If youve been following my weekly blog posts, youll know that Im quite the contrarian when it comes to some of the popular topics. Ive spoken about why you should never use leverage and only invest with cash. Ive spoken about why I dont necessarily believe in or like house hackingand a ton of other stuff that I always get a lot of crap about in the comments section below. But I encourage you, and I welcome the criticism. Im happy to respond to everyone. And again, in this article, Im going to be a contrarian.
[embedded content] Have you heard of the saying Jack of all trades, master of none? I personally believe that real estate success takes hard work and sacrifice. I also dont think that you can be in many places at the same time. Working a nine-to-five job and trying to have a successful real estate businessas in buying, fixing and flippingin my opinion, is a recipe for disaster. If you want to have some sort of side hustle and if you want to make additional income, I dont think that you should put your life savings into a fixer-upper property that you can just go and project manage on the weekend. As you probably know, when the cat leaves, the mice come out to play. Relying on Shady Operators I read not too long ago that the real estate industry is starting to have a big stigma because of shady operators. Real estate agents, for example, might not care about their clients, just the commission. So they tell them everything they want to hear to get that deal across the line. As for contractors, everyones got headaches with them including myself and Ive done hundreds of deals. Im still losing money to contractors. Property managers fall into the same category. A lot of these folks are the biggest scammers in the business because they come up with non-existent expenses, charge you for them, and never do the repairs because they werent needed in the first place. All kinds of folks could cause you to lose a lot of money. Related: Opinion: Quitting Your Job & Living on Passive Income ISNT Necessary for Financial Success Now, imagine these three folks being responsible for your real estate endeavors. Meanwhile, youre working a nine-to-five job where youre busy, and then youre trying to buy, fix, and flip a property. I just think youre setting yourself up for disaster. Youve got no flexibility because when the contractor calls, youre in a meeting. It just wont work. Thats just my opinion. I could be right, I could be wrong. Ill let you guys be the judge of that. What I think you should do is if youre going to consider becoming a real estate investor and you truly want to achieve success within a five-year timeframe, you should quit your job. I know a lot of you are going to comment negatively on that, but in order to succeed, you need to take risks. I know quitting a job is a big risk and a sacrifice, but if you can devote most of your day to your real estate endeavors and youre willing to work hard, I certainly think that you can succeed. However, it is going to require you quitting your job. Whats the Worst That Could Happen? You quit your job. You go and try real estate investing and you buy, fix, and flip properties. You commit to it wholeheartedly. Thats all you do every single day. You live, breathe, and dream real estate, and sometimes you fail. Then you come to realize that you werent supposed to be a successful real estate investor, and you dont enjoy it. It requires too much money, time, and effort. Well, guess what? You can just go back to your nine-to-five. You might not have the same income, but you took a risk, it didnt work out, and you have to start from scratch again. Remember, the number one regret that people in nursing homes have is not taking more risks. In my opinion, we all end up in the same place. Youve got nothing to lose as long as you put your mind to it. You can always go back to what you were doing before. I personally think if youre going to give real estate a good crack that you need to devote most of your time to it. Then you will know if its meant for you and if you can turn it into a successful long-term business and retire at a young age. So guys, once again, contrary to the popular belief, I think that if youre going to be buying, fixing, and flipping (or any kind of real estate investing) that you should do it full-time. If you want to achieve financial freedom very quickly, you probably shouldnt be working a nine-to-five. Again, thats just my opinion. Im happy to hear your thoughts. Please comment below. https://www.biggerpockets.com/renewsblog/flip-houses-working-9-5/
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New investors can easily get confused when they wade through the alphabet soup of entity and tax information relevant to real estate for the first time. But entities are essential to running your business and protecting your investments. Some of the most common questions we get are about the types of entities real estate investors can use, their uses and features, and their differences. Today, lets take a closer look at the basics: LLCs, series LLCs, C corporations, and the tax status often mistaken for an entitythe S corporation.
