Tag: SFH

Should You Buy a Tenant Occupied Property?

https://youtu.be/QVI18k0phOM

Yeah, my question had to do with tenanted versus non tenanted properties. And this question is coming from a place of, with the government prohibiting evictions. If you will, what are your thoughts on purchasing a, like a tenanted property? Is it better to go to a property that is intended to, so then you can do a more, I suppose, thorough background check on income and things like that.

I’ll give you my thoughts, but everybody has different thoughts on it. If you have section eight and non section eight type of property, so that’s a class C or worse or B or better, I’d say it’s two different answers. So maybe I’ll break down the section eight on first on a lower class property, I would always recommend having section eight with it, guaranteed rent that clientele under 800, eight 50 a month rent, which I never recommend.

Yeah. I still see you guys looking at pieces of crap properties for $60,000. Stop doing that, please. These guys, they don’t have any money. They don’t have 500 bucks in their checking account. You need the government to be paying, hang their rent for you. And I think you’re pretty solid in terms of the government’s always going to be paying that, that program stock going to be going away.

I mean, a lot of the stimulus money is going to bolster those reserves that said if I were to be buying that lower class property, I would want a in place only problem with section eight there. I think they’re better tenants too. Because they want to stay on that coupon program. They don’t want to get kicked off and they’re screwed.

The only problem is like getting the people in there. Cause it’s a little bit more stringent regulations. So I’m getting them in there. I don’t know, I’m not a property manager. I’m a passive investor, but like things like the baseboards on the walls need to be a certain height. So the rats don’t get it like silly things like that.

Your product and your property managers should know all these. And when you interview them, you should check the box. Yeah. If that’s section eight, I know, I know the depths, the inspector comes in and inspects the house for these lists of things. Yeah, no problem. Then that should be the answer. If it’s a nicer class property, this is where, like in the beginning I would want to be cheap.

I would want to buy the property with a tenant in place. Cause I thought I was. Being super clever and saving 500 bucks, at least something fee often when you’re cheap, easy and free, you get burnt in the future. And I did because come to find out that seller just wants this stuff, any warm body in there.

And I had no recourse and I had no insight on what that tenant was. There are some ways you can mitigate that by saying, Hey, I want to see their credit report. I want to see the background check on this person and running yourself. Sometimes they’re not going to give that to you. And then I think the best practice is to get your property manager.

On board and have them tenant to house themselves that way it’s their fault. If they bring in a bad person, they don’t have that excuse of like, yeah, I was a stepchild. I just inherited it. There’s stability with a tenant. The tenant is like, what the heck? I just signed with this guy and I got this new dad.

It just makes that sweeter transition because you’re always going to have a changing of a sheriff. Type of situation and you want that more stability to me, I would just, when you tenant get a tenant in place, when you buy it, you’re saving two 5,500 bucks, like a half a month’s rent. I would just rather pay my new guy to do it.

This is getting a little advanced, but maybe I would tell the seller like, Hey, can you just drop the price by 500 bucks or 200 bucks? I’ll go get my own tenant. At risk. I’m cool with not having intentions and they might actually like that. Right. So it’s, again, it’s a conversation again, I wouldn’t be making decisions this decision on your own.

I would run it through your property manager and saying, Hey, here’s this dilemma I have, I can either get it tenanted, or I’m going to have you do it. What is your thoughts here? There’s risks, right? He could not tenant for you for like two, three months. That’s a risk that you have to take. Chad, Peter, you guys did it both ways, too.

What is your guys’ thoughts? Well, my case was kind of special because I bought my property at the start of COVID. So my property, when I first purchased, it was not tenanted. And then COVID happened, then everything was shut down. So I couldn’t get an inspection section eight inspection for a couple of months.

So that kind of slowed me down on getting my first tenant in the property. So mine’s a little bit special. I think for me, um, I don’t have any section eight. I try to stay away from it. If the purchase price or the deal makes sense, then maybe I would consider it. But I just can’t, I can’t really speak to the section eight itself, but then when I’m looking at new properties, although there’s, there’s a lot of, you’ll see on the MLS that has 10 occupied it.

And the least goes to whatever, if it’s a good deal, then maybe, but I consider it a risk just because I don’t know the tenant. And I don’t know how well the property management, the former property management company did things over there. So, you know, there could be issues that you’re not aware of, but especially.

From the tenant side. And you can ask like, you know, Hey, give me your rent roll and try to verify things like that. But it’s not a guarantee you might look good, but you don’t know anything about the person. So all the properties I bought there were, there was no tenants in there. So, I mean, that’s just my opinion.

One on a clean slate. Give me something that I can work. My property management teaming, like what lane said, put them on the hook. It’s not the former. People’s fault. It was just do it from the beginning and just start claim. But I expect a lot of deals out there in the future that will have tenant occupied until something.

And so that’s just something you need to consider, but work with your team and figure that out. If you find a good deal, then it’s worth exploring by. I try to avoid it. With the whole COVID element in play. You’re right. There is a little twist on occupancy is done by maybe a couple percentage points of guests.

But again, you’re trying to buy the best rental property on the block. That shouldn’t matter. You should transcend any big data. Anyway. And a lot of the people not paying rent are mostly people in the blue States, right? I’m telling you this from experience, I’ve got over 4,000 units. Now, people in red States, Midwest, South, Southeast, they just have a different work ethic.

They’re not this like socialists capital of California, kind of nonsense of hashtag free rent. They have a good work ethic. They understand it.

Is Now a Good Time to Invest?

https://youtu.be/xOXUo3KoZ4c

I am curious on your positions now, given the uncertainty of future economic conditions, I am feeling like, know when to hold them is a smart idea for a few months. What are your thoughts? So I used to think this back in 2012 and then 2015. And then 2016 and then 2018 and 19 as I was buying properties that cashflow, as we said on the last slide, you only buy properties that are positive cashflow and can pay professionals to run it for you.

If you don’t have enough money for vacancy repairs, cap, ex professional property managers and the occasional oops. You should have bought the property. You’re not cashflow positive in the true sense of the word, just because you’re renting a property out for $2,000 and your mortgage is 1500. Doesn’t mean you’re cash flowing 500 bucks.

That is absolutely wrong. In fact, in that kind of situation, probably negative cashflow when you’re accounting for real repairs, expenses, maintenance cap, ex vacancy, and property management. So if the way I see it, like most people don’t invest like this, right? They don’t invest for cashflow, which don’t found this me.

But when you’re investing for cashflow, I don’t see any reason why the economy is going up and down. I mean, you’re just kind of dollar cost averaging. You’re just picking up more and more assets that make money on a monthly basis. Most cashflow investors are pretty immune to the economy and after going through a pandemic and seeing my collections.

Pretty much across 3,500 units stay above 90% where breakeven point is in the low fifties and sixties. I mean, I’m pretty confident that this workforce housing investing for cashflow is the way to do it a lot better than investing in something silly, like Airbnb short-term rentals or something like commercial storefronts, where the restaurants go out of business.

I think we’ve seen the strength of workforce housing. People need a place to live.

Understanding Return on Equity – Example

https://youtu.be/6VcYyrUevlM

To get FREE Anaylzer go to simplepassivecashflow.com/roe

0:00
Investors sent in their property lists. And we are going to figure out which ones to unload first based on my rules of return on equity. So for those of you guys don’t know what return on equity is, it is a metric that not a lot of investors go by. But I and a lot of other sophisticated investors monitor very closely as we’re always pruning our investments, a big misnomer out there that people talk about a lot is buy never sell, which I think is half true. investors need to look at return on equity and figure out which assets to sell, refinance, or maybe use a HELOC on, basically you’re trying to find her dead are lazy equity, that’s not doing anything. And we are going to go down this list, I’m going to show you how to do this in this little example. 

But like when you first buy a turnkey rental, you’re making around 30%. At least I’m thinking, you can check my math here at school passive cash flow, calm slash returns. And I walked through a little whiteboard example showing everybody exactly how I come up with that with cash flow, mortgage, paid down tax benefits, and any bit of appreciation. Let’s go through this list right here. And let me show you how you manipulate this spreadsheet. Again, this is one of the cardinal sins that most investors make is they never sell and they have a huge equity position, which tends to happen over time. But they need to get that equity moving. One of the biggest mistakes I always hear is like well up cash line, it’s like, well, yeah, your cash flowing a lot. But your return on equity sucks. So you got to do something about it. 

So this investors very smart, they realize that they need to get this equity working hard, certainly harder than that at their day job. And we’re going to help them do that. So first formula I’m going to do here is just setting the status, all right, the value of the property is $1.1 million, what I’m going to do is I’m going to apply a 90% multiplier, just assuming that maybe this is just a little bit too high, and to account for closing costs and commissions. From there, we are going to subtract the debt service, so they currently own $352,000 on this property. And that is how we come up with a rough estimate of how much Lacey debt equity. So I’m going to cascade that down a spreadsheet.

2:17
Just cut and paste that down. And I’m just gonna sub this up to see how much of a problem we have here.

2:24
So about $2.3 million in equity. And on some kind of one to see a high level what we’re we’re at, actually, I have to figure out the some of the values of the property minus the some of the bolts course I’m missing out the Commission’s but I just kind of want to see where we’re at. So that’s 2.8. So that’s how much those loans and commissions and closing costs, whether or not that loans but the commission closing costs are what I call friction costs, are taking out almost half a million dollars right there. 

Maybe one day, I’ll be one of those douchey luxury real estate brokers and only work with clients selling two to $3 million houses, maybe I don’t want to do that with my life. But anyway, figuring out, let me sell them. This is the amount of equity and this is the amount of purchase price. So I’m gonna go this number divided by this. And currently there are right about on average 57% equity, which is not good. Usually, at full power, you’re going to be at 80%, just to typically be the max leverage, but it’s definitely getting to the side where I mean, it’s a good thing, you got a lot of equity, but it’s a lot of debt equity. So next process is like alright, figuring out which of these properties that we need to go first. So what I’m going to do is figure out what the how much money we’re making money we are paying

3:55
for via let’s just go by that. So on this first one, we make money with the rent. So that’s the primary residence to start off with.

4:06
This one’s bringing in 5000 bucks a month. And I’m also going to subtract these he wastes they put it down. And this is the reason why we don’t like conference. So you always have to pay these things. I don’t know exactly what this means by extra costs here, I’ll just add subtracted and also subtract out the Buffy mortgage peanuts, I would run these numbers a little bit differently. But that’s good enough for government work is what I say. That is how much money they are making believe on a must be on a monthly basis. So let’s multiply that by 12. So they’re making 30 grand. So you want to take that their return on equity is calculated by how much money you’re making, divided by how much equity you have in the deal. So if your denominator which is the number at the bottom goes up, which in this case, it’s the $475,000 this number gets smaller. It’s

5:00
smaller, so they’re making about 7% on this property right now, that’s not good. So as we cascade this stuff down, there were a ton of equity on the primary residence is obviously zero, because not making any money, you’re probably losing money, that is a liability, right? They’re not an asset for these properties actually losing money. But to the pier, here’s kind of where the art comes into play, you can either look at it from perspective, all right, which property has the worst return. And so that is obviously this one and this one here, but we’re humans, and this is art. 

So obviously, like, there’s some utility to having a primary residence because that’s where your, your house resides. And that’s where you live. So maybe you don’t want to sell that one. First. Again, we’re trying to find the border operations border that we got load, so or refi. The next thing I’ve kind of take into account secondly, after the return on equity is how much equity requires you to extract out of it. So if you know say, this one, we’re losing the most amount of money, this is probably first on the chopping block. But because it’s so small, it’s not may not be worth the effort. And likely, what we want to do is we want to list multiple properties on the market. And kind of the attitude of you know, some of them were more in a hurry to sell some we might fold out for even better price. So the way I would do this kind of spot checking this is the first time I’ve seen this, the first two that stick up in my head are this one. And just I want to highlight the lowest three from a return equity perspective, but I want to highlight the big ones, which ones are going to really move the needle. And that is, which ones are the ones with the biggest bang for our buck, which is definitely these three. So fortunately, there’s no overlap here, other than the primary residence as a primary residence, that’s probably have to go but I don’t want to upset mama bear. 

