Accredited Investors

So, you’re interested in spreading your wings in real estate investing. However, to become an accredited investor and invest passively in potentially lucrative deals, you must meet specific income/ net worth requirements.

If you do meet these requirements, taking part in accredited investing is one of the smartest decisions you can make. Why? Because these types of passive investors can generate cash flow without having to work a regular 9-to-5. In addition, you can easily generate higher returns and lower your risk when you participate in an apartment syndication deal versus trying to handle your own deal.

If you don’t have much experience in real estate investing, don’t worry. Accredited investors can invest with me. I am confident that I have the experience, tools, and knowledge you’re looking for to help you to maximize your time and revenue as an accredited investor.

Take a peek at the blogs below to become familiar with the accredited investor definition, and explore how to get started in this field. For instance, you can find out the benefits of investing in apartment syndication deals, and the best places to invest in such deals. Then, if you enjoy what you read, feel free to check out my hundreds of other blog posts for other valuable real estate investing insights. Also, take a peek at my Best Real Estate Investing Advice Ever book for even more strategies for winning as a real estate investor.

Debunking a Common Myth About Apartment Insurance Rate

A common practice when underwriting multifamily apartment deals is to assume a stabilized insurance expense equal to the T-12 insurance operating expense. In other words, the assumption is that the insurance premium paid by the current owner will remain the same after acquisition.

This practice was indeed correct for the past five to ten years. However, according to commercial insurance expert Bryan Shimeall, who was interviewed on the Best Real Estate Investing Ever podcast, this is no longer a safe assumption.

Due in part to the onset of coronavirus, as well as to the increase in the number of people entering the commercial real estate investment realm, insurance rates are rising fast.

Towards the end of 2019, the insurance market transitioned from a soft market to a hard market. 

In a soft market, insurers are competing for apartment investors, resulting in more competitive rates. Therefore, when underwriting deals, apartment operators were assuming the T-12 insurance rate would remain the same after acquisition, or even potentially decrease. 

However, in a hard market, the opposite is true and apartment investors are competing for insurers. As a result, insurance rates are rising. 

The magnitude of the increase is geographically driven. According to Bryan, an apartment investor should expect between a mid-single-digit and up to a 20% increase in the insurance rate when underwriting deals.

He also said that insurance companies are pickier about the types of apartments they will insure, as well as offering non-renewing insurance policies. If an apartment qualifies for insurance, there is no guarantee that it will continue to receive the same rate, the same coverage, or any coverage at all once the initial contract has expired.

Now that you know about these recent changes to insurance rates, what changes should you make when underwriting apartment deals?

The most important thing you need to do is have a conversation with your real estate insurer. If you do not have one, you need to find an insurance company or broker that specializes in real estate.

Ask the insurer about the insurance rate increases in the market you invest in.

Another important factor besides geography that is driving the rate increases are the history of losses. Bryan says it is more important than ever to provide your insurer with the history of losses as soon as possible.

Once you know you are serious about a deal, email the listing broker (if on-market) or the owner (if off-market) and request a copy of the history of losses for the apartment. 

Your insurer will need accurate and complete information about the history of losses at the property to provide an accurate insurance quote. Without the history of losses, the insure will generate a quote based on a clean history.

If your insurer obtains the history of losses report that isn’t clean, the insurance rate will be higher. Depending on the type of losses, the insurer may decide to not provide insurance at all. 

The worst-case scenario is your insurer receives the history of losses and won’t provide insurance on the apartment after you’ve invested tens of thousands of dollars into due diligence. Another bad scenario is the new insurance quote is significantly higher than your original projections and you need to back out of the deal or renegotiate a new purchase price.

Therefore, to avoid canceling contracts and wasting thousands of dollars, do not assume an insurance rate that is the same as the current insurance rate. Instead, have a conversation with your insurer prior to submitting a contract to understand the projected rate increase in the market. Then, obtain a history of losses as soon as possible so that your insurer can provide you with the most accurate quote before you have progressed further into the due diligence period.

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High Net Worth Frugality – How To Save Like The Wealthy

Frugality has played a major role in my life, starting in childhood and being brought up by two very frugal parents. I have tremendous gratitude looking back on the lessons learned and seeing the impact that saving money has had. In this post, I want to share with you some interesting data I recently came across and a unique perspective on frugality.

Americans spend the majority of their money on three expenses: Housing, Transportation and Food, according to the U.S. Bureau of Labor StatisticsYou probably already knew that, so I want to dive a bit deeper in a direction I think we could all benefit from. I want to share with you how High Net Worth Individuals save and spend their money compared to everyone else in these three primary categories. Obviously, there is no official handbook or methodology that all wealthy individuals follow; so I compiled some data and research so we can take a peek behind the scenes. 

#1 Housing 

You might be familiar with the fact that Warren Buffett paid $31,500 for his home in Omaha nearly 50 years ago and he has not increased his spending in this category ever since. This is an extreme example, but how much do you think the average American spends on housing as a percentage of household income? To my surprise, the data shows nearly 30% of household income is spent on housing costs according to the U.S. Bureau of Labor Statistics

 

Now let’s take a look at another High Net Worth example; we’ll use Tim Cook (the CEO of Apple). Tim Cook has an estimated net worth of 650 million dollars and he bought his California residence for 1.9 million dollars. This home purchase represents less than 3% of his net worth (if he paid cash) or a mortgage payment of approximately $7,500 a month if he financed the home with a traditional loan and 20% down payment. If the house is mortgaged, that means Cook spends approximately .072% of his annual income on housing costs based on the 125 million in compensation he received from Apple in 2019. It’s interesting that Buffett and Cook have the ability to buy nearly any home they desire, but they chose to embrace a reasonable frugality in this category. There are, of course, hundreds of other High Net Worth examples like these, but it is fascinating to consider this mindset when the majority of American homeowners max out their debt leverage to buy the most expensive house they can afford.  

 

#2 Transportation

According to a study done by researchers at Experian Automotive (and published on Forbes), 61% of wealthy individuals (defined as earning $250,000 or more in income per year) drive Hondas and Toyotas and Fords. You may also be familiar with the fact that many billionaires drive inexpensive vehicles as well, many of which are valued under $30,000. A few examples include:

 

  • Steve Ballmer (Billionaire) Ford Fusion Hybrid MSRP $30,000
  • Mark Zuckerberg (Billionaire) Acura TSX MSRP $30,000
  • Jeff Bezos (Billionaire) Honda Accord MSRP $20,000
  • Ingvar Kamprad (Billionaire) Volvo 240 MSRP $25,000

 

According to AAA research agency, the average American spends $9,282 a year on their vehicle, which equates to $773.50 a month. The median household income (for 2018) was $61,937 according to Current Population Survey and American Community Survey, which are surveys conducted by the U.S. Bureau of Labor Statistics and the U.S. Census Bureau. Americans dedicate nearly 15% of household income to a vehicle. 

 

#3 Food

This is one of my favorite topics when it comes to personal finances. In this post, I will keep it brief, but you can check out some of my other blogs and articles that dive deeper into the topic. According to The National Study of Millionaires, which is a 71-page nationwide study conducted on 10,000 U.S. millionaires and their spending habits, it was found that 36% of millionaires spend less than $300 each month on groceries and 64% spend less than $450, and only 19% spend more than $600 a month on groceries. The punchline; non-millionaires spend about 57% more on groceries compared to millionaires. But that’s just groceries, so what about restaurants and dining out? I’ll get right to the point on this one… 

 

To turn a profit, many restaurants charge around a 300 percent markup on the items they serve. When you go out to eat, you are paying for service, convenience and atmosphere. There is certainly a time and place for restaurants, but if you are eating out frequently, consider that you could make a $15 meal in a restaurant for $5 at home. The statistics are also interesting. According to a study from the JPMorgan Chase Institute that focused on fifteen specific metropolitan areas, studying credit and debit card purchases from more than fifteen billion anonymous transactions and characterizing them by quintiles of income, the poorest 20% spent 16.6% of their income at restaurants, trailing the wealthiest income quintile at 17.8%.

 

Takeaways

Perhaps it’s time to remove “The Joneses” from our life and start keeping up with ourselves instead. 

 

There are two sides of the money coin. One side is about making money and the other side is about saving money. Long-term financial success requires a commitment to both. We can’t forget about mentors like Mike Tyson, who amassed over 300 million dollars in a career and filed for personal bankruptcy in 2003 after going completely broke. Or perhaps the more recent example of Johnny Depp “losing” his 650 million-dollar fortune due to wild spending habits like $30,000 a month on wine and renting 12 storage facilities to store his “memorabilia”. We all know of athletes and celebrities who unfortunately were not taught about frugality, or simply chose not to pay attention. The goal for you and I may not be to join the Billionaires Club, but perhaps it’s a worthwhile pursuit to find a balance between having enough and living life on your own terms. 

 

To Your Success

Travis Watts 

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How to Create a Compelling Property Management Incentive Program

As an apartment syndicator, your most important team member is their property management company. The property management companies main responsibilities are to manage the day-to-day operations and implement your business plan.

However, what if – due to market conditions or lack of skill on the part of the property management company – the your net operating income projections aren’t being met? Occupancy is low. Collections are struggling. Rental premiums aren’t being met.

One strategy to turn operations around, or to avoid operational challenges all together, is to create a property management incentives program.

Why Create an Incentive Program?

An incentive program creates an alignment of interest between you and the property management company. The better they perform, the more money you, and your investors, and they make.

What is an Incentive Program?

An incentive program is an agreement between you and the property management company in which the property management company is given an objective, and if they complete the objective, they are rewarded.

Two Types of Incentive Programs

Incentive programs fall into one of two categories. 

  • Type 1: Incentive programs that begin at acquisition and end at sale. 
  • Type 2: One-off incentive programs that end after a fixed amount of time.

Examples of Type 1 Incentive Programs

The most obvious and common is a program in which the objective is to effectively manage the property and the reward is a property management fee equal to a percentage of the collected income. Plus, they aren’t fired.

Other objectives are investing their own money in the deal, acting as a loan guarantor, or bringing on their own investors. The reward for all three is more equity or cash flow.

