easily be a year or more. And then they foreclose they list it with a real estate agent and
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They pay him or her a 6% commission and they play other closing costs. And so and in the meantime that year or maybe even more they’ve paid taxes and insurance you know, this property could get broken into squatter could move in all kinds of things could happen, why not get 75% of what what they’re going to get eventually take it today so they’re going to get less, but they’re going to get it now and then put this in the control of a local investor and I think it’s a compelling sale to two different funds and I think we’re going to see a lot of assets put on the site as a result and a lot of invest a lot of funds are probably going to do better than they would if they held it to the ultimate disposition and a lot of local investors are going to buy these things at less than they would buy them as reo. So I think we’re we want to become the marketplace between those two parties. You mentioned auction calm I think people are familiar with that. That they are foreclosed properties this pre foreclosure. Yep, social absolutely big difference. So auction calm, so so we were kind of following the business model, which is they make
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20 $500 an asset more or less, and but they will, as a buyer’s premium, they charge it to the buyer just like we charge $2,000 to the buyer, but they they usually only sell once it’s the foreclosure is completed, and they’re selling it as an reo. And so we’re trying to do it early in the process, so that the lenders can exit early and the local investors can buy an earlier at a greater discount. Let’s just kind of walk through this as a case study, George. Sure. I picked it because it’s a wrap. It’s a million dollars, and it just makes my life easy in terms of math. Yeah, make life harder. It looks like it’s pretty nice inside. You know, who knows, of course, there might be some things that fix up. So me as an investor, I see it on this site. And I’m like, Oh, yeah, this looks cool. You know, let me put in an offer bid and you know, pay my $2,000 program fee. Do I get access, I mean, all of a sudden kind of a walk around the block. Make sure this is not in the hood, but do I get access to the inside or really not. In some cases, they’re already listed and that there there’s access that we can get, but mostly
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Time’s just like with any no purchase you can only drive by maybe get out of a car look to the windows if it’s vacant, but you can’t you can’t get inside and so that’s a risk that you’re taking. You know this one that luckily it was recently it looks like it was recently refurbished. Again this was a fix and flip loan that’s gone bad. But it looks like a lot of the work has already been done to the home but again in many most cases we will not have access to the interior of the property so that is a risk but I think the discount more than compensates for that potential risk right no risk no reward Yeah, it’s always the case let’s kind of walk through these the numbers here you guys can check this out at simple passive cash flow.com slash pre Arielle how the money works, right? The sure compensation or the fee structure. So here’s how we’re, it works. A big wall street funds typically don’t want to sell to one local investor they want to sell to Counterparty that’s been vetted and whatnot. So HP falls in that category. So what we’re doing is all these loans are being sold even though they may be sold to us.
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Hundred as an example to 100 different investors, they are all in sold into hp. And then HP provides participation interest to the local investors. And we will finance at this point we’re financing at 75% of the of the purchase price and get a 12% return and then the local investor puts up 25% of the of the price and that gives them the right to get earn everything over and above the 12% annual return would go accrue to the ambassador. So they all the upside goes to the local investor, we get a $2,000 program fee, we also get the servicing so this you almost every state requires that a licensed mortgage servicer services alone and these are loans during the months before or even some cases years before it becomes reo than it needs to be serviced by a servicer so obviously HP servicing is more than happy to provide that service we charge for pre arias we just made it a flat $50 a month so we would service we also have an affiliated law firm which is called activist legal
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Which can handle nationally they can facilitate both the foreclosures and the receiverships through a nationwide network of attorneys. So it’s pretty turnkey. It’s not like you’re gonna have to go to a let me find an attorney who’s going to understand how to do this. It’s something that’s fairly unique. And so we have attorneys that are familiar with with with the process. So here’s an example just to to to show how how the money flows. Let’s say you purchase a note for $100,000. And a year later, you sold it for 175. Once it became reo, you had put some money into it now you sold it and got 175. So it was held out for a year. Here’s how the money would flow when it was first purchase, then the local investor would put up 25,000. That’s 25% of the cost of the note when he or eventually is going to be pre IPO but right now it’s HP will put up 75,000 which 75% of the cost of the note the local Ambassador would not only pay the 25,000 that’s in the 20 they pay a $2,000 program fee.
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At the outset, and then on a monthly basis, they pay the 12% return. So it’s kind of like you guys are you’re kind of servicing like a lender, right? Like a short term lender. Yep. At 12%. Some investors might think, well, that’s kind of high. But you know, Hey, guys, like you got to think of like, at the end here, the potential profit, right? I mean, every deal is different, actually. Yeah, build it into your process right now, eventually, I think we’ll have that money available cheaper. We’re trying to get another wall street fund to put up the money right now he is putting up the money to prove the concept, but eventually some Wall Street fund will probably go in there and offer the money at nine or 10%, probably 9.9%, or something like that. But I think you’re absolutely right. When people make the bids, they they factor in the program for you that 2000 and they factor in the the cost of the capital, which in this case is 12%. You know, if that cost drops to 9%, they’ll probably be able to pay a little bit more and if it were going to go up to 14% then they probably be willing to pay a little bit less. But in the end if it sells for 175,000 and they bought the note for us
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Hundred, and they put in 25,000 in rehab $2,000 program fee $9,000 in in lending and lending costs, then they made Sep 39,000, which in a year is a pretty good return. And we’ve got, you know, our nine, our 9% back plus we earned the $2,000 program fee. So that that’s the model that we that we have. And I think it serves a purpose and getting these vacant properties or without this, you know, there’s a community benefit too, if any of you have lived next door to a vacant property, it’s not the ideal neighbor, probably the lot, the grass gets cut less frequently. The you know, something bad happens to the property gets broken into there’s a pipe burst or something like that, you know, this, someone has to call it in getting in touch with the owner come out and shut it off or do whatever needs to be done. So those are all things that having an occupant in there, even if it’s attended to this point, it’s going to be better than having it sitting there vacant. So and especially in some of the lower
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low to moderate income areas where he works is definitely having an occupant is a huge advantage and benefit to the neighbors and the community in addition to the free area ambassador for the guys who are like what’s in it for me go to stay there and all that stuff and you can see it on the on the YouTube channel here but yeah, kind of like what, like a two x equity multiplier in a sample in one year or so. Yeah, exactly. It’s a significant return in a it’s a significant return now it is that in many cases it’s going to be active This is something where you could do a lot of it from behind the desk but you’d want to go out I mean, I think you’re the advantage is realized when you go out to the property and just like any any of your investors who work either you know owned apartment buildings or done fixing flip rehabs, there is some value to being right out there on the property and and seeing what’s going on, you know, on your own instead of relying on photos or reports from for employees. But if you buy these near, it’s easy to execute that and and you can be rewarded
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hands away. And if you’re just like an accountant or dentist, you’ve never done construction work, maybe you you screw up and you two times pay the rehab work where there’s still profit probably profit for you, if you screw up and you kind of run out like an amateur. That’s the beauty of these things. And you have to learn if you say you really want to do and then I mean just in anything you do it you screw up, you learn, how can I do better and after a few times right now, now I’m doing pretty well. But the first few times, you know, you always end up paying a little bit more than you could and you figure out ways to to improve on subsequent tries. So what happens if you if I click the button I want to buy it I send you guys the money and then the guy in pre foreclosure actually pays what’s, what do we do? So? Yeah, no? Good, good question. So here’s what happens. All these are offered, I shouldn’t say recommend to the sellers of the offer these either at 75% of the reo value so they think the reo is worth 100 sell for 70 offer for 75,000 or 90% of the debt. of the total.
27:00
debt. So if if only $80,000 is due on the note, and it’s worth 100, then offer it for 70 70,000. I think that is. And so if the homeowner comes back in, you know, six months later, and says, Hey, I want to pay off my loan, I want to I want my host house back, or I win the lottery, I just inherited this money or whatever, however, they they came up with the money, they can do that. But they’re going to have to pay everything that’s due on the note, which is $80,000, when you started, when you bought it in that example, plus the legal fees, additional interest, any monies that you’ve put into the property that were used for by the receiver to preserve the property, those are all recoverable. And so that’s so you would, let’s say you ended up putting 20 into the property. So you would get the 80 that was due when you bought it for 72. You’d also get the 20 that you put in and there’s probably additional interest of six months which could be you know, another few thousand dollars. So you would get
28:00
All that, but that is something that is unlikely to happen because in, in most cases, I mean, there’s always or should always be vacant. And as a result, so most cases, the homeowners just just walked away. Now there are some like I pointed out where the homeowner where the property owner was an ambassador apparently ran out of money for whatever reason was unable to pay, but they’re still trying to sell the property. And so they’ll either sell it for more than enough to pay off the loan, in which case you get paid off in full in capturing that discount that was made when you bought the loan. Or, you know, they could come and say, hey, I want to do a short sale. So some of these are sold it for considerably less than what the what’s due on the note, but it’s also because the property values less and then they could come in, you could say Hey, I’ll take the short sale, not take the short sale, then it’s up to you. But the homeowner, so his property owner shows rights they do. But they are served with the receivership and the foreclosure documents and they can appear in court and say, hey, I want to do you know, I’m coming up with the money or whatnot. But if they don’t show up and they default, then the process continues and they’d have to come
29:00
Back at a later time and, and and have to come up with all the money that’s due it seems complicated but I mean you got activists legal on your side as and you’ll be their client probably the kind of take care of all this and kind of just walk you through the timeline and then absolutely Bob has come up you just kind of work your way through it between the servers here you’d always have a dedicated person at this at HP servicing another person at age activists legal in order to to answer your questions along the way. So if it sounds complicated, maybe because it is but it’s actually a
29:32
once you probably do it, I always I’m always learned by doing and we’ve done a few of these I you know, as kind of a test so they worked well. So I think the Learn by Doing and we’re gonna be there we’ve done it and we can guide you every step of the way. It’s like evictions. I mean, I don’t really know how to do them. I know it as like a black box. You know what comes out the other end I know how long it takes, but I don’t really exactly not
29:56
happy to do it for me. Yep. waxiness legal just as a
30:00
As a quick plug, they do evictions nationwide. They can certainly assist you no matter what state you’re in. Yeah. So yeah, if you guys need a eviction, let me know. And we’ll connect you with the right, folks. So let’s switch gears a little bit, George. And as we wrap up, you know, a lot of investors, they’ve known about HP servicing for quite a while I’ve invested with you guys since 2016. Ish, or something like that. 17 I got into first fun at 12% No, it’s at 10% paid monthly, which is cool. It pays my car payment. Never ever told you that? I think Yeah, that’s great. So how, how are things going through? COVID? You know, I know like, from what I hear about a lot of my investors is like a few of them. Were trying to you know, they had to rob Rob liquidity from certain places. And one of the places they tried to get it from was HP because you guys have a great liquidity type of caveat there. Yeah. What are you seeing from your end? What are investors out there doing? You can kind of make sense of the madness.
31:00
No good. I appreciate you bringing it up. So HP I mean, everybody had effects of COVID. And like you said, when when COVID hit, we had all time record redemptions in March and then April, those are the two biggest months, it’s now settled back down. But those redemption requests in March and April are very significant. We heard from people who need to pay payroll, hey, I need to pay, I need to cover a margin call. You know, my business is struggling I need I need the money for assorted reasons. And we were and historically in our documents that states that we will
31:36
offer we offer best efforts liquidity so if you request the money, we’re going to undertake our best efforts to return your investment within
31:44
30 days and historically, we’ve been able to do that COVID hit no longer able to do it. And we’re still digging out from that march april demand. And you know, I think in the last last week or so, we are the last week of the month, I think we returned about a quarter million dollars.