So we’re just gonna leave that one on gone, we’ve got plenty of equity to play with here. So there’s no obvious winners, which ones to put on the chopping block, but just kind of I’ve done this buttock a zillion times. And what I would recommend selling would be this one first may not be the lowest return on equity, but it’s certainly a nice little pop there. And I would sell this one, but then I would sell this one, and I would sell this one, this one, these are all kind of the same. And then at some point, when a boss says, Okay, I guess or what do you take maybe one of these rentals, take the money and buy a bigger house, right? So this is where you buy a mansion does a good job up to this point, right? I mean, this is where people say, Well, you shouldn’t buy all this like do dads or like expensive stuff, but man like you earned it, you did a good job here, go out and buy a big ass house for all I care. Next, what I’m looking at is an act. This is probably where we got to get the investor on the line. I don’t know the full story on these properties. I don’t know what all these are, to be honest, these duplexes and fourplexes, maybe stick on the market owner occupied. Now even though I list them as five, knowing that these gonna, these are going to be four times as hard to sell as these other single family holds. And this is why for higher net worth investors, I don’t recommend getting a two to five unit. I just say if you’re going to do single family homes, it’s great because you have great exit strategy. As a high net worth investor you’re going to go to syndications very quickly. So you don’t want to be screwing around with this stuff. Because the the duplexes and triplexes fourplexes huge send it selling it to the cheapskate investor who wants to find the deal and their pain, you’re just gonna bang your head on the wall, especially when you get to one of these guys who are like think that they’re a pro, but they’re just a douchebag, who wants to retreat you for all these little nitpicky stuff. So I would list even though I haven’t listed as five, I probably list it like soon just and not be too motivated to sell it. Somebody wants to pay your crazy price for B and that’d be my general consensus with all these properties right here. Just put them all on the market, see what happens. 

But generally, you’re trying to go make a go at this order. This is really your motivation. Whereas when I’m saying like these guys, they just want to sell it, or they want a little bit of a price concession do Just do it. Or as these other ones you might want to stick to your guns or stick to your price that you think that it’s valued out here. The other side of this is like alright, where as you start to extract this money out this money right here, it’s $2.3 million. You can’t it’s got to be hard to invest that in the beginning, especially if you have no contacts. You don’t know who to trust, but you’re basically you’re trying to do is build a appointment schedule right here and I’m just doing it very simplistically, you know, you got 2020 2021 2022 for most investors under one to $2 million dollars net worth. I’ve never done any rental properties never syndication before. I would say no stick to like a few deals at first, right? That’s 15 grand minimums, and maybe deploy to

10:00
hundred thousand dollars in the first year. But after that, hold the horses a little bit right pump the brakes. Of course, if you have if your net worth is higher than that for $5 million plus this, the other side of you got money sitting in the bank doing nothing, right. So you may want to push it a little bit harder being more aggressive. Now this is a just in time exercise here, you want to sell these acids and hot potato them into deals, minimizing the full period or the time it just sits in a bank not doing anything. So I would imagine selling these properties probably in a period of two to three years. It’s taken a while. 

So I’m just gonna run the rental value ratios real quick on these properties to say I probably should have done this earlier. But this also helps determine another way of determining which properties to model first. She besides the probably the best right here. These other ones are well under 1%. Yeah, on both of them should unload him yesterday, people always ask like, Well, I have a rental property in California. And I’m like, Alright, stop right there. rents value ratios, California ain’t gonna work unless you’re in a war zone. To get more nitty gritty here, it’s if it’s under 1% to value ratio on load, unload that thing, it’s just not even worth it. Especially when a lot of you know other properties that we’re buying, like, you know, one well over 1% of the value ratios in broad markets with force appreciation. So I guess for this client, this client is pretty high net worth. So I would probably make this deployment schedule a little bit aggressive. So assuming that a cash saw half a million dollars every year on this. And so all the assets by the time 2024 comes around, I probably do something like 500 grand, that’s roughly kind of like the how you would patient deployment schedule. 

And this is where other more advanced concepts come into play. And like, you know, to lower your bid put me not making anything like infinite banking, which users will life insurance in a tax free via goal. Yeah, this just shows an example on figuring out your return on equity. What are you trying to sell first? And then what are you trying to deploy it into? Another piece of this is where I help clients all the time, and where I kind of empower people in the mastermind. And you can learn more about that it’s simple passive cash flow.com slash Johnny. But it’s like you know, you don’t want to sell these assets, you got to be mindful where number one your adjusted gross income is, you don’t want to be looking up into the next tax bracket. And guys, if you’re under 200 $300,000 AGI, don’t freak out about it. Most of my clients are well above that, that’s when you have to seriously think about no BGG con when you sell these assets and kind of take the capital gains slowly over time. And then also, if you’re, you know me, you may be taking money out of your retirement accounts too. That’s another thing to think about. So when you take money out your retirement accounts, it also shows up as ordinary income. So another thing that’s at play here is you have a portfolio like this, you would likely have a good amount of passive losses from the depreciation of these. 

But you also have to, as I go into this, it’s complicated, right? But it’s just something is what I do, right, this is what I do for folks and help them understand it so they can make their own game plan. But as they start to deploy into these deals, hopefully they’re doing cost segregations. In these deals, where they’re getting at least half of what they put in to inject brand, they load up 200 grand in deals that hey, Bobby should be getting more than $100,000 of passive losses, which they can add to their current passive loss, a stock fold to then use to offset these capital gains, but they do happen to that’s kind of getting three layers deep there. But these are the things to be aware of. And I think every investor needs to understand that. I don’t think that this is the responsibility of your CPA, like the CPAs job is to do your taxes for you. Not plan this stuff. This is your job guys, family offices, on millionaire families and above, people that do this for you. But look, when you’re under 10 million bucks, you got to do it all yourself. And fortunately, most CPAs out there just don’t know how to do it because that’s why the CPA has a day job off. their net worth is not over 123 $9 they don’t do this stuff. 

And that’s where we can kind of help but for free freebie go to simplepassivecashflow.com/ROE to download a spreadsheet very similar to this is more of a worksheet that you can plug your investments in and see where you have your lazing equity at to help you determine which properties to sell. What’s the poop down here what needs to go? It’s an unlock sheets the spreadsheet you guys can have. So you can again search out that debt equity and don’t be an unsophisticated investor that just buys properties and holds it till it’s paid off. I think that’s one of the worst things you can do especially from like a liability standpoint. I mean, if you have a paid off property, everybody knows where to see. Yeah. And that gives me

15:00
Tax any legal advice here this whole video but just giving you guys good information and yeah check out what we have to offer it simple passive cash flow calm. See you guys later bye!

Save Taxes via Cost Segregations w/ David Brizel

0:00
So if you didn’t use a home office in your home exclusively for business, and then you don’t want to have to face the capital gain consequences when you sell, you would need to stop using that home office for business purposes for at least two years.

0:28
Hey simple passive cash flow listeners. Today we are going to talk about cost segregation and not for those looking to cost sick. They’re 200 unit 300 unit apartment complex. But how can we use this for our single family home rentals, smaller rentals or possibly even our primary residence? Again, this is the passive investing show simple passive cash flow, where we are trying to a lot of our highest and best use is that our date our day jobs, but how do we optimize things are investing so we can get out of the rat race and a lot of times I can see you guys getting out of it in less than five or 10 years. So today I have a cost segregation expert David Britten soul on the line. Thanks for joining us, David.

1:13
Thank you.

1:15
Yeah, so in the past year, I’ve kind of found that cost segregation studies are a little bit of a racket, a lot of companies and firms will do it out there typically charged around the same price. But there’s a difference between a legitimate cost segregation study. And one of those big things is actually having a site fitted visit, which David has actually flies out there himself, and he does these things. But yeah, can you expand on? I mean, there’s a lot of companies doing this, right, David?

1:47
Yes, there are in the last, I’d say 12 to 15 years is when a lot of them popped up. I’ve been doing this for 20 years. And in the first five years I was doing it, there was practically no one west of the Mississippi River that was doing it.

2:04
Yeah. And also on the smaller end, I mean, on our apartment projects, where it makes total sense with economies of scale and 100 200 300 unit apartment complex. But when you start to get into a single family home, like a lot of you guys will have $100,000 turnkey, it may not make sense. So there are some options out there that you might want, you can pay, you know, 400 500 bucks, and they do a little desk review. But David, can you talk a little bit to the legitimacy of those cost segregation studies and how those guys operate,

2:38
what they tend to do is they will ask you for the measurements of certain things that they want to segregate. And so essentially, you have to do it. And then you give it to them, and they’ll put it into a report. That’s the way I understand how they do it. We don’t do it that way. I actually go to the site and do the engineering myself, when it comes to these smaller projects, especially if there are new architectural drawings that we can use for the engineering.

3:08
And is there some kind of checkbox when you submit the cost segregation study to the CPA? Where, yeah, I actually did a sidewalk? Or is there any kind of designation that you need to do on your end?

3:21
Well, I do put it in the report that we visited the site. When I say we, it’s essentially it’s me, but I have an engineer who does the pricing on the value pricing of the assets that I bought segregated from studies where we don’t have blueprints. And also I photos, document everything. So when I’m on site, I’m taking pictures of all the components of the property that I want segregated, which obviously cannot be done if I don’t visit the site.

3:52
So you had out there, travel costs are included.

3:57
Do actually I did I build those separately on top of the stated fee? Right?

4:01
So you touchdown and what actually do you do on these trips to so people can get a sense of what goes into a cost segregation study?

4:12
Well, I mean, I have to look at the entire property both inside and outside. And so I photograph everything that I want to segregate. I measure everything I want to segregate in the case of situations where there are no drawings to work from. And that’s both inside and outside the house. And I have measuring equipment that assists me in doing that, such as the laser beam for the interior stuff and surveyors wheel for the exterior

4:38
stuff. If we kind of left people at the dock there what a case, cost segregation study is, but in a very high level, it’s a report that allows the CPA to now aggressively right off the property. Most single family homes you can write off a property and 27 years so 127 of the depreciate Over 27 years old, she called straight line depreciation row with a cost segregation able to aggressively write it off. Oftentimes, you can take one third of the entire building value in year one.

5:12
That sounds about right. In most cases, yeah,

5:14
you guys can check out simple passive cash flow.com slash cost sag, also embed this video in there too. But that’s pretty much the the guide to what cost segregations are. If you want to see how that ties into your own personal taxes, go to simple passive cash flow calm, slash tax. But let’s get into the good stuff, David. And before we do is throw down the disclaimer that you and I are not CPAs

5:41
I am a CPA.

5:43
Okay, you are? Yeah, cool. Well, I’m not one, and I’m not a tax attorney either. But we are just giving out infotainment here, right. We’re not giving any professional advice based on your personal situation, but just some ideas that have David has seen some of his clients do. And so let’s start off with the top right, like, can you cost segregate out and aggressively extract the depreciation on a primary residence that you want to live in? Let’s talk about that, that you cannot do,

6:16
you’re not allowed to depreciate your own home. The exception to that would be if you have certain areas that are used exclusively for business. But even then it may not be advisable to do that. Because if you are segregating out a certain portion of your home for business, a home that you own, because then when it comes time to sell the home, if you sell it again, you will actually have to deal with a capital gain on that portion of the home which might more than offset any deductions that you would have gotten for that area of of your home. That’s the one thing in the tax code is actually more of an advantage to renters and into homeowners, where a renter may use a bedroom in the two bedroom apartments. And we’re using exclusively for business, they can take all those deductions that are allowed and don’t have to deal with recapturing any depreciation because they didn’t take any depreciation because they don’t own it.

7:18
Now, what are some of your clients doing to do they turn it into a rental property or commercial property first, and then they move on after let’s talk about like, what are some folks that you’re seeing doing?

7:30
Yeah, you can do that. And what’s the way the law works is that as long as you lived in the home for at least two of the last five years that you’ve owned it, then it’s considered your principal residence. So if you did use a home office, in your home exclusively for business, and then you don’t want to have to face the capital gain consequences when you sell, you would need to stop using that home office for business purposes for at least two years.

8:00
So how did they get around? Like, I mean, can they move back in? What’s kind of the trick there?

8:04
Oh, well, if you’re talking about a separate rental property, then yes, if you have a, let’s say you live in one home and you have another one that is a rental property, and you’re facing a large capital gain, then what you want to do is move back into that other homes that was your rental property and live there for two years, and then you avoid the capital gains.

8:26
So let’s just say you you bought a house to live in actually, this was my case, for my first rental I bought back in 2009. I lived in there for a year. I rented it out for the next I think two or three years. But you’re saying if I would have just moved in for one more year, I would have been able to not have to pay the capital gain on the whole thing.