You can also create type 1 incentive programs for key performance indicators, or KPIs. For example, the objective is to grow total revenue by a certain % each year. Or maintaining or exceeding a specified occupancy rate. 

Just make sure the objective results in alignment of interest. For example, a bad objective is to grow the occupancy by a certain percentage each year, because there is a maximum occupancy rate. Once they achieve high-90’s, it will become impossible for them to achieve their objective without first sabotaging occupancy so that they can then increase occupancy again to receive a reward.

Examples of Type 2 Incentive Programs

Type 2 incentive programs are used when you want to target a specific KPI that is underperforming. For example, if occupancy drops below 90%, you can create an incentive program. The objective is to achieve a specified occupancy rate within a specific time frame (i.e., achieve 95% occupancy within two months). 

Once the desired objective is achieved, they receive a reward and the incentive program expires.

Type 1 vs. Type 2 Incentive Programs

Both incentive programs can be beneficial.

The type 1 incentive programs create alignment of interest from the start. Whereas the type 2 incentive programs can be used during the business plan to improve a specific lagging KPI. 

However, you need to be careful and mindful when creating incentive programs. For example, if you set an occupancy-based type 1 incentive program (i.e., maintain 95% occupancy), the management company can accomplish this goal by offering unnecessary concessions to increase occupancy. Or for a “number of new leases”-based incentive program, the management company can let in unqualified renters to inflate the number of new leases.

Therefore, type 2 incentive programs are the ideal option for KPI-based objectives. If a KPI is lagging, target it with an incentive program. Whereas the type 1 incentive programs are ideal for non-KPI-based objectives, like effectively managing the property, investing in the deal, etc.

Other Best Practices

The objective of the incentive program needs to be realistic and attainable. For example, an objective to raise occupancy from 85% to 100% in two weeks is too unrealistic. A good strategy to ensure that the incentive program is practical is to plan a brainstorming session with key members of the property management team and discuss objectives and rewards.

Also, be creative with the rewards. They can be financial based, like a gift card or bonus. However, other reward ideas are dinners with you or someone in your company, an extra paid vacation day, a free education or training course, a special trophy or plaque, etc. 

Lastly, the best incentive programs do not punish property management companies for failing to achieve the objective. If they miss the mark on an incentive program, don’t reduce their management fee. However, this doesn’t mean that you NEVER punish (i.e., fire) a property management company

Overall, incentive programs are a great way to create extra alignment of interests with your property management team and can help you target specific KPIs that are lagging behind.

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President Trump Signs Coronavirus Relief Executive Orders

President Donald Trump signed an executive order on Saturday night after negotiations reached a deadlock in the House over another coronavirus relief package.

Click here to read the full memorandum.

Here is everything you need to know about the executive orders:

Unemployment Benefits

Unemployment benefits include an additional $400 per week, retroactively starting August 1st. The federal government would contribute $300 and the states would contribute $100.

White House economic advisor Larry Kudlow said Sunday that people could expect checks in a couple of weeks.

Eviction Moratorium and Renter Assistance

The executive order did not provide specifics on a renewed eviction moratorium or renter assistance. Instead, it defers to other governmental agencies to make that determination.

The decision to ban evictions will be decided by the Health and Human Services Secretary and Centers of Disease Control and Prevention Director.

The decision to provide financial assistance to renters will be decided by the Treasury Secretary and Housing and Urban Development Secretary.

Student Loan Payment Deferrals

Student loan debt interest would be waived through the end of the year. This only applies to loans held by the Department of Education, so it does not apply to privately held student loans.

Payroll Tax Cut

The federal tax withholding for the payroll tax would be deferred (not forgiven) starting September 1st and through the end of the year for people earning less than $100,000 a year.

The Treasury Secretary may also exercise his authority to defer the withholding, deposit, and payment of the tax, meaning it may be forgiven. He could also extend the program for a full year.

 

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Why Multi-Family? Why Now?

Why Real Estate? 

Most people who are career focused and have money to invest or people who are coming to the end of a professional career, often look to real estate as a viable investment option either for building equity or for income generation. Unfortunately, real estate investing is typically thought to be a sole ownership strategy. Very few people are aware of the passive investing opportunities in multi-family private placements or “apartment syndications”. 

Why Multi-Family?

Syndications and/or private placement offerings are all about “pooling” your money together with other investors to purchase large assets that may otherwise be unattainable as a sole ownership purchase (for example, a 300-unit apartment building). If you have 10 million dollars to use as a down payment, you might have the means of purchasing an asset like this individually; however, if you prefer to only invest $100,000, that’s where a syndication structure can be a huge benefit and allow you to participate in a deal of this size. 

Why Value-Add?

I tend to invest in value-add projects. In this business model, the General Partner or Managing Partners and their teams often add value to the apartment community in a number of ways. Common value-add strategies include renovating the units, updating to modern appliances, countertops, in-wall USB ports, smart thermostats, on-site storage lockers, improve the landscaping, renovate the clubhouse, gym, pool, parking lots etc. Every property is unique and the business plan will be different for each; the overall goal is to update the property and match the current market demand while increasing below market rents along the way.

The value (price) of an apartment complex is primarily derived from the NOI (net operating income), which is comprised of the total collected rents and income minus expenses to operate the property. When the net operating income increases, the value of the complex increases. For example, let’s say the annual net operating income on a property increases by $100,000 a year. A $100,000 a year rent increase could potentially bump the purchase price up by nearly one million dollars (for example/educational purposes only). 

Why Invest? 

Multi-family real estate investing has a lot to do with diversification of an investment portfolio. There are two common reasons why people invest in real estate. Most people either invest and wait for the property to increase in value or “force” the appreciation (equity investing) or they rent it out and collect the cash flow (income investing). Why not do both? Value-add business plans are often designed to capture both of these strategies. 

Multi-family real estate is a diversified asset in itself. This is largely due to the fact that when you buy an apartment building, you are investing in many units. With single-family homes, you have (1) unit and (1) tenant. If your tenant moves out or doesn’t pay rent, you are 100% vacant and 100% unprofitable. With a 300-unit property, it is not uncommon to have the ability to lose 70-90 tenants at any given time, and still be profitable. The diversification does not stop there. Many people invest passively in syndications because they can spread out their risk geographically among several properties and Sponsors.  

Why I Decided to Invest in Multi-Family

In 2015, after a complete burnout of trying to expand my single-family portfolio, I decided to return to the drawing board in search of a more sustainable and scalable approach to investing in real estate. I was desperate to become a hands-off investor after realizing how active this business can be. In 2015, after reading 52 books, listening to podcasts, networking in real estate groups and seeking mentors, I ultimately decided that multi-family real estate was my solution. More specifically, investing passively in apartment communities via private placement offerings (syndications). 

These Were a Few of My Reasons:

  • I needed a hands-off approach to invest in real estate 
  • I wanted tax advantages equal to or exceeding single-family 
  • I wanted geographic and asset type diversification 
  • I was seeking a recession-resistant asset class
  • There was (and still is) a nationwide demand for affordable housing 
  • I wanted to leverage other people’s expertise, track record and deal flow

Whether you decide to be active or passive in the multi-family space, I wish you success in your journey. This asset class has truly been a blessing for my family and I. I have a passion for helping educate others in real estate. If you have any questions, please reach out anytime. I would be happy to connect on a call or email to help in any way I can.  

 

To Your Success

Travis Watts 

 

 

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“You Shouldn’t Use the Radio to Generate Leads” Myth Debunked

“Don’t waste your money or time advertising on the radio.”

“The radio is prehistoric.”

“No one listens to the radio anymore.”

I am certain you’ve heard one or a version of the above in your real estate career. Consequently, most real estate investors believe they should not use the radio to generate leads.

However, the statistics on radio usage may surprise you. Radio is still one of the most powerful mediums in the United States with a weekly reach of around 90% among adults. Since adults are listening to the radio and adults own real estate, the radio can be a great way to generate leads.

But the myth isn’t quite debunked just yet… Enter Chris Arnold.

We interviewed Chris on the Best Real Estate Investing Advice Ever Show. He has closed on over 2,500 real estate deals. And guess what? Every single deal came from a lead generated using the radio!

Now, the myth is officially debunked.

One of the main reasons why Chris has had so much success using the radio is because most people believe the myth this blog post is attempting to debunk. How many real estate investors do you personally know who use the radio to generate leads? For most of you, I bet the answer is a big fat zero.

Many people are listening to the radio yet very few real estate investors utilize it to generate leads. Therefore, there is a massive supply-and-demand imbalance from which Chris is benefiting, and so can you.

How can you replicate Chris’s success on the radio? Here’s his simple four-step process:

Define Target Audience: First, you need to define your target audience. Chris’s target demographic are people over the age of 50, because this is the demographic that is likely motivated to sell a home due to things like retirement, inheritance, tired of being a landlord, etc. Since defining a target audience isn’t the purpose of this blog post, click here and here to learn more about this topic.

Create the Advertisement: Once you’ve defined your target demographic, the next step is to create your advertisement. Like any advertisement, it needs to touch on the pain points of your target demographic, as well as include how you will alleviate that pain point and a call-to-action. Chris says you can either record the ad audio at home or, if you don’t have the proper equipment, you can use the local radio station’s studio.

Find a Radio Station: After you’ve created your advertisement, you need to find the right radio station on which to air your advertisement. Selecting the right radio station is easy. You’ve already defined your target audience, so all you need to do is determine the type of music they prefer. Since Chris targets the 50+ demographic, he airs ads on classic or old school rock stations. If your target demographic is rural, he says country music radio stations are best. Or R&B stations if your target demographic is urban.   

Negotiating the Costs: The last step is negotiating the costs of the advertising spot. Chris says the average person calls into a local radio station, asks for their media packet, and pays that price. However, Chris pulls reports on the value of the radio station prior to calling. Based on the reports, he calculates how much the advertising spot is actually worth. Then, once he calls the radio station, he tells them how much he is willing to pay based on his research rather than asking how much do pay. As a result, Chris is able to pay $1,500 for 100 sixty second ad spots per month.

 

One of the major benefits of using Chris’s method is that it is a set-it-and-forget-it strategy. Record the ad, send it to the radio station, and wait for the phone to ring. This is contrasted with other, more active marketing strategies like cold calling, direct mail, or driving for dollars.