32:00
So we are making progress on these but it’s incremental progress and we’re balancing you know, we priority for us is to run the business number one. Number two is to make our monthly distributions which we haven’t missed any and numbers and we don’t expect to. And number three is to, is to do these redemptions. So we can’t you know, if we were to satisfy all the redemptions we don’t have any money for distributions that would be obviously problematic for everybody. So we I’m sorry, I you know, it’s unfortunate that people are waiting longer than they than they wanted for their for the redemptions. But it is something that you know, we are expecting to get through and expectations when COVID hit, you know, how this is going to be 60 days or something like that, because at the time, you know, when COVID we first had that first shutdown everyone saying well, this is two weeks, I you know, shelter in place for two weeks, then this then everything’s back to normal. At least that was how I think people interpreted including us because it was so early and then then it was extended and extended and
33:00
You know, now it’s, you know, several months into this going on five months into the COVID era and things still are back to normal I in many cases, there’s foreclosure holds across the country, there are states where we have foreclosed on properties in January of this year and we’re still waiting on the deed, they are situations where we foreclosed and or we’ve gotten a deed in lieu, we can’t complete an eviction and so these are all kind of slowing our ability to to move forward and realize gains and and, and revenue that we would normally have accessible. So I think those are challenges also, in some cases, you know, Sheriff’s Office closed can issue deeds can record or closed or working from home running behind, tough to record deeds in some situations. So it’s a it’s a slow process that’s getting better, but it is still creating challenges on the upside. I was a little bit nervous.
34:00
When when this all hit in terms of, you know, we had a lot of Oreos over 100, which is normal, you know, how does this impact are these prices going to, you know, is the value of our Oreos, our notes going to have a significant impact and post COVID in the last, it’s not post COVID. It’s mid COVID, I guess, or depends on your perspective. But in the last 30 or 40 days, days, arios the ones that are out on the market are selling better than pre COVID prices, which is great. And no, unfortunately, so accounts, closed them off because of assorted issues like county recorders or county offices being closed, but we’re getting them under contract at very strong prices and our inventory is shrinking. which is I think good for the moment because we are recapturing premium prices now fast forward six months or a year and all these foreclosure holds go off. There’s a significant inventory coming out of the market. I would anticipate that the pricing should go down just based on normal normal economic cycles. How
35:00
With the low interest rates, I think that’s kind of the wild card that keeps, that’s propping everything up strongly. So it’s hard to say what the future holds. And that’s why if you’re waiting on redemption, they are in process. We are processing some every, every few weeks, but it is something where it’s, it’s taking longer than expected. And hopefully that’ll return to normal soon. I pick up the old info page, simple passive cash flow.com slash HP, but there’s a little screenshot of Oh, sure. Activity back in this a couple years ago. I think I draw this is I withdrawn at one point in 2018 55 grand and I think I replaced it later before the fun closed. Yeah. I mean, what’s your mentality on how much percent cash reserves do you have in your your fund and with like, the mentality of like, all right, when you feel comfortable to go out and take some of that cash and buy more stuff when we’re buying I mean, we bought about $4 million worth of loans last week. And so we are actively buying loans again, the business a priority is running a successful business. That’s
36:00
Gonna be benefit all of our investors. So we did have a good opportunity last month, we’re working on a few opportunities pools for this month. But there are opportunities that we’re seeing that we are taking advantage of. So it’s a balance of, you know, new acquisitions, having new acquisitions and operating a profitable business. And then penguin distributions, which right now, I’m guessing. I mean, this is just over the all the companies we probably have, I don’t know the exact numbers, but we probably have 800,000, roughly, and cash available right now, at this very moment, but you know, we’re doing distributions in a couple days, that’ll be a considerable amount that goes out. But you know, there’s new payments that come in New arios that say that cell, that cell, so there’s always money coming in and money going out, but at any given time, we do have a decent amount of cash on hand. I try to keep it as low as possible, just because that money, we’re paying investors on that money, so I’d like it to be invested. So it’s a bit of a balancing act, right? Because I mean, the way it is like it’s 10 pref. Right. So yeah, you want to
37:00
Keep it most of you can make some money, right? Yeah, absolutely. Yeah, the money sits in.
37:04
We’re paying 10% on a million bucks that’s sitting in, in a bank account that’s paying us at best 2%, then we are, you know, that’s a negative negative 8%. So we want to keep that as little as low as possible. I think we’ve been doing that. I mean, it’s just as a point of reference. When I came in here a year ago, I came back into the CEO role. We had over $8 million in the bank, not a good, not a good situation. And so we’re, I was able to invest that it took a few months, though, because a year ago, the opportunities it was it was difficult to invest. And that’s why if you remember, a year ago, we had stopped accepting new investments because we had a lot of money come in, it was difficult for prior management to find opportunities and fairness it was when I came in, it was difficult to find good opportunities. Myself they were. The market was very heated in order to generate strong returns. We the offerings were few and far between, we’re able to buy stuff and
38:00
and deploy that money but it took several months. Fast forward a year, the markets now we see it opening up with these with great opportunities. And we think that’ll only increase over the next next six months to a year. So we’re getting we’re taking the best ones we can find now, and and we’ll continue to do that. So what’s uh, I got into the 12% fun right now the 10% fun is still open, where do you think you’re all heading? Right? Because the Fed funds rate is like zero for the past six months. It’s heading down.
38:29
And yeah, they’re getting more popular, right? Yeah, exactly. So the next so HP servicing this fund will close in, I believe it’s the first week of November. That’ll be the last investment that we can take and and it’s, it’s imposed by the SEC, we have two years to raise money. So that two year period ends at the beginning of November. At that point, we will close HP servicing no more 10% we will have a new find up then or hopefully shortly thereafter. That will happen
39:00
For a similar type of strategy, but we think the returns would be less. Right now it’s we’re working on the on the submission to the SEC, we think it’d be around 7%. And that sounds lower it well, it is lower. But compared to what the you know, the prime rate and the different indexes are, it’s still a very generous spread. We’ve we’ve we’ve we’ve toggled between, should it be seven? Should it be six? Should it be eight? I think in the end, it’ll be seven. But it could could end up we decided a little bit lower a little bit higher. But right now I’d say seven. Yeah. And so the challenge is out there for you guys. I’ll give you 100 bucks if you can find me something better that pays a better rate of return that has a better risk profile. And with the liquidity that’s the big thing here the ability to click this little redeem button and pull some money whenever you want. So there you go. There you go. bounty hunters out there. Let me know
39:56
anything else you think we missed, George? No, I think we covered a lot of ground
40:00
And hopefully that’s hopefully was helpful to your audience and they’d be interested either in pre audio or kept updated or interested for the first time maybe in hp. Certainly reach out to us. We’re here to help and answer any questions. There’s, there’s my book guy. Yeah, that’s me. That’s me when I was probably like 20 years old. Racing in Arizona.
40:21
That was a race. If anyone knows Arizona, it was it was called Yuma life Yuma. So it started in Yuma, Arizona. The race went up to blight, California and back down to Yuma was about 200 miles and as you can see, it was fairly hot. What in the desert? What does that one called? I don’t know. They do it anymore. But it was Yuma life Yuma. So just the three said the two cities, the three city names, one after another 200 plus mile bike race. Not that David Goggins the one he did in his book. I don’t know I don’t, I can get through Death Valley or something like that. Yeah, it’s not like it’s not was not in Death Valley, but it’s certainly
41:00
The terrain was probably pretty close. Right? There is a you may be thinking there’s a running race across Death Valley bad water, which is pretty awesome. I’ve never done that. That does sound like a lot of fun. Well does sound like quite a challenge. Yeah. Let me catch myself up fun. So if you guys want to learn more about HP go to simple passive cash flow.com slash hp. And if you guys are interested in playing around with pre reo go to simple passive cash flow.com slash pre reo and we did a little tutorial video going through the website earlier for you guys and you guys can kind of digest these numbers and how it all works. But yeah, great way for you know passive investors if you want to kind of invest from your desk, you know and do a little white glove investing. This is a way to do it. If not a lot of other passive investing ways turnkey rentals have set off and of course syndications and private placement.
42:00
Appreciate it. George. Thanks for joining us, man. Thanks lane. always appreciate it.
0:00
Matt no amount of motivation is going to change the way you feel. But if you can commit to yourself and honor your commitments and doing whatever you need to do to make sure that you reach your goals financially, then you have to reverse engineer how to do that. And one of those things for me is on the physicality aspect of it and making sure that my health is in order. So
0:24
this is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out. And then he became one real investor.
0:38
Simple passive cash flow listeners today I have Kyle Jones, one of my apartment partners. And if you guys haven’t heard of him before he was on episode 152. We, we talked about kind of getting started in apartment investing and but today we have a big he has a big announcement for
1:00
Folks, big, big announcement. Kyle, what’s that announcement? What’s the big one? Well, I am pulling a copy cat move like you and I quit my job, my corporate job that is, so I have exited the corporate world, left my position at IBM and I’m now a full time real estate investor and entrepreneur.
1:23
So maybe for those who will never go back and listen to Episode 152, why don’t you give a little little synopsis of what you’ve been up to the last, you know, decade of your life.
1:38
Take us back so computer can kind of get a little bit background and then I think what we’re going to do here so the value add is like for a lot of listeners is a lot of you guys are right on the cusp of quitting your day job. Right But a lot of us are high paid working professionals, where we make a lot of money and so total golden handcuffs.
2:00
So at what point what is the thought processes? What are the things that we didn’t think of before we kind of pulled the plug? But I’ll call watch it. Yeah. Give us a little background and context here. Sure. Yeah. So
2:14
I guess a little bit about me, I’m based in Houston. I been investing in real estate, when I started probably about eight years or so ago with single families,
2:27
but really didn’t start getting serious into multifamily until about five years ago, and then
2:35
kind of fast tracking through it. We started buying properties with our own dime, you know, through my earnings at IBM and, you know, in sales there and I was earning commissions and bonuses and things like that, and so was using those funds to purchase smaller multifamily before I realized that, at some point, you’re going to run out of capital and so I’d rather leverage the capital that I
3:00
had left that wasn’t tied up in equity to fund syndications and raising money and bringing investors to the table at that point so we could continue to scale the portfolio and ultimately creating enough cash flow so that I could eventually leave the corporate world or at least have the option. You know, my first goal was to just replace expenses. That was my first goal, you know, build up enough cash flow where if something happened and I was let go or you know, global pandemic happened or whatever, I could be
3:37
okay, because we at least had our expenses covered. And then when that really became a reality, then it was okay now let me really replace my w two income or get close to it, so that I could
3:51
you know, if I was getting closer to it, I could see light at the end of the tunnel where if I just focus more time and effort into
3:58
finding more deals and create
4:00
more cash flow than I can personally get to that comfort level to hit the eject button. But, you know, there’s a lot more in this in this space and podcast land and real estate guru land where it’s, you know, it’s really cool to quit your job and, and there’s like a war with it and everything else which I certainly agree with. But I also think there’s a The reality is a lot of the people that you might find that do this, you know, they weren’t like me and you were we are high paying high or we were high paid professionals, you know, they were somebody who had a entry level job, and they decided to go all in maybe they didn’t have a really high risk profile, I have a wife and three kids. So it just took me longer to get to a point to feel comfort in the fact that I had enough cash flow and everything else and so
4:56
you know, kind of going off on a tangent now, but those are some of the things that I think
5:00
Get lost. And just because somebody says they quit their job to focus on real estate investing, you know, sometimes there’s a reality behind the scenes that doesn’t, you know, it’s not a it’s not a meaningful thing necessarily versus somebody who’s leaving a corporate job. Yeah, I mean, I had a, I had like a info page on this a while ago, simple passive cash flow, calm slash quit. I don’t think I ever shared that with you. But people either fall in one side of this argument, right? Do you quit your day job to go after real estate? You know, I think you and I are aligned with that like, no. So if you make more than 80 100 grand a year, your highest and best use is likely at your day job. But we’re in this ethos where a lot of you know other people they make under 5060 grand a year. And for those people, it makes total sense. Yeah, quit your day job because you’re not making much there anyway, dude, right? You can, you could replace that through through probably two or three deals.
