Did you know that you can invest in real estate without having to deal with the day-to-day hassles of property ownership?
Typically when you hear about real estate investing it’s about marketing for deals, negotiating contracts, construction & remodeling, property management, and financing.
That is what active real estate investors do. They’re operators.
Operators spend a LOT of time and energy getting great deals and turning them into profitable investments.
However, they rely on passive real estate investors to help acquire deals.
Passive investors do not spend their time talking with hundreds of sellers or brokers, dealing with contractors, or managing properties.
Instead, they invest their money with active real estate investors so they can spend their time on more important activities.
Passive real estate investors are investing for mailbox money.
So, how can you invest passively in real estate?
The two primary ways are through debt (loans) and equity (partnerships).
Next week I’ll go into more detail about debt and equity investments options. Plus I’ll share a couple of real life examples.
Meanwhile, if you’d like to discuss passively investing opportunities with me, schedule a call.
Archives for August 2022
What Real Estate Investors Should Consider In The 2022 Real Estate Market
In this video, we’ll take a look at the current situation in real estate investing.
We’ll discuss how the market has changed, what you should be looking for when choosing a property, and how to get started investing in real estate.
Transcript:
Chris Bounds 00:00
Over the last 100 years, it’s been like the best time to ever be in real estate.
Darel Daik 00:03
Yeah, absolutely.
Chris Bounds 00:04
It comes off the cuff of the worst time to be in real estate, which is 2008. But so we got 10 years of really, really good times. So over the next few years, I mean, with inflation, because I’ve read different reports, even from Fed managers, they’re different regional managers or something like this is crazy The Feds not doing enough like they need to be doing like three times what they’re doing, which is insane to think about. Do we have maybe 10 years of it?
Even if it doesn’t, we don’t actually have a recessionary pricing. Which I don’t really see. I see some people talking about that. Do we have 10 years of flatline, like to catch up, or maybe five years of flatline, very slow growth by flatline? I just mean, 0% to 5% growth versus 20 plus.
Darel Daik 00:54
Yeah. I mean, I think it’s certainly going to affect the appreciate. Look at especially the last three years, the appreciation has been insane. Especially, from an investing standpoint. It’s dangerous. It’s good. It’s good for the market but it’s dangerous for investors because it makes it turns investors into lazy investors. And what it does is it allows you to make a mistake on a flip or whatever it is you’re doing and still make money..
The market will help you out. Yeah. And so it also makes investors more aggressive, because now they’re betting on the come, they’re betting on that appreciation. So I think it’s going to slow down a lot of that money going into the market. As far as appreciation, I think it will slow it down. You know, inventory has been one of the big factors that has caused appreciation to elevate so rapidly. So I could certainly see a flatline. You can even see some markets moving down.
Maybe, some outlying markets that have been affected by the low inventory of a lot investors that have moved into, you know, maybe not in the major metropolitan areas, some of the smaller counties outside these major metropolitans. And even maybe some of the suburbs of major metropolitan cities like Houston, Austin and Dallas, and so forth. I think those typically get affected first, inner loop areas, inner city areas. You typically don’t see a lot of depreciation, maybe we’ll see a slower appreciation, but I will see anything as far as a rapid depreciation.
Chris Bounds 02:20
Yeah. Ultimately, I think cash flow, cash flow becomes even more important. Because if you’re not going to be making it on appreciation, which, I mean, you got cash flow, then you got appreciation, that’s ultimately, I mean, excluding equity gain and tax benefits. Those are really the two main ways you’re making money as an investor or as a homeowner. It’s more like a savings versus rent and then appreciation. So that makes cashflow. Like we if you’re not buying for cash flow, you’re putting yourself at real risk in the event of appreciation, flatlining, or even receding a little bit.
Darel Daik 03:00
Yeah. I mean, typically if you’re betting on one or the other. You very rarely do you get both appreciation At least, rapid appreciation and cash flow. But I think a lot of investors have seen that the last three or four years.
Chris Bounds 03:15
It’s been really glorious times for landlords.