Limited Liability Companies There are two main types of limited liability companies (LLCs) that you are likely to use for your real estate business, although they will likely serve different purposes. These are the traditional LLC and the series LLC. Both entities are formed the same way, by paying a filing fee and recording membership with the state of formation. Each state will have different regulations governing LLC formation, taxation, and structureincluding whether the state offers a series LLC option within its borders. Both types of company offer liability protection for the LLCs members and of the assets held within the company. Related: The Pros & Cons of Using a New LLC for Every Property Purchase Traditional LLCs and Series LLCs: Their Roles and Differences Traditional LLCs are a popular choice for investors because they are universally available in every state. In our practice, we frequently recommend that investors use a traditional LLC as a shell company. A shell company can be any company that does business with the public but does not actually own anything. Having a shell company is a smart move from an asset protection standpoint because it allows you to easily separate your assets from your operations. If you use a traditional LLC as your shell company, you may choose to pair it with a series LLC for an effective two-company asset protection structure that is simple to run and effective at preventing lawsuits. Series LLCs are also incredibly useful entities because they make extremely effective asset-holding companies. They are a type of LLC that uses a parent-child structure to allow you to easily incorporate as many assets you like into the structures protection. If a traditional LLC holds assets, it is holding them all in the same company pool. This is not the case with the series LLC, which allows you to divide each asset into its own series, where it has its own liability protections. As a bonus, the series LLC need not be more expensive than its traditional counterpartand, in fact, is often cheaper. To learn even more details about how traditional LLCs and series LLCs compare,check out my previous BiggerPockets article entitled Series LLC vs. Traditional LLC: Which is Better for the Real Estate Investor? C Corporations Corporations offer an alternative to the limited liability company. They differ significantly from LLCs, beginning with how they are formed. Corporations must: File incorporation documents with the relevant state they are based in.Determine shareholders and distribute the appropriate number of shares to each.Select a board of directors to oversee the business. The introduction of shareholders means that ownership is technically divided among shareholders and can therefore fluctuate. In comparison, LLC membership tends to remain stable and straightforward. Finally, a corporations profits and losses remain within the business, while LLCs have more options (discussed in detail below). These features of corporations may be overly complex for an investor managing a couple of rental properties themselves or with local help. But they make sense for business models with executive management or where the shareholder model or tax treatment are more beneficial to your business structure and scale. High-earning investors or those with consistently high-performing profitable properties may find using a C corporation allows them to pay only 15% taxes on these profits. A previous BiggerPockets poster has elaborated on the tax benefits of C corporations for such individuals. Related: Owning Rentals in an S Corporation Might Be a Costly Mistake: Heres Why S Corporation Tax Status & Its Applications The S corporation is frequently mistaken for a different type of corporation entity, but in fact it is a tax status that may be applied to another entity, generally an LLC. When you form an LLC, you have the option to tax it as a disregarded entity or pass-through entity as a partnership or as an S corporation. The same is true of the series within a series LLC; you elect the tax status that makes the most sense for a given series. You can learn more about pass-through entities and their tax benefits from another of my previous BiggerPockets articles, but for now we want to focus on S corporation status. The S corporation tax status may save some investors on their annual business tax bill. The reasons why these are fairly straightforward. An LLC that passes through its taxes will report all profits and losses as personal income. However, if you use an LLC, or series of an LLC that has elected S corporation tax treatment, you have the ability to deduct business expenses from your taxable income. S corporations must also pay their employees salaries, including employee-owners. However, if your business is already paying salaries, a properly-structured business can combine with the S corporation tax designation to save you thousands of dollars annually in payroll taxes. Wondering whether the S corporation designation is best for your entire business, one or more series of your series LLC, or best to avoid altogether? That is a conversation to have with your attorney before the next tax year. This is particularly true if you are already using an LLC of some sort, as you have flexibility with changing your tax designations and selecting those that will provide you with the greatest personal benefit. How Do I Know Which Structure is Best For Me? The best structure for you will depend on a variety of factors, including where you live, how many properties you have, your ambitions for growth, and your operational plans and capabilities. Most investors find LLCs to be the easiest entities to use, and variations of the LLC are therefore the most common choice. But the only people who can tell you which entity will work best for your specific situation are trained professionals with experience in handling tax and legal matters for real estate investors. For these reasons, we strongly recommend having both a highly competent real estate attorney with experience forming entities and a whip-smart, seasoned CPA sensitive to investors tax issues on your team. Any questions about howLLCs, C corporations, and S corporations differ? Leave them below! https://www.biggerpockets.com/renewsblog/difference-llcs-c-corporations-s-corporations Real estate investors enjoy the thrill of acquisition. Who among us doesnt? A new property, a new opportunity, a new adventuretheres a certain excitement to it all thats enticing.