8:48
Right, you need to do live in it for another year for some stonework to have the last five, right now you still would be facing depreciation recapture. But you wouldn’t be facing capital gains.

8:59
Okay. So let’s talk about this other idea you and I were talking about so they have a larger home like maybe a million dollar property that they own. And you’re saying that they are renting it out for a year turning it into a quote unquote, commercial property, in that time costs, egging it out, pulling out the passive losses or the depreciation as and putting in their back pocket for passive losses. So when they do have a different real estate capital event, they can use that, but then they’re moving bright back into the property. unpack that for us how that’s possible.

9:38
Yeah, especially with the new rule laws that came out two and a half years ago. It allows for 100% immediate write off, technically, it’s depreciation, but you can take 100% of the value of everything we segregate and write it off in the first year. And then as long as you Don’t dispose of the property. So let’s say you rent it out for a year, and then you’re and then after that you move into it. You don’t have to recapture the depreciation until you sell. And let’s say you don’t sell it for 20 to 20 years. So you’ll have depreciation recapture in 20 years. And that assumes anyone even remembers what happened 20 years ago, but technically, that would be the way it would be recaptured. And certainly, it’s nice to get the deduction Now, while you’re in a high tax bracket, sell it 20 years down the road, when you may not be in the same high tax bracket. And on top of that, you have the time value of money of 20 years.

10:42
And for a lot of people that might be building their retirement home, right, they’re gonna plan to be in there for the rest of their life. But that’s kind of an ideal scenario.

10:51
Right. So then you never end up recapturing that depreciation. Yeah,

10:57
I’ve heard of like the I’ve gotten some legal advice, which I think is a little too aggressive, where they say, well, you just need to have the intention to rent it out or turn it into a commercial property. But you’re being a little more conservative here, you’re kind of guidances rented out for an entire year. Yeah. What’s your thoughts on that?

11:18
Well, most leases are going to be for a year. So typically, you rent it out, it’s going to be for a year, and then at that time you decide I think I want to live in it. And I don’t see how the IRS can really argue against it. Unless it was very, very obvious prior to you buying it or prior to you renting it out that that was your intention. And even then I don’t know if it matters, the fact of the matter is you did turn it into a rental by actually renting it out. Now, if you rent it out for only a week, then I would say no, but if you rent it for a whole year, I don’t see how they can argue against it. Right. And

11:57
a lot of this stuff isn’t tax evasion, right? I mean, you’re following the letter of the tax code.

12:03
Correct?

12:05
So kind of going back to some people have a lot of single family homes like turnkey rentals, they typically cost $100,000. Yes. How much does it cost segregation cost? And does it make sense to do it on a smaller property? Is there a certain rule of thumb that you have on

12:22
in general, it’s hard to say that there’s an exact rule of thumb, but I have done studies on single family dwellings that were purchased for under $100,000. And actually, they work and one of the reasons is because we’re able to do those studies, generally for under $2,000. And the benefit that will be realized from a cost segregation study will exceed the cost of doing it by enough of a margin to make it worthwhile.

12:53
And that’s in a situation where the owner is looking to own that property for the longer time horizon 510 years plus,

13:02
yeah, that’s true. If you’re planning on disposing of the property a year or two later, it’s probably not worth doing the study on

13:11
on a couple of our Mississippi assets. We’re not super bullish on the market, we elected not to do the cost segregation, because I mean, the way that the projects are going, they’re going well, so we’re trying to unload them in the first few years. And yeah, our attorney or tax attorney kind of advises the general rule of thumb from there and is if you’re, if you’re looking to hold on to the property for more than three years, it makes sense to do it, but it’s less, it probably doesn’t make sense. But of course, that’s on a larger hundred 20 unit apartment or the cost segregation study might be $5,000. You know, that’s peanuts compared to the hundred thousand dollar this case? And we’re talking about, right? Yeah, that’s true, I would say three or four year time horizon. Sounds about right. And also what you want to take take into account is your expected tax bracket. So if you’re in a high tax bracket this year, but you think you’re not going to be in high tax bracket, even next year or the year after, then it may be worth doing because you get deductions in the higher tax year, tax bracket year and then you’re recapturing the depreciation in a lower tax bracket here. So in a way, it’s a little bit of a form of arbitrage. Right right. So let me kind of break this down for folks an idea that I had recently. Yeah, I guess maybe one day I’ll own my own house. I’m not a big fan of owning houses here in Hawaii or California especially where the rent to value ratios are nothing good. Right. Maybe one day all this investing will pan out and I can actually buy my wife a house instead of just renting. But if I were to buy a you know $3 million house which isn’t is probably the equivalent of somebody. A million dollar house in Alabama here in Hawaii. Just use a round number $3 million. Sharon Hawaii, I mean, I think that the land values are our majority of the price. So right, I would say one third of the $3 million is actual the building value, which you could depreciate two thirds of it being land. So that means a million dollars is possible to depreciate and going by the general rule of one third of the building value is depreciable. In the first year, with a cost, say, if I brought you out to Hawaii, which I’m sure you would like, and I don’t spend too much time here, and I’m not doing a study, you have to you have to tell me that you can’t tell me that. But um, yeah, pay, pay a few thousand bucks, do a cost segregation study, and then get a third of that million dollars. So $300,000 of passive losses in my pocket to use whenever I want.

15:51
So it’s always whenever you want, it’s wherever you can go, that’s the thing about passive losses is you have to be able to use them. Otherwise, sometimes, you can get caught in a situation where they’ll be suspended and carry forward until you can use them. Now, speaking of Hawaii, real estate, one thing that I have noticed, because I’ve done studies in two islands there, and that is the big island real estate tends to be less expensive than the other islands. So that can be something to consider. Yeah, well,

16:23
I don’t want to live there.

16:26
There’s nothing it’s a very rural area, right?

16:28
Well, no, Kailua Kona is, is barely happening. And I did a study of a five bedroom Airbnb that also had two other residential rental units attached to it, they only paid I think $700,000 for the property, and it was only maybe a 10 minute drive from downtown Chicago.

16:50
Yeah, out there, I would, you know, just kind of shooting numbers out there, I would say it probably be half half the price of the land to the building value. I kind of did a lot of research about this back in the day when I was a city engineer where we had to make offers to property owners to buy little slivers of land. And it just seemed like if you’re in a high priced area, the general rule is one third of the property is the land or the building value two thirds is the land value. And then when I look at my, my rentals in Georgia or Alabama, it’s the opposite.

17:27
Maybe actually, even less, what’s common here in the mainland, with the exception of maybe areas that are high price, like New York City or San Francisco, is that most accountants will will assign a value of about 20% of two of the purchase price to land. And that even includes where I am here, and it never seems to get challenged. So that’s why even where you are, I would imagine if you talk to your accountant, if you bought a $3 million house, they might assign 40% to the land value, even though in reality, it may be more of like two thirds, like you were saying

18:06
any last kind of tax tricks you kind of seen lately, that’s been maybe not talked as much.

18:13
Well, one thing is if you’re if you’re looking at all into commercial property, one thing that that came about within the recent passage of the cares act back in March, is that if you have a commercial property, or let’s say you buy one, and then you renovate it, the renovation of an existing building now qualifies as instead of 39 year property, which is for commercial property, it now qualifies as 15 year property and is eligible for the bonus depreciation, which allows you to write off 100% of your tenant improvement in the first year with the exception of certain things that would be considered structural, which would essentially amount to the four walls around the building the concrete floor and the roof. Any stairwells, elevators and escalators or anything that’s load bearing. Otherwise 100% of the tenant improvement will qualify as it can be completely written off in the first year.

19:21
Awesome. David, you want to get your contact information out there. We will also put it in the show notes. We’ll put this on simple passive cash flow calm slash cost sag. For you guys pull this video and want to

19:35
do my phone number here at the office is 480-963-2872. And we have done studies in 39 states. So we’re at some point we’re hoping to get the other 11 But anyway, one thing I’d like to add if I can is to kind of go into what exactly we are doing what what cost segregation entails. And what it entails is the identification and segregation of the value of various assets that are contained in the building as well as outside of the building that qualify for accelerated depreciation. And in a nutshell, everything outside qualifies because everything outside is considered a land improvement. So we’re talking concrete sidewalks, driveways, porches, patios, curving asphalt, landscaping, fencing, all that stuff qualifies for cost segregation. For accelerated depreciation inside, most flooring will qualify such as carpeting, vinyl, tile, vinyl sheet vinyl, laminate flooring, what will not qualify is wood flooring, or ceramic tile or any other kind of hard, titled, kitchen cabinetry will qualify the power to the appliances in the follow fi the the appliances themselves, the baseboards, and just ceiling fans, the whole host of things qualified to be accelerated outside segregated and outs from cost of the building and then accelerated depreciation.

21:17
And the reason why bring guys like David on the show is he’s the actual guy doing the work. And this is all small businesses, right? We are kind of the anti institutional investing world where there’s just middlemen upon middlemen upon middlemen, most cost segregation firms is just a bunch of salesmen, affiliate marketers, or David’s actually got going on to it. And if he has like a project in Nashville, and he’s going to do my go to Huntsville, and do your rental property. He’ll bill accordingly. And he’ll he’ll split the travel costs. I’m sure he’d love the Hawaii to.

21:52
Yeah, yeah, I guess I’ve done one there. Big Island and one in Maui. And yeah, so it’s and yes, I don’t I don’t stay for an extra week in June before. Right. I’ll do that.

22:05
Right. So yeah, I mean, a lot of the simple passive casual brand is kind of going off of value and getting the highest quality. Again, a lot of tough things we talked about today had to do with taxes, and we’re not giving any tax or legal advice here if you guys need a CPA referral and shoot me an email Layne at simple passive cash flow.com and if you haven’t connected before, let’s get on the phone and connect man looking forward to talking with all the investors out there. Thanks David. Thank you very much. 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 in 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 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.

How can I use part of my Roth IRA to buy passive income property?

 

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.

Sheltering Capital Gains Without Painful 1031 Exchanges

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

Turnkey Remote Rentals: What to look for?

 

Newer investor asks, you know, what are some things that I look at when I look at, you know, help people get some turnkey rentals or getting started, I wrote a few here to new roof and new h vac. We also like to try and get this sewer inspection line done. And then of course, a lot of safety issues that are kind of easy to fight on those inspection reports. In the E course, we have some videos where I walk through inspection reports and kind of notate what we’re going to ask for we shoot that email over asking for a little bit of a seller concession. And it’s important to ask like reasonable things such as safety, right, like electric outlets, not polarized or broken window or something like that. But you lose a lot of reputation when you start asking for really stupid things like oh, this step is not exactly level with the other stuff and it’s out in the back porch. I don’t really have any opinion. On basements, sometimes it can be just have to check if the square footage is counting that basement or if it’s considered another bedroom because you can’t just go off of the spec sheet of how many bedrooms it is. And with a lot of these turnkey commodities, the number of bedrooms is a big factor. For example in Birmingham you know if you have a three bedroom, two bath you’re probably going to be looking at anywhere from 800 to 1200. But if you get that fourth bedroom in there, now you can bump that up another couple hundred bucks either way and a lot of that is especially due to like if you have section eight, those coupons are are usually you know, lined up where they can get their coupon goes up and down. How much the government covers based on how many bedrooms is a big determining factor and not really the square footage and you know, with the bathrooms I would say it’s an extra perk but you know, having us two and a half three bathrooms doesn’t really impact the rent prices being brought in. I would say if you’re trying to sell the property You probably don’t want to have a one bathroom in there like a three bedroom, one bath. This is just somebody who wants to live there as a primary residence and really take exception to that you can’t have a family really with one bathroom. You know as you get more bathrooms is more and more things to break, more toilets get clogged more more things for you to fix, prefer all electric, no gas, something. Another thing to think about is section eight tenants. They don’t like a separate gas bill, they’d rather just pay one bill with electric and a lot of that has to do with section eight tenants don’t have the best credit and a lot of these service providers will need them to run their credit to get it in some lower end properties like C and D class apartments. It can be an added service to have the owner Austin in that example, to pay the utility bill on their behalf and sub charge them a little bit more than what it normally is. Just So that we’re covered because the tenants they can’t get a electric account in their name or they might have to put down a bigger down payment, which they don’t have. So it’s all about figuring out who your customers which could be a Class D or C tenant in that case and figuring out what they want.