6:00
And be fine. And yeah, I mean, that’s that’s a that’s a predicament that I’ve always had. I mean, because we we raised capital and you know, we always had investors at least that would, you know, while you had quit your job, I think they would come and ask me Hey, when’s Kyle going to quit it a job. And I think there’s also an aspect of it where just because I’m still working full time doesn’t mean I haven’t set up the appropriate measures to put a strong team in place. I mean, that’s frankly, that’s the only way that I would have been able to even do this on the side and still work a full time job that, you know, a grant is it was flexible. You know, it was I worked from home for many years beyond pre COVID and everything else. I’ve been working from home for 10 years. So there’s flexibility in that. But there’s also you know, an element to where if you if you’re truly passionate about that, and you’re not there yet, you could go find a job that’s more flexible, because I get it not everybody can work from home. I mean, now it’s obviously different.
7:00
Because we’re in the pandemic times, but pre COVID and maybe, you know, 2021 when people are back in the office, they could tailor their job efforts towards finding remote capability or remote options, you know, work work from home options, if you will, to allow them that flexibility to be able to do some more things on the side, whether it’s real estate or another side hustle. One question that always comes up on you know, from from passive investors and it’s got a question asked is right, like, are the sponsors is their full time gig or not? On one side of the story, I have kind of tried to work with professionals, a lot of the partners that I choose to work with are 100 K and above people who, you know, kick butt at their day job as opposed to some random person. I don’t know. I mean, when you go on LinkedIn, and you see someone as an entrepreneur, and it’s the year 2020, that means you don’t have a job. You couldn’t find the job, right. So
7:59
this isn’t the 19
8:00
Anyway, we’re all we’re all tipped off to that. But, I mean, do you have any idea or thoughts on that? You know, I mean, there’s pros and cons both ways. Yeah. Well, I think there’s a lot of relatable skills that I took from my corporate job. I mean, I’ve always been in sales. So there’s obviously there’s a lot of transferable skills, which is being able to build rapport, being able to sell a deal, you know, not only I was selling technology to cut, like, you know, big corporations, but I was also now in selling deals to investors, and getting pepsin behind that. So, also just putting a team together, putting a strong team together project management skills, I mean, you have those, I have those from just the leadership skills that I developed in the corporate world, it’s still putting teams together and and then getting behind the team and making sure that you’re staying, staying in touch and providing oversight but you’re also not having to get into
9:00
To the nitty gritty details as well, like it kind of reminds me like when we have a deal that we closed, where there’s like three properties in there, and we’re splitting up the accounting and I’m like, oh, my goodness, this is this, like how at back at the day job where we kind of make things complicated on purpose just to confuse ourselves. It’s like, here we are doing it again. There’s probably a reason why and we’re comfortable with it, because we’re used to that complexity in a large corporation, respecting the chain of command, I think, you know, working with property managers and other professions, big thing. Yeah, it’s still a big difference between investing with somebody who current it worker, still working in the, you know, their day job, you don’t know how much of their bandwidth is going to their day job or running your deal, and being a steward of their money. Some people will say, Well, I’m all for funding people, you know, people going after their dreams. I don’t want to be the person putting in 50 hundred grand so somebody can feel it out to finally
10:00
You know, yeah,
10:02
right? Right, right now you can kind of fully come out and say that, exactly. It’s like the chicken in the egg thing. You’ve got to have a track record to be able to do that. But you also, you know, if you’re a high earning professional, and you’ve got a family, you can’t just jump ship. You know, it’s for me, too. It’s kind of scary. I mean, I’m doing it in the middle of this pandemic, when a lot of people are, unfortunately out of work. You know, whether the pandemic happened this year or not, I mean, nobody could have predicted it. But this was a year that I was coming into looking at, hey, this could be the year that I leave the corporate world. And that’s what I let’s let’s kind of unpack this because this is the you’ve been planning this for quite some time. You already mentioned you have a wife and three kids. So you’re not just another throw. Just goes to the gym a lot. You got responsibilities. Tell. Tell us about
11:00
Like, I know in the beginning of like your corporate life 1010 years ago, you are drinking the kool aid of climbing the corporate ladder, like, what was the mindset of Carl Jones? Early 2000? Well, I mean, Frank, are you still think you’re gonna make it to the Major Leagues? Yeah. Now, I mean, it got tempting here as of later in my career, because I finally did have some of that tenure at IBM and I was being looked at it, you know, even executive type positions. And there were other positions that I’ve actually even the last 10, two years, I had actually turned down that would have set me up to be, you know, Director VP type. Yeah, going back. I mean, yeah, I definitely wanted to move through the ranks. And,
11:46
you know, my first goal was to work for an organization like IBM, or Microsoft and Oracle, which I worked at all three of those corporations. These are large, high tech software organizations. I think that just
12:00
Mainly stemmed from my dad. So I kind of fell into the trap of just falling in line with the way that my dad did his career and handle that and went about, you know, raising his family. And there’s nothing wrong with that. I mean, I lived a good childhood. But for me, it ultimately came down to truly what freedom is. And it sounds kind of hokey. But I mean, you know, if you’re working in a corporate environment, you are working towards building somebody else’s goals and dreams versus just yours. I mean, obviously, you could, there’s a subset of that. And that’s kind of what we’re talking about. Now. You could develop this career path to get there. You know, I want to be a sales manager and then a director and then a VP. So you have the hierarchy. And that’s exactly what I wanted until I did see my dad get laid off, basically forced into early retirement from the company he was working for. Also
13:00
Still high tech software organization. And that’s really what kicked it into overdrive. And that is also the kind of read just that timing of it is what I needed to to just kind of get my wife on board as well. She was already supportive. But it didn’t really resonate with her until I said, hey, look over here, look what my dad’s going through. Like, we need to figure this out now, so that we never have to worry about this. And she got it, because she saw what my dad was going through. So that was kind of like the event that kick started, it really shifted me into overdrive and, and being way more intentional about my investing, the types of deals I was looking for and things like that.
13:44
It was always it’s always been about cash flow. You know, there’s now we’re getting to a point where we’re doing some, maybe some heavier lifting so there’s
13:53
more of an appreciation play in there but early on and even still looking for cash flow, producing deals.
14:00
Just about getting multiple streams of income. So if you can get, you know, 2030 k hits and just kind of stack those up on top of each other, before you know it, that’s that’s where you’re at. Your family is very similar to my family like we both have a bunch of poor dads right, that are still working, are still working crazy. Oh, we have kind of a friendly competition or when actually one of our dads is going to pull the trigger and actually invest in one of these deals. They just don’t get it right.
14:29
But so so what is it? Some people will say it’s either your family doesn’t really understand what you do like a lot of like, think my parents still think of like a real estate agent. They don’t understand they still think I should have been an engineer, or is it just like, you know, you spent all this time building this 10 year to kind of blow it away, right?
14:50
What is the bigger of the two? You know, I think the in my because I’ve had conversations with my dad and I think he’s always said
15:00
Especially later in his career, too, he’s encouraged me to go after this. And he said, If I had to do it over, that’s what I would have done. You know, so he’s been pretty transparent about that. So in a way, I think he is, you know, he’s proud of me and, you know, kind of stepping out and taking some risk early on. And I think he wishes he would have done some of that. So, you know, the appetite to actually invest now at his age. I mean, he’s at that he’s at that retirement age where he needs to watch where he’s putting his money, he can’t just go it his risk profile is much different than, you know, when it was in his 30s. But yeah, that’s kind of how it’s transitioned through the mindset and it’s given me more confidence and faith to go out and try to achieve this now. So we’ll get into a little bit of like, what were the things that they end that money tip, the skill for you
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as you kind of build that runway.
16:00
But what are some tips to manage the workload while you’re doing W to get some ideas? Yeah, I definitely think I have a huge advantage just with the type of job that I had. And so that does come down to being able to work from home. And I think, you know, there’s one thing that the coronaviruses has done for a lot of corporations, and that’s shown them that a lot of the productivity can still be accomplished by working from home. And so I think we’re gonna see a lot of companies that are gonna allow that more often. So take advantage of it, especially right now, you know, if you’re still sitting and working at home, take advantage of the time, because that’s the only way that I was able to do it. And I had a job where, you know, my boss wasn’t breathing down my neck. As long as I was taking care of what I needed to do and staying on top of, you know, the things that were required of me. I was left alone. And so I had to stay extra diligent on the IBM stuff. So kind of
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Build up and be able to take the time to work on the side investing. Stay off the radar, right? Yes, they have the radar. And that’s a that’s exactly right. I mean, you know, whereas usually, that’s a, I was having a conversation with one of my former colleagues,
17:16
just this week when I was kind of telling them what I was doing and everything else. And that’s one of the things that he mentioned. He was like, you know, you’ve always done what you needed to do, but you kind of stayed off the radar, you know, that allowed you to, you know, do these other things. And I had confided to him a little bit. He knew I was investing in real estate. I don’t think he knew to what extent but if you’re if you, you’ve got to pick, do you want to be a passive investor or an active investor? And I think you can achieve true financial freedom through passive investing, but it’s going to take working more hours at your day job to get the money to invest passively or on the active side. You’ve got to be able to
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Work essentially to full time jobs and have some nights where you stay up a little bit later, or get up a little bit earlier to work on the side hustle. It’s just about committing, identifying what you want, but then committing to how you’re going to get it done.
18:18
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So I mean passive investing, if you’re spending more than a few hours a week, researching stuff, you’re doing it the wrong way. I mean, it really should be a few hours a month from a passive investor standpoint, you just don’t have the network or you’re just wasting your time on the wrong stuff. cause obviously more of an active investor. But you know, maybe maybe you kind of break down your day, a little bit like, especially in how did you spend all the time for your family, right, because you had to partition things. So people are a bad passive investors do spend too much time doing it. Maybe they can kind of emulate what you did. But yeah, how much I mean, how much hours to
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The IDM think a typical, I mean, I was feeling safe to say now, right? Yeah, I mean, some days, it’d be a full eight hour Sundays, it’d be 10. Some days, it’d be four or five. I mean, it just depends on the day and the amount of customer calls that I had and the types of deals I was working. You know, it wasn’t always a rigid schedule. But I mean, for the most part, I stuck to my routine. And that was, I mean, one of the things that I did I get up at four o’clock in the morning. I know, you know, this, because, you know, we, we’ve been at some of those conferences we’ve buddied up and
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my alarm goes off early, especially when your your body’s still on Hawaiian time. I know that’s super early for you. But I know I’m still sometimes I’m in the Dropbox and I see you getting out. Alright, I gotta go to sleep.