Darel Daik 03:18
But it has been absolutely tough for a lot of folks. Yeah. The value of their properties have gone up a lot, and they’re getting good cash flow. I think the cash flow is really what’s going to pinch the most in the coming months. Because as the rates moving up, you know, the rents haven’t been able to move up quite as rapidly. I think we’re gonna see a lot of rent increases in the future. But certain markets are not gonna able to keep up with that, because you have affordability issues. So I think if your appreciation and investor, you’re always going to be fine because the markets always going to eventually appreciate over time,. Cash flow, you have to be a little more selective about which market you’re in.
Chris Bounds 03:50
Yet, some of the advice that man let me know your thoughts here. For investors, I’ve been telling folks like, Look, if you’re buying to flip, you need to be a bit more cautious. You need to be very stingy on your numbers, and maybe even add for some, you know, X factor that you don’t know because the market has been forgiving for bad projects. But if you’re buying long-term, the worst thing that can happen is you got to put a little bit more money down.
And that will cover your cash flow problem. Because typically rents don’t. You don’t necessarily see a receding rents. You definitely can. It’s not impossible, but at least in you know, maybe not the New York City area and those kind of areas, but usually as long like, over time, it fixes itself. It will appreciate. Rents will go up. So it’s mainly just your initial debt service that maybe you just have to put a little bit more money down to make sure cash flows.
Darel Daik 04:55
Yeah. And that’s one way to do it. And you also were looking at a rising interest rate environment or when you’re possibly looking at a recession. If you’re flipping houses, you need to be thinking about multiple exit strategies, you know, multiple exit strategies can help out a lot. You have to have that mindset. Maybe, you’re not able to flip that house for what you thought you were and maybe it ends up on the market a little bit longer. So you need to figure out what else you can do with it. Do you just keep it and rent it? Do owner finance it? I mean, there’s all kinds of different ways to create cash flow. And that’s what you’re gonna have to do. If we do hit a recession in the real estate market takes a hit.
Chris Bounds 05:28
Which is precisely why I tell folks like that are buying Airbnb short term rentals. And they look, you’re buying this and that’s your only exit strategy because you’re paying retail, and it does well in Airbnb. Great. But your problem is it doesn’t cashflow long-term, because maybe a COVID situation happens where you can’t short-term rented or you get saturated and the short-term rates plummet. You’re in a bad spot. Now your only exit is to sell it and can you sell it for a profit?
Darel Daik 06:07
Yeah. If Airbnb is your only exit and you’re banking on that type of cash flow because you make a lot more money on Airbnb. If you need that type of cash flow, that’s certainly a dangerous spot to be in. You know, multiple exit strategies are everything.
Real Estate Syndication: Things You Have To Know Before Investing
Ever wonder what it takes to be a real estate syndication? In this video, we’ll give you the lowdown on what it means to invest in real estate syndications.
We’ll also cover how to find the best deals, and how to make sure that your investment is protected.
Transcript:
Chris Bounds 00:00
The focus of this is more so on the passive investors, the investors that are looking to invest in multifamily, from a limited partner standpoint, or however it’s structured, but basically they’re not the operators, they’re the ones providing the cash, the equity, what should investors look for when considering investing in their first syndication?
Nick Moore 00:24
I’m going to skip right past the obvious of look at the board and the managers and the operator and their work experience and track history and go straight into the distributions to see how is your money going to make you money. You need to pay attention to the preferred return and see if you’re already entitled to compensation through a preferred return that’s paid before other distributions. And that can be helpful.
Second, is to look and see what is the return of capital profile for this investment. So of course, we have return on capital that your distributions, whether that’d be a preferred return or common equity, where you just get your pro rata distribution. In a refinance or a sale, particularly in a refinance and even in some circumstances with cash available for distribution, what is considered a return of capital. It’s very, and the reason I brought up the preferred return is it’s very important to consider how the return of capital is predicated so that, you know, if the operator can pay you your capital contribution back where you’d otherwise expected in the inner return, which would reduce the amount of return you get from your preferred return.
Okay, so that was a lot, a lot of return words, the term work, but what we’re saying is this, if you if you invest $100,000, and you have a 7% per if you make $7,000 per year on that, okay. If the operator can send you capital contributions back that reduces your capital account, your 7% would be assessed on that reduced capital account. If they sent your return of capital back of $50,000, and you may have thought it was distributions or otherwise, your 7% is now only predicated on that $50,000 And can wildly change that investment. So just see, most of the time, you want to see that return of capital happen at a refinance or a sale. Okay, but after you have met certain distribution thresholds, like like an average annual return, internal rate of return or cash on cash return.