Live Coaching call w/ Accredited Investor Lawyer

 

Any lawyers out there – simplepassivecashflow.com/lawyer

John used to be in our Incubator group and now in our Mastermind

Remote Investor Incubator & eCourse – SimplePassiveCashflow.com/incubator

-Professionals looking to build your network with others on starting this journey to financial freedom
-11 modules in a closed membership site plus 2 bonus modules and download kit
-Bi-weekly Zoom Video calls (Plus all past turnkey rental recordings)
-We walk you through best practices for Tax and legal so you acquire your first remote rental in our 5 month program
-Staffed membership coordinators for extra support to get over the sticking points and to connect you with the right people in the group (if you are shy)
-Access to our ever-changing rolodex of top turnkey companies, brokers, property managers, and insurance companies

0:41
So tell us a little bit about yourself. Um, we met like about a year, year and a half ago, but you know, just just sort of people listening out there. Maybe cut them just give them a sense of you know where you’re at. So when we go through your personal financial sheet and your mindset went through this coaching call they can kind of, you know, certain people will resonate with this. Yeah, sure. So thanks for having me on. So yeah, we did meet about a year ago at the time, I was just so I’m a lawyer by trade. So at the time, I was switching jobs from, like a big law firm, so more like intense work to house positions. So that kind of after law school, I did, like five years at a big law firm and that’s like a very intense 80 hour a week job. So you don’t see much of friends, family and all that. So trading your time and and all that it gets it gets that, you know, brings you down. And so I started listening to podcasts maybe three years ago, and then I came upon yours probably two years ago, on six months before we met, and then so just educating myself and why don’t I get kind of out of the rat race, that whole mentality like everybody does, and reading rich dad and all that, like it’s not but I knew I couldn’t really I didn’t have the time to spend on investing other than listening to podcasts and reading books. There, but eventually I found once I made this switch, job wise, it freed up a lot of my time. And then kind of alongside with that I on the family fun I like, you know, had a kid and started to settle down more. So then it’s starting to be mobile, you know, sustainable environment like I’m not. I wasn’t like, you know, stuck chained to my desk per se, but I still wanted to pursue investing more seriously, you know, about a year ago. So then I’ve been since then we’ve been kind of talking about getting my first turnkey property. That’s something we’ll probably talk about today. And so that’s kind of my background, you know, having the high wage, but, you know, now time constraints with family and then also just having to grow my portfolio organically. That’s, you know, that’s my position.

2:45
So when we first started, you had written like little Memoirs of a lawyer thing for me. What were some of the I thought that was pretty powerful. I didn’t know that’s how it really was in a lawyer. My journey was You know, being a construction supervisor, that’s how usually engineers start out, work some of the best stories that we can throw a teaser in there, and they’ll link up the article that you put together for me kind of here.

3:12
Yeah, so it was, I mean, it’s when you get to law school, you can go a couple different routes, and one of the more popular routes to pay off like yours, you know, we have like, at least 160 in debt is a common number, like 60,000. So and, you know, for me, like it was even more than that. So, you know, you try to get high paying job and they call like, a big wall job. And these are the firms that you know, it’s kind of like the equivalent of you know, high finance type thing. So, for me, it was like representing like, these big m&a guys private equity guys who you know, they’re working also 80 to 100 hours a week grinding and but you’re like, even you know, you’re servicing their needs. So you’re on call all the time you don’t see your friends and family and you can’t really make plans, you know, so it becomes frustrating on a personal front but also like, you can See the partner track. And that was something that really just to satisfy me, you know, you see guys who kind of get the golden handcuffs mentality you come in, you’re making, like I think starting now is even higher, but it was something like, I think currently is like 180,000 to start so you can imagine like, they’re paying you that money much money with zero experience other than going to law school like they’re gonna pretty much only own you, right? So like, you’re sitting there like Friday night, you know having dinner with a family that, hey, this weekend, we got a deal coming in, you’re done like you had come in. And it’s like that for like, you know, and then you don’t know when it ends, you know, I’ve taken multiple trips where, you know, I just go like on a four day binge, like up to another office and you’re just working 24 hours a day, and it’s really high stress. It’s not just like being there and like turning paper. It’s like, it’s very high stress. Like, I’ve never actually had to go through that kind of like

4:51
stress. Do they ever like I mean, when I was at my job, like, I was telling my wife the other day, like, you know, they would tell us Oh, that’s pretty poor planning, they will literally say stuff like that and they just like be super mean to you. And yeah, that’s that’s horrible leadership. Right on the farm Lucius was initially just talking to me like that. But yeah, no, that’s not

5:13
you know you can imagine like a stressful environment that’s exactly the stuff that happens to you right like not only dealing with like the work itself and then like not being able to see your friends family then once a while like people get like testy, right. Like, I was fortunate not to have too much of that, but like, there was some times where you’re like, you know, there’s some clashing and then you’re just like, dude, like, now you just hate your life, right? Pretty much just miserable. And like, I can’t leave you feel the sense of like, I can’t leave, right. So it’s like, I have this deal that’s there. Like it’s gonna lead me to my desk for the next two months, right? And it’s like, Oh, great. And and now I’m like feuding with somebody on the team. It’s kind of you know, that happens. So, I mean, it’s, it’s tough, like emotional. I mean, just talking about in the abstract, it seems like okay, it’s fine. But like, one of the things I think I mentioned, that article was like, we were dealing with a closing or something for a deal that didn’t work out for like Two months. And then the night before, like, the, the partner I was working with, and he’s like 20 years old. I mean, like, and he’s just like, you know, how can you like we’re like the smartest. Like, we think we’re the smartest guys in the room, but there’s like a client there who’s like, he slept like four hours ago. And it’s like, 2am now and he’s gonna wake up in the morning get paid like 10 million. And like, I’m gonna have to close another deal tomorrow night. And he’s like, this is like, not the best career to get into. But like just hearing that from somebody who like you think made it right. He’s making probably like, one 2 million a year or something, which is great, but he’s like, he’s working 100 hours a week all the time. And I always go into that stress. I was like, Why? Why not beat the client? Right? That’s, that’s just something everyone would probably think about. But it’s not easy to do that, of course, but sometimes, like I had the opportunity to think outside the box because I’m younger, you know, I don’t want to get down that road where like 20 years from now I regret everything.

6:50
Right, right. So I’ve got your your personal financial sheet for those of you listening in, or watching on YouTube little follow On the visual aid, I got the personal financial sheet. So currently you’re making about 13,000 a month, which, but how much was it back in the day when you’re at that crappy job much higher?

7:14
It was higher. So it was, um, it’s probably and see, this is like 140. Yes. I think it was like, like 16,000. So,

7:25
yeah, see some 16,000 to high 12 Do you notice the difference? I mean, yeah,

7:34
yeah, you do. Okay.

7:37
Yeah, I do. I mean, like, back then you’d like used to seeing like a big paycheck and you’re like, oh, man, like, Great. I’ll use that someday, you know, but now it’s like, oh, I want to use it for investing. It’s like, Oh, well, it’s not that much. I have to save some of it for you know, the kid and the wife and then you know, the rest of it. I guess I have to try to figure out how to best it.

7:56
There it is on on cue in the background. And that’s the other big thing right? You lost the secondary income to win. Yeah,

8:04
that’s another thing. Like my, my wife was in the same profession as me. And then once we have kids by a year and a half ago like she stopped and so you can imagine we were saving putting away a lot of money and then we end up getting you know, house here in California, which is expensive real estate to live in. We can talk about that some more. But that was all planning to have a kid and then she stopped working. So now we’re kind of like, in a more, you know, stable environment, just my job. But yeah, there’s not a lot being saved. So it’s tough.

8:35
Yeah, so dual income, no kids instagramming traveling all over the world went to single income. And then the student loans stayed the same. So yeah, let me see where that is. It’s under page three here. Somewhere in here. You’ve got about 2300 Hundred in loans per month? Yeah, what’s the principal on that thing? Or the total?

9:08
I think it’s the total. I’m not saying balance, right. It’s like, still got 170 left to pay. Okay. Okay. So the first thing, you know, I think we got this done when we just put this on the format, right? Or not different, but just the least as possible, which is a lot. Now we tried. Yeah, so that’s something that we started out talking like, immediately, a year ago, you said try to negotiate and see if I could get a longer term on it. Like for me, unfortunately, I was already like, in a weird spot with my loan where there wasn’t technically qualified as a student loan, like in terms of the government, they wouldn’t let you refinance into another student loan. So even if I found a better rate, I have a really good rate, right? Like, although you say that doesn’t matter. Like that’s what drew me in three years ago, when I refinanced it, I gotta get a rate and then then I tried to refinance it last year. It’s a personal loan now. So but a lot of other guys out there who listen We’re trying to do this, like if you if you can refinance it like, I’ve talked to a lot of the major like student, student loan like lenders, and I think the best you could get is like 15 year term. So like, I’m still like, on, I like six and a half years left. So it started originally like 10 years. But I think like you were saying spread it out as long as you can. So that 2400 a month becomes like 1200. If you can, that’s feasible, our cash flow.

10:27
Yeah, most people will be focused on getting rid of debt. But that’s maybe not the best thing to do. Right, the cash flow for you to save to buy properties is probably more important. Yeah. Because right now, yeah, you’re making a ton, but you’re also spending a ton. Your net cash flow is you’re barely able to save 20 grand a year. Right. And you go on vacation that wipes that out? Yeah. Yeah.

10:57
So I guess one last question on the whole students thing is that

11:02
is that why, like you hear all these guys like refinancing and stuff like that? Is that the the new answer that if they’re refinancing from like a government subsidized loan to a private loan? Yeah, that’s right. Yeah. And that’s why there’s like, I don’t know my wife came out yesterday and one of her boneheaded friends was like, Oh, the, we will refinance all this this student debt and now it’s 3.5. And I was like, it doesn’t seem right to me. something going on here is that so that’s the thing that’s going on, right? Well, no. So

11:38
I think now like if you did it, I think that is right. It sounds like too good to be true type thing, right? Like something real is happening. So it starts at 7% thing around for government when you put all those different loans together. Yeah, a lot of these guys they’re getting it for like 3.5 for 10 years, or whatever it is. And that’s obviously to anybody seems great, right? But like again, like I didn’t realize that I should choose a longer term if possible, and you can always pay more. Right? Like, that’s something that I learned from you. Okay. Okay.

12:06
So that the ammeter ization schedule a lot shorter.

12:10
Yeah, as long as a 10 year, right. And that’s, that’s the problem. So it’s 10 year or something like you can go to as long as five years. Some people do that, like, they think like, Oh, I’m gonna go through residency in med school, I’m gonna get out and make 200 grand, I’m gonna pay it off in five years, but like, that five years, not guaranteed, right? You know, that’s the problem. And same with my job, right? When I got out of default five years was like, barely able to do it. And so that’s the thing, if you could, right, you would try to do a 15 year and I think they used to do even 30 year that’s like, that was pre recession now. But I think now 15 point along as you can get, and like, okay,

12:45
okay, now No, no, I see exactly what’s happening and I can rebuttal. But yeah, nobody, none of those guys ever listened to me.

12:53
Yeah, they go on to the rain, I thought was what I went to, like, chase the rain, because great I could pay it off. But that’s like you You’re paying still $2,000 a month. That’s like a whole?

13:03
Yeah, no. Yeah, I mean, the, for those of you guys, I mean, go check out my article, simple, passive, casual, calm slash debt. So it was in my articles in Forbes. And I wanted to get in Forbes because nobody listens to me, but they just have Forbes. But it’s not all about debt or interest rate. sophisticated investors don’t look at interest rate or debt, they look at your impact in your network. So in this case, if he can go for a longer amortization schedule, for free up more cash flow to invest in more assets, like rental properties, that will have a bigger, positive impact on his network at the end of the day. So also looking at this, you know, why is your cash flow so low? I mean, obviously, it’s here. It’s living expenses. So you live in California, and you own your own home. We can talk about that. A little bit here, I think. So I was like, dude, you gotta get why you read Why you bought bought a home? And so why did you buy a home? This like,

14:06
it’s probably half cultural and half. More than that. I mean, culturally like everyone around here like that’s kind of like all my friends and family that’s like what you do right when you get to this point in life, like so there’s that brainwashing aspect of it and then like, there’s like for me personally, it was like having a kid that was a big part of it. So once we knew I’d be like starving for a house. I think a lot of my friends and colleagues are doing that too. Like, no matter what you say, like renting is better type thing. Everyone has a sense of like, Oh, god, oh, my own home, right. So it’s kind of hard to convince anyone otherwise. You know, it’s weird. It’s just at least for where I’m at. And the people are like, my friends who are high pay professionals, whatever. That’s kind of what everyone’s thinking.

