What Is a 1031 Exchange?

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A 1031 exchange is a powerful tool that allows an individual to save on taxes after the sale of a piece of real estate. This tax deferral program permits the investor to sell a real estate property and then reinvest the funds in a property of equal or greater value. Doing so allows the investor to keep more money in their pocket, and defer all capital gains taxes. Here's a quick overview on how the process works: 

First, the properties involved in the exchange must be held for either business or investment purposes. This information is proven by tax returns, including rental income, depreciation records, and intent. It’s important to have this documentation in place in case of an audit.

There are also regulations in place for the new purchase. The new property must meet the reinvestment requirements. This means the new property must be of equal or greater value than the property that was sold.

Additionally, there is a strict timeline that the investor must uphold. The investor has 180 days to complete the exchange. This begins on the day escrow closes on the sale. Leonard explains that it’s important to work with an accommodator, such as his team. You also must reach out to your accommodator before escrow closing.

Finally, the IRS requires that the investor identify their purchasing plans on day 45. The investor must describe the property or properties they are planning to use as the replacement in the exchange.

For more on 1031 exchanges, check out my interviews with 1031 exchange experts, Lance Growth and Leonard Spoto

A 1031 exchange is a powerful tool that allows an individual to save on taxes after the sale of a piece of real estate. Here's how it works.

Property Management Do's and Don'ts

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Do: take the job of hiring a property management team very seriously. Your property management company is your right hand man! Without them, your passive income venture could be not so passive. Check out our list of 5 questions you should ask when interviewing a property management team.

Don’t: try to micromanage them. If you’ve done your due diligence with hiring, let go of all of the details. You hired this team because they’re qualified to screen the tenants, and collect rent. Don’t try to micromanage them. Don’t come to them with a list of additional demands or tasks. They know what to do, and how to do it!

Do: get on the same page about communication. Some companies use email, while others use text messages, or snail mail. Always get clear information about which team member you’ll hear from in each circumstance, and the method of communication they will use.

Don’t: be too impressed by flashy software. Software isn’t the most important qualification when it comes to managing rental properties. In fact, we even work with a team that sends a paper, handwritten check via email. Software can be helpful, and organization is important, but we prefer that our teams be more focused on cash flow than minor details like that.

Do: take care of the things they ask you to fix. When your team contacts you regarding a leaky faucet, rattling heat vent, or a broken toilet, give them the green light to fix those issues. It might seem like some of these complaints are small to you, but to your tenant, the little things compile. When you anger your tenants, you make your property management team’s job harder.

Don’t: be greedy with pricing. Your team is already established in the market, and they know what price is appropriate. Trust their judgment and experience.

Do: get your account numbers right, and give plenty of notice if you need to change your banking info. Most property management companies will pay your rent via ACH. If you decide you need to change the account where your rent is deposited, give them a heads up in advance.

Don’t: fall prey to the allure of the first property. Many investors think they can self-manage when they first get started in real estate. But if your plan is to grow your portfolio, you’ll want to place this job into the hands of professionals.  

Do: fill out all documents in a timely manner. When you onboard with a property management company, they’ll send you a packet of paperwork to complete. This stuff is important! It’s how you receive your payments and important tax documents.

Don't: forget how crucial a property management team is to your success! Always treat them with respect, and do your best to make their job easy. 

Your property management team is critical as a real estate investor. Make sure you understand these do's and don'ts.

What Is a Foreclosure?

About a decade ago, foreclosures were common in the world of real estate. Now, foreclosures are much less common, but as a real estate investor, you should be informed about foreclosures and how they work.

A foreclosure occurs when the borrower fails to make regular payments on their mortgage. When a mortgage is constructed, the bank places a lien on the property. This means the loan is secured, and in the event that the loan is unpaid, the bank has the rights to the property.

The process can vary depending by state law, but typically the foreclosure process consists of five steps. 

  1. Missed payment. When the borrower stops making their regular monthly payment, the bank takes action and begins the foreclosure process.
  2. Public notice. The lender makes an announcement in local newspaper. This notice indicates that the borrower defaulted on the loan.
  3. Pre-foreclosure. This is a grace period that allows the borrower to work out an arrangement. Typically the bank would rather collect some of the payment than none. (Pssst...this is a great way for investors to find discounted properties). 
  4. Auction. The property goes up for sale in a public auction, typically conducted on the courthouse steps. Often, the property is sold at a discounted rate so the lender can recover a portion of their loss, or break even. 
  5. Post-foreclosure. If a third-party does not purchase the home in an auction, it is then in the possession of the bank. 
About a decade ago, foreclosures were common in the world of real estate. Now, foreclosures are much less common, but as a real estate investor, you should be informed about foreclosures and how they work.

Portfolio Loans for Real Estate Investing

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Are you interested in accelerating the growth of your portfolio? What if there was a way to pick up a group of properties, rather than slowly accumulating properties one by one? I have excellent news for you; there is a way! It’s done through securing a portfolio loan.

In residential real estate, a portfolio loan is a means for investors to acquire multiple properties, simultaneously. Portfolio loans can be secured through either financial institutions or private lenders. The amount of the loan is based on the value of the collective properties.

A portfolio loan varies vastly from a primary home mortgage; they’re two totally different products. You might use the same terminology, like interest rate or pre-payment penalty, but that’s where the similarities end. The best way to approach a portfolio loan is to remember that the terms will be much different than other loans you’ve encountered.