And, as I mentioned previously, the number 1 benefit of using the radio to generate leads is that no one else is doing it. 

Chris’s episode is scheduled to air July 22, 2020. Be sure to mark your calendars so that you can listen to his episode to learn even more about this powerful lead generation strategy. 

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How to Navigate 2020 – 5 Tips for Real Estate Investors

What a crazy year this has been! It has certainly been a rollercoaster to say the least, but the good news is that there are ways you can not only survive, but thrive in 2020 as a real estate investor. 

Here Are 5 Tips That Can Help:

#1 Educate, educate, educate. Working from home? Can’t travel? Attend some online events, webinars, read a few books, listen to podcasts, watch “how-to” videos, get on BiggerPockets and read blogs. 

“An investment in knowledge pays the best interest” – Benjamin Franklin 

#2 Re-define your goals and investing criteria. What are your long-term goals? What do you REALLY want to gain from investing in real estate? It’s not all dollars and cents and it’s not all about cashflow vs equity. Take a couple hours this summer to write down what it is you really want to achieve in life. Money can only be exchanged for experiences or “things” – what are you after? 

“You should set goals beyond your reach so you always have something to live for” – Ted Turner

#3 Volunteer your time – seek mentors. Learn from other’s successes and failures. Mentorship can come in many forms, but the most effective is usually in the form of having a personal coach or mentor. This has made the biggest impact in my life over the past decade. Have money to spare? Consider hiring a coach or mentor. Don’t have money to spare? Consider volunteering your time to add value to others in exchange for mentorship.  

“The richest people in the world look for and build networks. Everyone else looks for a job” – Robert Kiyosaki 

#4 Get your personal finances in order. What can you do to reduce overhead or save additional cash? Could you start a side business for some additional income? Stay focused and disciplined on your long-term objectives. Any time you spend money on things you don’t need, you move further from your goals.

“Personal finance is only 20% head knowledge and 80% behavior” – Dave Ramsey 

#5 Learn from mistakes. You will make mistakes and you will likely lose money based on inexperience; I know I have. Reading biographies, seeking mentors, asking people about their “lessons learned” can help you cut the learning curve. 

“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes” – Warren Buffet 

I hope you find these helpful. Even if you only implement ONE of these, you will be 90% ahead of most. This year, more than ever, is a time to grow, expand and thrive. 

To Your Success

Travis Watts 

 

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Senate Announces HEALS Act Stimulus Package: Here’s What You Need to Know

On Monday afternoon, the Senate Republicans unveiled the Health, Economic, Assistance, Liability Protection and Schools (HEALS) Act, the second stimulus package meant to offset the economic impacts of the coronavirus pandemic.  

Here’s what we know so far about the potential terms of the second stimulus package based on the HEALS Act:

Second round of stimulus checks: Like the CARES Act, the HEALS Act should send payments to qualifying individuals and families. The payment amount was up to $1,200 per person in the CARES Act, and the HEALS Act will likely follow the same payment model. What is undecided are the eligibility guidelines. However, it seems like the negotiation is between keeping the eligibility guidelines the same or allowing more people to receive the payment. Therefore, people who were eligible for the CARES Act stimulus checks will likely be eligible to receive a second payment. The goal is for people to receive checks in the beginning of August.

Unemployment benefits: People who applied for unemployment for the first time due to COVID or were already collecting unemployment will receive a weekly payment on top of the ordinary unemployment benefits. People who were unemployed received $600 a week from the CARES Act. However, the HEALS Act would reduce the extra payment to $200 a week and over time increasing to $500 a week.

Payroll Protection Program (PPP): The PPP program provides forgivable loans to small business to cover payroll (and other costs) as an incentive to keep employees on the payroll. The HEALS Act is expected to target the hardest-hit small businesses with PPP loans. 

Employee retention tax credit: This tax credit program was introduced in the CARES Act. Companies receive tax credits for wages paid to their employees during the pandemic as another incentive to keep employees on the payroll. The HEALS Act proposes to include additional tax relief for companies who hire and rehire workers. 

Return-to-work bonus: If an unemployed person gets a new job and begins working at a previous job again, they will receive a bonus of up to $450 a week on top of their wages.

Renter assistance: The renter assistance programs proposed would help tenants pay their rent, help landlords pay expenses and put another hold on evictions for up to a year.

The next step is for the House to negotiate the terms of the act to finalize the bill. Hopefully, Congress comes to an agreement by next Friday, August 7th, which is the last Senate session before a month-long recess. 

We will keep you posted on any developments regarding the next stimulus package.

 

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How to Go From Solopreneur to a Business That Can Run Without You

Want to go from working 20, 30, 40 or more hour per week while doing one deal a month to working an hour per day while doing over 100 deals per year?

Mike Simmons, a wholesaler and fix-and-flip investor who Theo interviewed on the podcast, was able to go from a solopreneur to operating a business that runs without him by following one simple trick.

For nearly five years, Mike worked 7:30am to 4:30pm in a W2 job. After work, on weekends, and sometimes even during his lunch breaks, he would work in his fix-and-flip business. Since it was just him, he did it all. He found the deals. He negotiated the contracts. He attended closings. He managed the contractors. Overall, he spent 20 to 30 hours on his business each week, resulting in one deal per month. 

Flashing forward to present day, Mike almost never sees the houses that he buys. He doesn’t attend closings. He doesn’t find deals or buyers. Yet, he completes over 100 deals per year.

His secret? Every step in the flipping and wholesaling process is automated, and he has hired an employee who is responsible for overseeing each of these processes.

When to Hire?

The first step in going from solopreneur to a business that can run without you is knowing when to start delegating. In other words, when do you hire your first employee?

The answer depends on how quickly you scale your business. 

Here are three examples of when you should hire your first employee.

You identify a bottleneck. Mike’s first bottleneck was the process of ensuring a wholesale transaction is completed once a deal is under contract and an end buyer is identified. He spent more time on this part of the process and less time finding deals and finding buyers (among other things). So, his first hire was a transaction coordinator to oversee this step in the process.

Your business is generating enough income to pay the salary of an employee. Mike paid his first employee $12 per hour. So, he was generating at least that much income in his business

There is something you really dislike doing or are really bad at. Another reason why Mike’s first hire was a transaction coordinator was because he had poor attention to detail skills. He needed an employee who was detailed oriented.

Who to Hire and In What Order?

As I mentioned above, you hire your first employee when you’ve identified a bottleneck in your real estate process and/or when there is something you don’t like doing or are not good at. Also, when your busines generates enough income to pay an employee’s salary.

After you’ve first hire, who do you hire next?

The decision on who to hire next is similar to deciding who to hire first. Either there is something else you don’t like to do or are bad at, or a new bottleneck is created by the previously hired employee.

Mike’s second hire was a salesperson. Mike thought of himself as a decent salesperson. However, he didn’t like it. After hiring a salesperson, not only was he able to focus on aspects of the business that he enjoyed more but he was also able to complete more transactions due to the higher level skills of this new hire. 

Mike made his third hire based on a newly created bottleneck. The salesperson was responsible for answering the phone calls for income leads. This took time away from the salesperson getting in front of potential sellers and negotiating contracts. To remove this bottleneck, Mike hired a person to answer the phones. That way, the salesperson could spend more time negotiating contracts and less time on the phone qualifying leads.

Now that Mike had a dedicated person to answer the phones, he had the capability to handle more leads. Therefore, he hired a marketing person to generate more leads to keep the person who answers the phones busy.

Overall, the order in which you hire new employees usually starts with tasks you don’t like doing and eventually evolves into alleviating bottlenecks created by a previously hired employee.

Doer vs. Leader

When you are a solopreneur, you are wearing all the hats in your business. You are working in your business.

Once you start to hire employees, you slowly work less “in” your business and more “on” your business.

When you work in your business, you are a doer. When you work on your business, you are more of a leader.

The skills required to be a real estate doer are different than those needed to be a real estate leader.

One tip Mike provided about how to be a better leader to your employees is to document a process prior to hiring someone to oversee that process. A bad leader hires an employee for a role and says, “just get it done.” A good leader hires an employee for a role and says, “here is what you need to do in order to be successful.” But rather than telling them what they need to do, you can provide them with documentation with the step-by-step process for how to successful in their role.

 

To go from a solopreneur to operating a business that runs without you requires hiring employees. To ensure that the business runs successfully without you, make sure you are hiring employees for the right reasons and in the right order. And as you hire more and more employees, make sure you are improving your leadership skills.

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“It is Too Difficult to Invest Out-of-State” Real Estate Investing Myth Debunked

There are three phases to a real estate rental investment. 

  • Find the deal
  • Acquire the deal
  • Manage the deal

Most real estate investors find it is easier to handle the three phases in a local market. 

Finding deals requires implementing lead generation strategies. Lead generation strategies are either remote (i.e., direct mail, online advertising, cold-calling) or in-person (i.e., bandit signs, driving for dollars, door knocking). If you are investing in your local market, you can take advantage of both lead generation categories.

Once you find a deal, you can drive to the home or building yourself to perform due diligence to determine and offer price. 

After you have acquired the deal, you can either self-manage or oversee a third-party property management company.

When investing out-of-state, your options for finding, acquiring, and managing deals are limited…or are they?

Theo recently interviewed Andrea Weule on my podcast, Best Real Estate Investing Advice Ever. She lives in the highly competitive Denver, CO market, so she buys rentals out-of-state. In that interview, Andrea debunks the myth that you cannot invest out-of-state and provides interesting ways to generate leads and perform due diligence remotely.

The first phase is to find a deal. Andrea finds her out-of-state deals in three ways. First, she works with a real estate agent who sends her on-market deals off the MLS. She says that ignoring the MLS results in ignoring low hanging fruit. 

Secondly, she creates a list of motivated sellers. Andrea’s targets home that have been owned for more than 20 years and where the owner is 55 years old or older. She finds that these owners are often motivated to sell. They are approaching retirement and are thinking about the next phase in their life, which may require the selling of their home.

Andrea uses ListSource to create this list.

Then, she sends a sequence of three mailers for each address. Rather than using a generic “we buy houses” letter, she creates a message that speaks more directly to the 55+ years old demographic. The letters include questions like “are you looking for your next adventure?” or “do you want to eliminate the stress of owning a home?” 