14:49
Yeah, yeah. I mean, you guys the article there simple passive, casual, calm slash home. If you guys want to take a look at that it’s better to rent in primary markets, like California, Hawaii, Seattle, all east coast. But you guys, you know, do the numbers yourself because numbers don’t lie. But one thing I did ask john here was like, one observation I’ve been having is the spouse whether the spouse is male or female doesn’t even matter if they have come from a place of financial scarcity, like they didn’t have too much money growing up. A lot of times what I noticed is the house is super. They cling on to that. Yeah. But I remember for you is kind of the opposite, right? I mean, but yes, I don’t know if that’s right. Right. A lot of this is like pseudoscience and I kind of am been at this for too long, but just a little observation of why that is. Because people want security and safety.

15:54
Yeah, I think that’s what it is. And I mean, it’s for some people, like some of our friends are good majority of them. They think that it’s like your California and appreciating markets. So they think that’s investing too, right? Obviously, we’re not like, trying to get in for the appreciation, but like, some people think oh, it’s like I’m putting money in a piggy bank growing at a greater percentage than my savings. And I think it’s safer that way. Right.

16:17
Majority think that way. So yeah,

16:18
and then they talked about like, the tax deductions and all that and like yet, you’re still paying 65% of that. Yeah. So But yeah, I think like still like, yeah, it’s more comfortable living for sure. But it’s like, you know, like, it’s a it’s definitely an expense in my eyes, like, you see, like, it’s a liability. It’s but for some people still think of it as like, Oh, I’m gonna buy this great asset.

16:40
So that’s another

16:42
mistake. I guess a lot of people make in my age in this area, at least. Yeah,

16:46
but what’s done is done. And you know, you got the kids so you can’t really move around. You got to mobile, but there’s enough breathing room here that we can, we can move around a little bit. Yeah. So that’s where we are, you’re able to save about 20 grand a year at most. But hopefully once you start to get going, you know, you can definitely put a turbo charge in the savings and maybe your pay will go up a little bit and your you might tighten the belt and expenses. So that’ll be that’ll be helpful. All right, so where are we at today? You know, your assets, how much liquidity do you have on hand? You’ve probably got like, right about 40 I told you to save like 30,000 for is like a down payment on a good B C class property. That’s like 100 grand. And then you’ve got a little breathing room 10 grand for other cash reserves. So you’re ready to go there. Let me see how I mean so your home is 920,000 and your current mortgage on that is six 600,000 about you got to lock in that you you go check that out.

17:56
I did I put that somewhere down below and I’m continuing liabilities are something I think maybe it’s not reflected. It’s on the it’s the extra hundred on my, on top of my student loan payment that’s 2460 under under uses of cash but down below, see 2460 above that? Yeah, right there. So that’s like I think it’s like 140 or so month in terms of healing payments, it’s like outstanding balance of 16,000 is it was a $20,000 healing because I got it right as soon as I bought the house so they were like, you can only afford $20,000 healing you know, at the time. Okay, okay. I used it I maxed it out for me like no, we renovated house we went all in and

18:39
you went all in and then some

18:41
Yeah, and then so Exactly. So very happy with real living but paying for it now. Right. But yeah, the he likes it interestingly 10 year loan. So like, that’s not something I’m worried too much about, you know, like 10 years from now student loan will be gone. I’ll have a lot more to pay it off. All that it’s not that much. But it doesn’t really give me much flexibility there. Right. It’s not like an open line of credit it’s I got three four grand on that I could use if I need to for emergencies, but I’m slowly paying down like $100 a month.

19:08
So that’s 2020 grand of this $900,000 house is just barely 5% Yeah, I mean what have you thought about going out and getting like one of these teaser long teaser rates for like 80% LTV? No I haven’t and then going out and because how much did you take out for the HELOC? 20 grand yesterday? Did you actually use I think we use all that at first but now it’s down to 16 days outstanding. Okay, I mean effect is that still the 20 but like you could probably you’ve got $300,000 here. They, they’ll usually give you 80% I mean, you could probably get a HELOC for like 150 200 I guess guessing and then you pay off the 1617 grand you check out that the site simple password Cash Flow calm slash key lock. Okay. But here in Hawaii, there’s like three or four banks that because we only have six banks here there’s three or four banks that are always competing for HELOC business. So they’ll give you like these one or two year. Key locks at like, like one or 2%. And what you do, it’s a little game and I have sort of the instructions there like you can hop from one to the other to the other. Yeah,

20:30
they have like the minimum hold periods. And that’s mine was at least, like minimum periods in which it has to be open or something.

20:37
Yeah, but I mean, you’re a lawyer figure it out. It’s not too hard. But the whole point is not not so much the rate, right? Because like I said, sophisticated vessels don’t care about the interest rate as much, but it’s now you have access to like, $200,000. Yeah, you just a fraction of that extinguishes. 17 grand. That’s a lot You got another big chunk to use to go out and buy? Let’s just see a 200 you could buy 12348 rentals to create $2,000 a passive cash flow a month. Yeah, I think that’s the that’s one of the next steps after buying this first rental because you can use your liquidity right now. That’s no problem. But yeah, put that on your action item list for sure. Okay, cool. Because there’s gotta be like the teaser rates in California, just look around for them or Screw it, just pay the 5% or whatever it is, whatever the market rent rate is. But the important thing is you’re getting on the 80% of the value of the available budget balance, right. I know I’m saying it wrong. But yeah,

21:46
so that is like if I took a HELOC, let’s say let’s just say for example, $150,000, he lock and then I use, let’s say 30,000. Next property, I’d be paying interest on a 30,000, let’s say a 5%, or whatever right? And then I just had to make sure the numbers work where when I run the numbers through my rental property calculator that at the end of the day, the cash flow can service that as well. So it’s positive. That’s the whole idea.

22:10
Yeah, I mean, you can even put like the 100 200, grand and HP and you’re making 5% still netted out, right? Obviously, I don’t really want you to do that, because that’s kind of putting too much eggs in one basket. But that’s just a theory. Right? That’s actually a good idea. Because you can, you can find find the sweet spot, like you’re saying, right, like, get a good chunk that you know, is gonna pay off in those nodes. It’s guaranteed and the rest of it is deployed. And just make sure it’s positive cash flow on these turnkeys. Right, right. So I mean, what kind of transition more granular stuff right now but you know, once you get your first rental, now you’re dead in the water right. So the next step would be to get the HELOC going. Just English that that first mon $17 in the current keylock. And then now you have way more money to play with Right at $20,000 one, it was like a sucker deal that’s like then giving you a free appetizer where you got to pay for two freakin entrees. I know. Yeah,

23:10
yeah, that was the same bank to that my mortgage with. So they’re like, we don’t care, you know like,

23:16
yeah, yeah. So the banks will actually the other banks are more than willing to walk you walk you by the hand and how to do this? Yeah, yeah.

23:28
Cool. That’s great man. I mean, I knew there’s a ton of equity going to be stuck in this place because it’s part of the deal. But I just didn’t know how to access it. I was like, I don’t know what they’re gonna do that he walked in. I didn’t really think too much about either too much hassle to refinance or whatever it might be called, where you get a HELOC to extinguish this.

23:47
Yeah, yeah. So that that’ll be I would start that in the next month. But right now the task on hand and what we’ll kind of talk about now is you’ve been doing some work on you know, calling around to some turnkey providers. I gave you a list of some guys I’ve worked with. And then yeah, maybe give us an idea where we’re at now and then we can kind of roll through this sheet.

24:10
Yeah. So I’m, I’m looking in the, in Alabama in Birmingham, that’s one of the two places that you mentioned. There, Atlanta, so I just kind of focused on this one from cash flow. And so then, I don’t know, this is probably over six months ago, I started calling some of your providers and and people you’ve worked with in the past just to get just to, you know, make a relationship. And then they started sending me properties, you know, and then I put them at analyzing money, your deal analyzer spreadsheet, which I think you have somewhere. And that was super helpful, like that thing allowed me to create data points and like, start to compare, right? Because until you start doing the analysis you like, you don’t know that 1% of the whole like with any of these properties look like? So I started doing that a while back and then I kept a log of maybe 4050 properties over time. time that I started looking at and just most of them just didn’t really make sense they didn’t cash flow under your at least your setup at least like in terms of they didn’t get the red minus more you know pie and then also minus all the reserves they just didn’t have positive cash flow so there’s only a handful that did and so now I’m at the point where and I was able to network with some people that you that you knew too and and you connect to me with it so one of the investors uses this current provider I’m pursuing their property under in Alabama and that’s where I’m hoping to lock down the next week or so.

25:39
Yeah, and that and that’s like one thing I tell every investor that books a call with me that like you got your job is to go find other passive investors where they’re, you’re buying turnkey rentals or looking for syndication deals. I mean, the the network is the most critical thing in your network work is your net worth is the same and I mean, I can only help you so far. But it’s the other relationship with other people that are gonna be there doing the same thing. And on the same level as you are critical.

26:07
Yeah, it’s really cool to invalidates everything, right? Because like, of course, like one success story when you’re telling other people it’s like, you know, you think like, oh, maybe Lane just got lucky or something, you know, like, people who listen to you probably don’t think that but like, if you’re new to the game, you might think, Oh, it’s just somewhere I lucky. But then once you start networking with these people, like, man, there’s a lot of people out there who are doing exactly what I want to do and what Lena said to do. And they’re doing really well apparently, because they’re just still chugging along, right, then find their fifth sixth property. So that really helped to like just kind of, just to sell it to me, you know, and then also now I can sell to others if I can do it, right. But

26:42
yeah, yeah. And sometimes I’ll try and find this guy who’s pretty. He seems really dumb just to make you guys feel better.

26:53
I mean, that’s what I got. When I got started. I was kind of like, Man, this guy can do it. Yeah, I can do I can be okay. Yeah, yeah, no. I think that’s, you know, whatever. It doesn’t get you motivated, right?

27:05
Yeah. For sure. Like people who like you think like, Oh, you gotta have a lot of money or whatever it is, like, a lot of it’s hustle, right? That’s what I’m learning like, I just need that’s a lot of it’s like having the time to hustle on the side like and do this. That’s the hardest part.

27:20
Yeah, I mean that part of it. I mean, that’s the guys signing up for like the one on one coaching. It’s like, like, for example that he loved we just talked about right, like, at the end of the day, sometimes it’s just accountability. And it’s just like, john Did you freakin go and like get that talk to the bank for five minutes? No, man, I didn’t you know, why not? You know, would you rather like work for another six years at 20 grand positive cash flow a year to get that hundred 20 grand. Would you rather spend 10 freakin minutes to go get that he locked and get 120 grand that way? Yeah, that’s great.

27:58
Yeah, I think people like It’s like, it’s the lack of Yeah, like we just don’t know, right? Obviously, you don’t know what you don’t know. And then also, like, you don’t think about it the way that you might write, you’re like, oh, man, that’s like getting another loan. I’m not ready for another loan, but you don’t realize that that’s a good debt. Right? Like in the scheme of things at least. So until you said it 10 minutes ago to me on the call. I didn’t you didn’t click with me because I’m still pointing into the hole. You know, like always thinking?

28:22
Yeah, I mean, that’s why the personal financial sheet is is so powerful, right? Because I can see the whole picture. Yeah. Yeah. It’s really cool. So yeah, so the first thing here, the purchase and sale agreement. What’s up here?

28:40
Yeah, so I can give a little Do you want me to give a little background on this? Yeah, sure. So um, so pretty much I talked to this specific provider and they have this pretty short form purchase and sale agreement. And I think you mentioned laying that like for you, there’s MLS deals and there’s not in last deal. So unless there’s a form right, that’s already like everyone’s It agrees to I guess if you bought the MLS so it’s more mutual here, if you’re going to the turnkey providers on learning is that they provide their phones, which makes sense to the seller. And it’s gonna be probably more favorable than in terms of being like skinny. So they have less reps or, or whatever representations or whatever they are saying that you’re gonna get with the deal. So it’s kind of like, I’m gonna, like I’m in the wild west, I need to figure out what I need to include in here that doesn’t look overly oily either, right? Like, I can’t just add on 20 pages to this thing.

