Invest In Real Estate – Q&A #2
Alright. You have been blowing us away with some amazing questions so today on Limitless TV, we’ve got more answers coming your way all right today’s question first kicks off with funny vids. How would I go about investing in real estate in the market where the average house price is $1,000,000? I live in Auckland New Zealand and I’ve got $3,000. Alright. Really good question funny vids. Listen, you’re not going to buy million-dollar houses especially if you got $3,000. We need to get you into a different market place and you got to get yourself into a market place where your homes are around your country’s national median. That’s where you’re going to have your greatest safety and if you go 20 to 30 percent below the national median, that’s where you’re going to find your greatest level of safety and security. So that’s the market that you want to specialize in and where you’ve $3,000 saved up, I’m going to recommend that you watch some of my videos that talk about buying a primary residence that you can treat like an investment. For example, if you’re single you can buy a house and you can put some roommates in there and do the math ahead of time to make sure that it’s going to easily cover the mortgage and you can live for free. I’ve helped some of my friends and buddies do that over the years or if your a family man, you could rent a house where you’ve got it, you’re paying rent anyway so don’t throw it away get into a house with a really good equity position but ultimately you need to be in a market that makes sense. Once you live in a market that financially doesn’t make sense it escalates the risk substantially. So you got to get in a different market. Watch some of my videos that will show you how to do that. Okay very similar question from Victor Chang. How would this work in New York City? I don’t think it would. Well you know what? you’re right. Sometimes buying an inexpensive home downtown in the city is half a million, seven hundred thousand dollars, it’s not an ideal market for a beginner investor to start out in. In fact, that’s a very specific type of market. But if you if you head 60 to 90 minutes into the suburbs, you can all sudden find houses that are in the 300 to 200 and 150 thousand price range. Get below that national median just like I, just like the advice that I have for our other friend there. RGonzalez 0117 Shame banks don’t do loans on equity anymore ever since 2008. Unless you’re extremely well qualified individual and the property in question is of interest in the bank. Banks notice how risky lending on equity is and if no one believes me, go to your local banks and make an inquiry. Interesting story and congratulations on your success thus far. Hey RGonzales0117, I appreciate that thank you we’re having some great success. And you’re right, there’s a lot of banks that are not lending on equity in house. As a general rule of thumb, banks in a really risky market like this want to have it 20 or 30 percent equity. So for example, if your house is half paid off, banks will actually lend to you. But if you owe 80 percent of the value of your home, banks are not going to lend to you and all that means is you get to discover different strategy and run with a different strategy or sell the house and that’s another way to get the equity out of it. Ultimately, this idea that it takes money to make money certainly not always true but it certainly opens up options and a lot of times people will sell their house to get the equity out, because that’s the best option that they have because banks aren’t lending. Generally, going to have to have you know, more than 20 or 30% of the house paid down for a bank to lend you in today’s market. Okay, question from Jonathan W. Kris, what type of loan did you use to purchase your third, fourth, and fifth property? was it owner financing? a conventional loan? This good question. So Jonathan, I actually used my own credit to help purchase my first three properties. My fourth, my fifth, and my sixth home, I was using someone else’s credit. Banks today will lend generally on a max of somewhere between four and ten homes. After that, you get, you get, you get cut off and that doesn’t mean you can’t invest anymore but it does mean you need to switch the strategy. So for me, that strategy was going to my father-in-law. And after I’ve built up some rapport with my own deals and my father-in-law’s, I just started doing lunch with other successful people and saying, “hey, here’s my portfolio. Here’s what I’m doing” and a lot of them would kick in and say, “hey let’s do a deal together” and we would use their credit and we would use their money and then I would use my system to do the deal and then we’d have that 50-50 partnership. And it’s been a great way. I’ll probably invest that way for the rest of my life. Ricardo Hernandez, I got a question, what happens to the house that you were once living in? did you sell it? keep it? or rent it? good question Ricardo. I actually held that house and lived in it for two years. So I bought it as an investment, I lived in it, I was living in it for free. And then, when it came time to get into my next house I bought another house at the base in the department that I could also live in for free. But because that first house the basement was already covering the mortgage the exciting thing was I turned it into a lease option and I was making five hundred and fifty dollars a month cash flow. Which was awesome. It actually felt amazing. And then three years later, ended up selling it at top dollar. so I held that house for a short period of time and then I remember the day that I sold it I got this really big cheque from the bank and from the closing title company and I looked at it and I put it in the bank and I thought this is amazing I got to go buy more homes. And then I thought, “you know what? why did I do that?” it could have actually kept the house longer, refinanced, and put the money in another property. Had two properties instead of one. And so there’s an appropriate time to sell homes. These are the market is at a point where it is today where this is a great market for selling off inventory or if it was a lease option and I was helping a family get into it, I’m happy for them when they buy it. But generally, I’m waiting