JF2003: The Power of Virtual Help With Daniel Ramsey

Daniel Ramsey bought his first house at 24 and it was an investment property for him. Daniel’s journey as an entrepreneur took him on a path to hire his own Virtual Assistants to help him in his business and later discovering a need in the marketplace and decided to start MyOutDesk. He shares how valuable VA’s can be for your business and how it can double your business rather than just replacing a task. You will learn some valuable unique questions he asks every entrepreneur before they hire his company to make sure they can grow their business. These questions can help you even if you do not hire a VA.

Daniel Ramsey Real Estate Background:

  • Founder & CEO of MyOutDesk, a virtual assistant company
  • Licensed real estate broker, mortgage broker, and general contractor has sold hundreds of homes and made millions in commissions
  • Based in Sacramento, CA
  • Say hi to him at https://www.myoutdesk.com/ 
  • Best Ever Book: The Richest Man in Babylon

Best Ever Tweet:

“You’ve cut $100,000 dollars of my payroll every 2 weeks, so by adding virtual assistants we were saving our clients money and grow revenue.” – Daniel Ramsey

JF1909: Adding Value & Finding Solutions For Real Estate Taxes with Brett Swarts

Brett is a real estate tax expert who is coming on the show today to help us with any tax problems we may have. Joe and Brett will get into the details of real estate taxes, and we’ll hear some stories of investors saving money on taxes with Brett’s help. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Find somebody who is a specialist in that area and diversify” – Brett Swarts

 

Brett Swarts Real Estate Background:

  • President of Capital Gains Tax Solutions, LLC
  • Provides trustee services which helps real estate and business owners gain tax deferral, freedom, liquidity and diversification with their funds so they can create and preserve more wealth
  • Based in Sacramento, CA
  • Say hi to him at https://capitalgainstaxsolutions.com/
  • Best Ever Book: Crucial Conversations

 


The Best Ever Conference is approaching quickly and you could earn your ticket for free.

Simply visit https://www.bec20.com/affiliates/ and sign up to be an affiliate to start earning 15% of every ticket you sell.

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Brett Swarts. How are you doing, Brett?

Brett Swarts: I’m doing well, Joe. Thanks for having me on the show.

Joe Fairless: Well, my pleasure, and looking forward to our conversation. A little bit about Brett – he’s the president of Capital Gains Tax Solutions. He provides trustee services which helps real estate and business owners gain tax deferral, freedom, liquidity and diversification with their funds, so they can create and preserve more wealth. Based in Sacramento, California.

With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brett Swarts: Yes. Thanks, Joe. I started out in real estate as a young child, with my dad, helping him build custom homes in Fremont, San Jose, Northern California area. Rentals have always been in my life. I studied business in college, went on to Marcus & Millichap as an internship, and was with them for five years as a commercial real estate broker, helping clients buy and sell apartment buildings mainly.

From there I went and kind of started my own two companies, Commercial Realty Apartment Advisors and Capital Gains Tax Solutions. That’s kind of the business background. I’m married, five kids, I played basketball in college, [unintelligible 00:02:32.03] in particular, and I love playing that as much as I can…

Joe Fairless: Marcus & Millichap real estate broker, and now you’re working with owners of properties to set up their business, so they can defer the capital gains… How did you make the conscious choice to transition?

Brett Swarts: At Marcus & Millichap at the time when I was first starting in 2006, I was still in college, but graduated in ’07, the market shifted quite a bit in ’08, and things changed… And the manager at the time in my Marcus & Millichap office in Sacramento – he brought in a gentleman to speak on the deferred sales trust as an alternative or a back-up plan for a failed 1031 exchange… And we were looking for ways to help clients solve these issues.

The biggest stat that he left with us at the time was there’s about – according to the American Bankers Association – 17 trillion dollars that will pass from one generation to the next in the next 20 years… And this is known as the baby boomers. It’s the largest wealth transfer in the history of the world, and 50% of America’s net worth is tied to high-end primary homes, commercial real estate, and also private equity or businesses.

So they’re faced with the [unintelligible 00:03:41.12] liability and looking for alternative ways to get out of real estate. So he approached us with that strategy, and I started to study it and look at it, and I obtained my series 22 and 63… But really, my approach, Joe, has always been to add value and find a solution for what my clients were looking for. And as the years passed by and the marketplace has really grown in appreciation, everything has kind of shifted from these baby boomers who don’t wanna be in debt, who are tired of the 1031 exchange, who don’t necessarily wanna overpay for a property in a  highly appreciated marketplace…

So I launched a company in partnership with the Estate Planning Team to really focus on commercial real estate owners, syndicators, business brokers and high-end luxury real estate agents to help them grow their business. So it’s kind of a natural progression, if you will, from focusing just on the 1031 exchange, to now the deferred sales trust as another option.

Joe Fairless: Okay, so the deferred sales trust – I guess that’s the unique thing that you bring to the table from a consulting standpoint, and help set up… Is  that correct?

Brett Swarts: Exactly.

Joe Fairless: Okay. And what exactly is that?

Brett Swarts: A deferred sales trust is just a manufactured installment sale, Joe. It’s like a seller carryback, except we’re using a third-party trust to buy your property. Let’s say you have a deal you’re selling for ten million – they’re gonna give you a  zero down payment in exchange for a note… But immediately we’re gonna sell it to the cash buyer that’s already lined up for ten million, and therefore we can defer all the tax, because you haven’t received any actual or constructive receipt… So it’s just a manufactured installment sale; it’s tied to IRC 453, which is a 90+ year old tax law.