To have a diverse portfolio is a good thing, too. We know, of course, that a variety of properties helps mitigate risk with that all-important safety net that keeps things chugging along should there be an unexpected vacancy or setback. As buy and hold real estate investors, we dont usually consider selling. Still, its a reality. Sometimes, we need to make changes to our portfolio. We need to trim the fat, so-to-speak, and cut out some investment properties that arent serving our best interests anymore. Or maybe selling properties was always part of your plan. But wheres that cutoff point? How do you know when enough is enough? Does it make you a quitter to sell? In short, no. Investing in real estate is all about strategy, and having a keen sense for when to buy and when to sell is a crucial part of an effective strategy. So without further ado, here are some tips on knowing when its time to give a property the bootbecause lets be honest, letting go can be hard! 4 Reasons You Should Sell That Investment Property1. Your original plan was always to sell. A major mistake made by many real estate investors is to not methodically and patiently develop a plan for how they want to invest in real estate. Impatience often leads to mistakes. The mistake is never knowing if you are on-track, off-track, or when to make adjustments. Related: Buy & Hold Real Estate is the Ultimate Investment: Heres Why Successful investors, no matter what the measurement used, areinvestors who make a plan before they start investing and follow that plan. That includes selling perfectly good assets that may be performing as expected. Maybe your plan as an investor was to make certain moves at certain timeframes, and that can includeboth holding properties forever and sellingproperties when everyone else thinks youre crazy! It is your plan for a reason. Make it. Follow it! You can always change at any point, but if you fail to make a plan at the beginning, you are already in the top percentage of real estate investors. 2. Its consistently generating negative cash flow. Now, there are absolutely scenarios where an investor should make a change, whether it is part of their plan or not. This one should be obvious, but its not as easy as wed like to think. Cash flow can vary month to month as expenses fluctuate, which can make it unclear as to whether the property is turning out to be a dud or if youre just in a temporary rough patch that will pass. After all, you dont want to panic and make a hasty judgment call. When youre developing your real estate investment goals and strategies, consider how many negative cash flow months you can deal with and absorb. What are you willing to deal with before you decide to get rid of the property, keeping in mind that it may not sell immediately? Consistent negative cash flow is the number one reason to sell an investment property: Its not generating income for you, so its not worth keeping. 2. Its more trouble than its worth. If youre a passive real estate investor, the last thing you want is an investment property that you constantly have to fool with. Is your property plagued with issues that just wont quit? Foundation problems, mold, termite damage, bad neighborhoods, flooding, electrical problems, or other chronic issues may need constant attention. Its just not worth your energy to worry about sometimes. If youre a flipper, maybe thats a challenge youre willing to embrace. But if youre the type of investor who wanted turnkey and didnt get it, its probably not the kind of property you want to keep, especially if dedicating the resources to get up to par would be more of a drain on your wallet than its worth. Related: 4 Essential Strategies for Taking on a Negative Cash Flow Property If the numbers dont make sense and it keeps you up at night with constant headaches, why are you keeping it? 3. Youre better off investing elsewhere. Is another market calling to you? Were not saying you cant invest in multiple markets. Far from it! Diversification is good. However, there are definitely situations in which youll have to choose between your current market and new opportunities, either due to limited resources or access to equity. Maybe your current portfolio has allowed you to level up and now access a market that you once felt like was beyond your reach, thanks to the equity youve built! Maybe the economy is growing in a new market and not in your current one, and youd rather pour your efforts into a place with clear opportunity. Its all about your personal strategy and deciding what you want to do with your investments. 4. Your investment priorities have shifted. Over time, many real estate investors find they want to do something a little different. Many new investors, for instance, start with a single property, usually a cheap one, and try to landlord themselves. This doesnt typically give them the returns they dreamed of, nor is it a great strategy, even if, in theory, its saving money on the front end. Or, on the other hand, maybe they went into flipping and decided that approach wasnt what they liked. They want to be hands off. (Or the other way around!) In any case, priorities and strategies change over time. We learn, we get better, and we change. Because of that, our portfolios change, too. Sometimes that means rearranging our portfolio to reflect and serve new goals! No matter the reason for selling, whats important is being decisive when you know you need to. If you want results, you have to be proactive. If you know what you want for your financial future, reach for it. Pursue it. If what youre doing isnt working, do something different. Were republishing this article to help out our newer readers. Have you ever been in a situation where you were compelled to sell an investment property? Why? Let me know your experiences with a comment! https://www.biggerpockets.com/renewsblog/sell-that-investment if your house is your largest investment, youre in trouble. Robert Kiyosaki
My household has finite income. It turns out this is a common problem. When you have a limited amount of money coming in each paycheck, it can be very easy to have conflicting financial goals. My wife and I find ourselvesin this situation. Here are ourtop two long-term financial goals: Achieve financial independence through property investment.Pay off our personal home. These two goals create tension, competing for every extra dollar that we can make available. Its easy to have an I want it all attitude, but life has a way of forcing you to prioritize. Which of these goals should get the focus of our attention and money? Ive had this discussion numerous times with friends and colleagues. Across the board, the priorityfor most people is to pay off their home. Other than some retirement account contributions, most people plan to begin investing only after they are mortgage-free. Is this the best way to approach this problem? Risk and Reward I understand the logic. If my home is paid off, then Ill have more money available to invest. Theres also the risk factor: On the one hand, if I lose my job and my home is not paid off, then I could lose my home. On the other hand, if I lose my job and my home is paid off, then its just my investments that will suffer. Related: Why a 30-Year (NOT 15-Year) Mortgage Gives You a Better Shot at Building Wealth In a previous article, I explained how my wife and I followed the BRRRR strategy to purchase three rental properties and put all of our investment money back into our bank account. The purpose of the article was to explain how the BRRRR strategy works, regardless of how you obtain the money for your deposit and rehab costs. However, I received a number of questions asking me about the way we actually obtained our initial deposit. In our case, we got the money to invest in rental properties by refinancing our personal home. This is often referred to as a Home Equity Line Of Credit or HELOC. By doing this, we actually chose to get further away from the goal of paying off our home in order to purchase rental propertiesthe exact opposite decision that most people make. As was pointed out to me, this also means that we were paying interest on the money that we used for our deposit, as well as the money that we borrowed from the bank for the mortgage on the rental property. This is true. But is it a good idea? The fact that the BRRRR strategy eventually returns your money to you means that youre only paying interest