for the best time in the market or helping a family out. Other than that, I hold on to my homes. Generally, seven years is kind of when the homes start dilapidating, disrepair, needing to invest money in, so it’s also more of a short term buy and hold strategy that if I can hang on to it for four or five six years and sell it? that’s also another great way to liquidate the property at a great time before I have to double down and put some reinvestment back into it. Byron Harris, did you ever get all three credit cards simultaneously? I’m trying to get some sort of credit and get it built up. Going with the FHA strategy. Any advice would be greatly appreciated. So Byron, this is a great question. I’ll tell you right now Byron Harris, that if you go to creditcards.com, you can easily get a bunch of credit cards right now but you need to be careful at the level of inquiries you make. For example, someone’s wondering, well, why not five cards? why not ten cards? If you to rapidly open up too many lines of credit, then it’s actually going to start nailing your credit and it’s going to reflect poorly. So what’s important is having three lines of credit. Right now if you have any less than that, apply for some. Even if you don’t have great credit but it’s getting like a secured credit card or a low limit credit card get it anyway. That’s where you get to start out at. And so you want to make sure that you have a minimum of three lines open because I’ve been using credit for such a long time I probably have 20 or 30 line credit and it’s probably even hurting my credit score because I’ve got so many lines of credit. But you know, it’s all relative I still have excellent credit and it’s still working for me. And so, it, you know, having a 750 score is okay for me as opposed to having an 800 score because I’m using that credit. I’m leveraging it business, I’m leveraging it and deals, and I’m using it responsibly to build my portfolio and create wealth with it. So really great question, yes go ahead and get those lines of credit. You want to have a minimum of three lines that you’re responsibly building with. Generally, you don’t want to keep more than a 30% balance. So if you have a three thousand dollar credit card, never keep more than a thousand on it. In fact if you can, just use it and pay it off regularly. That is going to help you establish a really great credit score with a little bit of time. okay this one comes from Shane Simpson. Shane says, so to cover most of the mortgage costs, you rented out the basement on the first house but in California not many houses have basements. This is true. what a low-cost entry strategy such as what you did not be as effective in California. I see converting a garage into a habitable space on an option but it’s a lot less cost and effort. I would love to hear your input on this great videos very well made super informative. Thanks Shane. Appreciate it. You know, not all places around the country have basement apartments but places around the country do have duplexes. They do have mother-in-law apartments and they typically go more side-by-side or a rental unit that is above ground as opposed to the low ground, and so you’re still going to find similar strategies. On one of my houses I did convert the garage on a 3-bedroom, into a fourth bedroom and ended up selling that house and I made up a huge pile of money because there was a big difference in that neighborhood between the three bedroom and a four bedroom. It cost us three four thousand dollars to convert it over. Lease optioned it for a while, made a killer cash flow on it ended up selling it for over $70,000 profit. So that could be another strategy that, that’s a valid way of how do I add value. You know for me, if I can ever get a basement apartment, that’s just bonus. That’s frosting. My cake has to taste good without frosting which means buy it with equity. And that is something that you can do in California. Okay Darling Jewel. Hi Darling. Darling says, have you ever bought or rented out condos? it seems like a smaller place to start. Darling, I won’t touch condos and townhomes. And, this just personally for me the reason why is they don’t gain the kind of appreciation and value that a single-family home does. I would prefer that you start in a slightly higher price and I never buy anything below a 3-bedroom, 1-bath. That’s my entry level. In fact, if you look at what happens in values on a two-bedroom versus a 3-bedroom home, it’s a monster or difference and so condos are often two bedrooms. They can be three bedrooms they just don’t appreciate the way homes do and so it typically makes for a much better investment if you can start with entry-level single-family homes as opposed to condos. Great question. Peter Pan. Peter, thanks for posting to this video. It gives me more drive and ambition to get started. I’m 22 years old hey I was too when I got started. Good job brother. I’m in college, I’m a student trying to get ahead of the game by investing in rental properties. However, my biggest obstacle is the legal side with tenants. My question to you is this, when renting out what type of agreements or lease papers do you use to guarantee that they have to pay? my biggest fear is that I’m doing something wrong legally. Peter, you’ve got all the right concerns. It is so important to make sure that for your area that you live in, there’s certain bylaws and things that are going to be really important. You can go to Legal Zoom for your state and you can buy rental contracts that will kind of really show you what, what’s normal for the area. You might even find a really inexpensive lawyer. I know it sounds like an oxymoron, and just ask them to review a contract or supply a contract. It’s usually not going to cost you a lot of money. That’s going to make sure that legally you’re doing everything correctly. Understand all the fine print, understand that everything that’s in the contract. That’s an important part of winning the game. But honestly, I don’t think it’s nearly as big as an obstacles you might think. I let that fear go. I just double-check, make sure that you’re doing everything correctly and you are good to go Peter Pan. Alright, David James. So if you’re dumping single-family rentals after four to five years and holding them short-term what do you