We’ve been doing it – we collectively, and there’s thousands of professionals now across the U.S, financial advisors, CPAs, tax attorneys, QI companies, syndicators who use our strategy. A 23-year track record, over thousands of trusts have been closed, 14 no-change IRS audits… So it’s just an installment sale, but it’s unique in how we do it.

Joe Fairless: Okay. So will you give maybe an example of a client of yours that you can share, that they did, and then just walk us through some numbers and the process?

Brett Swarts: Of course. A recent one, just a couple weeks ago, a gentleman named Peter – he’s out of Marin, California, long-term commercial real estate investor, mostly with multifamily, but he’s also a residential broker himself – so he sold an 18-unit apartment complex in Sacramento; so he’s driving up from the Bay Area, he’s knocking on doors, he’s collecting rents… It’s kind of a tough neighborhood he’s going into Sacramento… So he was stuck with a property that he didn’t wanna own, but he also didn’t wanna 1031 exchange. And the way he put it was “I’d rather have 18 problems. I don’t want 36 problems. I actually just kind of wanna retire. I’m older now, and I wanna get out of debt, and I wanna diversify… And I actually want a passive income stream, but I don’t wanna have to do it myself.”

The property itself is only about 18 units, so it’s hard to hire property management to get scale and make sense of the numbers there… So he learned about the deferred sales trust and he liked the fact that he could sell it and he could pay up all of his debt, so now he’s debt-free… He had about $500,000 of debt.

Joe Fairless: On the property, or separate from the property?

Brett Swarts: On the property, yeah.

Joe Fairless: Okay, alright.

Brett Swarts: So he was selling for about 1.8, and he had about 500k in debt… So he was gonna net about 1.3 into the trust.

Joe Fairless: Okay.

Brett Swarts: He had a basis that was pretty low too, because he had done exchanges into this property… So he had another 500k in liability for tax liability. That’s state, federal, Obamacare; it’s about 37% if you add that up in California, plus the depreciation recapture, which can be as high as 40% or so… Or even higher.

Joe Fairless: 40% on top of the 500k, or in total?

Brett Swarts: Yeah, so he was faced with two things – he had debt of 500k, and then he had a tax liability of 500k… So he felt completely trapped. He goes “I have to do a 1031 or something else, because by the time I pay off my debt and pay off the capital gains tax I’m just gonna get wiped out. It makes zero sense. But again, I don’t wanna have 36 problems. I already have 18 problems. I don’t know what to do.”

Joe Fairless: Right.

Brett Swarts: That’s where a lot of my clients have been over the years – they feel trapped between over-paying for property, taking on more debt, chasing deals that otherwise they wouldn’t pay for if it wasn’t for their 37% to 50% of their gain being wiped out by the capital gains tax… So enter the deferred sales trust – he was able to sell, put 1.3 million into the trust, become debt-free, defer that $500,000 in tax as well that he owed… And now he’s invested in stocks, bonds, mutual funds of his choosing… But his real passion is to put it into commercial real estate syndication deals with different operators across the U.S, where he can diversify within that portfolio about 80% of the funds.

So it solved his “Hey, I don’t like the stock market.” It solved his “I can still be in commercial real estate”, and the biggest one is he can buy whenever he wants to. He doesn’t have to buy tomorrow or day 180. He can wait on the sidelines until deals make sense.

Joe Fairless: Okay. And who’s paying the 1.8 for the property that’s participating in the deferred sales trust?

Brett Swarts: Just a buyer. Especially in California and Sacramento – it’s one of the hottest multifamily markets in the nation, and there’s tons of 1031 buyers and tons of buyers that wanna pay a price for the property.

I think the deal traded around about a 6,25% cap. It was a C deal, C- location… So yeah, just a cash buyer that’s lined up. It can have a lender… They take title the same way they would have, as if Peter was gonna do a 1031 or a deferred sales trust.

Joe Fairless: Got it. So from the buyer’s standpoint it’s not that different from buying it if they were doing a 1031.

Brett Swarts: Correct. It’s like a simultaneous close. It’s actually an assignment of sale. So what Peter did is he just put language into the document that states that he has the right to a deferred sales trust or a 1031, and no additional cost to the buyer. And he did consider that, by the way, going for a 1031 and looking for  a deal… Because the deferred sales trust is actually a back-up plan for a failed 1031. So it actually empowers people too to go out there and search for a deal, and if they can’t find it, they have a back-up plan. And it also doesn’t take up one of their positions either for the exchange rules.

Joe Fairless: Okay, so you have to have the money with an intermediary during the process when you’re looking for a 1031 exchange… So as long as you have that with the third-party, then you can still do the deferred sales trust if your 1031 falls through?

Brett Swarts: You got it. It’s a constructive or actual receipt. So the way a 1031 works, Joe, as you probably know and your listeners know, is instead of having the funds sent to (say) Joe from escrow, we wanna send it to a QI company who holds the money to maintain non-constructive receipt for you… And then at that point you can move the funds to another property and perfect the exchange. The same concept is true here – instead of the funds being sent directly to Peter or Joe, they’re gonna be sent to the trust, which is gonna maintain non-constructive receipt.

Joe Fairless: Got it, okay. What are some questions investors have about this, that are common, that you address?

Brett Swarts: The first one is “How do we know it’s legal? It sounds too good to be true.” Those  are the two biggest things. The first thing we would say – it’s a 90-year-old tax law; thousands of trusts have been closed. We have thousands of business professionals… And it’s just an installment sale; we’re just creative on how we use it.

