How Your Children Can Begin Building Wealth

Unless you're new around here you probably know we are always looking for ways to build legacy wealth for our family, as well as legally reduce our overall tax burden. Since we’ve had children, we discovered another investing strategy that builds an incredible amount of tax-free dollars!

Our children have self-directed Roth IRAs. Our daughter, Ava, has had her account since the age of three. Per the IRS rules, there is not a minimum age to open an IRA. However, the person must have earned income.

You might be scratching your head—how can a three year old have earned income? It’s possible! You see children in ads every single day who are paid for modeling gigs. Since our real estate business is a business (read: LLC), we are able to give our children jobs, and pay them accordingly.

They work for our business by doing small administrative tasks. For example, every Saturday, it is their duty to shed documents, put stamps on envelopes, and deliver outgoing mail to the post office.  This is legitimate work; their money, which is being deposited into their IRAs, is indeed earned. 

Because their IRAs are self-directed, there is a list of things those funds can be invested in, one of which is real estate. And although their IRAs have a limit of $5500 per year, which is typically not enough to purchase a property, there are some ways to bypass this issue. For example, our son and daughter could combine their funds, and purchase a property together in a few years. Our children could partner with someone else, or lend private notes on a property.

Not only are our children receiving high returns on their investments, but also their accounts are pre-taxed! This means we’re paying taxes on the dollars before they are put into the IRAs, but at retirement age, the money will be tax-free! The potential for growing these accounts is incredible.

Learn more about how our kids invest in real estate with an IRA on episode 202 of Investing in Real Estate! 

3 Killer Resources for Learning About Private Financing

If you're interested in purchasing your next real estate deal via private financing, it can be difficult to know where to start. How do you find a private lender? What terms should you ask for? Should you find a lender or a property first? I know that these questions hang up a lot of investors, or would-be investors! 

That's why I'm sharing three resources you can use to dive deep into the world of private financing, build your confidence, and secure your next deal! If you've ever been hesitant to enter the world of private financing, this is for you!

1. Getting the Money by Susan Lassiter-Lyons - Susan Lassiter-Lyons is the queen of private money. Seriously. She's raised over $26.2 in private capital, and she's made it her mission to teach others how to reach their goals via private financing. Getting the Money contains tons of great strategies for securing private lending, getting in the right headspace, and so much more. 
2. Private Money Series - Over on the Morris Invest YouTube channel, I've created an entire playlist about finding private money. You'll learn how to create a credibility one sheet, how to decide how to compensate your lender, and you'll even see me set up a lunch meeting with a private lender. 
3. Getting the Money Course - If you like Susan's book, you'll love her in-depth course on obtaining private financing. In the course, you'll learn Susan's exact step-by-step strategy, learn how to put together private money presentations and find leads. If you're ready to take action, you'll love the Getting the Money Course! 

The Importance of Treating Your Tenants with Respect

Without tenants, a rental real estate business cannot cash flow. In our real estate business, our philosophy is to treat our tenants well. We do this not only because we believe in treating people well in general, but also because we understand the importance of having tenants stay in order to produce monthly income.

Some landlords take a cavalier approach when it comes to their tenants. They know that their rental property is an asset that they own, and that their tenants simply rent from them. Personally, we believe that having a big ego like that is dangerous.

We like to remember that an important piece of our business structure is creating a great home for an individual of family to live in. We have to remember our main purpose: to provide a home for families. We want our tenants to feel at home in our properties. Because of that, our relationship with our tenants tends to be flexible—it’s a give and take. We certainly set boundaries, and we don’t want to be taken advantage of. 

As a landlord, you will get questions from your tenants. Some examples are, "can I have a dog?" or "can I trim back these bushes?" Sometimes, the property management company will discourage you from approving these requests. However, we tend to use one guiding principle to make these types of decisions: will fulfilling this request make our tenant feel more at home?

If a tenant feels at home, they are more likely to stay long-term. The longer the tenant stays, the longer we receive consistent rent from that rental property. It’s important to remember that a rental real estate business revolves around humans. 

How to Invest without Using Credit

In my experience talking to potential investors, it's easy for people to come up with excuses why they're not fit to become a real estate investor. Whether it's a personal circumstance or finances, most of these excuses tend to be limiting beliefs that aren't true. Having a bad credit score is one of them. You can invest in real estate without using credit. It might require you to be a little more creative, but where there's a will, there's a way. 

Here are a few ways you can purchase your next rental property:

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 this post on creatively financing your real estate deals!

How to Choose the Right Neighborhood for Investing

Chances are, you’ve heard investors throw around the classifications of A, B, and C neighborhoods. This can be confusing if you’re new to the game. Simply put, it’s a classification system used by investors to measure if a property fits within their investing strategy.

These classifications are not an exact science, but loose terms. Let’s dive into what some of these neighborhoods are like.

An A class property is typically a bigger home in a great neighborhood. You can expect a variety of bells and whistles like garages and central air. These properties cost a good chunk of change, and the rent will be higher as well.