These first two strategies (direct mail and MLS) are remote lead generation strategies. The third strategy Andrea implements is traditionally performed in-person – bandit signs. However, rather than flying to the market and placing the bandit signs herself, Andrea hires someone local to the area.

The process is simple. She creates a job posting in the “gigs” section on Craigslist with the purpose of hiring someone to place bandit signs in the local market. Andrea sends them the bandit signs, which have a GPS tracker. The GPS tracker allows her to confirm that the sign was places in the correct location. Once the bandit sign is place, she requests that they send her a picture. Lastly, Andrea will send them their payment via PayPal.

Andrea uses a similar strategy for the second phase of the real estate investing process – the acquisition. If someone is interested in selling her their property, she performs basic due diligence to determine an offer price. 

Back to Craigslist. She will create another job posting. But this time, she is hiring someone to take pictures of the prospective property, as well as to do a Zoom Tour. With the combination of the pictures and video from the Zoom tour, she has all the information she needs in order to submit an offer.

 

Overall, it is a myth that it is harder to or that you cannot invest out-of-state. All it takes is a little creativity and the use of technologies.

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5 Tips for Raising Money from Family Offices to Buy Apartments

The typical progression for raising money for apartments goes like this:

  • For the first deal, you raise money from your family and/or closest friends
  • After the first deal, you continue to raise money from your family and/or closest friends. However, people who you are less familiar with begin to invest. Examples would be extended family, less close friends, work colleagues, and others who you’ve known for a few years or less
  • As you do more and more deals, you begin to raise money from investors who were referred from other investors. You also attract passive investors from your thought leadership platform
  • Eventually, you transition to raising money via 506(c), which allows you to advertise your deals to raise capital

The commonality between all steps in the above progression is that you are raising money from individual investors (or two investors who are a couple). 

Another, more advanced model for raising capital is to pursue private institutions. An example of a private institution from which you can raise money are family offices.

According to Investopedia, family offices are private wealth management advisory firms that serve ultra-high-net-worth investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. 

Family offices can be a great source of equity for advanced apartment syndicators. Seth Wilson, the founder and managing director of Clarity Equity Group, raises money from family offices for his real estate deals. 

We recently interviewed Seth on the Best Real Estate Investing Advice Ever Show. His episode is scheduled to be air on 9/16/20. In that interview, Seth provided his top five tips for raising money from family offices.

1. You Must Have Relevant Experience

The first step before you even consider raising money from a family office is that you must have experience. If you’ve never done a large apartment deal in the past, a family office isn’t going to take you seriously. If you’ve only been doing large apartment deals for a few years, a family office still isn’t going to take you serious.

It took Seth over 12 years and $65 million worth of real estate in order to raise money from family offices.

There is not a shortcut. If you want to raise money from family offices, the first step is to have years of experience successfully buying, managing, and selling apartment buildings.

2. You Must Be An Expert

It is likely that if you meet the “experience” requirement, you will meet the education requirement as well. 

The reasons why you need the relevant experience and need to be an expert on apartment investing are two-fold. First, family offices are entrusted by an individual or family to invest on their behalf and, more importantly, preserve their net worth. The individual or family did adequate due diligence on the family office prior to using their services. The family office did adequate due diligence before hiring their employees. Therefore, they are going to do adequate due diligence on you and your business.

Secondly, and because of reason number one, they are generally more sophisticated than your family, friends, and others you are used to raising money from. They are going to ask more complex, detailed questions about you and your business plan. When you are an expert, you can hold your ground when these questions are asked. They must be confident in your ability to conserve and grow their client’s investment.

3. Put Together the Look

Whether you like it or not, Seth says that a book is judged by its cover, especially in the higher echelons of investing. 

A family office is most likely not going to invest in your deals without seeing you in person. Therefore, you need to wear the proper attire. And there isn’t a one-sized-fits all approach. 

The acceptable attire when visiting a family office based out of Denver is a lot different than one in Manhattan. Seth says that the best way to learn the dress code is by asking. Call the receptionist, ask what the dress code is and dress one notch higher.

4. Speak to the Right Contact

When you are ready to raise capital from family offices, maximize your chances of success by speaking with the right contact.

If you are reaching out to a family office who manages the wealth of a second-generation or later family (i.e., the wealth was created by the parents, grandparents, etc.), the best person to speak with is the Chief Investment Officer. Seth said that more established family offices will have an investment committee who sign off on all investments. The CIO typically sits on this committee. If you can win over the CIO, you’ll have your inside person on the investment committee to argue your case.

If you are reaching out to a family office who manages wealth for a first-generation family (i.e., the wealth was created by someone who is still alive), you want to speak to the patriarch or matriarch of the family. The person who made the wealth is likely heavily involved in investment decisions.

5. Take Massive Action

Like all things in real estate, raising money from family offices requires massive amounts of action. Seth recommends having one or two great phone calls with family offices each day. Use resources you already have to add value and take care of them.

Focus on building a business relationship and a personal relationship. For example, if you come across something that you think they would personally be interested in, text them. 

You also want to make sure you are physically meeting them in person. Seth has no problem flying out in the morning, having an hour or so meeting with a single family office in the afternoon, and fly home in the evening. 

Raising money from a family office is a great way to take your apartment syndication business to the next level. But it is a strategy that takes time to work up to. You must establish relevant experience and expertise before making the jump from “family and friends” to family offices.

Once you have a track record, make sure you dress the part, know who to speak with, and take massive action.

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Turn a Decade Into a Year – How to “Knowledge Hack”

I love helping other people cut the learning curve. There have been several instances in my life where I condensed years and even decades of time by using a simple “Knowledge Hack” strategy. 

 

I Have a Question For You…

Have you considered having a mentor? Is it worth your time to read books, listen to podcasts, watch how-to videos, and network with others? 

 

Today I was researching some of the most successful people in America from the Forbes 400 List and realized that almost all of them had mentors at some point, and many still have mentors today. 

 

A Few Examples Include:

 

  • Bill Gates had Ed Roberts as a mentor
  • Oprah Winfrey had Mary Duncan as a mentor
  • Mark Zuckerberg had Steve Jobs as a mentor
  • Warren Buffet had Benjamin Graham as a mentor
  • Sam Walton (And family) had L.S. Robson as a mentor
  • Michael Dell had Lee Walker as a mentor 

 

Rather than thinking about having a “mentor” think of the word “coach” instead. It’s essentially the same thing, but using the word “coach” helped me put all of this into perspective years ago.   

 

A Quick Story

From 2009 to 2015 I did everything on my own as an active real estate investor in the single-family home space. It wasn’t because I thought I knew it all, it was because I did not see the need for a mentor or coach at the time. 

 

What I finally realized in 2015 (after 7 years of trial and error), was there were other people in the active real estate investing space who were operating much more efficiently than I was. They had more connections and were finding better deals and had a broader range of skill sets and ultimately… they were more profitable than I was. I had to do some soul searching, self-reflection, and take a long, hard, look in the mirror. Was active investing really the best use of my time and skills? 

 

What Happened Next?

I made a decision to start partnering with investment firms who had better skill sets, track record, connections, and efficiencies than I did. I essentially “piggybacked” off their success by becoming a limited partner investor in other people’s private placement offerings (mostly in multifamily apartments). This provided a hands-off approach to investing where I had the best of both worlds. I could participate in real estate, which I love and enjoy, while not having to be “in the business” of real estate in an active way, which I did not enjoy. 

 

After dedicating some time to networking, reading, listening to podcasts, watching how-to videos and seeking mentors, I inevitably became a full-time passive investor in real estate. I left the active single-family strategy behind because I was tired and burned out from trying to do it all myself, trying to make the right calls and know all the ends and outs. In addition, the hands-on approach was taking too much time away from the things I loved doing. I had far less spare time because my real estate projects were consuming more and more of my availability. 2015 was the beginning of an entirely new education process that has been life-changing to say the least.  

 

Takeaway

Mentors can come in many forms. The best advice I ever received was to seek out a mentor or “coach” who is doing what you want to do and is successful at doing it…because success leaves clues. 

“If I have seen further than others, it is by standing upon the shoulders of giants” – Sir Isaac Newton

 

To Your Success

 

Travis Watts

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Demand for Multifamily Rentals to Increase by Nearly 50% in Next Five Years

On January 18th, 2019, I published an article on my blog entitled “Why I Am Confident Multifamily Will Thrive During and After the Next Economic Recession.” 

In summary, historically, homeownership rates decrease during economic recessions and increase during economic expansions. 

During the post-2008 economic expansion, the Dow Jones tripled, unemployment was cut in half, and the GDP rose by nearly $5 trillion. At the same time, the renter population increased nearly every single year and grew by more than 25%. 

The reasons why more people decided to rent than own during the most recent economic expansion include high student debt, poor credit, tighter lending criteria, people starting families later, and inability to afford home payments. 

Since these reasons aren’t going away, I predicted that when the next economic recession occurs, the same percentage of people or more will rent. And when the economy begins to improve, the same percentage of people or more will rent.

Flash forward over one-and-a-half years and many experts believe we have entered the next economic recession, due in part to the coronavirus pandemic.

So what are people saying about the demand for multifamily rentals?

A study released by apartment properties acquisition and management company, Middleburg Communities, projects a drop in homeownership rates and a significant increase in demand for rental housing over the next five years.

Here is an excerpt from a GlobeSt.com article published on June 17, 2020 entitled “As Homeownership Declines, Demand for Rental Housing to Climb.”

“The June 11 report projects a decline in U.S. homeownership to 62.1%, the lowest rate in more than 20 years, before a partial recovery to 63.6% in 2025. Depending on the effects of the recession, the demand for rental housing will increase somewhere between 33% and 49% over that time period, the report concludes.

The analysis points to changing demographics playing a role in the changing demands. Married households are more likely to own homes, and their numbers are declining. The numbers of households with incomes of more than $120,000 is expected to drop while those with incomes of less than $30,000 are projected to increase.

“We do not claim to know the precise trajectory that household incomes will take over the next five years,” the report said. “However, with 19 million jobs lost as of this writing, the direction of household incomes in the near future is clearly negative.”