The next one is “Where are the funds held?” Well, the funds are held at Bank of New York Mellon, Charles Schwab, TD Ameritrade… You can hire your own financial advisor or you can use one of our professionals that we work with across the U.S. to manage the money. They can put it into stocks, bonds, mutual funds of your choosing; very conservative allocations.

My favorite part is they say “Well, can I go back into real estate?” and the answer is “Absolutely.” You can go in tomorrow, or whenever you want to, and then you can diversify it. So those are the main ones… But we encourage everybody to bring in their trusted advisors, Joe. We recognize that this is a new concept for people, so we actually say “Hey, don’t just trust what we’re saying; bring in your brain surgeons.” And who are the brain surgeons? Those are the CPAs and tax attorneys that you trust. Have them speak with our CPAs and tax attorneys before moving forward.

My role  as a third-party trustee – I can’t ever move the funds; the funds only ever move with the client’s signature. The client has 24/7 access to view the funds. But my role is to educate and be the offensive coordinator in this scenario, where I’m working with a commercial real estate broker, the financial advisor, the CPA, the tax attorney, and the client. So we all work together as a team to make this transaction work.

Joe Fairless: And what are some things that you pay attention to within your role of the transaction?

Brett Swarts: My role is just to give them all the options. By the way, my company is Capital Gains Tax Solutions, plural, so I like to present the 1031 exchange, the pros and the cons, and then the deferred sales trust, the Delaware statutory trust, the charitable… And really just empower the client with the information and with the tool.

I liken it to this, Joe – imagine it was 25 years ago and you’re just learning about the 1031 exchange for the first time. Before you knew about it, you were just buying and selling properties and paying the tax. Then all of a sudden somebody empowered you with the strategy, and then once you understood it, you were able to create and preserve more wealth… So I really see my role as that – just empowering and educating, kind of being the guide for the client, so that they can create and preserve more wealth with the strategy. Hopefully that answers the question.

Joe Fairless: Got it, okay. And with the different options that someone has – let’s go with the deferred sales trust, to be specific… How are you compensated?

Brett Swarts: By the way, it works for a business, a high-end primary  home,  commercial real estate, collectibles… Anything you can think of, the deferred sales trust works for, whereas the 1031 only works for investment property mainly. So when they sell and the proceeds go into the trust, we get a recurring fee. So a first fee is about 50 basis points on the initial amount, and then once a year we get paid again, as long as the funds are in the trust. Most of our trusts go for ten years, but at the end of ten years you can renew for another ten, and then renew for another ten, and just keep going for as long as you want. Then you can pass it on to your kids.

Most of our notes earn 8%, and after fees they net about 6.5%, which is where the other fee comes in – that’s to your financial advisor. They charge somewhere between 50 basis points and 100 basis points, which is  0.5% to 1%… So just depending on where and how the funds are invested.

The last fee is to the tax attorneys. It’s 1.5% on the first million and 1.25% on anything above that. That includes audit defense for the life of the trust… But what we’re really focused on is what is your actual tax liability? So if you’re selling a ten million dollar deal, Joe, and you have a four million dollar tax liability (let’s imagine you had a zero basis), we’re gonna focus on that four million, and that’s a big number. We would say that that’s substantial; you’re gonna wanna do a 1031, or a Delaware, or a deferred sales trust, or maybe  a mixture of all three, depending on your scenario… So we’re really gonna dissect what’s going on. Do you have a mortgage over basis? Do you have some liquidity needs? Do you wanna get rid of the [unintelligible 00:14:48.08] liability? Do you want to stay in real estate with local operators that you trust and know?

So we’re really gonna ask a series of questions to decipher where the risk tolerance is, and also what their outlook is, and how comfortable they are with different asset classes… And then from there recommend one, two or three strategies, or maybe just one strategy.

Joe Fairless: What’s a potential client that’s come to you and  you just couldn’t help them for X, Y, Z reason? Can you just talk about that?

Brett Swarts: Yeah, so if you come to me, Joe, and you’re selling your business, and the buyer has removed all contingencies, it’s too late for us. We need to be able to be there before he does that. Now, commercial real estate is unique. Even if they remove all contingencies, we would just tell you to send it to a 1031 company, and that 1031 company at that point on day 46, we can help you, up until day 181. But if you take constructive receipt or actual receipt, it’s too late. So the next thing is working with a 1031 company, which will  give you both options.

There’s certain 1031 companies who haven’t heard about this. The big banks sometimes don’t move outside of their lane… So we’re still educating a lot of different QI companies. So  I would just recommend you make sure you have the language in your exchange agreement, because if you don’t, they may not cooperate and they may just send you the check from the QI company and then you’re gonna owe the tax. Those are the two main ones.

The other one has to do with just lower tax liability. It’s just a small amount. If you’re selling a 10 million dollar deal, Joe, and you only owe 50k or 100k in tax, we’re gonna tell you “Just pay the tax.” Take the 9.9 and go look for a deal for when it makes sense. So we’re gonna try to make a holistic approach to financial — within the actual strategy there’s some rules we have to follow.

Joe Fairless: I think you mentioned this tax code for deferred sales trust has been around for 90 years… Did I hear you correctly?

Brett Swarts: Correct. IRC 453, which is just a seller carryback… That’s the foundation of the tax code.

Joe Fairless: So what happened recently that brought this to light, that now it’s being discussed and you’re working with clients on it?