20:51
Yeah, so that’s one of the things that I that fit my schedule, rather than staying up late. You know, you’ve got to kind of pay
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I mean, you still want to try to get some sleep where you can, but for me it was getting to bed a little bit earlier, but waking up at an extreme time, so that I could, you know, have the runway uninterrupted time to do the things that I did to catch up and then, you know, then sprinkle throughout the day. So I would spend, you know, the first parts of my morning, after I, you know, have a morning routine and everything else doing what I need to do on the real estate stuff and catching up and then, and then kind of shifting gears. So compartmentalising, shifting gears to IBM, and then usually have some calls in the morning around IBM, you know, for the most part, if I didn’t have any deals that I was underwriting that day or anything else, there might be a day where I’m not really doing anything real estate related, because the whole goal is to find a capable, efficient property manager to do the heavy lifting so that maybe you’re only spending a few hours a week, you know,
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Reviewing financials reviewing your weekly reports. And yes, we have weekly calls with a property manager, but those are, you know, we, we would do ours, it’d be hour and a half on Monday and an hour on Friday. So that’s only really two and a half hours time. And then throughout the week, there were, you know, some live questions. So, you know, there’s really not a now tax time is more difficult. It’s much more involved. I’ve got to be more responsive with the accounting needs and things like that, because people need their k ones. And we need to be diligent with our investors. But looking at a time right now in August work, there’s not much going on, we have some rehabs going on. So there’s not a whole lot of day to day combat that I need to be involved with. I still get a random call every now and then from our property manager with a one off question is rarely an emergency situation that can’t wait for those calls. So I’m going to keep
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Keep that structure in place. Because I want to continue to have more free time and really focus efforts in some other projects and things like that, you know, like finding more deals or you know, just taking the sophistication up another notch with the way that we operate our deals you know, there’s there’s little things little projects that I can take on now that I probably couldn’t before the power, how do you kind of do you know your kids name? And do they know you? Just next guy that wakes up one morning and crashes at 10, nine and comes down for dinner, grab some ready made food, things of all. How do you how do you bring that? Do you partition a search in time for that stuff? I do. I mean, it’s a little bit easier, you know, they’re around all day now. So there’s a lot of mix and match with
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them being authentic school and
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trying to take breaks
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breaks throughout the day but also, I’m pretty rigid also on the back end of the day, I try to shut off between five and 530 and really just focus
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my entire efforts towards my family try to put my phone away as much as I can. I’m not always successful
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in the workplace behind you know, usually if I can schedule it out, you know, like we’ve done some calls and
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you know, my goes to what works with you and I need to catch up and I’m going to catch up in the day. I don’t mind scheduling a call at eight o’clock my time except when we don’t.
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You know, I can catch up real quick. I just try to keep the evenings open to my family and just be as efficient as possible throughout the day.
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Frankly, I don’t take a lunch break.
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And then they can get breaks throughout the day and I picked up a couple
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Get up somewhere, it might have been the deep work guy where you don’t take too long for you to take
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on now.
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I think I’ve heard that too on some podcasts like four or five years ago like some like one of these like geniuses or like some kind of like, like a classical musical composer, he would go in his room for like, like 15 minutes or two hours, and then he would set the timer and then he would come back out and then just totally screw off for 20 or 30 minutes. And then like clockwork, he goes right back in there. It’s like the optimum like, it was optimal time. Are you got it? Everyone’s a little different, right? Yeah, no, that’s kind of worked out for me just making making it.
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More regular, I guess, versus like taking a long extended break and we come back tired. I
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don’t want to have a big deal because you don’t want to be dragging in the afternoon. You’ve got to make sure that sleep efficiently
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There’s like some health components that I, I made sure to take care of my body and physical aspect of it too, just so I can have the energy. Yeah, sort of like a basketball player. He calls out, you know, middle of the third quarter. So you can come back, you know, 11 minutes in the fourth quarter. It’s like very nature very strategic.
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For me,
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see, I mean, you and I are a little different. I think when I was working, you seem to be a little more partitions. Right. Like you have phases throughout the day. Yeah, it’s not always perfect. But I think I was. I work maybe my last few, four or five years, four years of in my day job. I maybe only did about a couple hours of work a day and it was very steady. You seem to be all over the place with your W two job demands, but I was pretty steady. I could knock it out in a couple hours. And then it was just real estate all the time.
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Yeah, we, you know, in my job, we’re still kind of at the mercy of another person’s schedule.
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That’s a big part of it, you know, you’ve got trying to sell a customer and deal.
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On the IBM side or sell more product, you’ve got to kind of work around their schedule, cater to them. So wasn’t always perfect. But I generally tried to have some free time in there every day that was allocated towards doing something around real estate, whether it was around the operational side of it or even just trying to find new deals. Any other tips for the W two working stiff out there?
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You know, for me, I can’t. I kind of mentioned it just now. But I mean that it gets overlooked a lot. But the physical aspect of just taking care of your body and taking care of your health. There is no way that I couldn’t have done what I’ve been doing and operating with the amount of potential stress that could be there. So you just got to take care of your body. And that’s not just eating right. That’s exercise, but more importantly, that’s also sleep.
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That’s what I’ve learned. It just all goes together. And if one thing is out of whack, it can really derail your day. I mean, you’re if you don’t have the energy, like we were just talking about, if you don’t have the energy, it’s not gonna happen. And if you don’t feel well, I mean, no matter, no amount of motivation is going to change the way you feel. But if you can commit to yourself and honor your commitments, and doing whatever you need to do to make sure that you reach your goals financially, then you have to reverse engineer how to do that. And one of those things for me is is on the physicality aspect of it and making sure that my health is in order. So how many hours of sleep Are you typically shooting for?
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You know, waking up at four, I’m usually trying to go to bed between nine and 930. So it comes out to about six full hours of sleep. Not everybody can operate on six hours, but, you know, whatever you feel like your body needs. You’ve got to listen to your body and, you know, there’s certain
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That’s, that’s one thing I’ve actually been, you know, had been reading up and studying sleep and you know, just trying to better my sleep habits and I think that’s where our our diet and our exercise all that will affect our sleep. And if that’s not an order, you’re not going to be able to sleep efficiently.
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I I’ve been doing like a 2:30pm nap every day there was a book when I don’t know who wrote it, but that was the takeaway from the book.
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you’re dragging ass anyway in a while so just not getting ahead and take a nap. Yeah, I I’ve actually tried that and experimented with that where it’s like, you know, they say like a 20 minute nap or a 30 minute nap. And I’ve tried them all. I’ve tried 20 minutes or 30 minutes of trying hour. They do not work for me. If I crash like I’m done. I’m toast like, I’ve taken nap. I’m done for the day. Yeah, I wake up I don’t want to do anything. Yeah, I’m sorry to see that too.
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You know, it’s just I don’t like waking up so it’s like two times where I’m like God dang. Like
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Yeah, you know, these are just ideas, guys, right? Like, I mean, Kyle’s early riser I kind of tend to stay up late.
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From what I hear from you guys passive investors, I think most of you guys will put your kids down to sleep at what eight or nine
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or a little bit more free range kids 10 1030 whenever they choose, but then you guys are up from like 1030 to one o’clock two o’clock, doing stuff on the computer on their own. So hey, I think the thing is just try it out. Right? Try it, see what works experiment. So let’s transition to what was the final like, you know, a couple things that had to change for you to finally quit the day job. You know, we had always it’s different for you. That’s why I didn’t understand why you didn’t quit much earlier. Whether it’s right or wrong, what were the things that you needed the metrics you needed to hit to be able to
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pull the plug. And yeah, I think, Well, one of the things that was a little bit tougher to manage was, I was going to do it as long as I could meaning work, you know, stick with IBM and continue to do real estate to where I wasn’t like, super high stress, like feeling my anxiety at a high level, just like always feeling like I was just wired. And it this year more than ever, it was really starting to get to that point. I mean, we’re starting to do some bigger deals,
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a lot more to manage, and things like that. And so that was starting to intrude in my, in my headspace. And so I knew that, you know, especially the, the first deal that you mentioned, the first deal this year where we did the three property portfolio.
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I knew that was going to be a Kickstarter for me that could potentially make it happen. And so, and then we ended up and we’re just
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Doing a development deal. And so, you know, the development deals, a heavier lift for me is ground up construction. So I knew that
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in order for me to also be at my best from a steward of investor capital on that magnitude, it probably be good for me to go ahead and, and say goodbye. But like, I didn’t just go out and do a development deal. I mean, I had set up some of these components in place. I mean, every deal that we did, it was just like one step closer to, you know, getting to the to the freedom aspect of it. So, I guess the metrics that I had put, you know, I kind of mentioned earlier it’s number one, replacing expenses number two, getting close to or having line of sight into replacing my my income. Once I got to replacing my expenses, that’s when I really just knew that it could be accelerated and then you know, from there, we just
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kept doing deals, I mean, you know that a part of it too, is just the, the work is really starting to pay off for what I have been able to do and developing relationships and some of these markets that we’re investing in. And so, you know, there’s plenty of deals to, to underwrite and analyze and see if they fit. And so I just think about how much more could we do, potentially, if I was able to operate full time on all cylinders, and have a headspace to just fully devote to real estate and growing the business there. One of the things you’ve mentioned to me was like, you know, we get paid off asset management fee like
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usually one or 2% of income generated kind of like a property manager. And I think that the takeaway for other people is like that can be akin to your passive investments, right? Like when that gets up to be a certain amount that exceeds your your monthly spend. That is, that’s kind of what you’re that’s
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The apex. Yeah, yeah, that’s definitely a part of it. So, you know, the way that we’re making money from our side is asset management fees, acquisition fees, which certainly helps, which is more, I see acquisition fees, you know, I don’t want to, I don’t want to develop a business based on acquisition fees. I don’t want to ever find myself where I have to go and do a deal. That’s more like bonus. But in my world, that’s like closing a deal at IBM, that’s your bonus, that’s not your base salary. And for a lot of larger institutional operators, that’s really the only way to keep the lights on like that one to $2 million payrolls, they need to charge three, four or 5% acquisition fees. Exactly. If they’re not doing deals, they can’t operate efficiently or they have to scale down and I just never wanted to build a business based purely on that so and then of course, the cash flow that spits off you know, we get the sweat equity in the in the general partnership and then anything else
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top of that, that we invest in our own deals, but your monthly overhead is pretty low like me personally, I think. Yeah, I mean, now my rents really cheap.
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Got a couple car payments. That’s about it. I’m under my, yeah, my wife’s a teacher. And I think I made it so all the monthly charges go to her account and her her paycheck pays at all. All the reoccurring expenses. I just like it because selfishly I just like to see my account. This
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is what I
35:33
like. Part of a key is like a lower head. Right? Yeah, overhead. Totally, totally. I mean, it’s, it’s challenging. I mean, we take the joint account approach, my wife and I, but, you know, we did get on the same page about setting a budget and managing our expenses.