Chris Bounds 02:22
I guess further clarify that if, say, you’re looking to deploy $100,000, and you want to make sure that’s at work for the next five, seven years, or whatever the projected timeline is, they do a refinance event on year three, and then decide to pay you 25% Or half, say, half make it easy. So 50 grand back, well, now your overall return is affected. It’s not that that’s a bad thing. It’s understanding that life possibility and how that flows within the operation.
What you’re saying is, an investor should have a firm understanding of how that’s going to impact the returns, if that happens, is that the plan talking with the operators? Hey, what do you plan on doing we refund, so you’re gonna give us our money back? Or, you know, how does that play out?
Nick Moore 03:13
That’s exactly No, that’s, that’s spot on. You just want to know, because look, operators can put crafty things in there where they could just pay your capital contribution back early, and then they’re responsible or obligated to a lower return. And you want to know that so you know that there’s not an event that they can cash you out. Basically, when you haven’t realized the full potential of the investment that you were expecting, or anticipating on the front end,
Chris Bounds 03:36
Then this is where a good having a good attorney on your side like yourself, can help make sense of the devils in the details. And it’s not that operators are maybe trying to do anything malicious or anything like that, but it’s just you got to understand it. I mean, those are the terms those were how they’re going to be operating and Abiden by. That’s what you should expect. And, you know, how’s it going to affect your expectations?
Conventional Loans For Real Estate Investors – Everything You Need to Know
If you’ve ever had trouble with a conventional loan as a real estate investor, you know how stressful it can be.
You need to make sure that the payment will cover your monthly expenses, and you’re worried about whether or not your monthly payments would cover the interest and principal on time.
Listen to a seasoned investor as he discusses the best ways to finance your long term investment properties.
Transcripts:
Chris Bounds 00:00
Eddie, I asked you years ago, and it was about conventional financing. And he told me you say you can’t build your business off just conventional financing. This question, if it doesn’t apply to you now it will and someone submitted it online too.
I have a W-2 income, but my loan officer said I do not qualify because I’m self employed and the income on my tax return is too low. What can I do?
Eddie Gant 00:26
Are we talking long term financing or short term financing?
Chris Bounds 00:30
At this point, long term.
Eddie Gant 00:32
Long term financing, to hold properties for rentals. Well, I think you got a couple options, but the most viable today 2022 is the product that did not exist as often as, I mean as recently as four or five years ago. And we call it non-QM. That means Non-Qualifying on your income. It’s Wall Street money. Jet lending doesn’t, our friendly competitors doing, we write the 30 year paper, and we send it out to Wall Street. It’s the same bucket of money that used to supply back in ’06, ’07, ’08 until it collapse was the subprime.
As well, it’s all Wall Street money. Here is the key to non QM their 30 year fixed mortgages, the rate fluctuates based on your credit, and loan to value and debt service coverage ratio. Everybody kind of understands credit, I think everybody probably understands loan to value. But one people don’t necessarily know quite as as much about his debt service coverage ratio.
I just said your loan, your loan rates fluctuate on those. That’s also their underwriting guidelines. That is it. Credit, loan to value debt service coverage ratio. So let me explain debt service coverage ratio just for a second, most of them are around 1.2 to 1.25. 1.2 means if your payment is $1,000, it must rent for 1200. Okay, if it’s a 1.25, if your payment is 1000, it must rent for 1250. You normally know your payment or you know your rent, and you saw for the other one for your qualification.
If you know it rents for 1250 already, then that means your max payment you’re going to qualify for as 1000. So you pretty much got to have a 680 credit score to get in this game. loan to value the good rates started at 70. You’re not going to get anything above 80. But when you go to at the rates bumping up a few weeks ago, these rates were around 4%, maybe low fours, but with everything going on rates are on the rise, your rates now are in the fives, but you’re in the fives for a 30 year fixed rate mortgage on a non owner occupied loan meaning short rental, and you’re not showing your income. Y’all that’s pretty damn good product.