for a period of time. But even if this wasnt the case, I would still do it. Why? The Hidden Mortgage Tax First, let me ask a question: If you have a mortgage on your personal home, is there anything that you can do with the money from your paycheck that doesnt come with an interest payment attached? If I have a mortgage on my home and I choose to spend $5 on a coffee, that is $5 that I could have paid toward my home mortgage, right? So really, I am borrowing the money for the coffee and paying interest. That sucks! In fact, this mortgage tax applies to everything you spend money on, including food and clothing, piano lessons for your kids, and popcorn at the movies. It may not seem like much on a $5 coffee. But in reality, all of your paycheck that isnt going toward paying downyour mortgage is being charged interest. This really adds up. This line of thinking supports the theory that paying off your home mortgage should be your top priority. I think thatthis is what drives the majority of people to make this their top priority. What Are You Planting? But let me ask another question: If your plan is to grow a forest, would you plant a single tree and wait for it to reach maturity before planting a second tree? Of course not. Plant as many trees as you can effectively water. Right? Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers It turns out that thereis an exception to the mortgage tax rule: Money that earns a higher return than you are being charged on your mortgage is effectively exempt to this hidden tax. Investments require time to grow. Whether youre buying properties or investing in the stock market, it takes time to build real wealth. Most people who want to pay off their home before investing seriously simply cant visualize the financial forest that they havent yet planted; they cant see the forest for the trees. Meet Adrianna and Dolores Heres a little thought experiment that presents one way of thinking about it: Adriannas goal is to achieve financial independence. She sells her home and moves her family into a rental. Takingthe equity from the sale of her home, sheinvests it in assets for the next 10 years. She implements a plan similar to the BRRRR strategy; after 10 years, she has established an annual passive income from her assets equal to the income from her job. Adrianna is now financially independent. Financial independence means that Adrianna has options. She canbuy a house if she chooses and pay the mortgage using passive income. It doesnt really matter how long it takes to pay it off since she doesnt have to worry about losing her jobshe doesnt rely on her job for income. She can also choose to continue working, pursue other interests, such as starting her own business, or just put her feet up and relax. Adrianna gained nothing financially from paying rent for 10 years, but shes now financially free. Dolores thinks financial independence would be nice, but cant imagine where shed find the money to invest. She takes those same 10 years to pay off her home. After 10 years, she is mortgage-free and decides that it would be good to start investing. She then starts investing in assets. After another 10 years, she has established an annual passive income from her assets equal to the income from her job. Dolores is now financially free. It took Adrianna 10 years to achieve financial independence, while it took Dolores 20 years to achieve the same goaleverything else being equal. Pick a Strategy The exercise shows two ends of the spectrum, given the same two goals: home ownership and financial independence. Obviously, theres a lot of room to flex in between the two extremes.The correct answer for you might be somewhere in between. But at the end of the day, each dollar you earn can only be applied to one or the other. You must decide what you want to achieve. In reality, if it is going to take you 20 or more years to pay off your home before you even begin to start investing, it might be worthwhile toreconsider your strategy. The argument isnt about math. It is qualitative rather than quantitative in nature. Its about opportunity cost. The way I see it, there are four ways to approach the problem: Dont own a home at all. Rent a home and invest until you are financially independent.Buy a home that costs you less than you would pay in rent. You need a place to live, but if youre paying less than what it would cost you in rent, then you effectively get to own the house for free.Pay off your home first. Whatever size home you have, pay it off before you invest. This might be effective if you start very young and pay it off very quickly, leaving you many mortgage-free years to invest.Buy a home for your family. But use this information as a guidelinepurchasing more investments is always the higher priority. Our family is actually using approach #4. We have looked into a number of options, including house hacking (a variant of approach #2). However, we have chosen to have a home in which to raise our family. We do this knowing the risks involved with having a mortgage on our home. And we also do it with an eye always to building our investment portfolio as the higher priority. This is why we have chosen previously to use home equity to invest in propertyand why we would do it again to continue to grow our portfolio. Protect Your Strategy Im not telling you which approach is best for you. In my opinion, getting a HELOC to spend the money on just about anything other than a solid investment is a bad idea. If you do decide that a HELOC is the way to kickstart your investment portfolio, remember this: All of the normal rules of budgeting apply. You need to be able to afford to make the additional payments on your home mortgage. And you still need to have 10 percent or more of your net income left overfor future investing. The key to accepting the risk involved with not having your home paid off is to mitigate it. A multi-factor approach can be effective: Establish an emergency fund. Most financial advisers recommend having an amount of money set aside equal to 3-8 months of expenses. Having such a fund buys you time. In the event that your lose your job, you have several months to pursue any number of solutions. You mightsell your home, find a new job, sell an investment property to pay down your home mortgage, etc. Having various forms of insurance also helps.This may include life insurance if you have a partner or dependents, income protection insurance in case you become unable to work, or medical insurance to ensure that you dont get financially sunk by illness or injury.Understand how to get your investment money back. You can reapply it to your home mortgage until youre ready to invest again. Whatever strategy you choose, make sure you understand both the risks and the rewards.Take steps to compensate for those risks. Then start planting a forest of wealth for your future. Were republishing this article to help out our newer readers. Whats more important to you? Which strategy are you using? Lets discuss in the comments below! https://www.biggerpockets.com/renewsblog/pay-off-mortgage-or-invest Succeed or failits all about habits and mindset. Not only is it good to learn from those achieving on high levels, but it can be even more beneficial to study the people who failed and understand the reasons why. Watch out for these common traits of the unsuccessful. Know what successful people do differently. Adopt winning habits so you can be successful too.