The number of non-white householders, who typically rent at a higher rate, is also growing.

But demographics alone are a “weak” explanation for homeownership shifts, according to the report. Student loan debt, inability to make a down payment, tightened lending standards, high rents and a shift in preferences play a role, too.

The report also zeroed in on three variables that offer a “reasonable” explanation for slumping homeownership: “lending standards, as measured by the average credit scores of mortgages, median net worth by age of householder, and the previous year’s deviation from the demographic-based projection, essentially inertia.”

The report notes that additional stimulus packages from the federal government could bolster homeownership rates.”

(Emphasis Added)

Like I said over one-and-a-half years ago, homeownership decreased during the economic expansion due to people starting families later, student loan debt, inability to make a down payment, and tighter lending standards.

Therefore, this study reinforces my thoughts on multifamily investing – there will be the same or increased demand for rentals during and after the current economic recession.

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1031 Exchange: The Rules

As the owner of investment properties large and small alike, there’s a vehicle available in which you can actually continuously invest into larger properties and delay the capital gains expenditure that is due to reveal itself at some point. This vehicle is called a 1031 Exchange.

 

According to the United States Internal Revenue Code (26 U.S.C. § 1031), a 1031 Exchange allows a taxpayer to defer the assessment of any capital gains tax and any related federal tax liability on the exchange of certain types of properties. In 1979, federal courts allowed this code to be expanded to not only sell real estate but also to continuously purchase within a specific timeframe with no liability assessed as that time.

 

In addition, these exchanges must be utilized for productive use in business or investment. Prior to 2018, properties listed under the code included stocks and bonds and other types of properties. However, as of today, the 1031 Exchange only includes real property which makes this excellent for investors.

 

1031 Exchange Rules Explained 

 

There are 7 primary 1031 Exchange rules which require a deeper study: 

 

  • Like-kind property 
  • Only for Investment or Business Intentions
  • Greater or Equal Value Replacement Property Rule
  • “Boot” is denied
  • Same taxpayer rule
  • 45 day identification window 
  • 180 day purchase window

 

1031 Exchange Rules Explained 

 

Like-Kind Property

 

According to the IRS, each property must be utilized in trade or business for investment purposes. Keep in mind that property used personally, like personal residences or second homes, will not qualify for the 1031 Exchange opportunity. 

 

However, real property, most commonly known as real estate, does include land and anything attached to the land or anything built upon it, or an exchange of such property held primarily for sale does not meet the requirements for the utilization of a like-kind exchange.

 

Only for Investment or Business Intentions

 

To meet the criteria for a 1031 Exchange, the real estate must be utilized for investment or business purposes only. The investment vehicle must be property that is not considered a primary residence but is used to generate income and profits through appreciation and that can take advantage of certain tax benefits.

 

For example, real property identified for investment purposes can be any property that is held for the production of income, whether it be a rental for leasing option, or if the value increases over time (capital appreciation). In order for it to meet the criteria for the tax deferral, the property must be held strictly for either investment or business use.

 

Greater or Equal Value Replacement Property Rule

 

The greater or equal value replacement property rule identifies a limitless amount of properties as long as their combined value does not exceed 200% of the originating, or previously sold property. In addition, this rule also includes the acquired properties to be valued in the neighborhood of 95% or higher of the property that is being exchanged for.

 

“Boot” is denied

 

The term boot is where money or the even exchange of items considered to be “other property.” If it is determined that a taxpayer does receive boot, that booted exchange or a portion of will become taxable.

 

Rules of Thumb for the Boot Offsetting Provisions:

if the seller receives replacement property of the same or higher value than the net sale price of the property previously sold, and in addition, the seller spans all of the proceeds from the acquisition on the property being replaced, then that exchange does meet the criteria to be totally tax deferral. If the seller follows these guidelines, then there is no consideration of this being considered “cash boot” received and either took on new mortgages in addition to the previously dissolved mortgage or the seller gave the “cash boot” to reconcile any received “mortgage boot.”

 

The Same Taxpayer Rule

 

It is mandatory under the same taxpayer rule that the seller who previously owned the property that was sold must be the exact same person, via tax identity, who takes over ownership of the property being replaced. The question is why? The answer is because if the taxpayer changed their identity, based on tax law, then there would be no continuous action of the tax. Therefore, the proceeds are subject to become taxable.

 

45 Day identification Rule

 

Under the 1031 exchange code, the taxpayer has a 45 day window from the date of the sale of the previously owned property to identify the replacement property. The 45 day window is commonly referred to as an identification period. This process must be done in writing with the authentic signature of the taxpayer.

 

When identifying the replacement property, remember the following suggestions:

  • Any real property as long as it is being considered for business or investment purposes may qualify. The property can be located anywhere in the continental United States. In addition, in 2005 there were certain temporary regulations that were allowed for rental real estate to be purchased in Guam, and the Northern Mariana Islands, and also in the US Virgin Islands.
  • The property must be clearly identified with a physical street address or legal property description, and in some cases, specific unit addresses are mandatory.
  • In the process of identification, the property may be changed or additional real estate can be added by 12 midnight on the first 45th day of your identification window. Keep in mind that there are two rules that must be remembered and they are the 3-Property Rule and 200% Rule. Sometimes, revoking your original identification may be required while you are in the process of making a new one.
  • If there is any property purchased within the window of the 45 day rule then there is no formal identification needed, however, keep in mind to take the identification of other properties in consideration.
  • Purchasing replacement properties from relatives should be given careful scrutiny.

 

180 Day Purchase Rule

 

When completing a 1031 exchange, the 180 Day-Purchase Rule mandates that the replacement transaction must be completed within 180 days or six months in total. Regardless, the rule always applies. This means that conveyance of title must be completed by this date. If you ever decide to participate in an apartment syndication, please adhere to this rule.

 

Executing a 1031 Exchange

 

Example 1: Assuming that a taxpayer has decided to invest into a multifamily unit and he has decided to sell it. To the taxpayer’s surprise, the property generated $300,000 in gains, and after closing, the net proceeds were $300,000. With the taxpayer staring at a capital gain tax liability of 200,000 in taxes (federal capital gain tax, depreciation recapture, state capital gain tax, and net investment income tax) after the property sells. Only $100,000 in net equity is available to be reinvested into another property.

 

Example 2: If the same investor chose to complete an exchange, the investor would have had to have identified the new replacement product being a multifamily unit within 45 days and invests the entire 300,000 into the purchase of the replacing property with no capital gains due.

 

For an investor, a 1031 exchange is an excellent opportunity. When you decide to invest in properties, it is natural to migrate to larger units, specifically multifamily properties.

 

As you continue development and growth in this area, you may even want to consider becoming an apartment syndication investor. This will allow you to pool resources from other sources that will facilitate the overall growth of your portfolio and investment profile. Understanding the 1031 Exchange can generate large revenue and save taxes.

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An Investor’s Secret to Doing Large Apartment Deals with No Experience

The more investors you speak with, the more you realize that a lot of the traditional real estate advice simply is not true. 

For example, “you need to have experience in order to do large apartment deals.” 

The main reason? We are told that sellers and brokers prefer to work with established apartment operators because their proven track record increases the probability of a close. Whereas a sale is more uncertain when working with a less experienced apartment investor, or one who has not taken a large deal full cycle in the past. 

Therefore, we are told to focus on smaller deals (single family rentals, duplexes, triplexes, quadplexes, etc.) to build a reputation of being a closer and someone who can successfully manage multifamily properties. 

However, I have spoken with countless real estate investors who have gotten into the large multifamily space without following the above advice. They didn’t slowly acquire larger and larger properties. Instead, they either made gigantic leaps or skipped the smaller properties and started off investing in large multifamily properties.

For example, I was able to go from single family rentals to a 150+ unit apartment community.

Another example is Hamza Ali, who Theo interviewed on my podcast, Best Real Estate Investing Advice Ever. He currently owns 1,000 doors in Houston, TX. 

Hamza Ali of Gray Spear Capital is an example of an investor who went straight to multifamily investing. He acquired a 24-unit apartment community from a broker without any previous multifamily experience. 

How was Hamza able to win over both the seller and the listing broker?  

He brought a large, local multifamily investor to broker meetings.

Once Hamza decided to pursue larger multifamily deals, he joined a local apartment meetup group. At the meetup, he met a local apartment operator who owned 1,000 units in the Houston, TX area. After establishing himself as someone who was serious about buying apartment communities, he invited this larger apartment operator to broker meetings.

One of the broker meetings was with an individual Hamza met at the meetup. This is the broker who sold Hamza his first deal – the 24-unit.

After putting the 24-unit under contract, the large apartment operator even walked the property with him.

Overall, Hamza was able to leverage someone else’s experience to close on his first apartment deal with no multifamily experience. 

The large apartment operator didn’t have an official role in the deal. He didn’t sign on the loan nor was he given a stake in the deal. However, by attending broker meetings, he was implying to the brokers that Hamza was a trustworthy individual who would be able to close.

If Hamza attended the meetings alone, chances are that we isn’t awarded the deal. But the presence of a well-known, big-time apartment player instantly increased his reputation in the eyes of the brokers.

 

Now, Hamza applied this strategy to winning over apartment brokers with no apartment experience. However, the concept can be applied elsewhere.

Want to raise money from passive investors but lack experience? Bring a big-time player onto the General Partnership.

Having trouble finding this big-time player? Do what Hamza did, which is to start attending local meetup groups. Even better, start your own. The strategy at the meetup group is to establish yourself as a serious real estate professional. Show up to every meetup on-time. Ask educated questions. Offer valuable information to others. Maybe even offer to work for free for the big-time player from which you want assistance.

Thousands of investors have skipped the beginning or intermediate steps and jumped straight to large multifamily investing. Almost all of them did so by leveraging the experience and reputation of an established operator.

If you use Hamza’s strategy, you will be on your way to building a 1,000 or more unit apartment portfolio.

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Debunking the Most Common House-Hacking Myth

By now, everyone has heard of house-hacking, which was popularized by Brandon Turner at BiggerPockets. 

House-hacking is when an investor acquires a two-to-four-unit multifamily building using a low money down, owner-occupied loan. Once acquired, the investor lives in one unit and rents out the rest. 