Brett Swarts: Yeah… Even a better question would be “How have you survived the IRS audits?”, which I think will answer the question you’re asking… So there’s been 14 no-change IRS audits; the biggest one was for over a 100 million dollar deal, and absolutely no issues whatsoever. These are random audits for just clients who are high net worth and they happen to find the deferred sales trust and look at it.

The last audit was a formal audit of the structure itself, of the law firm who created it, and the co-founder of the deferred sales trust with the estate planning team… And the first hour of the audit they said “Look, this is just an installment sale. You guys are being creative on how you’re applying the law, by using this third-party trust, who’s in it for a business purpose, who’s an unrelated party, and who can make a profit”, which those things are all true. As long as you’re following those rules, it works. So that’s the best answer I have. We’ve been able to do it thousands of times, and it’s been reviewed by national law firms. It’s not until you meet somebody who’s gonna educate you on the strategy that you’re gonna hear about it.

We also don’t necessarily mass-market it to everybody. I’m only one of 13 exclusive trustees across the U.S, Joe, so we’re very protective of the strategy… Although we’ll share it with a non-disclosure agreement, no problem… But we don’t want it getting into the wrong hands, where somebody might abuse the structure and we lose it for everybody… So we’re very particular about who and where they see the secret sauce, if you will.

Joe Fairless: Okay… And I guess because I didn’t sign an NDA or anything to have a conversation, you’re publicly talking about this —

Brett Swarts: Oh, this is fine. All the stuff we’re talking about here is fine, yeah.

Joe Fairless: So what aspect is more in the NDA component of the conversation?

Brett Swarts: It’s the actual execution of this. I mentioned a couple of things: business purpose, third-party unrelated trustee… And then it’s also the  ability to keep the funds safe, liquid, with an investment advisor. Those are the main areas, if I’m somebody approaching this for the first time, that I’d wanna understand. And then the brain surgeon is the law firm who created this; they can talk about these things. A lot of the times they don’t even really come up; people just say “Oh, it’s an installment sale, it works…” So hopefully that answers the question without giving too much away.

Joe Fairless: Based on your experience in the real estate industry, what’s your best advice ever for real estate investors?

Brett Swarts: Buy at optimal timing. Buy when deals make sense. We make our money on the buy side; we make money when we can find value-add, forced appreciation deals that make sense. And you may wanna consider diversifying outside of your single product type, and your single location, and find somebody who’s an operator, who’s a syndicator, who’s a specialist in that area, and diversify outside. The deferred sales trust allows you to do that.

Don’t overpay just because you only know the 1031 exchange. Get out of debt now and take on smart debt when the market is low, when you can buy properties at a discount. Risky debt stays in and keeps ride up, but don’t go into dumb debt when you overpay for properties just because you’re deferring the tax through a 1031 exchange. Make sure the fundamentals of the real estate make sense; if they don’t, figure out a way, or in a different location, with a different operator, and a different product type that does.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Brett Swarts: Yeah, let’s go.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:20:05.20] to [00:20:41.29]

Joe Fairless: Best ever book you’ve recently read?

Brett Swarts: Best ever book I recently read… Crucial Conversations.

Joe Fairless: I love that book. What’s a mistake you’ve made on a transaction?

Brett Swarts: A mistake I’ve made on a transaction… Not saying yes to the client who wanted to bring in a partner on a deal, in the 12th hour; I should have just said “Yes. Whatever you wanna do, let’s work together.” I had too much pride and wanted to do it myself.

Joe Fairless: Best ever deal you’ve done?

Brett Swarts: Best ever deal I’ve done… Let’s see. We’ll talk about brokerage – it was an 8.2 million dollar value-add multifamily here in Sacramento, representing both sides, and it was a win/win because there was still some meat on the bone for the buyer, who was my client, and the seller had an up-leg lined up… So he bought it for 8.2, and now it’s worth 13 million and it’s only been a year and a half.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Brett Swarts: Go to CapitalGainsTaxSolutions.com, or search me on YouTube, Bigger Pockets, LinkedIn… Connect with us. We have a deferred sales trust calculator;  you can put it in there and it’s totally free; it will give you a side-by-side comparison. And/or schedule a one-on-one call with me and I’ll walk you through our strategy more.

Joe Fairless: Brett, thanks so much for being on the show, talking about deferred sales trusts, as well as the approach and a couple use cases. I hope you have a best ever day, and we’ll talk to you again soon.

Brett Swarts: Thanks, Joe.

Guest Ryan Nickel on Best Ever Show flyer with Joe Fairless

JF1465: Lost His Job, Was On Food Stamps, Stayed Persistent, Closed Almost 100 Deals with Ryan Nickel

Ryan was sleeping in a closet when he made his first deal in 2015. Now, 3.5 years later, he has completed almost 100 deals and is thriving! We’ll hear about the strategy he specializes in, which he calls “skinny deals”. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

[spp-tweet tweet=”“If I notice the default is greater than 10% of the ARV, I pass on it” – Ryan Nickel “]

 

Ryan Nickel Real Estate Background:

  • Been investing full time for 3.5 years and just under the 100 deal mark
  • Specializes in creative real estate deal structures
  • Has a niche he calls “Skinny Deals”
  • Based in Sacramento, California
  • Say hi to him at bootstraprei@gmail.com
  • Best Ever Book: The Liberty Of Our Language Revealed

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com


Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.