Now, I’m gonna tell you, you would love that product for years, for decades because it didn’t exist. And it started to come alive. Four or five years ago, a lot of people how many I’ve never even heard of this. Oh, see, there you go. And it’s very, very prevalent out there now. And it’s growing. They are extremely finicky. It’s Wall Street. When COVID Monday hit Monday, March the ninth 2020 They all shut down. And they weren’t back playing the game with us until June or July.
That’s how finicky they are. But it’s it’s good and healthy now. It’s called non QM may non qualifying on your mortgage. But that’s where most everybody goes. Now the ones that don’t go there will go regional banks. You know the allegiance banks, the Texas Citizens Bank so the world around town, you can go there. That’s where most of my rentals properties are financed at.
And if you don’t go there, if you can show your income you still go the old Fannie Mae, but we used to do a lot of Fannie Mae’s, but those are gone by the wayside because there’s almost no difference between the interest rate on a Fannie Mae and a non QM and the non QM is faster and easier. Did that answer that fairly clear?
Chris Bounds 04:32
Absolutely.
Real Estate Syndication | Who Should You Invest WIth?
In this video, I’m going to show you how to find the best in the industry to invest in Real Estate.
Learn what to look for when finding your perfect investment partner.
Transcripts:
Omar Khan 00:00
Everybody I understand it’s so fixated on returns and risk and this and that. And in my experience, least what I tell us look. If there’s an experienced operator, any question you ask they probably heard this before, like a million times. What you’re really trying to do? In my opinion, at least because I invest in other people’s deals. That’s what I’m trying to do is what’s really trying to understand is screening the person for values and competence, basically. So, let’s put it this way. If the person is very honest but a complete idiot. You don’t want to be with that person because their honesty is useless. I mean, they don’t know what to do. Right. I mean, your money is at stake. Or conversely, if the person is extremely competent, they’re world-class at what they do. But they’re a very dishonest person. Right. Well, you also don’t want to be in that situation because you don’t want to be with the smartest group in the world. So, as an investor, it’s a lot of these people who get hung up on the numbers or it’s a 15% IRR, 17% IRR. But a lot of this comes down to basically a qualitative analysis. Like, is this person that I’m hopefully looking to get my money to? Do I feel this person will be a good steward of my capital? Look, In reality, the difference between a 15% or 16% IRR in total dollars, it’s not that much. It’s really not that different. But it is a big difference between somebody taking your money and burning it into the ground or losing it huge, or not. That’s what you’re really focusing on. So, if you’ve got say, whatever out of the 100% of the time, you’re gonna set a date to assess an investment or person, I would literally spend 99.999% on the team or the people. And don’t worry as much about the actual return. And the deal because if the people and the team are competent, experienced and the right people for you, the rest will take care of itself.
Chris Bounds 01:39
Huge. Yeah. And that’s been a theme with the guests coming on today. And this just popped in my head. Another analogy, a doctor. So a doctor, that’s very honest but incompetent. Are you allowing them to do open heart surgery?
Omar Khan 01:51
Oh, no.
Chris Bounds 01:52
No, but if they’re very competent, but they’ve got a whole stack of unethical charges on them, are you gonna let them operate?
Omar Khan 02:00
No.
Chris Bounds 02:00
Oh, you got to have both.
Omar Khan 02:02
Look, it’s the same thing. Whatever we do in our lives. Right. Like, you’re talking about this doctor example. There are countless examples of professionals and vendors we use in our own lives. The same criteria has to be applied to these sorts of situations. It’s just because it’s real estate or I don’t know what business private business doesn’t the criteria doesn’t change just because somebody wears a nice suit and has a tie on.
Chris Bounds 02:21
Yeah. Return of capital over the actual returns of the capital.
Tips To Buy real Estate With NO Money Down
If you want to buy a house right now but don’t have any money, this is the only way.
Watch this video tutorial and learn how to get access to mortgage loans without having to show income or assets.
Transcripts:
Chris Bounds 00:00
Is it still possible to buy with little or no money down?
Eddie Gant 00:06
Yes.
Chris Bounds 00:08
How would you do it?