One of the major benefits of house-hacking is the ability to buy an investment property with a very low-down-payment. Rather than saving up for a 20% to 30% down payment, a house-hacker can secure an FHA owner-occupied low for as little as 3.5% down. On a $200,000 duplex, this equates to a $7,000 down payment as opposed to a $40,000 to $60,000 down payment.

The other major benefit is the ability to live for free. When you house-hack a duplex, triplex, or quadplex, you have income coming in from one or three other units. Depending on the market, the rental income may equal or exceed your expenses (mortgage, insurance, taxes, maintenance, etc.). When you acquire a single-family home, you pay the same expenses without benefiting from the rental income.

Or do you?

Banks will only provide owner-occupied financing on residential real estate. Single-family homes up to fourplexes are classified as residential. Therefore, whenever house-hacking is discussed, we are told to avoid single-family homes and focus on duplexes, triplexes, and quadplexes (for the above reasons).

However, Theo spoke with Nicole Heasley on my podcast, Best Real Estate Investing Advice Ever, and learned that she got her start in real estate going against the house-hacking grain – she house-hacked a single-family home.

Nicole’s episode will air on 06/08/20 but here is a sneak-peak into her Best Ever advice, which debunks the myth that one can only house-hack a duplex, triplex, or quadplex.

 

Bedrooms vs. Units

 

The strategy for house-hacking a single-family home is essentially identical to that of a duplex, triplex, or quadplex. The major difference is that rather than focusing on the number of units, you focus on the number of bedrooms.

Nicole house-hacked a three-bedroom single-family home. She lived in one room and rented out the other two for an average of $525 per month. She also rented out one of the spaces in the two-car garage for $25 per month, bringing her total income to $1,075. After paying all expenses, not only was she able to live for free but made an additional $100 per month in passive income.

 

Don’t Live in the Master Bedroom

 

When you house-hack a duplex, triplex, or quadplex, a best practice is to rent out the unit or units that will demand the highest monthly rents. The same logic applies to house-hacking a single-family home. As nice as it would be, do not occupy the master bedroom. Instead, pick one of the smaller bedrooms.

 

Location Matters

 

Obviously, the market in which you invest is important. But it is even more important when you are living in the same home as your roommates. 

You will want to find a single-family home that is in a market with a demographic that is like you. For example, Nicole house-hacked a single-family home near the Cleveland Clinic. She was a recent college graduate and wanted to live with other college graduates. Since she bought near a hospital, her roommates were nurses and medical students.

 

How to Find Roommates

 

Nicole had lived with roommates in college, so it did not seem weird to share a unit with strangers. But that does not mean she would live with any stranger. She had a system for selecting roommates.

Nicole found her roommate candidates on Craigslist. Then, she would meet them in a public place and bring at least another person with her. If she felt that this person would be a good fit, Nicole would confirm their identity on social media. The final step was to perform a background check.

 

House-hacking is one of the best ways to get started in real estate investing. After hearing about Nicole’s journey, you now know that house-hacking only applying to duplexes, triplexes, and quadplexes is a myth.

The single-family housing supply is almost always greater than the supply of two-to-four unit multifamily. Therefore, you can obtain the same benefits from house-hacking multifamily but with a lot more options. 

Make sure you listen to Nicole’s full interview on the Best Real Estate Investing Advice Ever show on XX/XX

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Wealth Education For Your Children

Wealth Education For Your Children

If you’re a parent with a high net worth who cares about your children’s future, teaching youngsters about wealth management is imperative. Without the proper guidance, it’s easy for privileged progeny to quickly squander their money. Even worse, kids who don’t know how to handle money responsibly are far less likely to develop good character. Here are a few tips to ensure that your offspring can manage money intelligently.

Demystify Compound Interest Early

Without a doubt, understanding the nature of compound interest and learning how to leverage it wisely is the key to long-term financial success. Adolescents need to learn early on that compounding interest is often the albatross that sinks even the sturdiest of ships. Setting up a savings account that compounds monthly for a child will show them the power of compound interest in an extremely visceral way.

Help Them Start a Small Business

Few things in life teach an adolescent more about wealth creation and preservation than running an enterprise of their own. Whether it’s a lemonade stand or a leaf-raking service, operating a part-time business will teach kids the value of hard work and perseverance. Furthermore, starting a small business will allow children to familiarize themselves with the legal and bureaucratic hurdles that entrepreneurs have to negotiate.

Get Them Started Trading Stocks

Sooner or later, children need to understand the importance of investing in publicly traded companies when it comes to building wealth. Encourage them to play around with a trading simulator like MarketWatch Virtual Stock Exchange or Wall Street Survivor to get their feet wet. Stress the importance of structuring a portfolio that boasts a sensible mix of blue-chip stocks that pay dividends and more speculative start-up plays.

Put Them to Work on the Ground Floor

Those who’ve never held down a high school job that pays minimum wage have missed an amazing opportunity to grow as people. Quite a few notable wealthy parents push their kids into working entry-level jobs for a variety of reasons. Flipping burgers and washing dishes at a young age makes you a more empathetic and fiscally prudent adult later on in life.

Involve Them in a Rental Investment

If you want to show a young adult the surest path to financial success, introducing them to property rentals is a solid idea. You don’t even need to own an apartment complex or a mere duplex to get started. Buying a small parking lot or even a single space in a congested area works just as well. Showing them how to invest in REITs is another solid alternative.

Teach Them to Manage a Budget

Sticking to a budget is often the difference between long-term financial success and utter ruin. You can teach kids the importance of prudent financial management during their most impressionable years with an allowance. Give them a specific amount of money per month to spend and hold the line when it runs out early. Doing so will ensure that they develop discipline and a dedication to saving.

Stress the Importance of Charity

When you examine the lives of ultra-successful people, you often find that the most charitable characters make the most money. They also seem to enjoy their lives far more than those that don’t give back to society. Get your kids to contribute what money they can to charitable organizations early and often. Better yet, help them to organize a charity of their own for a worthy cause.

The Key to Effective Wealth Education for Kids

Bombarding youngsters with a lot of information all at once is a bad way to teach any lesson. Starting early and doling out little nuggets of wisdom gradually is the best way to develop a healthy understanding of wealth management and growth. No matter how smart a kid might be, he or she can’t possibly learn everything there is to know about managing money in a day.

 

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calculating real estate investment returns

Calculating Real Estate Investment Returns

The idea of buying investment properties and watching cash flow from them into your bank can no doubt be exciting. However, the process isn’t that simple.

If you want a prospective income property to actually produce income for you, it’s critical that you determine what the return on your investment, or ROI, will be first. This includes your return on time. If the potential ROI looks good, then you can feel good about moving forward with the deal. If not, you can avoid financial heartache.

The question is, how exactly do you go about calculating real estate investment returns?

Calculating Your ROI

When you’re trying to calculate your cash-on-cash return, you need to look at a couple of numbers. The first one is the cash flow you’ll generate based on the initial investment. As an example, let’s say that a house you buy will end up generating a couple of thousand dollars each year after you take expenses into consideration (more on expenses later). And let’s say the property’s cost was $40,000. In this situation, your cash on cash return will be 5%.

The second number you need to look at to get the full picture of your ROI is your internal rate of return or IRR. This figure is a mix of both the property’s equity that you build, as well as the property’s cash flow. For instance, let’s say the value of the property we discussed above will increase by a couple of thousand dollars this year. In this scenario, this year’s IRR will be $4,000, or one-tenth of the total you paid to buy the property.

Calculating Your Expenses

When it comes to calculating real estate investment returns, you need to take a variety of expenses into consideration. For instance, if you decide to take out a mortgage on your investment property, you’ll need to factor in the monthly mortgage payment when calculating the investment expenses.

You can arrive at an estimated mortgage payment for a target property if you know what amount you want to borrow and what the interest rate may be. Also, you’ll need to know the loan term and whether you’re taking out an interest-only loan.

In addition, you need to factor in expenses such as property taxes, maintenance costs, utilities, property manager expenses, homeowners association dues, and insurance costs. The current owner of a property that you’re interested in buying may be able to provide you with much of this information.

Calculate Your Real Estate Returns with Confidence

Need guidance with calculating real estate investment returns? Through my Best Ever Book, as well as my blogs and podcast, you can master how to calculate your real estate ROI and even how to increase your return on investment. Gain actionable advice you can use to succeed this year.

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real estate market research

What to Look for When Completing In-Person Real Estate Market Research and Visiting Properties

When it comes to most things, buying sight unseen is a huge risk. Unless you’re in a gambling mood, it’s safe to say that this isn’t a great strategy for most deals.

For this reason, it may behoove you to complete in-person real estate market research before making your next apartment deal. That involves actually visiting communities in the markets you currently have your eye on.

The question is, how do you make each property visit count during the process of selecting a target real estate market? After all, time is money.

Here’s a rundown on what to look for when completing in-person real estate market research and visiting apartment properties.

A Vibrant Business Community

One of the smartest steps you can take when completing an in-person target market analysis is to check the area immediately surrounding the apartment complex you’re thinking about buying. Ideally, your target property will be close enough to retail stores, restaurants, and grocery stores that your tenants will be able to walk to them. Also, make sure that the complex is near mass transportation and employment centers.

Deferred Maintenance

Another thing to look for when completing in-person real estate market research is a property that needs a little tender loving care. If some of the maintenance has been deferred, you might be able to purchase the property at a discount. Of course, if you aren’t interested in something that requires serious repairs, look for property that needs smaller touch-ups, such as new carpeting, lighting, appliances, shower surrounds, or paint, for example.

Also, as you walk around your potential investment property, be sure to pay close attention to every detail. Do you notice any issues with wiring, pipes, mold, leaks, or cracks? It is paramount that you know what type of property you’re inheriting, as this will enable you to plan the renovation expenses accurately.

Good Unit Variety

As you complete your in-person real estate market research, double-check to see what the unit mix at your target investment property is like. Search for a building that has a mixture of unfurnished units featuring three bedrooms, two bedrooms, or one bedroom. As a general rule of thumb, it is best to avoid a complex with only studio units, as this will limit your customer (or tenant) base.