See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


 

Joe Fairless & Matthew Recore on Best Ever Show flyer

JF1428: How To Purchase Real Estate At 0% Interest with Matthew Recore

Low on funds or just want to save as much money as possible? Matt is here to help you! He’s a creative financing expert, who often will close deals with 0% financing. Getting creative with sellers is his specialty, hear what he does to get sellers to agree to carry back 0% financing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

[spp-tweet tweet=”“We got a nice discount on them, and then put tenants in them” – Matthew Recore “]

 

Matthew Recore Real Estate Background:

  • Purchases between 3-8 properties per month in Northern California
  • Even in his rising, expensive, hyper-competitive market, he has been able to negotiate many transactions where the seller carried back financing at 0% Interest
  • Has written a book describing how he does it entitled “How to Purchase Real Estate at 0% Interest”
  • Say hi to him at matthewrecoreATgmail.com
  • Based in Sacramento, CA
  • Best Ever Book: Loving What Is

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com


Best Ever Listeners:

We have launched bestevercauses.com  

We profile 1 nonprofit or cause every month that is near and dear to our heart. To help get the word out, submit a cause, or donate, visit bestevercauses.com.


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Matt Recore. How are you doing, Matt?

Matt Recore: I’m doing great. How are you, Joe?

Joe Fairless: I’m doing great, and nice to have you on the show. A little bit about Matt – he purchases between 3-8 properties per month in Northern California. Even in his rising, expensive, hyper-competitive market of Northern California, he’s been able to negotiate many transactions where the seller carried back financing at 0% interest. I definitely wanna hear more about this, which is why we’re having our conversation… He’s also written a book describing how he does it, entitled “How to Purchase Real Estate at 0% Interest”. Based in Sacramento, California. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Matt Recore: Sure. My background was in the tech world. I worked at CISCO Systems starting back in 2000; I was the youngest engineer there, at the age of 21… And it just didn’t feel like it was for me for the long term, especially after the dot-com crash hit.

I wanted something else, something where I was more in control of my future, and all roads pointed to real estate… So I got into real estate investing part-time around that job, in 2002, and started buying properties. Then right around ’04 and ’05 (towards the end of ’04) I got really scared of the market in Northern California and just wanted out… So I sold all my rentals, I sold my personal residence, and I actually bought a lot in Texas, and I also decided to leave the tech world for a little while… So that’s how I got into the business.

Joe Fairless: What scared you about the market in 2004-2005?

Matt Recore: The crazy mindset that I saw just popping up everywhere around here, in the Sacramento area. A lot of cash-out refi’s, a lot of loans that were interest-only; they were mainstream. There was a lot of no-income, no qualifying loans being given out, and it just scared me. Also, I got a chance to go to a seminar by a guy named Bruce Norris, that laid out how California was gonna have some hard times ahead… So with his advice and my own gut feeling, I ran for the hills, per se. I ran for Dallas, Texas, but being a remote landlord actually wasn’t for me either, so I ended up selling most of those and went back into the tech world, and then got back in full-time into real estate investing as a full-time investor in 2013.

Joe Fairless: On a related note, in episode 982 I actually interviewed Bruce Norris, and it’s titled, “When to be an aggressive investor.” So in 2005 you sold your stuff in Sacramento, and you bought in Texas?

Matt Recore: Yes.

Joe Fairless: What did you buy specifically?

Matt Recore: I bought a lot of single-family homes.

Joe Fairless: How many?

Matt Recore: I bought 13, and most of those actually were new construction. I went to builders and I bought a lot of their standing inventory. They had a lot of standing inventory at the time and they were willing to discount it, so I would go to like a DR Horton, or even a smaller builder – back then it was Gehan homes… But mostly DR Horton, and negotiated corporate-wide to buy a bunch of houses… So most all of those 13 – I think probably 11 of those – were from one builder, DR Horton.

We bought their standing inventory homes that were sitting on the market for a year or so, all brand new, and got a nice discount on them, and then put tenants in them.

Joe Fairless: Where are they located?

Matt Recore: They were all over. Frisco, McKinney, Rowlett… I don’t know if you know some towns there – Anna… There was a community called Savannah up in North Dallas…

Joe Fairless: DFW Area.

Matt Recore: Yeah, all DFW, all North Dallas.

Joe Fairless: That’s a good area right now.

Matt Recore: Yeah, it was really good, but being a remote landlord isn’t all it’s cracked up to be; I learned first-hand how property managers can really take advantage of a remote landlord, so you’ve gotta be careful with them, even if you have three or four managing your stuff… And turnovers can really hit you hard if you have like four or five tenants move out at the same time, if you don’t have another income source.

Joe Fairless: What happened? What are a couple other things with you being a remote landlord you got the short end of the stick?

Matt Recore: Well, you have a hard time really looking at the price of things when a turnover happens, for example. When a tenant moves out and the manager on the ground says that it needs this amount of work, and they also make a 10% commission off of all the repairs… That was pretty much the standard back then with my managers. So you get a $7,000 bill and they get a $700 commission, so they’re looking to get that bill as high as possible. That really impacts cashflow, and you don’t have feet on the street or you don’t have the ability to walk a house and see “You know what, that doesn’t need to be done. This is a rental, we don’t need to fix that.” You don’t have that ability there to really hone in… So I ended up going down from I think four managers to two managers, and then just decided to cut back a little bit.

Joe Fairless: You had four different property managers for 13 homes?

Matt Recore: Yeah.

Joe Fairless: Wow!

Matt Recore: So I gave each one three. My plan was to say “I’ll give each one of you three or four, and see which one I like best.” I quickly found that two of them weren’t that responsive, I felt like they were over-charging me on things, and I quickly let those go, gave my other units to those other two managers who I liked better… I let them compete against each other, because property management – it’s a really low margin business is what I’ve come to find, and it’s tough; it’s a tough business to be in. There are some people who work it really well and some people who just try to get the most from every owner.