do about the capital gains tax on sales since you’re not owner occupant? I owned approximately two rentals and a third that I expect by next year. It’s very slow going so far because I can’t use my home equity loans from the bank’s just yet. David, these are really good questions. And in the beginning, two or three homes? congratulations. Give that five years and two or three homes can turn into a dozen. So it’s exciting to see how they grow with time even if feels a little bit slow at first. So with your question here on dumping it after 45 years and the capital gains, I don’t mind paying on capital gains and that’s just in fact, I love to pay my taxes. I will do everything in my power to pay as little as possible but I love the opportunity that this country affords you and I to invest and so there will be some capital gains. And you know what? you just roll with it. If you want to avoid them? then you do 1031 exchanges. And 1031 exchange means that you are going to defer that tax and put it into the next property and then defer that tax and you can keep on rolling and eventually if you ever pull it out of that 1031 model, then you will have to pay capital gains but those are actually avoidable. Refinancing is a non, so at four or five years, you could hold the home. Do a refinance that’s also a non-taxable event. So at some point when you’re getting into 2, 3, plus homes, you want to have a really good CPA, you want to have a good lawyer, and you want to have those that understand really good aggressive tax strategies that are legal aboveboard and Krept and find people with that experience they’ll show you some of the other awesome tax loopholes because real estate is filled with them. Ok David James got another question here, also are you buying homes that are near finished? or do you have a crew that turns and burns them quickly and then rents them? Well, right there, I’ll tell you that when I do my nationwide real estate, I do have multiple crews going at the same time because we’re moving 30, 40, 50, 60, homes every single month. And that doesn’t mean that we’re getting into homes that are necessarily unfinished it just means that we’re getting them in top condition and top repair that’s a part of our strategy, as we go in those hot markets. Where do you draw the line between time spent fixing up or foreclosure that’s a terrible condition but will make more money than buying a home that is 75 to 100 percent ready with less money? This is a fantastic question. So in one of my videos, we talked about ARV, after repair value. And I generally like to stick with cosmetics. Cosmetics is generally carpet, paint, and a little bit of tweaking, this and that. When you get into very serious rehab you start opening up a can of worms. And I’ll, I will get into serious rehab but I expect a much higher margin of gain for the bigger project that has more work to put into it because those projects can take longer, you can open up cans of worms and problems or termites or discover all sorts of things and the bill can grow longer and longer or just takes longer and longer. And for me, I’d rather find good margin on simple properties than good margin on difficult properties. That’s my general rule of thumb but you know ok outside the box and do some of those things. I typically just, the more potential problems the greater margin I need and then it works fantastic. I bought a house that had kind of a, had a big crack in the basement. And you know over maybe 50 feet it was like a three inch slouch and when I bought that house, I ended up kind of leveling out the concrete and then placing the, you know, place in the carpet. And then years later when I sold the house, I disclosed the condition of it and one buyer got scared of it and backed out. Another one, you know, bought it and I ended up making over a hundred and twenty thousand dollar gain on that house. And so it had a problem but I talked to a structural engineer and I did my due diligence and I was ready for it because there was enough gain that made that house worthwhile. So if you’re looking for bigger problems, make sure that you got bigger solutions in your profit margin. If not, don’t tackle the big ones. Okay, last video for the day comes from Zachary Ferguson. Alright Zachary. What’s your suggestion in getting with big time investors starting out? I’m honestly less interested in single-family than I am in apartment complexes. I’m looking more for passive income and a good ROI for myself and the investors where they can be more or less hands-off. Exactly this is a really good question that I’m glad you asked it. I think it’s important to play to your strengths because I’ve done thousands of single-family homes, it’s become an expertise. I really know that game inside out. And the track record that I have now means that it’s easy to make decisions and skip out on the obvious trial and error mistakes that you can do in real estate. When you jump into the big boy game with apartment complexes, that’s often putting all your eggs in a single basket where you might not have all the experience that you want. And that’s what okay to do as long as I would suggest having a mentor, someone with deep experience that can really take you by the hand and walk you through those bigger projects because bigger projects can mean bigger returns. But you know what it also can mean? a lot bigger risk. So just take the property the proper precautionary steps to make sure that you mitigate that risk as best as possible. You know I love it when you post questions in the comments below because we love producing these videos because knowledge is power. The more knowledge we can put in your hands, the more action you can take. And you know what? if all of us goes out there and successfully invest in real estate your life elevates, you create solutions for homeowners and renters and people alike. And you know what? we are also collectively creating a more free great US of A. Why? because we’re building the economy. It doesn’t happen by big government. It happens on the backs of people like you and I, small business owners, real estate investors, so I want to thank you for doing your part. Don’t forget to subscribe, because you know what? We got more amazing real estate videos, training videos, and mindset videos coming your way.