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And just figuring out, you know, like, How many times are we going to eat out
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You know, what are we going to set aside for just sludge money, you know, fun money? What are you know? And then, of course, we’ve got a regular repeating expenses, but we also live. And that’s the other thing, maybe it would take somebody moving. I mean, I know there’s a lot of people that are listening to this, and some of the areas of the country where real estate is just super expensive, whereas, I mean, I’m in Houston, Texas, we live in a 3000 square foot house and
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where you could get a 3000 square foot house in another part of the country, it’d be a couple million bucks, and that’s nowhere near what we paid for our house. And so our mortgage is very small. I mean, very small compared to a lot of people that I know that live in Hawaii, or California or New York, that you know, are paying three $4,000 in rent, and they’re in 1000 Square Foot apartment of some sort or something like that. So we’ve made
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See it all guys like we we approve all investor applications before we go out. And you and I see all the financial profiles, everybody we know how much you guys make. And we know how much your net worth is. I mean, in a way we have better oversight than CPAs investing in and there’s a stark contrast, you know who is doing it the right way in their financial budgets? And who is who’s overspending? Right who is a spendthrift spouse? Yeah, knighted there. Yeah, totally. I mean, it’s,
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I mean, we not to scare anybody, but we have to review that. We got to make sure that, you know, the right people are coming into our deals, but, you know, you’re seeing it across the country, not just people who are trying to be a real estate professional, but you’re seeing a mass exodus and some of the coastal climates. I mean, people have been moving from California to Texas for years now. People are moving from New York down
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In the southern states, like Florida, or they’re just moving into the suburbs. So it’s been happening for a while. But that might be what it takes. I mean, the property in the south and in the Midwest is cheaper than the coastal areas. That’s just the fact. And so, you know, that’s an easy way to, if you are looking at this and you don’t, maybe you don’t have a family, or maybe you don’t have a lot of maybe do have a family, but you don’t have a lot of commitments and your gross risk profile is pretty high. And you can work anywhere you want, why not look at living in a place that is just a lower cost of living and no state income tax and a lot of things like that that are set up for you to win versus the alternative, which doesn’t leave a whole lot left for you to put back to invest at the end of the day after you pay all your taxes and your high cost of living and all that other stuff. But at the same time, Kyle and I did not make over $300,000 at our day job. So what can we say?
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Yeah, I think yes, that’s probably might be a good
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problem to have on the one hand, but yeah, it’s gonna take you a lot of passive investing to be able to replace that income. I think like, at least my goal for a lot of you guys is especially if you’re a higher income earner like that is you get to a point in your mindset where you’re investing, you see the light at the end of the tunnel, it’s not a 2030 year tunnel. It might be a 510 or even 12 year tunnel. And you get to a place in your mindset where you’re good, like, yeah, you have to come to this job every day. Or maybe you go to part time, but you’re not there because out of fear, where you know, you’re afraid of getting fired or you need that job, right? And then it comes and you’re freaking out. That is cool. When did you kind of hit that point
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in your investing career, that you maybe came over that Apex? So it really needed the job like yeah, you’re gonna keep it because it’s good money. It’s easy money, but it just wasn’t that you didn’t really
40:00
Nita, are you there more things are later. In terms of mindset. Yeah, I think
40:07
especially on the topic of really high earning professionals,
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you know, it might be challenging to get out there and, and really try to drum up deals, and maybe they do have a really demanding job. And so they, frankly, might be better fits to invest passively for now, until something changes, maybe, maybe they get a new job later on, where they have a little bit more free time. Maybe they are required to be in an office right now, at the moment, but down the line, they go and they get another job or frankly, they decide the stress of the environment that they’re in is too much and they are willing to sacrifice a little bit financially and allows them to have more time to go find deals, but I mean, either way, I think it can be done. It’s just what is your stress tolerance, what’s your risk tolerance and what are you willing to
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To commit to to, to get at what point at what point when in your investments, you kind of see the light that this was gonna be. Your days at IBM were numbered. Well, I mean, for me, I was thinking through it. I mean, obviously I had, I was coming into this year, knowing that this year could be the year just based on the pipeline that we had. And the deal volume that we had in front of us, you know, it wasn’t ever like I was running from IBM, and I still don’t feel that way. I feel like I’m running towards something real estate. Really, when we started finally closing a few of these deals that we have in the pipeline, that’s when it started becoming a better reality. And once we got through a big part of the due diligence process on this development deal that we have knew that this was probably it. And you know, I think I shared that with you when when we were doing our due diligence trip and in Huntsville and that this could be it And sure enough,
42:00
Here we are. In April and May were a little scary read it. We’ve never been through a pandemic, a little bit nursing was that what was that? Oh, you know, April and May little bit of you know, stress and anxiety. We have never been through a pandemic, but I’ve seen collections come through, sometimes even stronger in some places. Yes, that was also key to because I write I mean, okay, knowing what I know, and knew that this year could be the year and so like, I was having those thoughts in March, hey, maybe this will be delayed a little bit. Maybe it’s not this year, not knowing what collections would look like, over the next couple months. But yeah, right. collections have been where they need to be, if not better, in most cases. So that certainly helped give me more confidence that, hey, this is actually working. This is this is a good long asset class and it’s tested, and we’re testing it now. Maybe we’re not through the entirety of it, but it should be
43:00
Like, things are progressing and at least in our properties, so you know things happen for a reason.
43:08
most successful people when things happen, they don’t they understand things open another door opens up. So that can mean you know, in Kyle’s case, you know, a pandemic happens his stress test is his theories that workforce housing works or it could mean somebody loses their job and finds a different one that has a little bit more free time to go finally pick up pickups and single family homes or even sorry if you lost a whole bunch of money in the stock market, but I’m like well wake up you know, it’s all a bunch of fake money out there. He come easy, go and start investing in real assets. But yeah, let’s let’s wrap up here. Take us to the story. How’d you let him know was it just like a little, little handwritten note or
43:55
some people put like a bag of dicks is what some people tell.
44:00
Oh, no, no.
44:03
Yeah, I said I want to.
44:07
Well, I, you know, there’s always that what if it? What if fact, yes, you know, and if anybody and, and, you know, get out of there, but
44:18
I just thought, you know, it wasn’t anything special I just call my boss now I did have to I kind of rehearse what I was going to say before I call them for a few minutes but I mean, I’ve been rehearsing what I was going to say for for for a month, you know, just said, hey, it’s time for a new chapter in my life and I’m gonna
44:39
start focusing on real estate investing full time and I’m leaving the corporate world for now and just kind of left it
44:46
pretty casual and and just real politically correct, real neutral. And he said, No, that’s great. In fact,
44:55
he might be a potential investor because he said, Hey, I know
45:00
Learn more about that because I’ve got all this money. Because I’m your boss, I’m rich, and I need a place to put it. So who knows, he may or may not invest. You know, I mean, my boss and I had a good relationship. I think if there’s one takeaway that, you know, people can glean from this, it’s, you know, at least in my experience, you know, you go through work, you have some politics, you know, sometimes things tick you off, but you forget about that, right? When you’re outside the day job is just, you wonder why, like, when you were in it, it was such a big issue. And when you when it’s you don’t have to go to the day job, you don’t have to deal with all these people. It just seems a part of your life that
45:44
you didn’t need to do it. And now your life can really start now. Right? Well, yeah, Kyle, thanks for joining us. You want to get your contact information out there for people to get a hold of you.
45:56
Yeah, sure. I can post in the show notes, but my
46:00
Email is k Jones at true point cap.com My website is www dot truepoint cap calm or everybody will you know you have to keep working the day job that’s cool just just know that your days are numbered and you know enjoy it right whether you’re working a day job or not
46:20
life’s short
46:22
All right you guys
46:28
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 adviser before relying on any information contained here and information is not guaranteed as an every investment there is risk. 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
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own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best interests.
single family home rentals question here, these self manage them, or do you outsource some? I mean, a lot of people, at least in this tribe or passive investors, your highest and best use is likely at your day job or doing something else. Or if you have enough money, go and enjoy life. The way I’m always going to skew is going to property management, kind of one of the things that got me started in this whole rental real estate thing was I saw my college landlord, he had the drive to the place that we stay that to unclog our toilets or, or do whatever fixes throughout the house that we lived in. And his poor wife had to like, wait in the Mercedes, as he did this for about like 45 minutes and then they could go out to dinner. And I was like, Man, that’s so dumb. I mean, I get it in Seattle, or like places primary markets. You don’t your numbers don’t work to be able to pay a professional property manager. You know, if your rent to value ratios are under 1%, you’re not going to use them. numbers aren’t going to work. And I would say it’s not that the property manager fees are too high. It’s just your your rental property isn’t working. It doesn’t the income is not sustained by the expenses, property managers, they’re going to get paid five to 10% of the income and 50 to 100% of the first month’s rent. That’s, that’s their market rate. I think what I urge most guys is to think more like an investor than a landlord, you own a bunch of properties and you get good at it, you enjoy it, then yeah, knock yourself out and be a self manager and do it all yourself. But I don’t really know anybody who really gets into the business of property management, it seems to me as is kind of like the lowest rung of management jobs out there. Most times what they’ll do is like their employment plan is to just try and get a college grad who couldn’t find a job and stick them in the seat pay up 3040 grand a year.
(a) General rule: Except as otherwise provided in this section, in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpay- er during the taxable year as a residence.
(b) Exception for interest, taxes, casualty losses, etc. Subsection (a) shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity).
(c) Exceptions for certain business or rental use; limitation on deductions for such use
(1) Certain business use: Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwell-
ing unit which is exclusively used on a regular basis.
(A) the principal place of business for any trade or business of the taxpayer.
(B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the nor- mal course of his trade or business, or
(C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer’s trade or business. In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer.
(2) Certain storage use: Subsection (a) shall not apply to any item to the extent such item is allocable to space within the dwell- ing unit which is used on a regular basis as a storage unit for the inventory of the taxpayer held for use in the taxpayer’s trade or business of selling products at retail or wholesale, but only if the dwelling unit is the sole fixed location of such trade or busi- ness.
(3) Rental use: Subsection (a) shall not apply to any item which is attributable to the rental of the dwelling unit or portion there- of (determined after the application of subsection (e)).
(4) Use in providing day care services
(A) In general: Subsection (a) shall not apply to any item to the extent that such item is allocable to the use of any portion of the dwelling unit on a regular basis in the taxpayer’s trade or business of providing day care for children, for individuals who have attained age 65, or for individuals who are physically or mentally incapable of caring for themselves.
(B) Licensing, etc., requirement: Subparagraph (A) shall apply to items accruing for a period only if the owner or operator of the trade or business referred to in subparagraph (A) –
(i) has applied for (and such application has not been rejected), (ii) has been granted (and such granting has not been revoked), or
(iii) is exempt from having, a license, certification, registration, or approval as a day care center or as a family or group day care home under the provisions of any applicable State law. This subparagraph shall apply only to items accruing in periods beginning on or after the first day of the first month which begins more than 90 days after the date of the enactment of the Tax Reduction and Simplification Act of 1977.
(C) Allocation formula: If a portion of the taxpayer’s dwelling unit used for the purposes described in subparagraph (A) is not used exclusively for those purposes, the amount of the expenses attributable to that portion shall not exceed an amount which bears the same ratio to the total amount of the items allocable to such portion as the number of hours the portion is used for such purposes bears to the number of hours the portion is available for use.
(5) Limitation on deductions: In the case of a use described in paragraph (1), (2), or (4), and in the case of a use described in paragraph (3) where the dwelling unit is used by the taxpayer during the taxable year as a residence, the deductions allowed under this chapter for the taxable year by reason of being attributed to such use shall not exceed the excess of –
(A) the gross income derived from such use for the taxable year, over (B) the sum of –
(i) the deductions allocable to such use which are allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was so used, and
(ii) the deductions allocable to the trade or business (or rental activity) in which such use occurs (but which are not allocable to such use) for such taxable year. Any amount not allowable as a deduction under this chapter by reason of the preceding sen- tence shall be taken into account as a deduction (allocable to such use) under this chapter for the succeeding taxable year. Any amount taken into account for any taxable year under the preceding sentence shall be subject to the limitation of the 1st sen- tence of this paragraph whether or not the dwelling unit is used as a residence during such taxable year.