You really want those that are high integrity, who are on your side, and that’s why I employed the four managers and the cut them back down to two.

Joe Fairless: Do you still have those 13 homes?

Matt Recore: No, I sold them at different times, just because I didn’t like being a remote landlord. Now I just have a few of those; I’m thinking about paying them off actually, and just keeping them for the long haul.

Joe Fairless: How many do you have?

Matt Recore: I have three.

Joe Fairless: So you sold ten of them.

Matt Recore: Yeah. I’ve just focused in on my local market, and focused in on building my rental portfolio locally where I’m at, and getting great seller financing terms at 0% interest, 2% interest, 3%, 4%, fully amortizing, and there’s no bank limit on those. There’s no limits as to how many you can have when a seller and you come to terms, on the terms of the deal… There’s no limit. You can have 1,000 single-family homes, all carried back with seller financing.

Joe Fairless: And we are going to spend the bulk of our time talking about that, because I’m fascinated by it. I just have another follow-up question on the 13 homes… So you sold 10; what about those three made you wanna keep them up to this point in time?

Matt Recore: It was location, and it was how much repairs the properties are gonna have over time. I really wanted like a 3/2 that was around 1,500 square feet, so that’s what I kept… And I kept them in great locations, where there’s a lot of growth coming… So Frisco, there was one in Rowlett, and actually one in Forney. There was a lot of growth coming, and I got it at a really good price.

Joe Fairless: Seller financing terms – you’re getting 0% interest from sellers… How do you structure that?

Matt Recore: It’s really structured with a blank sheet of paper honestly, and it’s structured with the offer being given to the seller. A lot of sellers get cash offers from buyers, and they get other types of offers from buyers, but I like to give them multiple offers. I like to give every seller a cash offer, and then maybe a seller financing offer with interest-only, a seller financing offer with a little bit of interest, maybe 3%-4% interest, fully-amortized, and then a seller financing offer that’s close to retail, at 0%.

I first heard about the idea back in 2004-2005 from another investor, and I didn’t implement it until 2014; I think that was the first time I started to send out or introduce the idea of principal-only payments to sellers… And I was very surprised when I got my first yes. Then I got my second yes, and then a third yes, and I think I’ve had now six people say yes to 0%.

Joe Fairless: So it was three or four? Cash, one. Seller financing with interest-only, two. Seller financing that’s close to retail price, but 0% interest…

Matt Recore: It depends on the deal. If the seller has a paid off property, then they’ll get four offers. If the seller has a loan in place – let’s say it’s a small balance loan – then they’ll get an offer where we pay off that loan, and then the balance is carried back. There’s different terms on that. So they’ll get a cash offer and they’ll get an offer where we pay off the loan and we carry back a balance at different rates, so they get maybe two or three different offers on that carry-back balance.

Then we may even introduce a fourth option, which is us taking over their loan and also them carrying back a small portion of the balance, too. In that case, some people might get five offers.

So I like that idea so much better than just providing a cash offer, because when they get four or five offers from me, they’re less apt to shop and they’re more apt to say “Okay, well let’s talk about offer number two” or “Let’s talk about offer number three. This is interesting to me. How does this work, and how do I know you’re gonna pay me? What’s my security?” So the conversation starts to go deeper, and greater rapport is built because I offer to share my financials, I offer to share my track record to give them references to other sellers, and trust is built in a much greater way as time goes on there.

Joe Fairless: Will you walk us through one of the properties that you got 0% interest and just tell us the numbers on it, and maybe the back-story, too?

Matt Recore: Sure. I’ll share my second deal. My second deal was in a really expensive neighborhood here in the Sacramento area. The seller called and he wanted retail; he was a former loan officer, retired, and at the time had I think around six rentals that were all paid off. He wanted to start to sell them piece by piece, but he wanted retail for it… And retail on that house was a little over 500k, maybe 520k-525k at the time. My cash offer was somewhere in the high threes, honestly… He said no, he said “I want retail”, and I said “Okay, I can do (at the time I think I said I can do) 480k” and then he said “No. Well, could you do 490k?” So I then sent him an offer that was 490k, 10k down, and 480k was gonna be carried back over 240 months, which is over 20 years, at 2k/month. So 2k/month over 240 months equals 480k.

He said, “Yes, sure.” And he said yes because of a few reasons. He was currently getting 2k/month in rent, and for him, he didn’t wanna be a landlord anymore, he wanted to slowly get out of the business, but he wanted to keep his cashflow… So his net after taxes was around $1,600/month on that property.

My offer was gonna get him $400 more in his pocket, and my plan was to raise the rent to $2,400. I saw that the market could support up to $2,300-$2,400 on that, and then with my taxes and insurance at $400 I was gonna be at a breakeven with him… But $2,000/month was gonna go towards principal every month, so I saw it as a great way to get a property close to retail, but with a lot of principal paydown coming, in an A neighborhood. This house was in a really, really nice neighborhood.

He said yes, and we closed, and I raised the rent up to $2,400, the tenant stayed in place, and that house is still one that I own. I’ve owned it now for two years, and my principal is now down to about $420 or so, somewhere in there, and the house has gone up to maybe 560k-570k. So now it’s essentially a wholesale deal. If I were to see that house right now, I’d probably offer all cash 420k or so, and the house is worth 570k or so… So now it’s become a wholesale deal, but it’s in the long-term keeper pile of my rentals, because there’s no way I could sell that with those terms.