Opportunity to Conduct Interviews with Tenants

This is one of the most crucial steps you can take when visiting apartment properties that you’re considering purchasing. Ask the building owner if you can find out from tenants what they enjoy about living in their apartment complex and neighborhood.

Through tenant interviews, you can find out if tenants have been dealing with certain maintenance issues long-term. In addition, you may find out what extra amenities they’d like to see in the units. Some inexpensive upgrades may be just enough to improve your tenants’ quality of life and thus boost the property’s value.

Take Your Property Research to a Whole New Level

As mentioned above, gathering information about a target real estate market in-person can help you to more confidently make a buying decision. Fortunately, you don’t have to embark on your real estate market research journey alone, either. I can help you to master property selection through my leading industry resources, including my Best Ever Apartment Syndication Book.

Additionally, tune into the Apartment Syndication School to learn even more about choosing your target markets.

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Will Apartments Be Stronger in the Post-Coronavirus World?

JP Morgan Chase, the largest lender by assets and fourth largest lender overall in the US, recently announced that they are raising borrowing standards for most new home loans to reduce their exposure during the coronavirus pandemic.

JPMorgan Chase’s chief marketing officer for the home lending business said “due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers.”

What are these temporary changes? To qualify for a residential mortgage at Chase, a borrower must have a credit score of at least 700 and will be required to make a 20% down payment.

Additionally, Chase also announced that they are temporarily halting HELOC loan offerings.

JPMorgan is the first large lending institution to announce major changes to their lending criteria. I think a fair assumption is that other large lending institutions will follow suit in the coming weeks and months.

What does this mean for real estate investing and, more particular, apartments?

First, if less people qualify for residential financing, less people will be able to purchase their own homes. As a result, more people will be forced to rent. According to Experian, approximately 59% of Americans have a FICO Score of at least 700. And according to MBA, the average down payment across the housing market is around 10%. Therefore, the majority – and possibly the vast majority – of the population cannot qualify for Chase’s residential financing. Even if someone has a 700-credit score or higher, they may not be able to afford the 20% down payment due to the surge in home prices during the post-2009 economic expansion.

One benefit from buying a home during the post-2008 economic expansion was the increase in the value of the property from natural appreciation. According to Zillow, the average home value increased from $175,000 in March 2010 to $248,000 in March 2020. That is an overall increase of 47%, or 4.7% per year. This means that on average, the value of a home grew by nearly 5% each year. However, the Federal Reserve March consumer survey said home prices were expected to grow by only 1.32% this year, the lowest reading since the survey began in 2013. Therefore, one of the main financial benefits from owning a home has been eliminated, which may make renting more attractive.

16 million people are out of work due to the coronavirus. As a result, the number of borrowers who requested to delay mortgage payments rose by 1,900% in the second half of March. Currently, there has been a federal halt on foreclosures. So the question is, will foreclosures resume before or after these borrowers secure new employment? If it resumes before, many people will lose their homes and be forced to rent.

Overall, tighter lending criteria, the lowest projected home value increase since 2013, and the massive increase in the mortgage delay requests indicates that more people will be renting as opposed to buying in the near future. In fact, we are already seeing this happen. In March, the National Association of Realtors announced that they expect home sales to fall by around 10% compared to historical sales for this time of the year.

What do you think? Do you think more people will be renting or buying post-coronavirus?

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real estate investing during recessions

Preparing for Economic Downturns: How to Succeed with Real Estate Investing During a Recession

Facing a looming recession can no doubt be scary for any business owner, including a real estate investor. After all, you may have worked for years to acquire your current properties, and the thought of losing it all is almost too much to handle.

The good news? It is possible for you to prepare for an economic downturn and potentially come out of it relatively unscathed.

Here’s a rundown on how to succeed with real estate investing during a recession.

Stay the Course with Your Criteria

When it comes to buying property during a recession, make sure you have well-defined criteria, rather than making an attempt to time the market. If you buy according to certain proven criteria, you can better avoid getting into financial trouble no matter how the market happens to be performing.

For instance, pay attention to market cycle stages for your target area. In a market suffering from a recession, you can expect your vacancy rate to increase. Meanwhile, the opposite is true for an expanding market.

Also, try to diversify your assets. In other words, rather than pouring all of your eggs into one basket—for instance, single-family rental properties—make sure that you also pour some money into apartment communities as well.

Invest in Existing Properties

Let’s say you’re seeking real estate investing opportunities during a recession but can’t seem to locate any deals. In this situation, consider investing some of your cash into your existing rental investment properties instead.

This may decrease your costs or increase your rent prices. Ideally, the investment you make in the property should make it stand out even more to potential tenants so that you can keep your property as in-demand as possible during an economic downturn.

Make Sure That You Can Access Money

Another way to prepare for a recession is to avoid spending and focus more on saving. Cash reserves can come in handy for taking advantage of any new deals that come your way.

In addition, consider getting a credit line on one of the investment properties you own. A credit line can be helpful because you only have to worry about paying interest if you use this money. This can give you access to capital right away if you need it for a major unexpected repair, for example, during your recession.

Recession-Proof Your Real Estate Investing Business

Although recession fears remain strong, your confidence in your business—and the business itself—can remain just as strong. I’m here to help you to navigate an economic downturn by showing you how to approach real estate investing during a recession, including buying new property during a recession.

I offer a wide variety of tips and advice in my Best Real Estate Investing Advice Ever book, blog, and podcast. Recession-proof your business now, and enjoy success for months to come.

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man learning real estate investing

Resources for Learning Real Estate Investing

Whether you’re new to the biz or you just feel like it’s time to revisit your strategy and gain as much knowledge as you can, there are some great resources available to help you learn real estate investing and make sure that your business is headed down the right path.

Books

One of the best moves you can make is to look for top-tier real estate investing education books. Why? Because books have the potential to change how you think. You spend a lot of time in the mind of the author, learning how he or she thinks about the real estate industry. Since the author likely experienced success personally, you can receive tried-and-true insights that can help you do the same.

However, when you get a new book, make sure that you don’t simply read it. At some point, you need to start putting what you’re learning into practice. That’s why no-fluff texts with actionable tips, such as my Best Real Estate Investing Advice Ever, are ideal.

Blogs

A real estate advice blog is another excellent resource for those wanting to learn real estate investing. Blogs weren’t as common a decade ago, but they are everywhere now. These collections of posts are perfect if you’re seeking free information from industry experts. A top-notch blog will show you how to raise money from investors, choose the right property, and manage your investment properties like a pro.

Podcasts

Podcasts, like the Best Ever Show, are another excellent tool if you’d like to learn real estate investing. These audio shows, which you may listen to on your phone or online, have immense power to inform and help people. For instance, you can learn how to balance real estate investing and a regular job, as well as how to deal with flip or rental properties. The great thing about podcasts is that you can easily listen to them during your morning commute or even at home while you’re doing chores, so they are convenient for any on-the-go person.

Increase Your Investment Expertise

Now is an excellent time to start sharpening your real estate investing skills, and the free resources available here can help. Check out the most recent episode of my podcast or read helpful articles published on Forbes to learn real estate investing inside and out.

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completing a neighborhood analysis online

Steps for Completing a Neighborhood Analysis Online

Location, location, location.

As a syndicator, you realize that where you purchase your next apartment community is just as important as the type of asset class you invest in. After all, your neighborhood of choice can either make you or break the success of the deal.

However, figuring out which neighborhood may become your next gold mine—well, that can understandably seem complicated. Fortunately, it doesn’t have to be.

Here are a few key steps for completing a neighborhood analysis online before you make your next investment.

Home Prices

An essential step here is to determine the prices of apartment communities and homes in the neighborhood you’re eyeing. Take a peek at how much properties in the neighborhood sold or rented for this year versus past years.

Start by reviewing the top 10 apartment markets to target if you’re in search of the very best neighborhoods in the United States today.

Transportation

Another factor to consider when completing a target market analysis is how easy the neighborhood is to navigate. After all, this has an impact on your future tenants’ quality of life.

For instance, how many eateries are within residents’ walking distances? Also, how extensive are the area’s bike paths? What are the neighborhood’s transit routes, and how far can you get via a train or bus in half an hour? Neighborhoods that make traveling easy are generally a win for today’s real estate investors.

Tax Situation

When it comes to completing a neighborhood analysis, be sure to look at how much people are paying for property taxes. This is important because this will tell you how much of your cash flow will be going to the local government rather than to your business coffers.

Crime

While conducting your online real estate market analysis, make sure that you also take a look at the crime rate in the neighborhood you are interested in investing in. The city in which your neighborhood is located may offer a helpful crime map that shows how frequently different kinds of crime happen in the area.

The Federal Bureau of Investigation also offers crime reports that may show you how many criminal acts were reported in various neighborhoods. The public website on sex offenders created by the United States Department of Justice will also tell you how many sex offenders are living in certain neighborhoods. Obviously, the lower the crime rate is in a neighborhood, the more attractive that neighborhood will be for investing purposes.

Become a Pro at Analyzing Neighborhoods

As you embark on the real estate investing process this spring, it is critical that you develop your skills in performing an online real estate market analysis. Only then will you increase your chances of making smart buys.

Tune into the Syndication School with Theo Hicks to learn even more about the neighborhood analysis process.

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a handshake while raising capital for real estate

Raising Capital for Real Estate Using a 506(b) Structure

You’re eager to take your real estate investing efforts to the next level this year, but you need money to make that happen. The problem is, you’re not completely sure how to go about raising capital for real estate.

If you’re wondering how to raise money from investors, now may be the ideal time to consider using a 506(b) real estate syndication structure.

What You Need to Know About Real Estate Investing and Securities

If you raise money from private investors to purchase an investment property, your investment is a security if it meets the following criteria. First, the investment must involve money. In addition, you should expect to generate profits from your investment. Third, money is being invested in a single common enterprise. Finally, the profit generated stems from a third party’s efforts.

Simply put, any time you’re raising capital for real estate from investors and you make decisions for both you and them, you have created a security.

If you have a security on your hands, you are legally required to register it with the United States Securities and Exchange Commission. Unfortunately, registering your public offering can become an expensive and prolonged process. However, you may be able to avoid the registration process if you qualify for a registration exemption.

