Why I Love Low Cost Rental Properties

morris-32.png

If you spend any time in internet forums, you'll hear a lot of opinions why it's unwise to purchase low cost rental properties. You'll hear horror stories about how affordable homes are in unsafe neighborhoods with unstable tenants and high crime. 

This could not be further from the truth. I love low cost properties! In fact, low cost rental properties are how many successful investors, including Robert Shemin, have made their fortune and achieved financial freedom. And you know those naysayers hanging out on internet forums? The thing is, most of them have no first hand experience to back up their claims! I'd rather follow in the footsteps of people like Robert who know what they're talking about. 

The bulk of my portfolio is centered around single-family homes in the $40-50k range. These homes are in America’s most affordable cities, in C neighborhoods where blue collar Americans live. My tenants are great, hard-working people. Many of them are nurses, principals, post office workers, and long-haul truckers.

If you were to walk down the streets of one of these neighborhoods, you would understand that it is not dangerous or scary at all. These are perfectly safe neighborhoods. In fact, here’s a video!

Why do these types of homes in these types of neighborhoods work as an investment? Cash flow! A typical home in the markets where I buy brings in $700 in rent every single month. Additionally, these neighborhoods are largely unaffected by economic downturn. Long-haul truckers and nurses don’t lose their jobs when the economy crashes.

More expensive homes just can't compare when it comes to ROI. Sure, you might be able to bring in more every month, but the cost to acquire is much higher. I like to say that A class properties make for A class headaches. Read more about that here. 

If you're interested in picking up your very own low cost property in one of America's best rental markets, book a call with our team! We'd love to match you with a property that will bring you closer to your goal of financial freedom.  

 Low cost rental properties are how many successful investors have made their fortune and achieved financial freedom. Here's why they can be so great!

Put Your Old 401k to Work Again by Investing in Real Estate - Guest Post by Michael Cornetet

morris-21.png

As many of you know, earlier this year I left behind my broadcast career to embark on a journey as a full-time real estate investor. As exciting as this transition was, there were a lot of details and nuances to take into account. One of the main things I had to worry about was what to do with my employer-sponsored 401k plan. Natali and I reached out to our friends at Advanta IRA, and they helped me convert my plan into a self-directed account. The experience was simple, smooth, and fast! I highly recommend Advanta due to their excellent customer service and efficiency. Today we're bringing you a guest post from Advanta IRA's director of marketing, Michael Cornetet. 

Leaving one job and moving to another often involves decisions on what to do with your old employer-sponsored retirement plan. Too many people make the mistake of leaving their plan where it is and do not give it a second thought. Many people are not even aware that they can use these funds to invest in all types of real estate assets.

So, even if your new employer offers benefits, that doesn’t mean you can’t move your old 401(k) funds into a plan that allows you more control over your investing decisions. If you want a retirement plan that helps you achieve financial freedom, consider opening a self-directed account.

Self-directed IRAs and solo 401(k)s are retirement plan structures designed for account owners to have more flexibility and freedom in choosing their own assets. These plans are gaining traction and popularity among individuals who are dissatisfied with the returns they achieve in plans vested into stocks, bonds or mutual funds. Real estate in an IRA is a timeless, tangible asset, and by far the most popular investment in self-directed accounts. Residential and commercial property, tax liens, and private mortgages and notes are just a few examples of ways a self-directed 401(k) can earn quick returns and/or steady tax-sheltered retirement income.

For example, let’s say you open a self-directed 401(k) and purchase a two-bedroom cottage in a popular beach town for $289,000 with funds from the account. The cottage rents for $1,500 per week or $4,500 per month during peak season. Off-season weekly rates garner $1,000 or a monthly rate of $3,000. You hire a management company that achieves the goal of renting the cottage for 30 weeks each year, scoring your desired income exceeding $30,000. After paying the management company fees, your 401(k) earns almost 10 percent of that as profit.

Can you earn that much of a return on bonds or mutual funds? You might on stocks—if the ones your broker chooses are successful. Otherwise, you might earn nothing at all. Not to mention the stress that stock market upswings and downswings create. Which would you prefer? Boring bonds and mutual funds (and their even more boring returns)? The wild ride Wall Street presents? Or would you rather have a tangible asset like real estate that you can vet and choose yourself?

That’s the beauty of self-direction—the choices are yours to make. And, there are plenty of investing options that become available when you self-direct a 401(k).

Of course, there are IRS rules and regulations that all self-directed investors need to know. There are also many different plan types you can use to build retirement wealth. Plan administrators vary, as well, so choosing a self-directed plan administrator with experience that fits your goals and allows the investments you desire is critical.

Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation who invest in alternative assets. Our staff members have various financial, legal, and investing backgrounds—making our expertise unsurpassed in our industry. We don’t give financial or investing advice, but we do handle hundreds of real estate investing transactions every year and ensure your investing process is simple and seamless.

Contact Advanta IRA at (800) 425-0653 if you’d like to learn more about how you can invest in real estate with a self-directed IRA.

Download the free Real Estate IRAs Made Easy guide to equip yourself and to learn how to get started.

 Too many people make the mistake of leaving their old 401k plan where it is and do not give it a second thought. Many people are not even aware that they can use these funds to invest in all types of real estate assets.

Choosing Bank Accounts for Real Estate Investing

morris-11.png

If you run your real estate venture like a business, you’ll want to utilize a business bank account. But not all business bank accounts are created equal! It’s important to not only find the most cost effective solution, but also the account that fits your specific business’ needs.

Admittedly, we’ve opened a lot of different business bank accounts throughout our real estate career. If you aren’t used to running a business, this is an expertise that must be learned. It’s important to choose a specific business account, and not one that is intended for personal use.