The Top 7 Traits of Unsuccessful People1. Theyre sometimes unethical. Unethical people all eventually fail. It may not seem like it right now, but its true. Whether it is presidents, CEOs of billion dollar startups, or real estate investors and agents, a lack of ethics will catch up in the end. When they crash, they crash really hard. Just ask Bernie Madoff. Its just not worth scamming others, doing dirty business, or taking illegal shortcuts. Thats just short-sighted. If you want to be in a great position in five and 10 years from now, keep your eyes on the long game. Put the blinders on, ignore other peoples fake successes, and play the race that matters. Related: The #1 Key to Success According to a Self-Made Real Estate Billionaire 2. They embrace the scarcity mindset. This typically leads to number one on the list. Some people operate out of a mindset of scarcity. That leads them to act greedily. They believe they have to take things from others in order to get ahead. Successful people are those who are generous and believe there is a abundance in the marketplace. They share their ideas, time and, experience. Even as the market heats up, there are still plenty deals in each market. Waiting until another market dip can keep you on the sidelines and have you miss many opportunities. 3. They may complain and attempt to shift blame. Some people always have someone else to blame and something to complain about. They are always the victim. You cant constantly play that card and expect to succeed. Life does happen. People will do you wrong. Things are not fair. Maybe its hard. Still, the successful take accountability. The most accountable are the most successful. They know that succeeding is up to them. No matter whats happened or what youve got to work with, you can take some positive steps in the right directioneven if it is reading a few more blog posts to learn something. 4. They stop learning. After school, most people think the learning is over. In reality, its just the opposite. If you want to keep getting better results, youve got to keep trying new thingsand that requires learning. Even once you are on top, you have to keep learning if you want to stay there. The average CEO reads 50+ books a year. The average person reads less than five. Do the math. If the only thing you can do to change your circumstances is read, do that. 5. Theyre quick to give up. You only fail when you quit. Some people quit trying altogether. Others just quit at one thing after another. They quit at direct mail campaigns, wholesaling, trying to make smart investments, and cultivating relationships. They quit far too soon to see the good results coming. Everyone faces the same challenges. The winners are those who stick it out and keep trying when everyone else quits. Related: I Asked Landlords for Their Best Tips: Here Are 6 Recurring Secrets to Success 6. They engage in negative self-talk. Some people are always negative. They thrive on negativity. In contrast, the successful are very intentional with their thoughts and words. They have hard days toobut they know that thoughts become words, words become actions, and actions become results. A hack I use is not watching the news. It is constantly negative and mentally draining. Using this hack alone will help cut out a good amount of negativity throughout your day. What do you spend your time thinking and speaking about? 7. They lack focus. You cant stay on the path to success for long if you lack focus. Some cant stick with things and are reactionary. They let the world dictate their lives. The successful stay focused and choose their own schedules and agendas. Summary There are clear differences in the habits and mindsets of the most successful and everyone else from my perspective. These factors are more important than whether you went to college, where you were born and grew up, your IQ, and how much money you have right now. Whats great is that all of these things are within your power to change. We can adopt these success traits anytime we want. Were republishing this article to help out our newer readers. What traits would you add to this list? Comment! https://www.biggerpockets.com/renewsblog/traits-of-unsuccessful-people/ Cash for Keys is a controversial process debated often in landlord circles, but something we LOVE and use. Cash for Keys is the strategy of giving your tenants money to leave the property, avoiding the eviction process altogether. We have used this technique several times over the past few years and found great success. However, before throwing money at your tenant, lets talk about the specifics.
The theory behind Cash for Keys is simple: Giving the tenant money to leave is cheaper than paying an attorney for an eviction. Think about it: Evicting a tenant will likely take a month or longer, depending on your state. It could cost you several thousand dollars in legal fees to do so, on top of the lost rent for at least a month, maybe two, three or more. Then, you have to deal with the clean-up of a tenant who was just evicted, which is never very pretty. All in all, a normal eviction could cost you around $5,000 or more. But what if you could just offer your tenant $500 to leave the property in good condition? Exactly. Thats Cash for Keys. Related: Landlords: Forget Being Nice. THIS is the Key to a Good Tenant Relationship. 7 Principles to Follow When Using Cash for Keys Of course, $500 is just an example. Maybe you want to give more. Maybe less. It will depend on the unit, the tenant, and the motivation. However, $500 is usually enough to encourage someone to leave, especially someone desperate enough to be facing an eviction. If you are going to try Cash for Keys, the following seven principles should be followed: Explain to the tenant in detail what they need to do. We tell them that the unit must be in move-in ready condition when they leave, so they have to clean it and repair any damages. is saves us clean-up costs and reduces the chance that the tenant will damage the property on the way out.Give the tenant a specific date they need to move out by. Typically, we will not give any more than four days to move. The point of Cash for Keys is to get them out of the property quickly.Give a Pay or Vacate Notice anyway. Well talk about this form in a moment, but just in case they dont leave, you will not have lost much time. This is typically the first step in the eviction process, and you should get it started in the event that the tenant does not leave.Meet with the tenant. Next, meet the tenant at the property and verify that the unit is, indeed, broom clean. To be safe, make sure to take someone with you.Inspect the property. Make sure the tenant lived up to their end of the bargain. e home should be cleaned out and in good shape. If not, show the tenant what needs to be done, and tell them youll come back in several hours to try again. Never give the tenant money until they are 100 percent out and have turned over the key.Sign the paperwork. Have them sign a simple document that relinquishes their tenancy at the property. is will protect you in case they later say you changed the locks on them or that they did not really move out. Make sure they sign and date the document.Hand over the cash. If the tenant has held up his or her part of the deal, hand over the money and thank them for a positive transition. Wish them