That’s where a 506(b) real estate syndication structure comes in.

The 506(b) Exemption

Rule 506(b) refers to Rule 506 of Regulation D. This is an SEC exemption that allows you to avoid registering your security if you offer it exclusively to countless accredited investors and 35 or fewer non-accredited investors, or sophisticated investors.

Note that an accredited investor is a couple or individual whose net worth totals a million dollars, excluding his or her primary residence. This type of investor should have earned more than $200,000 per year for the past two years and should expect to do the same this year. In addition, a couple who has earned $300,000 together for the past two years are considered accredited investors.

When raising capital for real estate, you can raise as much money as you want from accredited investors without having to register your offering. In addition, your accredited investors may come from all states. Note that sophisticated investors, or non-accredited investors, are simply people who report having superior knowledge about financial and business matters.

Excel in Real Estate Investing This Year

I successfully raised more than $1 million from private investors to complete my first multi-family real estate deal—a unique feat. Now, I can help you to also successfully raise money for your real estate deals through my Best Ever podcast and educational blogs.

Alternatively, check out my newest book, the Best Ever Apartment Syndication Book to discover actionable advice for raising capital for real estate.

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rental investment property

Tips for Keeping Your Rental Investments Healthy During a Recession

You see the writing on the wall of the global economy, and you can’t help but wonder how the current recession will impact your real estate assets.

How exactly can you keep your rental investments healthy during a recession? Is it even possible?

The good news is that you can indeed keep your rental investment in tip-top shape, no matter how the economy is performing. You just have to be a little flexible.

Choose Your Tenants Wisely

It’s essential that you target the best tenants for your rental properties during the recession because your success relies on regular rent payments and reliable, long-term renters. When a potential tenant completes an application, verify their income to ensure that they will be able to pay their rent on time. Follow up with their references to determine if the applicant is responsible.

You’ll know the individual is a good fit if they have a history of taking care of their property, have a regular income, and plan on staying in a unit for at least 12 months.

Look at Your Rates

Consider also offering longer leases and even lower the rates for your rental investment. This can be instrumental in securing income for yourself and riding out the recession. As an investor, you might want to test a variety of pricing strategies during this time. That might even include temporarily waiving rental fees for tenants who are struggling in the failing economy. As you show your flexibility and support, good tenants will be encouraged to renew their lease when it’s time.

Also, consider throwing resident events for apartment communities. This will further entice your tenants to stay with you through the economic thick and thin.

Save, Save, Save

As you navigate the recession, make sure you have money stowed away for a rainy day. The truth is, you may not be able to keep all of your rental investment units full at all times. In addition, you may need to cough up money for large, unexpected building repairs. For this reason, it is paramount that you have plenty of cash reserves. Avoid borrowing from a lender to install a new roof or new furnace, for example.

Important Considerations

As a general rule of thumb, if you run your rental investment property well, you will keep your tenants, and the rental income you receive will help you to weather any economic storm. During recessions, people often cannot afford to buy homes. So, your rental properties will likely be enticing to those looking for housing.

Also, rentals today are in demand, whereas the supply isn’t great. This means rent prices are on the rise, which is great news for landlords going through the current recession.

Learn How to Succeed as a Landlord in Today’s Economy

Now couldn’t be a better time to hold onto your rental investments. If you manage your real estate properly, the current economy will likely be very kind to your assets—perhaps even more than it is when we’re not in a recession.

Check out our Apartment Syndication School for the latest tips for real estate investors, and discover more about how to keep your rental investments thriving more strongly than ever in the months ahead.

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real estate asset protection

Top 5 Best Ever Real Estate Asset Protection Tips

You’ve worked so hard to acquire your real estate properties, and you’re looking forward to generating money from them. However, in the back of your mind, you wonder if you’ve taken the necessary steps to fully protect these assets.

Fortunately, by taking the right steps towards real estate asset protection, you can rest assured that both you and your valuable properties will be safeguarded against any possible lawsuits.

1. Liability Protection

Considering the importance of asset protection, one of the smartest moves you can make if you own real estate assets is to establish a limited liability company, or an LLC, if you haven’t done so already. Why transfer a title to an LLC? Let’s say one of your tenants ends up slipping and falling on your property. Having an LLC in place is critical for protecting yourself against the negative consequences of a lawsuit that this tenant may file against you.

2. Maintain Your Liability Protection

Of course, initially setting up your LLC is only half the battle in your move towards real estate asset protection. You actually need to maintain your LLC as well, if you want it to work for you long term. For instance, you need to pay the state your annual fee. Also, make sure someone is keeping minutes at your company meetings and identify the resident agent you want to accept any lawsuit notice on your behalf.

Failure to do the above will cause your company to no longer be in good standing. As a result, a lawsuit that is successfully brought against you may cause you to lose all of your business assets and even some of your personal assets. So, remember to take care of your LLC and your LLC will take care of you.

3. Estate Planning

Estate planning is another proven tool for protecting your assets. For instance, you can set up a living trust and put your LLC into your trust. This will allow you to identify what or who specifically should receive your assets should you pass away. It may also decrease your probate expenses and drastically decrease estate taxes.

4. Equity Stripping

Another avenue for real estate asset protection is a process known as equity stripping. With this method, you can set up your LLC and then have your company mortgage your investment property’s equity. This essentially strips any equity from your properties.

The benefit of equity stripping, also known as an equity transfer, is that the smaller your equity amount is, the smaller your chances of facing litigation will be. After all, debt is essentially a type of asset protection, so go ahead and create it yourself.

5. Pursue Asset Segregation

Finally, when it comes to creating an LLC, note that other people can still obtain all of the assets in your LLC even if they can’t legally touch your personal assets. So, try to separate your real estate assets into separate LLCs. This will give you a much-needed safety net and help to ensure that other parties don’t get all of the investments and assets you have worked so hard to acquire.

Dive into even more of the best real estate legal advice and real estate asset protection tips when you subscribe to the Best Ever Show.

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Texas and Florida Add The Most New Jobs in 2019

Each month, the US Bureau of Labor Statistics (BLS) releases a monthly Metropolitan Area Employment and Unemployment Report, which includes the current total number of civilian labor force and unemployment by state and metropolitan area (MSA), as well as the same metrics 12 months prior in order to determine the change in the labor force and unemployment over the past year.

The employment situation in a market is an indication of the demand for real estate. People need jobs to pay living expenses, which includes paying for rent. The more people with jobs in the market, the more potential “customers” for us as apartment investors.

BLS releases a lot of relevant economic data on a month basis, which can be found here. You can also view archived new releases for previous years here.

50 states, the District of Columbia, Puerto Rico, and 396 MSAs are included in the data.

Currently, we focus on the Texas and Florida markets for our deals. Here are some interest highlights from their December 2019 report about those two states:

  • 10 states added over 100,000 jobs
  • #1 was Texas (253,056 jobs) and #2 was Florida (178,978 jobs)
  • 31 states had a reduction in unemployment
  • 19 markets added over 25,000 jobs
  • The #2 market (Dallas-Fort Worth-Arlington) added more jobs than the total number of jobs added in 40 out of 50 states
  • The #10 market (Orlando-Kissimmee-Sanford) added more jobs than the total number of jobs added in 34 out of 50 states
  • The #19 market (Tampa-St. Petersburg-Clearwater) added more jobs than the total number of jobs added in 26 out of 50 states
  • 275 out of 396 markets had a reduction in unemployment

Here is the BLS data for our markets from December 2018 to December 2019

State of Texas

Visit Austin

  • New Jobs Added Ranking: #1 out of 50 states
  • Total Jobs 12/2018: 13,975,415
  • Total Jobs 12/2019: 14,228,471
  • Total Jobs Added: 253,056
  • Job Growth: 1.81%
  • Total Unemployment 12/2018: 501,787
  • Total Unemployment 12/2019: 470,429
  • Unemployment Rate 12/2018: 3.6%
  • Unemployment Rate 12/2019: 3.3%
  • Change in Unemployment: -0.3%

State of Florida

Florida Politics

  • New Jobs Added Ranking: #2 out of 50 states
  • Total Jobs 12/2018: 10,284,492
  • Total Jobs 12/2019: 10,463,470
  • Total Jobs Added: 178,978
  • Job Growth: 1.74%
  • Total Unemployment 12/2018: 338,922
  • Total Unemployment 12/2019: 265,350
  • Unemployment Rate 12/2018: 3.3%
  • Unemployment Rate 12/2019: 2.5%
  • Change in Unemployment: -0.8%

Dallas-Fort Worth-Arlington MSA

D Magazine

  • New Jobs Added Ranking: #2 out of 396 MSAs
  • Total Jobs 12/2018: 3,956,122
  • Total Jobs 12/2019: 4,054,399
  • Total Jobs Added: 98,277
  • Job Growth: 2.48%
  • Total Unemployment 12/2018: 128,944
  • Total Unemployment 12/2019: 117,547
  • Unemployment Rate 12/2018: 3.3%
  • Unemployment Rate 12/2019: 2.9%
  • Change in Unemployment: -0.4%

Orlando-Kissimmee-Sanford MSA

10best.com

  • New Jobs Added Ranking: #10 out of 396 MSAs
  • Total Jobs 12/2018: 1,348,435
  • Total Jobs 12/2019: 1,386,798
  • Total Jobs Added: 38,363
  • Job Growth: 2.85%
  • Total Unemployment 12/2018: 40,421
  • Total Unemployment 12/2019: 33,987
  • Unemployment Rate 12/2018: 3.0%
  • Unemployment Rate 12/2019: 2.5%
  • Change in Unemployment: -0.5%

Tampa-St. Petersburg-Clearwater

Parade

  • New Jobs Added Ranking: #19 out of 396 MSAs
  • Total Jobs 12/2018: 1,531,930
  • Total Jobs 12/2019: 1,558,569
  • Total Jobs Added: 26,639
  • Job Growth: 1.74%
  • Total Unemployment 12/2018: 49,086
  • Total Unemployment 12/2019: 41,111
  • Unemployment Rate 12/2018: 3.2%
  •  Unemployment Rate 12/2019: 2.6%
  • Change in Unemployment: -0.6%

You can view the full report for all US states and markets by clicking here.

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