Eddie Gant 00:09
Oh, okay. Well, a couple of different ways. If it’s a company like jet you gotta be buying them pretty deep. We give you the benefit of buying it deeply, called we’re a loan to value lender. And there are a thousand ways to take this conversation but a lot of lenders are not loan to value lenders, they’re loan to cost lenders. Most of the national lenders that I compete with are loan-to-cost lenders, we’re a loan to value. The best way is just to take the example.
Let’s say you buy a house, it’s got an ARV. Everybody knows what ARV is after repaired value of 200,000. And it needs 30,000 in work. Really quick, I can tell you just like that I can loan you 110 at closing and 140 overall. How did I get there? 70% of 200,000 is 140. That’s my maximum loan, locking me in 70% loan to value. Take 30,000 off of that and 30,000 off the 140 because it needs 30 in work 110. 110,000 is my max advanced to you at the closing table.
So if you’re buying that house for 9 0 to 104, you’re probably walking into the table with zero out pocket cause you’re underneath that threshold. If you’re coming to the closing table pay and you paid 115 for that house. Remember my max advance at closing is 110 in this example. That means you’re bringing to the closing table 5000 plus your closing costs to the table. So yes, we do. And it’s very often that we do that. If you’re a very strong client, with strong meeting experience, credit, and cash reserves, I’ll be straight with you.
We’ll stretch to 75% loan to value with the often. And we do that often today. Even though that exceeds our 70% threshold we do 75% often if you meet those three categories. So it is possible, we do it another way if you’ve got some great terms with a private lender. The private lenders are probably willing to look at that situation to advance you 100%. Regional banks are very strong in our industry, but they’re not going to give you 100%.
But I do recommend that everybody have relationships with small regional banks, it’s key to your success in this business. In my opinion, you’re never going to get 100% loan to cost from a national lender, it’s just not going to happen. So your regional hard money lenders, if you’re buying it at the right price, and your private money people in Branson is a masters at private money. And I know maybe still a little bit his thunder here a little bit, but I know that you can do that. And that’s how you would do it with no money out of pocket.
Chris Bounds 03:12
So Brant, are you still doing no money out-of-pocket deals?
Brant Phillips 03:15
That’s pretty much all we do. Jimmy do we do 100% finance? Yeah, for the most part, we do and private lenders do. But we have similar criteria that he just mentioned. Right. Like, it’s gotta meet our criteria. But yeah, with private lenders, anything’s possible. And that’s the good and the ugly side of private lending. So if some of you are out here, there are potential private lenders, you have to really be careful and know what you’re doing.
Because I’ve seen so many ugly things arise from that doing loans that they shouldn’t have done. That they didn’t know how to underwrite or didn’t know how to screen and analyze that borrower or screen and analyze the deal when they get themselves hurt. So there are tons of you know, no money down deals going on all the time. But you gotta be careful. I forgot to finish earlier I said that Robert Allen book that I saw in 2006. I got to hang out with Robert Allen this weekend was kind of funny. I have dinner with them. We sat together and just had a great time and evening. I was like, it all started back when I saw that book, no money down.
Anyway, you absolutely can’t. And that’s what drew me to real estate. Right. So when I was just like, burned out, I hated my job. I didn’t know what else to do. Right. And I was looking at business books, I went to a couple of workshops on this kind of stuff, and pretty much everything else all needed money. You know, you need to have money or skin in the game where you got to go get an SBA loan or something. You got to have some money, and I didn’t have any money.
You know, I had great credit. I always had great credit. Right. I’ve always maintained that and as Eddie said, you want to have a backup plan with your local bank so you can exit out of it. And I’ve always had great credit, but I didn’t have money. So that’s what drew me to real estate was the creative side of it you can do no money down deals, but they got to be good deals. That’s the critical part because they’re not a good deal if it’s setting yourself up to lose.
Eddie Gant 05:12
You know, to reach the summit which was throughout we’re all wanting to do and I know Brent would agree with me here and Christy. You got to have more than one pony to ride. You know, you need to go to a hard money lender, you need some private people to go to. You need a regional bank in your corner. I mean, you got to have more than one pony to ride out here. You really do to do everything that you want to do.