Joe Fairless: Yeah, it’s pretty cool. So you’re basically breaking even and you put $10,000 down, but the break-even – you’re building equity in the property, because you’re paying down the  principal over time… And should rent increase, then maybe you’ll make $100 or so a month, who knows… But it’s really about the long-term play.

Matt Recore: Yes, absolutely. And it’s like a for savings account. That $2,000/month is a for savings account that I don’t see, it doesn’t show up in my bank, but it shows up in your net worth statement. As well, it’s not taxed. So it’s savings that you get to benefit on, but you don’t have to pay taxes on it. So it’s not like earning regular, ordinary income. It’s net worth that grows, but you’re also not being taxed on it.

Actually, I could have something else that cash-flows $300-$400/month, that maybe that house might be a negative some months, and that cash-flowing property could offset that, so they could balance each other out.

Joe Fairless: You’ve done six of these… I’m gonna choose a random number, one through six, but not two, and will you tell us about that one?

Matt Recore: Yeah…

Joe Fairless: Four. I’m gonna go with four. The random number is four.

Matt Recore: Number four… Let me go into the book. Oh, number four was an interesting one. This turned out to be a 0% interest deal in a vacation home market here in South Lake Tahoe, which is about an hour and a half from where I live. This one was one where I took over the seller’s mortgage, because the house was going to foreclosure. I actually found out about this as we were in Escrow, that the seller had a loan mod done back about five years ago, and they had — I took over the balance of like 260k… And they did a loan mod to where they moved around 100k to the back of the mortgage, and 160k of the mortgage was being paid over time. The other 100k was essentially a 0% interest, off to the side, off to the shelf, and wasn’t being touched… So it was essentially a 20-year loan on that 100k that I didn’t have to do anything with; it was off to the side, and I was just paying down the 160k.

What’s great about that is in a vacation home market like that, my payment was only $800/month, and the market rent on that was around $1,400-$1,500. So that’s a different type of 0% deal that I came across, because I inherited a loan mod…

Joe Fairless: Will you summarize that real quick one more time, just to make sure I’m following?

Matt Recore: Yeah, so the bank negotiated to split the balance up, and they took 160k and they said to the previous owner, “Okay, 160k of that we’re gonna fully amortize at 2% interest, and then we’re gonna take 100k of the balance and we’re gonna put that on the shelf and you’re gonna have no payments and no interest on that. It’ll be due when the property sells in 20 years, or when this loan is paid off, but we’re not gonna have you pay anything on it.” So really, the balance, all that was being paid down was the 160k at 2% interest. That became a great monthly deal, especially in that market, South Lake Tahoe – it’s tough to find inventory there, it’s tough to build there, it’s tough to get deals and it’s tough to cash-flow.

I actually partnered on that with someone in my office who works for me, and he goes to Tahoe all the time, and we kind of used that as part of the compensation package, and we partnered on that deal, because he was gonna be using it a ton… So  yeah, we kept that in the office, and he got a huge win out of it.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Matt Recore: Best advice ever would be to get started. Just do it, and learn — every day you go to school in this business; every day I learn something new, every day I’m growing and expanding, and applying what I learned six months ago, today, or what I learned today to a situation that’s coming up… So the best advice is to get in the game and just continue to learn and grow.

Your knowledge is cumulative, so you’re gonna make better decisions as times goes on, and it’s always best to mitigate your risk and plan for the worst-case scenario; also know the best-case scenario, and be very careful about leverage and about liquidity crises that can happen. Don’t put yourself  or allow yourself to be in a position to where you’re gonna experience a liquidity crisis.

Joe, there’s probably about six different pieces of advice there…

Joe Fairless: There were, and that’s helpful, and even as much or perhaps more for some listeners your approach to how you’re doing these deals… Because you’re living and breathing exactly what you mentioned; it’s a cumulative process (the learning), and you started one way, and now you’ve evolved it based on your education to another way, and it’s working even in a market that is incredibly competitive.

In your second deal example you were working with a former loan officer. They know their stuff, or they should know their stuff, and the creative aspect of this wasn’t how you got the deal, it was the actual loan… So if the loan officer is approving it because it makes sense for him, then it’s something that could work for other people, too.

We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Matt Recore: Sure, let’s go.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:19:01.11] to [00:20:01.20]

Joe Fairless: Okay, best — you know, I’m changing this question up… How about what’s the best book that you’ve read most recently?

Matt Recore: Oh man, best book recently… A book that I’ve gotten a ton out of recently has been “Loving What Is”, by Byron Katie. That’s impacted me the most, and the principles behind [unintelligible 00:20:19.24] have impacted me the most.

Joe Fairless: Best ever deal you’ve done that we have not talked about?

Matt Recore: I would say the [unintelligible 00:20:30.00] two come to mind right away… First would be the [unintelligible 00:20:32.21] deals from that one seller who came to me and said “This worked out for me so great. I wanna sell you a couple more properties, but the other ones are gonna be at 3% interest. Is that okay?” I said “Absolutely, that’s fine.” So there’s a couple more deals that came from that seller… As well as another 0% interest deal in an area that is very supply-constrained. They wanted 50k down though, and I went ahead and did that deal; rents have almost gone up about 70% since I did that deal, and I’m quickly paying down that mortgage.