If you’re expecting an interest rate of three to four percent, because of your experience with a mortgage, you’ll be sorely disappointed. A portfolio lender will typically lend at a rate between six and twelve percent. The rate varies dependent on the down payment.

If you’re looking to expedite the growth of your real estate business, a portfolio loan might be a great option for you. If you want to hear my personal experience with portfolio loans, including down payments and interest rates, head over to episode 58 of the podcast.

In residential real estate, a portfolio loan is a means for investors to acquire multiple properties, simultaneously. Here's what to know about them.

Why You Should Invest Out of State

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When I mention that I purchase properties in the $40-50k range, sometimes people respond, “You’re so lucky! Homes in my area are over $200k!” But the thing is, I don’t invest in my home state of New Jersey.

The price to acquire rental properties in New Jersey is sky high!. The property taxes are astronomical, and it takes a lot of time and money to rehab an even remotely affordable home.

Additionally, these properties aren’t worthwhile because return on investment is low. This is not the way to build wealth. You can't be a successful and profitable real estate investor without a certain ROI.

Properties in my area are simply bad investments. The cost to acquire is too high, and the taxes are outrageous. In my research, I’ve found that the ROI in New Jersey isn’t lucrative. If I want to build legacy wealth, I have to acquire properties with a high ROI.

Therefore, I always purchase my properties outside of New Jersey, and in my experience, it’s perfectly safe. If you're intimidated by purchasing properties so far from home, be sure to listen to this podcast episode where I discussed the safety of purchasing across state lines. 

If you want to start building a passive income, you have to go where you’ll earn the highest return on investment. Unless you just happen to live in one of the best rental markets, you'll probably have to leave your comfort zone, and look for properties in different markets.

In my experience, the best way to build a profitable and robust portfolio is to invest in the best rental markets in the US where ROI is high, and risk is low. Check out our 7-step guide to purchasing rental properties out of state!

Unless you just happen to live in one of the best rental markets, you'll probably have to leave your comfort zone, and look for properties in different markets.

How to Plan Your Path to Financial Freedom

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It’s been an exciting week, to say the least. After 18 years in broadcast television, I left behind the safety net of a regular paycheck. I’ve willingly abandoned the comforts of a 401k, employee sponsored health insurance, and a six-figure salary.

The old Clayton believed outdated ideals like “money doesn’t grow on trees,” and “we’re not the Rockefellers.” He was held back by fear and limiting beliefs. He tied his self worth to a paycheck. But the new and improved Clayton? He’s learned to build wealth for himself through passive income.

This isn’t something that simply occurred out of thin air. It's not luck; I didn’t wake up one day with extra cash flow. This is something I planned for, and worked toward. You can hear more about making the final decision to leave my job on the podcast.

The good news is: you can replicate exactly what I’ve done. I’ve laid out a step-by-step plan that helped me reach my goal of financial freedom. It’s a simple, yet effective way to plan your way toward passive income, covering your expenses, and to stop being a slave to the man!

I call it the Freedom Cheat Sheet. It’s a PDF designed to help you calculate how many properties it would take for you personally to be financially free. The idea is simple—you add up your expenses, and then calculate how many rental properties you would need to cover your bases.

Once you’ve done that, you’re free. It doesn’t matter if your employer decides to give you the can. If you decide you want to spend more time with your family, or pursue other ventures you can. Whatever freedom looks like to you, you can attain it through rental real estate.

Now that I’ve made this monumental change in my life, I’m even more excited to help others plan their way to Financial Freedom. I’m giving away the Freedom Cheat Sheet to help you get started on your own path to financial freedom. Grab your free copy now! 

I’ve laid out a step-by-step plan that helped me reach my goal of financial freedom. It’s a simple, yet effective way to plan your way toward passive income, covering your expenses, and to stop being a slave to the man!

How to Invest in Real Estate with Bad Credit

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If your credit score is less than stellar, you’re not automatically disqualified from investing in real estate. Sure, you might have to get creative and figure out how to get funding, but it is possible! I’ve talked to plenty of investors who were able to get started, even with obstacles like bad credit and no money.

Here are a few ways you can purchase your first rental:

Private money. Private money refers to any money that you borrow from a non-bank on your own terms. This could be money you borrow from a friend, relative, or another investor. Private money is a fantastic way to get started, because typically a savvy investor will care more about the deal than your personal credit score.

Seller financing. If your credit score is holding you back from applying for a traditional mortgage, seller financing might be a great option for you. Unlike a big name bank, a seller can negotiate terms. It’s a great opportunity for the buyer to invest with no money down or a low credit score. Head over to the podcast to hear more about seller financing!

Hard money lenders. Hard money lenders are like bankers, but they set their own rules. They lend money with less strict standards than the banks because they are not regulated by the government. They don't care as much about your credit score and they don't limit you to one investment at a time. They lend on the merit of the deal and they can close funding much faster than a traditional bank. One drawback to hard money is that it typically has a higher interest rate.

401k loan. If your employer offers a 401k plan, you might be in luck! Since your 401k is your money, you can take a loan from it. There are a few limits, but your credit score isn’t one of them! This is a strategy I use yearly. It's a fantastic strategy, because you’re in essence, paying the interest back to yourself. You can learn more about this strategy here.

It’s worth mentioning that this is not an exhaustive list. I truly believe that if you want to invest in real estate, you can make it happen! If you feel like these options won’t work for your individual situation, check out our podcast episode about paying off debt, as well as this post on creatively financing your real estate deals!

If your credit score is less than stellar, you’re not automatically disqualified from investing in real estate. Here are a few ways you can purchase your first rental.