When we opened our very first business account, we went to a big name bank, simply because that’s where we already banked. However, at that time, they charged $35 every month for a checking account. Remember, every single expense in your business comes out of your ROI, so we had to shop around.

Eventually, we found a no fee business checking account with a local bank. We have found that more often than not, you will have better options with a local bank or credit union. We always suggest shopping around, and the site Bankrate can help you find what meets your needs.

It's important to assess a few different things when you're shopping around. You'll want to determine whether your account has a minimum balance or a monthly fee. You should also have an understanding what your bank will charge for different transactions, such as wire transfers. Make sure you do your due diligence and find a bank account that meets your business' needs! 

 As a real estate investor, you’ll want to utilize a business bank account. But not all business bank accounts are created equal! Here's how to find a cost effective solution and the account that fits your specific business’ needs.

What You Need to Know About 1031 Exchanges

morris-5.png

A 1031 exchange is an incredibly 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. 

However, the IRS' guidelines on conducting a 1031 exchange are stringent. Here are six rules that an investor must follow:

  1. In a 1031 exchange, the properties involved must be held for either business or investment purchases. You cannot conduct a 1031 exchange on your primary residence.
  2. 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.
  3. The IRS also has 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. 
  4. The investor must also work with a qualified intermediary. This is a third party that holds the money for the exchange in escrow.
  5. The title on the new purchase must be identical to the old property. For example, if first property was held in an individual’s name, that person cannot put the new purchase in their LLC.
  6. A 1031 exchange permits the investor to sell a real estate property and then reinvest the funds in a property of equal or greater value. The investor cannot make a purchase for less than the original property. This would defeat the purpose of deferring taxes on a gain.

To learn more about 1031 exchanges, check out our interviews with experts Lance Growth and Leonard Spoto

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

5 Things I Wish I Knew Before Purchasing My First Rental Property

How to Replace$70k_year-2.png

I would venture to say that most investors hold misconceptions and make mistakes when they're starting out. I know that I did! Many of us learn through this process. You shouldn't beat yourself up if you overpay on your first rental or make extraneous renovations. What's important is that you learn from those mistakes, and get your strategy on the right path. 

Today I'm sharing five things I wish I had done correctly the first time around! Follow these five tips and you'll avoid a lot of headaches:

  1. Fall in love with ROI. Return on investment is the number one metric that will make you successful as a real estate investor! It doesn’t matter what the house looks like. All rental homes are simply four walls and a roof. Effective investors fall in love with ROI, not a cute little bungalow with beautiful landscaping in a charming neighborhood. 
  2. Purchase properties in the right rental markets. New investors might begin searching for properties in their city on Zillow, or drive around their neighborhood looking for local homes for sale. But successful investors know that the most profitable, worthwhile investments are most likely not located in their backyard.
  3. Hire a property managerHiring a property management team makes real estate investing simple and passive! A skilled property management team is an indispensable part of your success, and will make your business scalable.
  4. Overestimate expensesIn my ROI formula, I remove 40% for vacancies, repairs, and expenses. Expenses are inevitable in any business, and real estate investing is no exception. Be conservative with your numbers, and ensure you can cover any expenses that should arise.
  5. Realize cash flow is the end goal, not the first step. Understand that gaining cash flow is a process, and there are a couple phases to go through before you reach your ultimate goal. 
 Five things I wish I had done correctly the first time around when buying my first rental property! Follow these five tips and you'll avoid a lot of headaches.

Becoming a Hands-Off Investor

How to Replace$70k_year-232.png

My mission is to make real estate investing passive. That's the whole point! I don't want this to be a full time job. That's why I help other investors with turnkey real estate. Purchasing a turnkey property provides enormous benefits, but requires the investor to be hands-off. For some people, it can be hard to relinquish control and trust the process.

I always advise new investors to think about the kind of lifestyle they want to live. Are you getting into real estate investing as a job? Or are you trying to create passive income and more time for yourself? There’s no right or wrong answer, but you need to be honest with yourself.

Do you want to pick out paint colors? Do you want to manage the rehab process from start to finish? If you enjoy those tasks, then turnkey investing is not for you. If you can’t let go of those small details, you’ll probably want to be hands-on with property management too.

Part of turnkey investing is letting go. It’s supposed to be passive! Your job as the investor is to trust the process, put your faith in the team, and then sit back and collect the rent checks. 

If it's not in your personality type to let go of those details, I have a suggestion for you. You can harness that energy in the right direction. While you can't pick the paint or the tenant in a turnkey property, you CAN be incredibly meticulous in your bookkeeping and organization. Check out our podcast episode on how to organize your real estate investments.

 Tips on making real estate investing passive.

Should You Work with a Realtor?

How to Replace$70k%2Fyear.png

Naturally, many people think that the best way to initiate real estate investing is to connect with a real estate agent. However, more often than not, realtors know very little about things like seller financing and purchasing distressed properties.

Don’t get me wrong: I love realtors. My dad is a realtor. My wife has her real estate license. I understand and appreciate that realtors work very hard. But... they simply are not always well versed in the world of investing. The issue is, the main role of a realtor is to help individuals and families purchase their primary residences.

That’s a whole different ball game than real estate investing! Most realtors simply do not know about investing, including turnkey investing, finding wholesale properties, and what it takes to make a solid investment. Investing is an entirely different business. 

Unfortunately, most novice investors have no idea about this disconnect. It seems like if you want to purchase a property, the natural place to start is with a realtor. But a realtor most likely is not going to be able to help you find a property under market value; their job is to help their clients get the most for their property!

One of the best ways to ensure that you'll make a high return on your investment is to purchase a discounted property. Unfortunately, more often than not, a realtor can't help you in this department. In general, my advice is to skip the realtor, and go after ROI. 

 Many people think that the best way to initiate real estate investing is to connect with a real estate agent. But is that true?