29:31
Yeah, yeah. And it’s good that, you know, this is why I bring you guys on because a lot of the stuff I forgot about, but Yeah, it is. I remember talking about this in one of the first podcasts, the first 20 podcasts are all about turnkey rentals and this kind of stuff. And I mentioned, you know, you can buy properties three ways versus through the turnkey provider. And it is sort of the Wild Wild West you’re buying it. It’s so I don’t know if it’s MLS transaction. You know, I don’t know I’m not a licensed real estate guy. So I can’t advise on that. is not legal advice, but you know, you’re signing these like, kind of wild wild west one page documents that are probably more. They’re not very neutral, I’m guessing. But, you know, like I said, if you’re working with good people, you know, you don’t need contracts my opinion. Yeah, right.

30:21
And so long as I’m learning to like from, from this, like, it’s hard for me because the lawyer I’m gonna if I were representing me, you know, in this deal I would probably go harder on this but like knowing kind of the relationship that stay here and like, a lot of goodwill between the investor friend that you that’s a mutual friend who referred me to this provider, like that’s, you know, I can’t really rock the boat too much. You can only ask for the bare minimum like what I actually need economic terms.

30:48
Yeah, and I’ll kind of correct myself real quickly because I’m sure someone’s like head exploded on that one. Like, I do contracts. Don’t get me wrong. But like you said, it’s the relationship right? Because the thought is You’re going to be working with the sky into the future. And hopefully that person wants you to work with them that, you know you have a contract, but it’s like, hey, let’s treat each other fairly. And let’s go in with, you know, good faith that, you know, this is what I think we’re going to buy, what kind of property we’re going to buy, and this is how we’re going to work through the transaction to both come to a mutually agreements. Yeah, yeah. Yeah, so the other couple ways of buying a rental is going through the MLS, or getting a like kind of like a, you know, just going to getting a broker and then also the other way is like, kind of finding a more turnkey property yourself and getting another broker to represent you on it. In both cases, you’re typically doing that MLS transaction, we’re using the Moore’s this, whether it’s the state’s forms, very neutral document a lot longer, maybe even seven pages or something like that. But I mean, I In the beginning, I felt more comfortable with the MLS stuff.

32:03
Yeah, I mean, when I bought my primary residence is like 810 pages and my agent walked me through and I was like, Okay, I didn’t even try it. I didn’t negotiate any of it other than like, maybe the price stuff but, you know, that’s like when you’re a piano I guess primary residence you that’s what you expect, right? But here it’s like okay, now no one’s gonna protect me when I’m buying from the provider. So I really got to think about how this works around this issue, like I’m trying to figure out what’s, what are some things that absolutely should ask for, like I know about contingencies? Maybe we could talk about that a little bit.

32:38
Yeah, yeah. So some of the contingencies I like to use our our roll running down here. inspection, contingency appraisal, contingency and financing contingency. If you don’t, you don’t know what that is. I mean, I’m not a lawyer. So I really want to stay neutral here. But these are ways of kind of giving yourself an out out of the trend transaction. Obviously, you want to know that you’re financially solvent to get a loan. So you don’t have to pull that financing contingency because that’s not cool, right to go into the cycle, but we’re talking about when to go on good faith. You know, some some turnkey providers will will make you sign something saying hey, if this property comes up not appraising, which means like, let’s say you buy a property at $100,000, but the appraisal comes back at 90 grand. And there’s a difference there. So sometimes you write it the right you can back out but the turnkey provider may may have something well if you’re within 5% too bad, so sad, your stop. Yeah, or they may make you waive it altogether. And then you know, the inspection you a big part of this is going through the inspection, getting an inspector in there and making sure you’re not buying a lemon. And then that gives you an out, but also you gotta you know, on top of this, the big the big, overarching thing is like as a turnkey provider, you’re very you got turnkey providers lining up around the block. And I’ll tell you, like, when I started doing this in like 2014, going out of state, there, there were a lot of us, but now it’s ridiculous how many people are like, like, I can’t find cash flow in California? Well, duh. And everybody’s figured that out. It’s been a bull market in real estate for the last dozen years. And everybody wants real estate now. So I mean, some turnkey providers have like lists of people. And you don’t get to see a single property until you come up on up in the queue like three, four months later. And then they’re like, Alright, you have two hours to decide if you want this. Yeah, you know, I really recommend that that type, but, you know, that’s that kind of is how the game is.

34:52
Yeah. Yeah. So I find myself kind of fortunate with this one, like, I mean, a lot of goodwill obviously between the investor And this turnkey provider, I think she has like over five, six properties with this, this provider. But But yeah, like so on top of just like the trust part of it this, you know, I think they didn’t ask so this contract just like getting into the nitty gritty, they didn’t really ask for like an earnest money deposit like, just that that’s non refundable anything is actually there’s nothing like that in there. So I could technically walk away after signing this contract. You don’t want it to right. Of course, I’ve burned that bridge if I did it for no reason, right? Yeah. So I guess I just want to see like, what kinds of things I should try to push in now I’m trying to finalize the contract before I take on leaving, like traveling soon. So I’m trying to finalize before I leave so that I can get my inspector.

35:46
I think you will always be traveling when a transaction is happening. So that’s just how life it is. Yeah. But so I would do the instance inspection and the financing and I mean, the appraisal was up to But I think those those two are very common. Okay? But you know you’ve built you’ve built a rapport with the seller and in you know, he, your your fair guy that’s why I like you. Like you know, as long as things don’t come up too ridiculous I’m sure you’ll just go through the transaction or maybe even get like a little concession work on a concession but just you know that’ll just grease the transaction and that’s where I think if there’s only there’s one place in the whole process where one on one coaching or just signing up an hour of my time is super critical is during once you get that inspection report or even a little bit before getting an inspection report to coaching council then spectrum what you want. That’s that’s where experience comes in. Yeah, um, yeah, I was trying to try to write up like an inspection tutorial in the mastermind page, paid coaching page the other night and I’m like, I just can’t do this. This is more experience and feeling out the relationship and how much you can push. Right? Yeah. Um, so But that said, I don’t think that you can really get, you know, these turnkey providers will, will have a list price. And that’s pretty much the price Dude, you might be able to get $500 off, if they’re desperate, maybe even 1000 if they’re really desperate, but the price is the price, but you just have to go into the transaction and spend your $500 and getting an inspector to get you some evidence that the property is not up to par. And then you work the way through the transaction. One just one aspect is like, let’s say the roof, right? Say the roof has. It’s like a 15 year old roof and there’s only like, the inspector says, well, it’s kind of in bad shape. It’s only gonna last for a few more years. A remedial action could be replacing the whole thing or two Putting up shingles and spending like, you know, a couple thousand dollars on that. Right? I think in that case the you know these turnkey properties it’s not to say that you’re going to have a new roof right but you’re going to you should have a roof that should last you maybe about at least 10 years. So whatever it gets you up to that length of lifespan. So that may mean this situation that a couple thousand dollars of repairs and crews afternoon of work to get it up to that standard is fair game. That’s what you should ask on your inspection report. Or you know, when you come back to then go negotiation tape, I think that is fair. You don’t want to be one of these terms, providers that are turnkey buyers who think that that’s you owe them the world and the moon because you’re gonna get fired as a customer you know, and never want to work with you again. You want to be fair and reasonable, but But yeah, then again, you’ve never done this before. You don’t know what fair and reasonable is.

38:58
So like the way I approached it. Without knowing I mean, just learning through what you provided, like those resources you have on your page and stuff. What I kind of saw I further down there when they sent me, I asked for the scope of work on what he did to rehab this property. And then I thought to myself, like probably like when you have that initial conversation with the inspector, it’s probably like, mixture of these items are what they say they are. Is that is that the right approach? Like Like they say they have a new roof New Age back, I think like refinish floors and all this stuff. Like those are the high like, I think you have somewhere in your page. And those are the biggest capex expenditures.

39:33
Right, right. Like plumbing. Electrical. Is it the right electrical? Yeah. All that kind of stuff. Right? Yeah.

39:40
Big, big dollar issues that might like screw you over in the long run when the cap x time hits you. Like those are the kinds of things I figured I would ask the inspector to focus on. Right?

39:50
Is that am I thinking about that the right way? Right and and this is super critical. When you’re talking to the inspector. You want to build up a rapport with that guy. Because it usually is a dude. And he’s usually want to find the older ones because I mean, that’s that’s in my opinion, like you can’t really tell who is the good ones are the bad ones. Yeah, you can go on Yelp and whatever. But years of experience, unfortunately reign supreme in that industry. But the more important thing is that you can talk to the guy. And he’s not just like, he understands that you’re just not another residential owner occupied owner, right, which are 99% of the characters. He works out there. You want to tell him say save the space of the report and don’t put any others garbage like, Oh, this concrete panel for the sidewalk is not level with this concrete panel or this point, still dangerous. You know, like you want the big stuff so that you can he can build up ammo for you to go to the negotiation table. But if he fills up that report with all a bunch of noise and junk, now you look like an idiot at the negotiation table. Right? Right. Yes. So he needs to be on The same page as you and I know you’re like, Oh, you know, john, I know exactly what you want, right? Like, you want the big stuff. And now I can focus in on that for you. And then, you know, maybe build the rapport enough to be like, Hey, you know, like if you were buying this as a owner on non owner occupied rental, like, what would the big things you would ask for? Like, would you buy this property? Now this is kind of on par with whatever you’re selling out there.

41:24
Alright. Cool. That’s good. That’s a good approach. Yeah. So I guess I should send that to him. Right, like the scope of work that the turnkey providers sent me like, send that to him, and then have a call and say, Hey, before you get in there, this is like, what I’m focused on, and then ask him that question, like, what would you focus on and see what he says? Make sure he’s thinking about it that way, right.

41:44
Yeah, yeah. And then, you know, we’ve talked in you saw that mastermind call where, you know, different nuances like, you don’t connect the turnkey provider with Inspector, right. You want to play the quarterback. A lot of guys, they’ll just say it Here, Inspector, here’s the phone and contact for the provider, right? Like not to say people aren’t going to do, you know, are not dishonest, but you know, that’s a good situation where you have conclusion behind your back. So try and, you know, tell the turnkey provider say, hey, when are you busy? All right, Tuesday at eight o’clock it is and then you call your Inspector, right? Tuesday, eight o’clock, be at this place, talk to this person. And then minimize all that. This is how you do this without ever flying. They’re just doing it smart. But again, at the end of day, you got to trust professionals. Right? And you know, it’s kind of a shame that this this guy is so critical. You’re only paying like 300 500 bucks, right?

42:45
Yeah, yeah. So yeah, that thing that was really important I think this guy was I end up choosing someone on the on a list of one of your like, referred providers had to, like send me their vendor list. When I had a call with them, I don’t know eight months ago, I haven’t found a good property through them yet but this guy was on that list and then the investor friend refer this inspector and same with this provider. So it’s like I got enough objectivity that I’m not worried that it’s just someone this providers paying off right? So I was able to book discounts and more confidence and then I just need to talk to him.

43:22
Yeah, talk to the man right? relationships is important.

43:26
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44:30
Well, that’s a light bill.

44:37
All right, so moving on to item four here property management, right.

44:43
This one was you want me to jump into this one?

44:47
Yeah, sure.