(6) Treatment of rental to employer: Paragraphs (1) and (3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in
which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer. (d) Use as residence
(1) In general: For purposes of this section, a taxpayer uses a dwelling unit during the taxable year as a residence if he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of –
(A) 14 days, or
(B) 10 percent of the number of days during such year for which such unit is rented at a fair rental. For purposes of subpara-
graph (B), a unit shall not be treated as rented at a fair rental for any day for which it is used for personal purposes.
(2) Personal use of unit: For purposes of this section, the taxpayer shall be deemed to have used a dwelling unit for personal purposes for a day if, for any part of such day, the unit is used –
(A) for personal purposes by the taxpayer or any other person who has an interest in such unit, or by any member of the fami- ly (as defined in section 267(c)(4)) of the taxpayer or such other person;
(B) by any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or
(C) by any individual (other than an employee with respect to whose use section 119 applies), unless for such day the dwelling unit is rented for a rental which, under the facts and circumstances, is fair rental. The Secretary shall prescribe regulations with respect to the circumstances under which use of the unit for repairs and annual maintenance will not constitute personal use under this paragraph, except that if the taxpayer is engaged in repair and maintenance on a substantially full time basis for any day, such authority shall not allow the Secretary to treat a dwelling unit as being used for personal use by the taxpayer on such day merely because other individuals who are on the premises on such day are not so engaged.
(3) Rental to family member, etc., for use as principal residence
(A) In general: A taxpayer shall not be treated as using a dwelling unit for personal purposes by reason of a rental arrange- ment for any period if for such period such dwelling unit is rented, at a fair rental, to any person for use as such person’s princi- pal residence.
(B) Special rules for rental to person having interest in unit
(i) Rental must be pursuant to shared equity financing agreement Subparagraph (A) shall apply to a rental to a person who
has an interest in the dwelling unit only if such rental is pursuant to a shared equity financing agreement.
(ii) Determination of fair rental: In the case of a rental pursuant to a shared equity financing agreement, fair rental shall be determined as of the time the agreement is entered into and by taking into account the occupant’s qualified ownership interest.
(C) Shared equity financing agreement: For purposes of this paragraph, the term ”shared equity financing agreement” means an agreement under which –
(i) 2 or more persons acquire qualified ownership interests in a dwelling unit, and
(ii) the person (or persons) holding 1 or more of such interests –
(I) is entitled to occupy the dwelling unit for use as a principal residence, and
(II) is required to pay rent to 1 or more other persons holding qualified ownership interests in the dwelling unit.
(D) Qualified ownership interest: For purposes of this paragraph, the term ”qualified ownership interest” means an undivided interest for more than 50 years in the entire dwelling unit and appurtenant land being acquired in the transaction to which the shared equity financing agreement relates.
(4) Rental of principal residence
(A) In general: For purposes of applying subsection (c)(5) to deductions allocable to a qualified rental period, a taxpayer shall not be considered to have used a dwelling unit for personal purposes for any day during the taxable year which occurs before or after a qualified rental period described in subparagraph (B)(i), or before a qualified rental period described in subparagraph (B) (ii), if with respect to such day such unit constitutes the principal residence (within the meaning of section 1034) of the taxpayer.
(B) Qualified rental period: For purposes of subparagraph (A), the term ”qualified rental period” means a consecutive peri- od of
(i) 12 or more months which begins or ends in such taxable year, or
(ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and for which such unit is rented, or is held for rental, at a fair rental.
(e) Expenses attributable to rental
(1) In general: In any case where a taxpayer who is an individual or an S corporation uses a dwelling unit for personal purposes on any day during the taxable year (whether or not he is treated under this section as using such unit as a residence), the amount deductible under this chapter with respect to expenses attributable to the rental of the unit (or portion thereof) for the taxable year shall not exceed an amount which bears the same relationship to such expenses as the number of days dur- ing each year that the unit (or portion thereof) is rented at a fair rental bears to the total number of days during such year that the unit (or portion thereof) is used.
(2) Exception for deductions otherwise allowable
This subsection shall not apply with respect to deductions which would be allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was rented.
(f) Definitions and special rules
(1) Dwelling unit defined: For purposes of this section –
(A) In general: The term ”dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit.
(B) Exception: The term ”dwelling unit” does not include that portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment.
(2) Personal use by shareholders of S corporation: In the case of an S corporation, subparagraphs (A) and (B) of subsection (d) (2) shall be applied by substituting ”any shareholder of the S corporation” for ”the taxpayer” each place it appears.
(3) Coordination with section 183: If subsection (a) applies with respect to any dwelling unit (or portion thereof) for the taxa- ble year –
(A) section 183 (relating to activities not engaged in for profit) shall not apply to such unit (or portion thereof) for such year, but
(B) such year shall be taken into account as a taxable year for purposes of applying subsection (d) of section 183 (relating to 5-year presumption).
(4) Coordination with section 162(a)(2): Nothing in this section shall be construed to disallow any deduction allowable under section 162(a)(2) (or any deduction which meets the tests of section 162(a)(2) but is allowable under another provision of this title) by reason of the taxpayer’s being away from home in the pursuit of a trade or business (other than the trade or business of renting dwelling units).
(g) Special rule for certain rental use: Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then –
(1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
(2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.
You print too many dollars and people lose faith in the dollar. The only reason we’re able to pull this off is because we issue the world’s reserve currency and the whole world has to suck up all these dollars. The problem is if someone were to come along like a china and say, hey, we’ve got 20,000 tons of gold, not eight, and we have a big manufacturing economy, and we’re willing to back up our currency with gold, then everybody would move out of the dollar and into gold, and the dollar would collapse. All those excess dollars would come home, and we would end up in America with hyperinflation. And that’s the kicker, right? You hear all the stories about Zimbabwe and all these other countries have ever had hyperinflation, they don’t have that kicker that the United States has. Yeah, I mean, our exorbitant privilege is that we have the ability to print as many dollars as we want, spend as much money as we want, and the rest of the world has to provide it for us because there’s always a bid on the dollar just like there’s always a bid on goal.
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Introducing the new remote investor, incubator and ecourse we had the mastermind and we are going to break off from that being mostly an accredited investor group. And I wanted to create something that was helping out the little guy get started guys getting their first properties. And we’re calling this the incubator group. Get More details at simple passive cash flow, comm slash incubator, but basically what we’re doing here is we’re getting a group of professionals looking to build your network with others starting this journey to financial freedom, the ecourse that’s going to accompany this group is going to have eight modules in a closed membership site plus two bonus modules and download kit all geared toward educating the remote investor in this group, we’re going to have biweekly zoom video calls. And if you join up, you’re gonna get all past turnkey rental recordings. Now these calls are designed to ask whatever questions you have and hear the other questions from other investors in your shoes and we’re going to run this like a boot camp style. This is going to be a five month program. We’re gonna walk you through the best practices for tax and legal as you acquire your first remote rental. We’re going to walk you through the due diligence and offer process we’re going to have staff membership coordinators for extra support to get you over the sticking points to connect you with
1:16
one of the biggest
1:23
you guys were basically spoon feeding this to you if you’ve been on the fence and it’s time to get your first rental property go to simple passive cash flow calm slash incubator and by the way for those accredited investors, we are looking for new members go to simple passive cash flow calm slash journey and join the flagship simple passive cash flow mastermind there after the pandemic to new world out there having a network around you is so much more important.
1:58
This is the story of About a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out. And then he became one real investor.
2:12
Hey simple passive cash flow listeners today I have Russell gray one of my mentors that kind of got to me where I’m at today. How long has it been almost like four or five years now since we first met I listened to the real estate guys, podcasts. You guys check it out in iTunes, Google Play. It’s one of the few podcasts out there that wasn’t designed to put you into some syndicated deal. It’s more of an educational podcasts that I clicked on to a long, long time ago. And I eventually met up with these guys join their mastermind a few years back and things like there’s so many influences you guys had on kind of what I do today like interacting with my investors one on one phone calls, which I still do, but you guys can still go on the website and book that if we haven’t had a chance to talk but should you say Russell gray, how’s it going?
2:57
Good. Happy to be here. Excited to end Congratulations on your success. It’s always fun when people come into our world and then take the things they learn and act on them. You know, our motto is education for effective action.
3:08
Yeah. And the kids always come back right one of these years I got to come back to the goals seminar, which you guys do I think, what every January, February Yeah, I mean, I originally went to your guys secrets of successful syndication, which is a great precursor on how do you do bigger deals, but I think most people will say your guy’s goals seminar, people who come routinely say, that’s your guy’s best at that you guys put on, you know,
3:29
we don’t do a lot of events where we looked at the marketplace and looked at what people needed and what we felt like we were qualified to do, and we tried to stay in our lane. But you know, after the 2008 crisis, we just thought there was going to be a huge opportunity in private capital and syndication was going to be the way to go. And we didn’t see many people out there really teaching it or doing it and those that were were more interested in raising money than they were interested in and really seeing people become successful real estate entrepreneurs. So we did that course back from the time we were working with anybody Real estate investors and you know, we still do that or you know, encouraging people to be syndicators ultimately real estate, whether you’re doing it in your own account or you’re doing it on behalf of other investors as a business or whether you’re investing passively through a syndicator however, you’re approaching it. It’s just a vehicle to accomplish your goals which presupposes you know what those goals are. And so before you start investing, you need to have a team before you have a team, you need to have a market that you think has the right conditions to deliver the kind of financial program you’re looking for. And before you can pick that market, you have to have an idea what you need your money to do for you. So you need a personal investment philosophy and that personal investment philosophy grows out of your personal goals. So we do that. And then we do the annual summit, usually for 17 years in a row on a cruise ship this last year. We had to do it. We call it summit on screen or somebody in place because we did it virtually but it was great. We had Kiyosaki and Chris martenson and Adam Taggart, G, Edward Griffin and Peter Schiff. And Tom Hopkins, you know, a whole cast of the regular real estate thought leaders that we’ve had. So it was another great event. But those are primarily it. I teach a sales training class once a year that we cancelled this year because of COVID. And the rest of the stuff that we promote are really things that we see other people doing that we think they’re doing well.
5:17
So check out the real estate guys and subscribe to the newsletter, Russell writes it himself. And I thought I’d bring you on and kind of talk about some of these concepts that you’re talking about in your newsletter. And this is what frustrates me about mainstream media is nobody reads more than 500 words, right? Nobody has that capability to do stills it’s always on based on headline. And I guess the first topic I’d like to unpack for people is this repo market. And you know, if you haven’t heard about this before, I mean, I haven’t started to read your content, probably like what the heck is this? Right? Yeah. For people who have no idea what this is, maybe take us back to when this story first broke?