well on their way! en get into the house and change the locks immediately. Related: How to Get the Best Possible Tenants into Your Rental Property Is Cash for Keys for You? Yes, Cash for Keys stings your pride. It feels so un-American, like the bad guy is getting away with the crime. Some landlords flat-out refuse to even consider this idea because it feels so wrong, but remember, Cash for Keys isnt personal; its business! Brad Pitt sums it up well in a phone call to Andy Garcia in one of our favorite movies Oceans 11, when he is stealing a large sum of cash from Andy Garcias casino: Are you watching your monitors? Okay, keep watching. In this town, your luck can change just that quickly. Take a closer look at your monitor. As your managers probably reporting to you now, you have a little over $160 million in your vault tonight. You may notice were only packing up about half that. The other half were leaving in your vault, booby-trapped, as a hostage. You let our $80 million go, and you get to keep yours. Thats the deal. You try to stop us, and well blow both. Mr. Benedict, you could lose $80 million tonight secretly or you could lose $160 million publicly. Its your decision. Mr. and Ms. Landlord: You could lose $500 this month secretly, or you could lose $5,000 this year publicly. Its your decision. That said, Cash for Keys doesnt always work. Some tenants will refuse it. Some tenants will ignore it. Sometimes you just wont want to try it. In that case, youll need to continue the eviction process. Were republishing this article to help out our newer readers. Landlords: Have you ever used Cash for Keys? Why or why not? Let me know your experiences with a comment! https://www.biggerpockets.com/renewsblog/cash-keyscontroversial-process-save-major-eviction-headaches/ How is it possible to pull a six-figure profit from owner-financed deals with no banks, no credit and no cash out-of-pocket?
I have one main answerand a bunch of other cool variables. Main Answer = Principal Pay Down But Chris, I cant find those in my area. Youre right. But change your mindsetyou can when you know how to look. Ill even give you a price range and term and then can guarantee you that. If you structure the three paydays we teach, youll get six figures from any deal above this price range. The price range is $200,000 and up. Lake View Home with a view and a detached garage with apartment above it. Buying Real Estate on Terms Without Using Your Cash or Credit I love doing sandwich leases, but our preference is to own the homes whenever we can. Owning for us means buying with owner financing or subject to existing mortgages. This home was purchased in our own market by my son-in-law Zach. By the way, I know a lot of readers here are new. Zach was a bartender and personal trainer with no real estate experience prior to getting trained in the family business. Hes now a master of the scripts and does all our buying. You can, too! The seller had it on the market for $429,000 with no luck selling with real estate agents. It was a second home, and fall and winter were approaching so they were getting ready to go back to their primary home several thousand miles away. They were worried about taking care of the home during the winter. On top of that, theyd experienced the heartbreaking loss of one of their kids, and their twin daughters could not stand being there without their brother. The cool thing about this home is that its lake view with a two-car detached garage. A long-time friend had been renting out the garage and wanted to stay. Ill explain how we worked this as a win/win with our tenant/buyers shortly. Related: 10 Glaring Red Flags That Indicate Your Great Deal May Be a Costly Scam The Deal Structure We structured an owner financing deal with the sellers for 48 months, with principal-only payments of $1,000/month. That means no interest, 100% principal pay down every month. The price we paid was $399,000. That means our balloon payment on or before 48 months is only $351,000. By the way, owner financing can be done many many ways, but when I refer to it, Im referring to a free and clear property on which we can structure principal-only payments. We exit almost all of our properties with a rent-to-own buyer, and this one we sold for $429,000 on a 48-month term. Its typically our policy to structure our selling side shorter than our buying side to allow room for delays, financing issues, or any other curveballs that might come our way. We wanted this one to go full-term, unless the buyers were to rush the process, an option they have in order to maximize the principle pay down. The monthly payment for buyer was structured at $1,750 plus taxes (those are always passed onto our buyer). The monthly spread on this property then was $750 less insurance of approximately $200, so lets call it $550. The garage rental is $700 (more on that shortly). On all properties, we buy and sell on terms we create three paydays. The first is the non-refundable down payment we collect from the buyer after theyve been prescreened and have a mortgage-ready plan they can succeed with. These are not always up front, but typically we wont let someone in the door without at least 3% and a plan to bring that up over time to the 7%-10% range. Trust me on this oneif you take less than 3% and do not have a plan, youre asking for a problem because all you really have is a tenant. Now, many educators and trainers would say, Who cares if the buyer cannot cash you out? Just sell it again and collect another deposit! Morally and ethically, we cannot operate that way so we have a strict prescreening and buyer on-boarding process that provides them a clear path to mortgage readiness and home ownership. In this case, it was structured at $80,000 over time, and over time in this case meant every 12 months they were putting down $20,000+ but started with $40,000 up front. Payday #2 for the entire term was $26,000 (48 months x $550). If we owe the seller $351,000 as noted above, and the buyer goes the full 48 months, our payday #3 is -$2,000 before factoring in the garage rental ($429,000 less $351,000 plus $80,000 paid). We structured the garage rental to be coming to us until the tenant buyers completed an agreed-upon amount in their scheduled deposits (to ensure they were successful and to give them incentive), at which time we would turn over the garage rental to them. We could have waited and put the incentive on them getting a mortgage, but remember, we wanted to go full-term. You can place incentives wherever you choose. Payday #1Deposit: $80,000 Payday #2Monthly Cash Flow: $26,000 Additional Garage Income (Approx.): $5,000 Payday #3Back End/Financing: -$2,000 Total: $109,000 By most peoples standards, the fact that we put $10 down on this and are able to extract $109,999 is out of the ordinary. Its rather normal as far as deal structure and is a bit above average for size of all three paydays generally, but not when talking about $200,000 and higher owner financing deals. Any questions about this deal? Leave them below! https://www.biggerpockets.com/renewsblog/6-figures-owner-financing-dealspredictably/ There is so much conversation on LLCsfrom the basic stuff such aswhat are they and why should we use them to more complex topics like which state we should register in and the difference between a manager-managed LLC anda member-managed LLC.