44:48
So this one’s a little tricky for me because I think a lot of

44:53
a lot of the providers, you know, if someone’s been looking out for providers, a lot of them do in house, right? And so there’s that whole argument like is Are the incentives aligned or not? They’re selling you something just to get the property management on it or versus are they selling you something? And they want to make sure it does well, right. So then in my case, so that’s like the whole, like, it’d be in house property management or not for turnkey. In my specific case, this provider doesn’t have in house per se, but they have a relationship with two property managers. That’s kind of like part of their system is what I’m understanding as I talk to them more about into the investor fan. I’m learning that it’s it’s kind of like this provided uses two different managers puts a lot of his clients investors like, properties with them and his own portfolio, and then kind of was able to play them off each other and be like, hey, not playing law, per se, with the Hey, this guy’s doing it this way. Maybe you should try it like this just to get the best out of each of his two property managers. And he’s selling that as part of the system to me, so I didn’t understand that at first, I think I talked to you earlier about in the process about bringing your property managers that you had recommended. But then as I raised it to him on the call, I think that kind of got the sense that he was saying, and then I talked to the investor friend later, like, you don’t get his guarantees and his work product, his stamp of approval and hand holding afterwards, if I go with someone outside of that his world, the property manager, so he can’t really like, he’s like a cost control is a big part of what I’m selling you. So like, if I sell you a good property as it is today, I stand behind that work. And then I’ll continue to service it with my teams at a cheaper rate than you would get if you went with someone else outside other property managers, because I guess he’s saying to flex a little bit of muscle, because he has so much, you know, at stake with these property managers. So that’s kind of where I’m leaving, like, okay, I should probably use who he recommended as opposed to going with your guy, but it’s still like, I want to make sure that seems to be the right choice for me at this point. But I kinda want to get your thoughts on like this whole how this whole thing works, and maybe it’s helpful for listeners to because I feel like there’s different ways that this property management stuff works with turnkey providers, like they’ll have it in house. They’ll have it way, my situation is where they outsource it, but like having some kind of control over, and then they can go a completely third party like I just pick my own like I like if I went with yours, and then there’s like levels of accountability there, right?

47:12
So this guy, he’s referring to a couple people are those people in his company or? No, they’re they’re outside his

47:19
company, but he owns he says he owns a large portfolio of properties. And he like splits it 5050 with each of those guys. So he’s able to say like, he has some power over them, and he refers to each of those two. So he’s kind of like saying, like, hey, they’ll listen to what I say type thing. And also, like he says something about like, having his own crews like being able to do like smaller things, right? Like, if AC goes out, for example, here’s like, if an AC goes out, instead of a property manager, just calling an AC repair guys. 150 bucks says come and look at it. He can get his own crew to be like, because I copy him on work orders I have to the property manager, right. And then, and then this tracking provider would copy and he’d be like, wait a minute, let me see. Just go send my guys out there, I pay him like 25 bucks an hour anyways, they’re on my payroll. So they can look at it and they’re on my rental team so they can look at it and fix it if they need to in like an hour and then also spot other things on the property that might be wrong. And then like that way he can keep a pulse on the properties. And from what I understand, the investor friend said that system worked really well for her like she has, like over six properties with him. And he’s, you know, it’s been working really well that way.

48:27
Well, I guess one thing, like the turnkey providers, I don’t like using their property manager, I feel like it’s too much power conflict of interest. Because what if that property is a piece of junk? Well, that that in house property management is going to kind of hide the dust under the rug for you, right? Because you want to be able to have a third party person being telling you when you want to buy another property from this guy. You want to ask your property manager like Hey, is this a good area is even good property right? So that relationship is is key, and then the asset to you and you kind of for gold that when you kind of work with these collusion type of I’m not saying it in a bad way but and of course, there’s I’m sure there’s kickbacks and all that kind of stuff happening to you. But at the end of the day, if these guys give you the level of service you’re you’re wanting that’s, you know, I have no problem with that. That’s just it is what it is. I don’t know. I haven’t been in the conversations you’ve had, but based on what you tell me, I would maybe it sounds like I’ll just try them out. I mean, right. Yeah, that’s, that’s how I’ve done it. Like, just try them out and sort of what makes me fire them is like when I get these ridiculous like $800 Plumbing Repair, that’s just a freakin leak. And what I can and on is like, what is the hours of the work order? If it’s 12 hours to fix a toilet leak? Goodness gracious, like, what do you guys doing? Like watch a TV on my couch and like there’s tool you know, What the heck was patty cake all day long, you know, trying to get my toilet unplugged. And sometimes it’s ridiculous, right? And that’s when I move. And that’s when your network is so critical that then you can ask your your buddy, like, Who are you using at that point? Okay, yeah, that’s it. I mean, I would say, I would just say just try him out, please kind of put you in a hard position, right? He’s like, hey, john, like, Look, man, I really suggest using these guys. And you know, just to kind of grease the transaction a little better. Kind of like, Alright, well, we’ll see how it goes, you know? Yeah, that’s true. But then I again, I did have my guy go check out the property for you. So, you know, obviously, that’s time out of his schedule. I know. Right? So yeah, but he gets it. You know, my, my guy gets it. He does it for a lot of my clients too. So it’s, you know, a lot of my guys will go with him too. Yeah, but

51:01
Yeah, so that’s why I figured like I didn’t that was the sensitivity to where I like after I talked to your guy who’s a good guy, like I didn’t, I can, you know, it’s just tough to be like, I took someone’s time, and he did me a favor to look and say, you know, this looks good. This property looks good to buy, you know, give me a thumbs up there. So like, I think I’ll have to have a conversation with him probably, and just let him know, like, this is how the system is working with this provider. And then just let him know, like, hey, you’re like, anything else has provided your online top of my list? I want to work with you. Right?

51:31
So yeah, yeah, I mean, I guess I think with 70% certainty, you will be calling my guy in the next three years. For something else, right. I don’t know. Maybe, maybe send them like $100 gift card or something like that. Yeah. You know, if anything, maybe in the next property, he could, like, you know, do a drive by for you. Yeah,

51:56
that’s something anything outside of this kind of arrangement. That’s what I’m learning, right. I’m obviously My first time like even doing this out of state thing, so it’s like, you it’s it’s you’re juggling a lot of different pieces. And I’m like, man, I, like have too many wheels in motion. I just don’t want to like be wasting people’s time. So that’s a good idea like I should. I should you know anything outside of this system. I feel like, obviously, he’s the one to work with. But also like, I should probably talk to him and let him know how much

52:23
another idea I had, like when you actually head down to this place because you’d never you’d never been to Birmingham, right? Yeah, you don’t need to and there’s not much to see out there. But, I mean, if you ever went down there, I was gonna say, well, maybe you take them out to lunch. But you know what, like, a lot of us guys in real estate, we don’t want to have frickin lunch. I guess time is more important as like the father us, you know,

52:47
he’s gonna take that as a more of an offensive. And I’m not gonna,

52:50
you know, like, I mean, I’ll say here, right? Like, you know, people come to Hawaii. And I’m like, Look, yeah, you sign up for the hoodoo pipeline come with DeGeneres. Invest with me. Lunch at you, you know, we’ll have a call, well, I can wash my dishes and like, you know, pick up after my dog in the meantime and do something else. So we have a 15 minute conversation, but the time is valuable, right. So that’s why my idea is like giving like a gift card or something like that. Yeah, that’s good. I think a lot of people are just like, I don’t know what, where they get their manners from, but they’re just like, Oh, it’s a favor that I get to take them to lunch.

53:30
I can buy my own lunch, you know? Yeah.

53:36
Nice, but just, yeah. So it sounds like a good idea. And then I got a Yeah. To see what the property management agreement was with my turnkey guy. So

53:48
cool. So insurance is an excellent what’s

53:50
going on there. So I haven’t started on this road. yet. The investor friend mentioned that she could give me her contact. But I also wanted to know if you had someone and like at what stage Right like I know you obviously have someone but like what stage do I when I’m dealing with all this other stuff exciting the contract game Inspector? And when do you engage the insurance person?

54:08
Well, you might want to do it right after the purchase and sale agreement is done because then you give them the address and then they you know, that spreadsheet, that analysis spreadsheet, right? That’s when you start those are all guesses still, right? Like I can get like a certain percentage of the purchase price right? Now you go to the address to the insurance guy and say, Hey, give me a quote. So I can fill in that with an actual right I’ve got kind of some podcasts on that and you know, the the you know, in the Facebook group I really shy away from giving recommendations for tax legal and whatever because it changes from time to time. Yeah, I’ll leave it at that make sense? Yeah, there there are that you know, there’s there’s companies out there that definitely be watching out for their what they do. This is like this master lease. trick, or mass not massively master policy lists. So they’ll they’ll ensure all the small claims and like 25,000. But on the bigger one, they’ll kind of like, I don’t know what the word is, like subcontract the claim out to somebody else. So that’s something nasty you should watch out for. And that’s why they’re cheaper. Right? They’re gonna fight you extra hard on the bigger stuff, because it’s not you and them. It’s you, them and another third party. That’s really the one showing you, right? And then just

55:30
since I’m like totally new to this, maybe this is a question for me to ask the insurance person, right? is it and why is this going to be the same type of insurance that we’ll talk about like instead of doing an LLC, whatever to protect your savings, getting brella insurance to protect yourself if you’re starting out and it’s not worth? For me California paying $800 a month for an LLC out of state then maybe it’s better to just get a bigger policy. Is this the same? policy I’m negotiating? No, this is not an umbrella umbrella is on top of This one. So this one ensures this one property then if you would like, Oh, I don’t know, one recommendation, I do think it was nice to have on top of this, right? It’d be the same person giving me that quote, or

56:14
same or different. Okay. And then same thing with the tax to write because you’ve got it now you just have a placeholder for the taxes. Yeah, I had another mastermind member, he did all this calculations on what the taxes would be. And I’m like, you know, I’m not going to start to tell you what it is. Every city, every state, every county has a different calculation and it changes all the time. There’s no way of knowing, right, really, and then a lot of times, what you really got to watch out for is these properties, especially if it’s turnkey. Like this property might be worth 50 grand on Zillow. Right? And that’s why I say never look at Zillow, because it was a piece of junk a year ago, it was a crack house potentially. Right. And now when you buy it in two years, the market value could Double, or triple. And that is what the property texts are based on.

57:05
Yeah. And what and what I learned, like looking at this property specifically and trying to dig into how they got their tax them, that provider gave out, it’s like, you go on the county assessor’s website for this specific property right in whatever county in Alabama, and then you look, when you read the numbers, and they show you like property taxes over the years, it’s only like a certain assessed value that gets taxed. And I don’t even know how to come up with that number. It’s like some percentages, like it was something like 5% of the total purchase price. And then they tax that assessed value, like at point 05, or whatever it is, I can’t remember, but then they get their tax from there. And so you kind of see the trend over time, but those those percentages change, right? Like over time, it used to be 5%. And now it’s 5.5%. And then the assessment changes. So it’s like, it’s hard to tell by looking at Zillow and be like, it’s double the value. Like, you know, it’s gonna be double the value when I buy it. But then that doesn’t mean that the assessed value is going to double Right. Yeah.

57:57
And what what I mean, like the calculations get like are really coming Using sometimes like 27% of the 15% of this state or like, of this of the land value 5% of the land value, but 95% of the property value, you know, it’s like all these weird things. Yeah, that but on the analysis spreadsheet, I think it’s like set like two to 3% or something like that a purchase price is usually what it is. But when you’re looking from like, like Chicago, I think it’s a big tax state for Alabama is very lower taxes, I think it’s mean on my properties, like hundred thousand dollar properties. I think I might even pay on like, 1500 a year or something like that. So yeah, this is all like the detective work, right? That you have to do while you’re in due diligence on the side of doing the inspection. So there’s a lot of parallel paths going on. Right? Um, but it is forgiving, right? I mean, yeah, you totally screw it up. And you know, maybe that’s just an extra thousand dollars a year right? Not gonna. It’s not gonna make not gonna ruin everyone’s day. At the end of the decade, yeah, to chillax about it, just know that it’s a head and shoulders above the stock market, right?

59:09
Yeah, for sure. So, financing, well, maybe for financing, it’s pretty plain right? Like I talked you, you had some lenders I talked to them got my dog Sam got pre approved. And then one thing I wanted to ask you is like, I think something on a podcast, you’re done with the lender talking about, there’s like this 2% cap for seller credits, closing credits. And so that’s something I was thinking about earlier on in the purchase agreement thinking about negotiating in because it doesn’t do anything to the turnkey providers. So for the example is like let’s say it’s $100,000 property, and I want to do I want to get the lender to finance the part of that closing costs up to 2%. I mean, I’m not saying that right, but pretty much I can get $2,000 that they can raise it right 102,000 now the turnkey providers Getting an extra $2,000 but now I’m only paying 20% of that, and then on the back end refund me 2000 of those dollars to my closing credits. And so I’m wondering like, what, that’s probably something that’s not even a big deal to the turnkey provider. Right. So if I asked for it, should I be able to get it?