5:52
Yeah. So there’s a lot of components to the financial system. Think of it like an automobile or a big building. You know, there’s different systems. There’s different pieces of substructure that kind of put the whole thing together. And some of it is, you know, you see it, you understand it, there’s like if you get in a car, you see the steering wheel, you can see the controls, you operate the seats, there’s things you see. And there’s a whole lot of stuff going on under the hood and in the chassis that you don’t see. And so the financial system is like that after 2008 when things that were way off the radar of most people, even myself and I was in the mortgage business at the time, you know, these derivatives and mortgage backed securities and collateralized debt obligations, and all these structured investment vehicles and all this stuff that was happening in the bowels of the financial system under the Wall Street gamblers, operating all that machinery, I took a real interest in it and I started realizing like I if I start watching this stuff, I might not understand it. But at least if I see smoke coming out from under the hood, then I’ll know that I should call somebody smarter than me like you know, a financial system mechanic and go Hey, what the heck is this? Well, that’s what happened in September. I saw a headline that interest rates in the repo market had spiked to over 10%. Well, you know, anytime interest rates spike, it’s because people are charging a risk premium. It tells you there’s more risk in the system, you just look at what interest rates are, the lowest interest rates typically are treasuries because you’re borrowing and getting paid back in dollars, and you’re borrowing from the people who issued the dollars. And so they’re considered to be the safest investment you can make. And we could debate whether that’s true or not, but from an interest rate perspective, that’s the way it is. So anything that moves out the rings of risk from that center point of the riskless investment you add interest to as risk premium Think of it like an insurance premiums, that’s kind of way interest rates work. So spiking interest rate tells you that there’s more risk in the system. So it’s like okay, I looked at it so there’s there’s something going on, right because these interest rates are 10 times what they should be and they boomed and the feds response was to pump in 100 $200 billion a day. And of course, you know, we hear these big numbers all the time. And we think they just kind of go in one ear out the other. We don’t have any context to understand. But back at the height of the 2008 financial crisis when they were doing quantitative easing, which was basically papering over bad debt by printing money, they were printing at 5 billion a month, and in September way before COVID-19, way before economic shut down. The Fed was pumping in as much as a trillion dollars a week. clearly something was wrong. So I dug into what the repo market is and just to keep it super, super simple, it’s basically a pawn shop for banks. So imagine a pawn shop, you’re short on cash, and you’re like, Okay, what do I have, I got a, I got a watch or I got a gun or I got, you know, some old jewelry, and you go down to the pawn shop, and you basically sell it to the pawn shop operator, but you have the ability to redeem it in a certain period of time and they charge you interest for the use of the money but presumably, whatever you are Hawking your asset for is important enough that the premium you have to pay to get access to that is there. And of course, the interest or the rate that you pay is, you know, kind of based on the risk. So anyway, so banks are showing up in the repo market and they’re bringing in their treasuries and they’re Hawking them. They don’t want to sell their treasuries or they don’t want to be divested of them who have the right to get them back it basically seeing the banking system is low on cash. That’s what activity in the repo market is and just like maybe you’re not proud to tell all your friends Hey, I had to Hawk my watch, right? the banking system, they’re not like proud that they had to go Hawk their treasuries to raise cash, it’s an indication of dollar shortage in the system. And the Fed accommodated that by printing a lot of dollars, and
9:42
what did they need that liquidity for to pay off their notes? So why did things come to that? Do that
9:47
something’s going wrong. I mean, you don’t know it’s the smoke coming from under the hood? It’s like, Well, okay, nope, we don’t know. I called Chris martenson because he’s a smart guy. And he watches this stuff, too. And I said, Hey, Chris. In fact, I think we did a show on it with him. I know I wrote a couple of newsletters about it. We did a cruise in the news episode, but I’m pretty sure we did a radio show where we actually interviewed Chris martenson. From peak prosperity. We talked about it. And he was in the same place because yeah, clearly something’s wrong. We don’t know what it is. But there’s a lot of smoke coming from under the hood. So we all agreed, hey, this is something we should be watching the indication that there was a real problems when interest rates spiked to 10%. Because when interest rates went that high, that tells you that whoever is bringing the dollars in lending money that they’re fearing counterparty risk, they wanted 10 times the risk premium. That’s the concern is this person may not pay me back. Okay. So that’s where the concern was. And so why would these banks not trust each other? That’s a concern. So you know, nobody knows what the answer is, but they were pumping money into it right up until COVID-19. And then when COVID-19 hit, they pumped money into everything, and this whole repo thing just kind of faded away, but it was really like the canary in the coal mine and the post mortem on what is been going on in the banking system is probably not going to happen until we get to the other end of this just like a lot of what happened in 2008 didn’t come out into, you know, really a public understanding until people kind of sorted through all the rubble and reverse engineered what happened and explained it. And there were a lot of great books written about 2008. I think there’s gonna be a lot of great books written about 2020. But we’re not there yet. This COVID-19 could be and again, I don’t mean to be a purveyor of conspiracy theories, but there are smart people that I hang out with, as you know, and a couple of them are convinced that this is an overreaction to a real disease for the purpose of being able to take extreme economic measures, printing money, spending money in order to cover up a problem that pre existed and the symptom of that problem was what happened in the repo market. And that’s about the extent of it from my perspective.
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If you’ve been following my journey, I’ve been selling my initial real property and transitioning into syndication deals lately. For more purely passive investment strategy. One critic Part of my portfolio is the American Home preservation fund, or what folks in the we call HP for short. George Newbery once apartment owner, operator and mentor to me, is now sponsoring the podcast is private fun, which by the way, also accepts non accredited investors cuts the middlemen out and allows you to invest directly with him to fight the mortgage crisis in America. join him by purchasing distressed mortgages while getting a double digit annual return paid monthly. Find something else better out there. Well, let me know. Feel good knowing that you are helping families stay in their home after buying their underwater note at a huge discount, invest as low as $100 by going to HP servicing comm slash investors. And if you want the free burns on book, please send me an email Lane at simple passive cash flow calm
12:54
Well, that’s your light bill.
13:01
Yeah, so when people say, you know, the Fed is printing money, right, where does the money flow into like bank stocks or
13:07
Yeah, so technically they don’t print money. There’s a fairly infamous or notorious interview Ben Bernanke on 60 minutes, probably back in 2009, or 2010. Trying to explain quantitative easing, and in the one breathy saying we don’t print money. And on the other breath, he’s saying it’s effectively like printing money. But what it is, is they just add digits to a computer screen. So it’s all digital. They just they conjure these numbers out of thin air. And the way they put the money into play is they purchase treasuries. So the US government needs to spend more than it brings in which it’s very good at so that it can issue new treasuries. And when those treasuries are issued, they’re sold on the open market through market makers and those market makers individual investors around the world sovereign wealth funds, governments, other central banks. All by treasuries for their reserves, the Federal Reserve manipulates interest rates by bidding on those bonds also through their FOMC, which is the feds Open Market Committee. And what they do is they set an interest rate target. So when the Fed comes out and saying, Hey, we’re we’re lowering the interest rate, what they’re doing is they’re lowering their interest rate or changing their interest rate target. And the target is what they’re aiming at doesn’t necessarily mean what they hit. And they certainly don’t dictate to private lenders what rates should be. But again, if you go back to my early explanation, that treasuries are at the center of the rings of risk for interest rates. If I raise that interest rate at the core, then everything else outside pushes out, and rates go up. So if that ring that the Treasury is in and the interest rates shrinks, then everything that has a risk premium built on it shrinks to and so mortgages are a ring of risk out from treasuries they’re considered To be very, very safe, but not as risk free as Treasury. So mortgage rates are higher than Treasury rates. And if Treasury rates go up, mortgage rates go up, if Treasury rates come down, mortgage rates come down, alright, so the Fed goes out and they they print money out of thin air actually conjure money onto their computer system, and they bid on the bonds in the open market. And in order to drive the rate down, they have to bid the price up. So it’s just like cap rates on apartment buildings. If your audience is primarily real estate investors as ours is, then they understand that right if I go buy a property, and it’s got a five cap, it’s listed as five cap and it sells for a four cap. It isn’t that the rent changed, it’s that the somebody bid the price up, they bid the price up higher, which means that the return on invested capital the purchase price went down. There’s an inverse relationship between yield net operating income and a cap rate. There’s an inverse relationship between the cap rate and the price of the apartment building, the higher the apartment building price, the lower the cap rate and vice versa. Same is true with treasuries. So the Fed creates interest rates by bidding on those bonds bid it up drives interest rates down. So that explains negative interest rates. Because you say, Well, why would anybody buy a bond at negative interest rate? Because they’re convinced that the Fed is going to come in and bid even more for it. They’re speculating on the price of the bond. They’re not buying the bond for the yield, there is no yield. They’re buying it knowing that the Fed is going to buy even more, and I could tell stories about that out of the news, but I’ll let that lay. Did that answer your question? Lee?
16:35
Yes. So manipulating, so when they create like a $2 trillion stimulus package? Is that their mechanism for putting cash into the system?
16:42
Yeah, well, they buy the treasuries and then the government spends the money. So there’s there’s what’s called a fiscal stimulus, which is when the government and the Federal Reserve and the government are not one in the same if you’re not sure about that read the creature from Jekyll Island G. Edward Griffin does a great job explaining it but the Federal Reserve A private banking cartel and they have a contract or a deal that’s baked into the 16th amendment that allows them to issue the currency instead of the Treasury. That’s why you have Federal Reserve Notes and not Treasury notes, or treasury bills. And they then manage the money supply theoretically, outside of political influence. They’re supposed to be independent. So this was what the system was set up in 1913. Of course, it’s like most systems changed quite a bit over time. And some could argue it’s become a bit corrupt and politicized, but be that as it may, the Federal Reserve prints the money and then they give it to the government by buying the bonds. And then the government puts it into circulation by spending the money. So monetary stimulus is the Federal Reserve, lowering interest rates, which is effectively meaning they’re going to print money to buy more bonds, but it has to be married to fiscal stimulus, which is where the government spends the money and puts it into circulation. And of course right now both of those things are happening. We have a thing Three and a half trillion dollar deficit. So we’re spending gobs and gobs and gobs of money. We’re injecting it directly into people’s bank accounts. And the Fed is printing trillions and trillions of dollars. In fact, I read an article the other day that the Fed has purchased 100% of all Treasury issuance, in other words, every IOU every bond, every borrowing that the federal government has done in 2020. The Fed has purchased China hasn’t purchased it. Japan hasn’t purchased it. private investors haven’t purchased it. Nobody’s purchased it. But the Fed net. I mean, there’s been trading for sure, but net net, the Fed has printed more money or as much money as bills have been issued or notes have been issued by the Treasury. So that’s it. That’s how the money gets in play. Now they’re buying ETFs you know, Bond ETFs are buying commercial mortgages. They’re putting money in through Fannie Freddie. So they do it by funding credit markets. The short answer, maybe I gave too big of an answer, but the short answer is they print money out of thin air, and they purchase debt instruments in the credit markets, primarily treasuries, but now money Other things, and then that money finds its way into circulation, we’re probably a hop skip and a jump before they start buying equities, stock ETFs and so on to prop up the stock market. It’s a full court press to prevent asset values from collapsing because that’s a natural reaction to a cessation of economic activity is asset prices collapse problems when asset prices collapse? It takes credit markets with it, because debt goes bad and that’s the big risk right now.
19:27
So when COVID hit and people lost a third of their portfolio in their stocks, and then it kind of bounce right back up. Is that a byproduct of just more money flooded into the system and not really what the headlines on Yahoo Finance says that, oh, people are sentiments getting better. What’s
19:45
the I mean, that’s ridiculous. I mean, get the Atlanta fed coming out going GDP is going to be negative 40 or 50%. They’re coming out with these unprecedented unbelievably horrible things. We got 40 million or whatever people unemployed, right? Unemployment rate. And then the Great Depression, there is no logical reason based on earnings for companies to stock to be going up. There’s nothing that looks good economically. The stock market though, has become a proxy or a barometer in many people’s minds for economic health. And it’s not true. And of course, it creates a huge amount of income or wealth inequality because the people who own stocks are the beneficiaries of the free money and the people who don’t are on the outside looking in just watching the cost of food and other things that they need go up. So there’s a reason why a lot of people are angry right now whether they understand the economics underneath the disparity or not, but this isn’t a left or right issue. This is a big government, big banking system, big corporation. It’s the big guys versus the little guys and the little guys get crushed when these types of games get played.