I know what you’re thinking: “Higher rent means more income!” Not so fast. The ROI is actually lower in an A neighborhood, because the up-front cost is so high. And not to mention, A class properties typically are the biggest headaches for investors! It’s counterintuitive, but tenants in an A property have much higher standards, and need more maintenance and attention. Think about all of those bells and whistles I mentioned. More amenities = more upkeep!

Also, an A neighborhood is going to be most affected by a recession than any other neighborhood. Tenants with higher incomes are more likely to lose their jobs when the economy is down. If you’re looking to earn a steady, passive income, you’ll want to consider this before purchasing an A property.

I like to think of a B class property as “in transition.” This would be a neighborhood on its way to being an A neighborhood. You won’t collect as much rent as an A property, and the houses will be cheaper, and more distressed.

Imagine a home that an elderly woman lived in for 40 years. It’s in good condition, but is dated. This kind of home might have wood paneling, ugly wallpaper, and old carpet. The house has good bones, but needs some updating. That’s a B property. This can be a great choice for you if you're planning to utilize the BRRRR Method, because the banks will easily refinance a B class property. 

A C class property, however, needs much more work. These homes are typically older than 40 years old, and often have been sitting vacant. When I purchase a C property, I tend to put a new roof, windows, plumbing, and electric—the works! Yes, it’s an extensive rehab, but what you come out with is basically a brand new house. Then, big repairs are unlikely for the next 20 years.

If you feel fearful of a C property, you must know that there are a lot of misconceptions out there about C neighborhoods and the people that live there. I love C neighborhoods, and in fact, that’s where I purchase the majority of my properties! The homes can be acquired at a low cost, I’m able to put a ton of value into the property, and then get a high return on investment. My tenants are fantastic, blue-collar Americans who work hard. By renovating these properties, I’m giving them a great house to come home to at the end of a long day, and that is so rewarding. A C class property might be right for you if you just want to get your first property under your belt, or if you want to spend around $40,000-50,000. 

If you’d like to know more about receiving a high ROI on a B or C class property, simply click the button below to speak with my team! We’d love to discuss your goals and questions about real estate. 

How to Plan Your Way to Financial Freedom [Free Download]

The Freedom Cheat Sheet is a PDF I created a few years ago when I started on my journey toward financial freedom. This document helped us set a goal, and in turn totally change our financial situation. We've been sharing the Freedom Cheat Sheet ever since. 

Over the past few months, Natali and I sat down to revisit and fine-tune the Freedom Cheat Sheet, and we're proud to bring you the new and improved download! 

Here's a little backstory: the Freedom Cheat Sheet was born out of my own frustration. It seemed that nearly every dime went toward paying off liabilities, and we could never quite save any money. Despite my high-paying broadcasting career, we struggled to pay our mortgage payment.

I knew something had to change. At this point, we already owned two rental properties. So we sat down and calculated exactly how many rental properties we would need to cover our expenses and be financially free. Thus, the Freedom Cheat Sheet was born!

Here’s how it works:
Know your numbers. Open up your bank statements and take a look over the last six months of your expenses. Account for all of your bills and payments, entertainment costs, and groceries. Try to be as accurate as possible, and come up with a monthly average. Then you’re going to pad that number by 10%. The idea here is that if only your basic needs are met, you’re not technically free. You want to be able to take vacations, or not worry if an unexpected expense occurs.

Next you’re going to determine how many rental properties you would need to reach that number. An average rental property in America’s best rental markets rents for $700 per month. However, you as the investor don’t get to keep the full $700. We use a conservative formula that sets aside 40% for expenses, repairs, and vacancies. That leaves you with $420 per rental property. Then you simply divide the number you calculated earlier by $420 to determine how many rental properties it would take for you to be financially free. 

Ready to plan your way to financial freedom?

Using a HELOC to Purchase Assets

Owning your primary residence is a liability, but there’s a tool you can use to transform that liability into a vehicle for purchase performing assets. Smart investors know how to leverage, and this strategy can accelerate your real estate portfolio growth.

In this post, I’m sharing one of my favorite strategies for acquiring rental real estate—using a HELOC! You’ll learn about the incredible benefits of this strategy, including the power of simple interest and increasing your home equity. If you own your primary residence, this could be a great option for you. 

A home equity line of credit, or a HELOC is often referred to as a second mortgage. When you take out a HELOC, the bank allows you access to a sizeable amount of cash. A HELOC is a loan based on the amount of equity in your home.

For example, let’s say that your primary residence is worth $500,000, and the remaining balance on your mortgage is $200,000. In this scenario, you have $300,000 worth of equity.

You are able to get a loan on your equity, usually around 80% of value. In our scenario, 80% of $300,000 is $240,000! When you take out a HELOC, the bank gives you a checkbook and a debit card that you can use to make purchases. 

Traditionally, a HELOC is used by homeowners to make home improvements, but there are no limits to your purchasing power. This is why a HELOC is a great strategy for purchasing real estate. You can turn your home equity into cash flowing rental properties, and your tenant makes the payments with their monthly rent. This is an especially powerful strategy because a HELOC is a revolving line of credit, you can rinse and repeat!