Today, I am going to take a stab at one of the questions that goes around a lot. Should you get a new LLC every time you buy a property? There are pros and cons for doing this, and in todays video, I go over them in detail. [embedded content] Pros of Using a New LLC Every DealOwnership structure: Perhaps you are working with several different owners on a new deal. It makes sense to have a new LLC as it will define the ownership percentages and the roles of each owner.Working in a new state: This could be argued either way, but to me, it makes sense to incorporate in the state where your investment property is.Doing a flip: Many investors do a new LLC every flip. This makes sense, as it separates that flip from other properties with respect to taxes and liability. More on this in the video.Asset protection: Holding each purchase in its own LLC will compartmentalize each property from the other. If there is a liability claim with one property, it wont affect any others held by you. Some would say that this is the main reason to hold each deal individually. Watch the video for a deeper conversation on how valid this is.Consof Using a New LLC Every DealHigher costs: You will pay a fee to set up each LLC and in most states another fee to file a return every year and a fee to your CPA.Growing portfolio: Depending on the size of your portfolio, it might be easier to get a loan if you lump several properties into one LLC. Holding each property individually could make it harder to get financing, especially if the values are less than $100k.Insurance: You can obtain a reasonably sized general liability policy on your properties and arguably have the same level of asset protection as you would if you held each address individually. I go into way more detail on this in the video, so be sure to check it out. Were republishing this article to help out our newer readers. I know there are schools of thought on both sides of this conversation, and I would like to her from both. If you are a strong advocate for either, please leave a comment so we can get a good conversation going! https://www.biggerpockets.com/renewsblog/using-LLCs-real-estate A younger person recently asked me, After 30 years of real estate investing, what would you do differently?
Its a pretty good question, and it really made me think. At first, I was thinking like Frank Sinatra that I wouldnt change a thing because I did it my way. I quickly woke up and realized thats nonsense; there are plenty of things I would have done differently. So, here goes. I Regret Not Starting My Real Estate Business Earlier When I first started out, I thought I needed to work several jobs and save my own money to do my real estate deals, and I was only focused on buy and hold properties. What I didnt realize at the time was that this was a get-rich-slow strategy. I had been too busy making other people rich everyone from builders and developers to apartment owners and real estate brokers. At the time, I was still a painting contractor and a real estate agent. One of my biggest regrets is that I waited so long to quit my day job (although I do still keep my real estate license) and go into real estate investing full-time. I wouldve started my I buy houses business much earlier. I wouldve done more wholesaling and flips. And I wouldve utilized hard money for my deals earlier on in my investing career. Related: Why I Dont Regret Saying Yes to Opportunity & Quitting My 9-5 (Despite Challenges) I Regret Not Delegating Tasks Sooner Besides saving my own money, I tried to do just about everything else myself, including finding the deal, fixing the property, being the real estate agent, being the property manager, being the bookkeeper, and so on and so forth. I micromanaged everything, instead of focusing on what I was good at, what I was passionate about, and what I could make money on (you know, the real economic drivers that pertained to me). I cant tell you how many times I was cleaning out a house or standing in line at Home Depot asking myself, why am I doing this? It was a big hurdle for me to hire someone to do something that I knew I could do or something that I had done in the past. In my mind, no one could do it as well for as cheaply as I could myself. It took me a while to realize that you dont have to do everything perfectly; you just have to do it good enough. I know now how ridiculous I was, and looking back, it was a big mistake not to delegate more. If I focused on taking action to replace myself, I could have spent that extra time networking more, marketing more, and building my money list (which is just as important as a buyers list). Today, I have a property manager in place, and I dont do any maintenance at all. Its the best decision Ive ever made! It just took a while for me to concentrate on where I really made my money finding deals instead of on the little ways to save money by trying to do everything myself. I Regret Not Using Leverage in a Bigger Way Besides taking too long to find a mentor or coach and doing everything myself, the next big regret I have was not using OPM (Other Peoples Money) and self-directed IRA accounts sooner and in a bigger way. Sometimes, I think were afraid of success, especially if it means we have to take on debt. Maybe were even fearful of growth because we dont know if well be able to keep it going, and we think of all the what ifs. That was the case for me, at least. I absolutely could have used more leverage, whether that was with private money starting out or with private placements later on. When it comes to using leverage, though, one of the biggest considerations is do you have enough deals to keep the money at play? Basically, there are three pillars to operating a successful investment or business venture: capital, scalability, and product. Oftentimes, there is a constant battle among these for balance. Youll go through phases when you have more money than deals or not enough money when the deals are everywhere. By the time I was 40, I had started buying bank-owned properties, and then eventually, I began buying notes. It took me way too long to figure out that a lot of good deals come from the banks, but I had learned about the opportunity as a real estate agent selling those deals to other investors. Related: Heres the Biggest Mistake I Made Starting Out in Real Estate: Whats Yours? When I started buying notes from the banks, I realized that they had more deals than I had money, and I started to become less and less concerned with deal flow. I wish I had learned about buying bank-owned properties and notes earlier, as the availability of deals wouldve enabled me to leverage more money. This all being said, raising capital was one of the best skills I ever learned. This became more and more evident after I started using private placements to raise capital for commercial real estate and later on for notes. If you take care of your investors and you do things right, youll have the use of their capital for years and years to come. Were republishing this article to help out our newer readers. So, let me ask some of the more experienced folks on BiggerPockets: What would you have done differently with your real estate investing? Let me know with a comment! https://www.biggerpockets.com/renewsblog/2015/12/18/after-30-years-of-real-estate-investing-what-would-i-do-differently/ A younger person recently asked me, After 30 years of real estate investing, what would you do differently?