1:00:17
Yeah, yeah. So you gotta, you know, like cuz this seller pay we’re talking about seller played, paid closing costs based if you’re getting a Fannie Mae Freddie Mac loan, there’s different restrictions where they they have a cap on it. So for example, your primary residence it’s a really big cap. Yeah, I think you can put like four to 6% in it. So with non owner occupied I think right now it’s 2%. But this changes all the time. So talk to your lender. So the game here is like let’s just say you close on a property and or not, you have to purchase a sale contract for 100. You both both sides. Agree to 100 and then you spend like two minutes on the phone explaining what you’re doing here and saying, Hey, mister turnkey provider or Mr. seller, can you bump up the price by to, you know, two grand or 2%. And then just right in there, that seller pay seller will pay 2% closing costs for buyer. And most times, it’s a lot very logical and they’ll be like, Alright, cool, whatever for them. It really doesn’t make any difference. I think as long as it appraises, right?

1:01:29
I guess that’s the only Yeah,

1:01:30
and that’s where you have to have the understanding, right? Because now you’re running more risk of it not appraising right by 2%. They may want something in writing to maybe even waive the financing contingency because you’re doing that but I mean, this works wonders on primary residence, right? Because if you can, like say, let’s say the cap is 5%. Now, if you bought like a $100,000 home and now you Can credit back 5% you just raise the price to 105 and get back 5% and especially if like you’re going in with like a 5% down payment, like this is how you get in with like zero money. Right? And I don’t know if that’s exactly how it works for primary residence, but that’s, you know, that’s how it starts, the conversation starts. Yeah. And most lenders You know, this is where it’s important to work with the right lender because most lenders will just be like, What? Oh, man, you know, I don’t understand what you’re doing and this is seems like fraud to me, you know, they just they just don’t know how to do this stuff and they’re just confused. That’s why you never it’s like a big bang work with people who are competent. But that’s just you know, that’s helps a little bit right because especially when, you know that’s that may be the difference from you know, you got like I said, we have $40,000 of liquidity to go at this. You buy the first one maybe you squeak out at just $25,000 out of pocket, right where would have been like 27 or 28? Yeah, now might need a difference between of few months of buying a property earlier on the next one. Exactly. Yeah,

1:03:09
that’s a figure that’s important to ask like, why not? It’s easier to get if I can get them to agree, right?

1:03:14
Yeah, yeah, of course, this stuff all changes all the time, right? The lending requirements, and you know, what you can, what you can do with this stuff changes.

1:03:23
So I guess the idea is, if I could talk to the provider, or get into the contract, and then get it signed, and send it to the lender, then they could tell me, Hey, you can’t do this, then I can go back to the cell and say, Hey, they changed the rules. I can’t do this right and get it out early, rather than later when they’re already underwriting it.

1:03:38
Yeah, yeah. But any other questions from here that we skipped over?

1:03:45
No, I think you you hit them all. pretty helpful. So I just needed some action items. Obviously, I got to do but it’s all like in parallel. So

1:03:55
yeah, I think you know, kind of going back to the bigger picture. Got this closing on a property? that’s a that’s a big one. And then that key lock Dude, that’s a big one. Yeah. Yeah, we did a nice thing. The nice thing about key locks are like you can set it up, but you don’t have to use it right away.

1:04:17
Does it affect?

1:04:18
Just at a high level? Does it affect your credit? The bigger the? I mean, maybe not so much at all. Like, I don’t think so. Because you’re not tapping it.

1:04:26
Right. Okay. But I don’t know. I mean, like, if your credit score, as long as you have like a 650 or 680, you’re getting the best score. Yeah.

1:04:38
Because it kind of just caps out after that

1:04:40
tapers off. Yeah, yeah. And if you if you’re like at 620. I mean, you can do like these things called tradelines and just become an authorized user at somebody’s account and I think that bumps your score up 50 points or even 100 points. You can usually like, pay like three to 500 That’s a little trick to kind of get you over the dotted line. But you know, I don’t recommend holding on to these properties for more than three to seven years. So it may not even matter. But that definitely helps somebody like who is not qualified to get qualified for that credit score requirement. All right, you guys can learn more about that simple passive cash flow, calm slash trade lines, which is more for, like, if you were at like 500 or something like that, I think you need a credit score 620 or so let’s just say at 620. And you are like 590, I could put you as an authorized user on my credit card. All the state charge you, right? Because it’s like, there’s always a fee for stuff that you would pay about $500 right, but this is what I’m doing. Like, I let people go on my credit card, I use a third party. So they make it all clean and stuff like that and kind of protect people’s privacy a little bit, but you would pay the company $500 and they would pay me 300 to do that.

1:05:58
That’s cool. Get people over the bumpers Nice.

1:06:02
Yeah, well, I mean, that’s, you should actually, that’s actually a good thing that you might want to look into. You got a whole bunch of credit cards. Mm hmm. Like if you were one of those guys in your 20s doing all that travel hacking garbage. Now you got a lot of credit cards, but now you can like harvest a lot of money from you’re basically renting out your credit. Wow. And I mean, I can make like 1020 grand a year doing that kind of stuff. And that, you know, when your cash flow is no right on the bubble at, what, 20,000 a year, that’s, that might be the difference. That’s huge. Yeah.

1:06:37
That’s really cool. I never heard of that, does it? I mean, is there any risk to you, like privacy wise are these companies protect

1:06:44
as well, so they send you the credit card of the authorized user. And suppose that never gets sent out to the authorized user. So I’m always kind of thinking Alright, if I was authorized user and I really want to scam this other guy. Maybe I could call the clinic In a car company, but you never have the card number, so you can’t really get access to it. So maybe if they hacked something and got the card number, or find out where you live, then intercepted it. Yeah. I’ve also heard that, you know, if you go to the bank that somebody, this is why your network is so important. Somebody actually called the bank and asked them like, they went into the, you know, somebody went into the branch, you know, at chase or whatever, and tried to do this, like they they’re not gonna let them do it. Yeah. You know, because you’re the master on the line. I think it’s pretty smart. I think it freaks most people out. But you know, hey, that’s, that’s like anything in life, right? If it freaks people out, it must be something you might want to look into. Right? Like buying properties out of state that you never seen before. That’s crazy. Yeah. Who would want to do that or put 50 grand into a syndication deal. And don’t get any like certificate back or whatever. That’s crazy. Who would want to do that? That’s interesting.

1:08:02
I gotta look into that. Yeah. You said there’s a link somewhere now.

1:08:05
Yeah. And I and I post, like, all the money I make doing it. And it’s like really fun because I’ll get these emails and be like, Oh, you got you got you got somebody wants to buy your trade line. Like it’s kind of fun.

1:08:17
Yeah, it’s like getting a referral. Like, it’s that’s pretty cool.

1:08:21
Yeah, I mean from one you get, the more longer the age of the line. And the bigger the credit line sit needs to be a credit card or than two years. Like so like, if you have a credit line that’s like $5,000. And like a couple years old, you can get like 100 bucks every month. Wow. You can have two of these authorized users. But they have to stay on there for two months, and then you cycle them out and you can do it again. But like I have like cards like 2007 that’s like 20,000 $30,000 a credit those I can get like almost $400 Wow her So it’s to to authorize users at a time. Again that cycles out but you can make you know, just from a one card you can make like three $400 a month and that’s like a turnkey rental. Right. That’s a really good you know, with no money down. Yeah, that’s like a turnkey rental. Yeah, you don’t get the mortgage pay down appreciation or taxman is from it, and it is active income. Your thing I haven’t got I haven’t got any tax forms yet, because I just started doing it. But cool, you know, a lot better than driving Uber. Yeah.

1:09:30
Cool. Yeah. Any anything else you wanted to chat about before we get going here?

1:09:34
I’m just moving really quickly. I mean, this by benefits others but we’ve talked about in the past, your ideas on tapping the 401k right, like we talked about the past like that’s the second after the HELOC is probably the next big liquidity piece I have. So that’s like obviously take the 10% penalty and then the tax hit but drawing that over time would be another source for future turnkey rentals, right. Buy it.

1:10:00
Yeah, let me see where you have that. It’s a page. Usually, the first comp, right? Is this Oh, here, here, here here. Right? So the first question is, is this from an old employer? I know it is right? Because you left this guy a while ago. I mean, when I did it, I had about the same thing a little less, but I just thought it was better to just take it out and pay the taxes. But here’s the game that’s being played. And I’ve done this before on another coaching call, because you’re trying to stay above that next tax bracket, right? So you figure out where your AGI falls. And if you take this all at one year, you’re obviously going to go above that, that next tax bracket climb. So it’s a game of just taking enough out to stay under it. So I think for you, I don’t know figure out where you are in the tax brackets married filing jointly, or Because maybe if you you have your order of operations is to use this 40 grand first and then use the healer next the healer is going to keep you burning for a long time that that likely will get you do 2020 21 maybe. So you technically don’t need to take this out but I would rather take use this money to invest then the keylock if that makes sense because I feel I personally feel in my humble opinion that this is more of a wrist at this point of going down I don’t know what you have it in my life

1:11:45
expands I think.

1:11:46
Yeah.

1:11:48
But most people if you just turn into the the coaching call now and you’re not you haven’t been into this tribe for a while. You think taking money out of your deferred comp retirement. Plan is absolute sin. And we should shut down this YouTube channel and I should never be allowed to talk ever again. No. I mean, it’s like,

1:12:12
I talk to people about and they’re like, You’re crazy, but I even found it like it’s in like Tom wheelwrights book, right? Like, it’s there. Just

1:12:20
it’s in a book. It must be true, right? It’s on the internet. It must be true.

1:12:25
Yeah, well, it’s a free country, I can say what I want. So here’s what I how I would play it. If you kind of trust me here, I would take money out of the deferred comp first. Right that’d be the order operation for the next rental property. But I let’s just say I don’t know. I would be strategic and high. Take that out. Because right now your AGI is somewhere in that hundred hundred 50 range. Yeah, so let’s just say the next tax bracket is starts at 200 right? I don’t Know what it is you got to figure it out on your own and get your tax guy on board. That’s where I stopped I help you with the strategy but those exact numbers where you get your guys involve your team. So there’s this hurdle here right 200,000 in your like 150 or whatever, you have 50,000 of delta between there so of the hundred 38,000 of deferred comp, just to say in 2019 you take 50 out to get you right up to that amount no more and then 2020 you take another whatever to to get to that level again. So may take you three years, four years to take this whole hundred 38 out. Right But if you want if you if you’re not doing anything, you want to pick up another property or going to a syndication deal. Screw it maybe just take it all out or take it all in two chunks. Right. So that this is the game that’s been playing. Yeah, yeah. I mean like the

1:13:59
the worst The worst thing that could happen once you get into the next bracket, I guess it’s all incremental anyways, right? I just guess this depends on the percentage, john. So it goes from like 30 to. I don’t know, I don’t know the numbers right now. But let’s say it goes from 25 to 30%. Yeah, you’re paying 5% more tax on the incremental dollars above that bracket. Right. But you’re not that’s like the risk. That’s the worst that could happen.

1:14:23
Yeah, yeah. But But like, I think what it’s gonna be, it’s gonna be like, there’s no black and white way of doing it, you’re gonna have to get up to that amount, right? Say it’s 50 grand gets you to that amount and then take money from the headlock. Because that’s, you know, paying taxes on it. You’re just taking a loan from herself. Right? Right. If you need more money, yeah. So if there’s five deals that come up, now you’re taking from the HELOC after that, but then come 3020 now you can start seeing from when the deferred comp taking the withdrawals from there up to that the next tax bracket, right or doing or taking a Hilo? Yeah, well, let’s just say you exhausted all the Hilo, which is I don’t know how you’re going to do that that’s a lot of money. Then you just say Screw it. Let’s just take it all out go on the next tax break. It’s not the end of the world, like you said. But there’s a strategic way of doing this to optimize it. Right. Right. That’s what we’re all about being smart. Not working hard. Right. So cool. Yeah. I mean, you know, what hard work is this is only 10 minutes of hard work and thought going about it. So this is this is easy and simple. Compared to other stuff you do. But yeah, thanks for doing this. If you guys like that, more of this. Jon’s in our mastermind group mastermind. So if you guys like this stuff, we have calls on this every other week and get to meet cool people like him and build your tribe that way. But yeah, thanks, john, for joining us, man.

1:15:56
Yeah, absolutely. Thanks, Lee. Thanks for all the help so far. And this is hopefully this is helpful to someone it definitely is for me so cool man

1:16:03
Talk to you later. All right take care

1:16:09
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