And there’s another 0% interest deal I’m just thinking about as I talk to you that we’ve paid down a ton since we’ve got the deal, and rents have more than doubled since we got it, as well.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Matt Recore: Oh man, I’ve made a mistake — a recent one would be one where I got sued. I got sued about a year and a half ago because I bought a house with the occupant in place, and I bought it from a trust, and it just so happens that one of the beneficiaries of the trust was also living in there… I didn’t really think much about it, I had a lease. Well, one of the beneficiaries of the trust was also married to a woman who didn’t like the fact that she was going through a divorce with the trustee of the trust, and she decided that she wasn’t gonna leave no matter what, and she then hired an attorney, and…

Joe Fairless: It sounds like a Jerry Springer episode.

Matt Recore: Oh my gosh, it got horrible… And there was actually a win that came from all of that – the attorney was amazing, and he kicked my butt and I had to pay a big settlement to get her out…

Joe Fairless: How much?

Matt Recore: It was 20k. So she left, but he pretty much kept all that money, because her attorney’s fees were so high… And I’ve adopted that attorney. I’ve hired that attorney now to be my attorney. He’s been my attorney on probably seven or eight different unlawful detainer actions, and he’s amazing. So there was a win that came from that… He actually put me on the stand for an hour and a half during a regular unlawful detainer hearing, and I was sweating, and it was horrible, and I was in the right in so many ways, but he found a couple little loopholes that my attorney messed up on, and he was able to win, and then secure the settlement for me to settle.

Anyways, I adopted him as my attorney, I hired him, and he’s become a friend of mine, and that was another huge lesson – you’ve gotta know about the occupancy situation when you’re purchasing a property; get the story, and get the lease, and really understand what the dynamics are, and where you’re exposed and where you’re not when you’re buying with occupants in place.

Joe Fairless: Best ever way you like to give back?

Matt Recore: Honestly, at home, as much as I can – time, presence, with my twins… We’ve just had twins a year ago with my wife…

Joe Fairless: Congrats!

Matt Recore: Thank you. I would say at home, and then with my team, but primarily at home and with my parents and family.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Matt Recore: They can get in touch initially through the book. They can go to Amazon and learn more about the strategies of buying at 0% interest by typing in “How to purchase real estate at 0% interest”, or my name, Matthew Recore. The books is I think around $17 right now.

Then there’s ways to contact me in the book, if they’d like some extra coaching, or help, or support in a deal, or a question that they may have as to how they can implement the 0% interest strategy into their market… I’d be more than willing to help and coach them.

Joe Fairless: Well, Matt, thank you so much for being on the show and talking about your transactions with 0% interest, how you offer 3-5 offers on a property, and then some case studies… And then you were talking about the attorney that you adopted and the lesson you learned; the lesson I took away from that is you saw the bigger picture, because most people (I’m gonna say most people) would be offended and pissed off at that guy for putting you on the stand for as long, and would hold a personal grudge forever against him… But you were seeing the bigger picture and you saw that you could make a foe an ally in the long run, and help you out in the long run. That takes a lot of vision and swallowing of pride a bit in order to do that. That I think is a microcosm of how you’ve approached your business as you’ve evolved it.

Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Matt Recore: Thank you, Joe. I appreciate it. Great to talk with you. Thanks for the compliment.

Al Williamson on gray #BestEverShow banner

JF1321: Squeeze More Cash Flow Out Of Your SFR’s with Al Williamson

Al has 5 awesome ways to get more cash out of single family homes to share with us today. From broadcasting Wifi in exchange for paying for a newsletter, to putting a billboard on top of your building. These are some next level, brainstorming techniques that you probably have not thought of yourself. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

[spp-tweet tweet=”“There’s always loopholes Joe” – Al Williamson “]

 

Al’s first appearance on the Best Ever Show:

https://joefairless.com/podcast/jf53-cashing-in-on-revitalized-areas/

 

Al Williamson Real Estate Background:

  • Founder of Leading Landlord website that helps rental owners find new cash flow streams
  • Civil engineer and the Author of the Building Wealth with Inner City Rentals
  • Ancillary income specialist and short-term and furnished rental scientist
  • On his blog he discusses his income-generating, cost-cutting, and neighborhood revitalizing experiments
  • Based in Sacramento, California
  • Say hi to him at  https://leadinglandlord.com/

Join us and our online investor community: BestEverCommunity.com


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[spp-transcript]

real estate advice podcast

JF660: How He Netted $100k from a BANDIT SIGN!

Our guest has been through some hard times, all while he was young. Press play and hear his story as he shares his struggles in high school and college and see what he has made of himself today! He has multiple streams of income and is growing rapidly!

Best Ever Tweet:

[spp-tweet tweet=”If you are looking for a scalable model, you need to figure out bringing leads in the door.”]

Matt Aitchison Real Estate Background:

    – CEO of Vault Investment Properties
– Podcast host of Millionaire Mindset Podcast
– Based in Sacramento, California
– Say hi on Facebook or Instagram
– Reach him www.millionairemindcast.com

Listen to all episodes and get a FREE crash course on real estate investing at: http://www.joefairless.com

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Best Ever Show Real Estate Advice

JF53: Cashing in on Revitalized Areas

Buy in an improving area, manage well and watch your value increase. Seems obvious right? Right. But today’s Best Ever guest shares with you a major wrinkle to this plan that can help you increase your property value even more…and faster.

Tweetable quote:

[spp-tweet “Is it possible? Yes, so let’s get to work.”]

Al Williamson’s real estate background:

–        Been a landlord since 1996

–        Owner of two homes, one apartment building and one commercial building

–        Author of Building Wealth with Inner City Rentals

–        Visit him at http://www.leadinglandlord.com

Subscribe in iTunes and Stitcher so you don’t miss an episode!

 

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