Its a pretty good question, and it really made me think. At first, I was thinking like Frank Sinatra that I wouldnt change a thing because I did it my way. I quickly woke up and realized thats nonsense; there are plenty of things I would have done differently. So, here goes. I Regret Not Starting My Real Estate Business Earlier When I first started out, I thought I needed to work several jobs and save my own money to do my real estate deals, and I was only focused on buy and hold properties. What I didnt realize at the time was that this was a get-rich-slow strategy. I had been too busy making other people rich everyone from builders and developers to apartment owners and real estate brokers. At the time, I was still a painting contractor and a real estate agent. One of my biggest regrets is that I waited so long to quit my day job (although I do still keep my real estate license) and go into real estate investing full-time. I wouldve started my I buy houses business much earlier. I wouldve done more wholesaling and flips. And I wouldve utilized hard money for my deals earlier on in my investing career. Related: Why I Dont Regret Saying Yes to Opportunity & Quitting My 9-5 (Despite Challenges) I Regret Not Delegating Tasks Sooner Besides saving my own money, I tried to do just about everything else myself, including finding the deal, fixing the property, being the real estate agent, being the property manager, being the bookkeeper, and so on and so forth. I micromanaged everything, instead of focusing on what I was good at, what I was passionate about, and what I could make money on (you know, the real economic drivers that pertained to me). I cant tell you how many times I was cleaning out a house or standing in line at Home Depot asking myself, why am I doing this? It was a big hurdle for me to hire someone to do something that I knew I could do or something that I had done in the past. In my mind, no one could do it as well for as cheaply as I could myself. It took me a while to realize that you dont have to do everything perfectly; you just have to do it good enough. I know now how ridiculous I was, and looking back, it was a big mistake not to delegate more. If I focused on taking action to replace myself, I could have spent that extra time networking more, marketing more, and building my money list (which is just as important as a buyers list). Today, I have a property manager in place, and I dont do any maintenance at all. Its the best decision Ive ever made! It just took a while for me to concentrate on where I really made my money finding deals instead of on the little ways to save money by trying to do everything myself. I Regret Not Using Leverage in a Bigger Way Besides taking too long to find a mentor or coach and doing everything myself, the next big regret I have was not using OPM (Other Peoples Money) and self-directed IRA accounts sooner and in a bigger way. Sometimes, I think were afraid of success, especially if it means we have to take on debt. Maybe were even fearful of growth because we dont know if well be able to keep it going, and we think of all the what ifs. That was the case for me, at least. I absolutely could have used more leverage, whether that was with private money starting out or with private placements later on. When it comes to using leverage, though, one of the biggest considerations is do you have enough deals to keep the money at play? Basically, there are three pillars to operating a successful investment or business venture: capital, scalability, and product. Oftentimes, there is a constant battle among these for balance. Youll go through phases when you have more money than deals or not enough money when the deals are everywhere. By the time I was 40, I had started buying bank-owned properties, and then eventually, I began buying notes. It took me way too long to figure out that a lot of good deals come from the banks, but I had learned about the opportunity as a real estate agent selling those deals to other investors. Related: Heres the Biggest Mistake I Made Starting Out in Real Estate: Whats Yours? When I started buying notes from the banks, I realized that they had more deals than I had money, and I started to become less and less concerned with deal flow. I wish I had learned about buying bank-owned properties and notes earlier, as the availability of deals wouldve enabled me to leverage more money. This all being said, raising capital was one of the best skills I ever learned. This became more and more evident after I started using private placements to raise capital for commercial real estate and later on for notes. If you take care of your investors and you do things right, youll have the use of their capital for years and years to come. Were republishing this article to help out our newer readers. So, let me ask some of the more experienced folks on BiggerPockets: What would you have done differently with your real estate investing? Let me know with a comment! https://www.biggerpockets.com/renewsblog/2015/12/18/after-30-years-of-real-estate-investing-what-would-i-do-differently/ |
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