20:51
So right now we kind of establish that something’s happening. Something’s under the hood that’s smokin and I just want to kind of speak to little guy, the person listening on the podcast right? Now they’re going to hear that and they’re going to say, Oh my goodness, maybe I should put everything in gold or put cash under my mattress or dig a hole. Well, what’s the real play here, especially for guys who have less than a million dollars net worth, you can’t just buy gold, you got to grow your money to
21:15
well, gold is not an investment. And gold only preserves you against the failure of a currency. So I think the first thing is to understand the context and kind of the sequence of events as this thing rolls out. So we had a health crisis, whether it was real or perceived, whether it was overreacted to you can’t worry about that. The fact is, they shut the economy down worldwide and they’re opening it up very slowly, and maybe it’s going to be open it up a little bit and pull it back. The short of it is the health crisis led directly to an economic crisis and the economic crisis means businesses stop generating revenue, employees stop getting paychecks, which means that businesses and employees that have debts can’t To service those debts. So there’s been some temporary injections and some getting out in front with forbearance agreements and workouts and all this different stuff that’s been going on unlike how they handled 2008. But at the end of the day, those are temporary stopgap measures intended to keep the wheels on the bus until economic activity can restart. It’s kind of like being put on a heart lung machine until you can start breathing and your heart starts beating on its own. That’s where we’re at. We’re on life support, and that life support is coming directly from the Fed. So the economic crisis is the cessation of cash flow, think about having an economic heart attack currencies not flowing because people aren’t able to buy they’re not able to go out they’re hesitant to spend, they can’t make payments, right that that’s an economic heart attack. That’s where we’re at the next level is a financial system meltdown. And that happens when the banking system and the bond markets and credit markets begin to fail. There was some indication there were problems in those markets. For as we talked about in the repo market, they needed huge injections of cash. So there was already problems all COVID-19 was did was accelerate what was already happening and maybe provide cover for an extreme reaction that maybe they wouldn’t have been able to pull off outside of a very visceral, very visual, understandable crisis. People don’t understand financial crises. It’s all geek speak. But you can understand if you go out to the grocery store, and everybody has masks on and you can’t stand the six feet apart and all the restaurants are closed, all sudden, it’s like very conscious, hey, there’s a big problem here. And if you tend to believe the narrative, then you accept it and you accept whatever needs to be done to fix it. Again, I’m not saying that there’s a nefarious motive behind it, but I’m just saying people are a lot more forgiving. Of these extreme debts. Extreme spending measures extreme expansion of the Fed’s balance sheet because they are believed Meaning that we’re in the midst of an unprecedented crisis. And the idea is that extreme times, you know, require extreme measures. So health crisis to economic crisis to financial system crisis where the credit markets collapse, like we had a mini financial crisis in 2008. Here’s the next crisis in order to save the financial system. And to put the economy on life support, the Fed is printing and the government is spending trillions and trillions and trillions of dollars. So to give you kind of a historical perspective, in the entire history of the United States up until 2008, or the entire history of the Federal Reserve from 1913, up to 2008, almost 100 years, they grew their balance sheet to 800 billion after the financial crisis of 2008. By 2012 or so their balance sheet had grown from 800 billion to 4.5 trillion. They tried to taper and they tapered it down to 3.7. They raised it or tried to raise interest rates by 50 basis points half a percentage. And the result was the stock market started to retreat and the economy started to slow down. And so they realized that was going to be a problem. And so they lowered interest rates and they stopped tapering. Soon as COVID-19 hit their balance sheet has exploded to over 7 trillion. So it’s more than doubled since COVID-19. The last four months, the Federal Reserve has gone from 3.7 to over 7 trillion that’s all freshly printed money that is, is working its way into the system. It’s propping up the stock market. It’s keeping interest rates down when there’s tons of risk and people should be charging a risk premium, but you can’t because there’s too much debt in order to stop all that they’re printing dollars. Here’s the thing if you print too many dollars, and people lose faith in the dollar, now you’re Zimbabwe you’re Venezuela. Going back in history, you’re why Mar Germany, the only reason we’re able to pull this off is because we issue the world’s reserve currency and the whole world has to suck up. These dollars problem is if someone were to come along like a china and say, hey, we’ve got 20,000 tons of gold, not eight, or four, and we have a big manufacturing economy and we’re willing to back up our currency with gold, then everybody would move out of the dollar and into gold, and the dollar would collapse, all those excess dollars would come home and we would end up in America with hyperinflation.
26:25
And that’s the kicker, right? You hear all the stories about Zimbabwe and all these other countries have had hyperinflation. They don’t have that kicker that the United States has.
26:33
Yeah, I mean, our exorbitant privilege, if you will, is that we have the ability to print as many dollars as we want, spend as much money as we want. And the rest of the world has to provide it for us because there’s always a bid on the dollar just like there’s always a bid on gold. So people who are buying gold right now we’re buying it as an alternative to having something liquid that hedges against $1 collapse or Just a continuation of 113 year, a downward spiral of the dollar, right. That’s why people own gold, but you can’t gain purchasing power with gold, you only retain it which is worth doing. But when you pair gold with debt, now that’s different. Let’s say for example, I go pull a couple hundred thousand dollars out of a piece of real estate, and I take half of it and I put it into gold, and then the gold doubles in dollar price because of inflation. Now my gold will pay off all my debt and so the debt and the dollar go together. And the problem with going into debt to buy gold is you have to make the payments unless the thing that you go into debt with provides the payments. Now can you think of a vehicle that you can purchase with debt that actually provides the payments to make the payments can you think of one
27:45
of these couple of guys, they built their whole platform on real estate?
27:50
Real Estate and so what I found is that I’ve kind of crossed over and become this bridge between the gold community and the real estate community from a financial strategy. perspective and when you pair gold with debt and real estate, now you have a chance to outperform in an environment where the dollar is falling. And so that to me is the way to play this game right now because all of the pressure to support the entire global economy is landing squarely on the dollar
28:23
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How can I use part of my Roth IRA to buy passive income property, what you’re going to need to do to investor author is you’re going to need to probably move over to a IRA custodian that allows you to self direct. Now, a lot of these guys like Vanguard or fidelity was at something America with these big firms that offer investment options. They have what I call a fake self directed IRA accounts. We’ll call it self directed IRA accounts, but all it really does is allow you to invest in dirt or other garbage mutual funds and stuff like that. They’re not true self directed IRA accounts, what you’re trying to find as a self directed IRA custodian, such as you know, a lot of our investors will use quests, I used to use IRA services, they’re pretty good, cheap option, but these guys they’re just custodians who just hold on to your money and they administer the money. Once you get the money to these guys, then you can invest it or where you want. Of course, there’s you know, you have to follow a prohibited transaction. rules you can Google that I think you can’t buy things like artwork, or there’s all this list of like things you can’t buy. But if you’re buying income property, you should be fine. Some things to know when you’re transferring from your current IRA company to the IRA, self directed IRA custodian, it’s going to be hard, these guys aren’t going to make it easy for you, you know, you’re breaking up with one company, the customer service on that end is not going to be as good as it was on the way and so it might take two or three months, or two or three weeks of you constantly kind of badgering them. But once you kind of get it out of there, and you have it in the account, some of them will set up like a checkbook IRA, where you can just easily make or write a check. The one I had, I had to do all this paper, you know, a couple pages without what I was investing in, and then the key is that they they’re sending money on your behalf and you’re kind of staying out of it so that you don’t blow up your IRA account. I personally am not a big believer in any retirement accounts, Roth IRAs or Any pre tax IRAs unless your net worth is over two to $4 million. At that point, maybe you should do a Roth, a lot of like syndication deals and just real estate in general, you get a lot of good tax benefits from depreciation that comes from the property. When you’re investing within a IRA account or retirement account, you do not get to partake in those advantages. Another reason why I don’t like IRA accounts is because you have to wait till you’re like 60 or 70 years old. I’m trying to live for today I want to, I’m trying to I’m buying income property so I can create mini pensions today and work backwards and create cash flow today that grows and grows and grows so I can buy more and more investments so I can grow more and more. I am probably going to reach retirement, the pinnacle of retirement what we all think, which is more of a financial freedom number well before I hit 60 now not saying that’s for everybody, but I think for a lot of us who are investing the right way, it usually takes five to 10 years of doing this method. To be out of the rat race, and at that point, you’re not going to want that money locked up in some Roth IRA account or IRA. So that’s why a few years ago, I made the conscious decision to never invest in that stuff ever again and I just invest out of my own liquidity out of cash accounts.
So I’m cashing out some of my real estate that was inherited because the net income is very low given the asset value considering cashing out on a property that I bought 30 years ago in Arizona even though the rent ratio is amazing the income to asset ratio is low thought is to hold on to cash and wait for a buying opportunity which seems to be coming however, we’ll end up with a 30% capital gains federal and state on 500 to 600 thousands of capital gains the first thing I always ask folks like this is like what’s the rent to value ratio fits under 1%? Well, it’s not going to cash flow so you should probably sell it It could appreciate but that’s just not what the kind of investor I am I want the Sure thing which is cash flow as opposed to hoping and praying and gambling that the property value is going to go up. Somebody might get lucky and rub it in my face but you know, I’m more about cash flow and and that type of stuff these days. Once you’ve determined that you got to sell the property
You got to figure out how much capital gain you’re going to have. And this person mentioned, they’re going to be looking at 500 to $600,000 in capital gain. Now you have a couple options. You can do a cash out, refinance, buy some other properties, maybe you go into some syndications. And then you build up some passive losses from those syndications and then sell the property and then realize those capital gains. But by doing that strategy, you’re able to build up the passive losses that kind of cushion your fall, there’s a 1031 exchange option, but I think 1031 exchanges are pretty horrible because think about like this analogy is like you’re kind of in a in a hot air balloon, you’ve been in this boom for 30 years, and you’re now you have to look at like a 500 to $600,000 capital gain or dropping of air balloon, you’ll probably break a bunch of legs at that point, but by doing a 1031 exchange, you’re kind of delaying the inevitable you’re going to be in the situation again, but unfortunately, you might be looking at a 1 million or a million and a half capital gain way. I think
Kind of kind of mentor my folks who’s like just cut bait Now jump out of the basket. And you might break a leg leg or sprained ankle, if you’re at a height of like 50 feet. $100,000 is a lot of capital gains. So likely, what you’re going to need to do is cushion your fall. And in this case, practical advice is to go into some deals, get some passive losses to cushion your fall, maybe you invest $100,000, and you get a $98,000 in passive losses that first year and you go into three deals like that to you now you’re almost the $300,000 cost of losses. Now you take that $500,000 long term capital gain, and you minus that passive losses, and now you’re only looking at a $200,000 capital gain. At that point, say your adjusted gross income was 100. You know, you add that to the 200 and you’re at 300. You’re not in a bad tax bracket at that point, if you kind of sheltered the big stuff out of the you know, $326,000 and above that, those are
A couple ways of doing it. Every situation is different but that’s the way I would think of it. You know, we talk a lot about this stuff in our in our mastermind group about, you know, strategizing specifics about this one piece of the puzzle I don’t have that this person didn’t put in here. It’s like, I want to know what your adjusted gross income because maybe you’re not working this year and your AGI is really low. Well take it out. Take just take the capital gain hit on the chin
