Epic Real Estate Investing - 5 Things You NEED to Know About Turnkey Investing | 757

Episode Date: August 27, 2019

Mercedes and Matt are joined again and they comment on a US News article, titled “5 Things about Turnkey Real Estate Investments”. Specifically, they share their understandings of holding period, market condition, taxes, appreciation, and many, many more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the epic real estate investing show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays. My name is Mercedes-Torres, and I'm lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire. For those of you just tuning in now that are new to the show, welcome, my friends.

Make yourself comfortable. This show was created by Matt and I because we understand that there are many entrepreneurs out there or just busy professionals that understand the importance of real estate. Just don't have the time or desire to do it all themselves. So we came up with a solution of turnkey real estate in hopes that it's going to help you get started in the right direction of creating passive income in your world. So for my friends that are listening again, welcome back, my friends. So this week, my friends, I am thrilled because I have a very special guest. You might know him, actually.

His name is Mr. Matt Terrio, the guy who created. the epic real estate empire. Mr. Terrio, thank you for joining us. Sure. I mean, we had so much fun yesterday. Let's do it again today. Let's do it again. Thank you for the invitation, Ms. Mercedes. You're so welcome. Actually, to be very honest, if you listened yesterday, we are sequestered in a hotel room doing a business epic retreat. We do this once a year, not only to ensure that we are on point with our trends and real estate investing facts, but really to provide the best service and information that we can, not only to our employees and our team, but to our

clients and our students. So we are here for four days, just doing everything, epic real estate. So that was the deal. So today, Matt and I decided to do something a little bit different and of course pertaining to turnkey. I found this really cool article on US news titled Five Things About Turnkey Real Estate Investments and I'm going to say that you need to know about. I decided to share it because it talked about five key components that I have shared on many different occasions. But mainly I wanted to bring it up because I wanted to get a different perspective, having Matt here, and he's sharing his thoughts about the five turnkey real estate investment things that you should know about. So the five things I'm just going to run down really quick is number one

when buying a turnkey property as an investment and primarily for either passive income or tax deduction there are a few things that you need to consider, and one is the holding period. Number two is rental opportunities. Number three is property management. Number four is gauging long-term potential income. And number five is taxes. So Matt and I are just going to kind of share with you our thoughts. And really, our perspective, considering we've been doing this for our.

about 15 years and how it has helped and impacted us. So let's talk about holding period. What's your thought about that, Mr. Terrio? I don't know what they're actually referring to in the article, but when I think of holding period, I think forever. I really do. You know, Jason Hartman, a good friend of ours, you know, his whole thing is just buy hold and refied until you die, right? And he's just constantly refining. And I think there's, I agree with him, but I think he's a little bit more aggressive than I am with it, but the more that we do and the longer that we're playing this real estate investing game, the more I'm trying, I really starting to see his side of things because the holding period, you know, I have a rule of thumb that you want to refy and leverage

as much as you possibly can to accelerate the building of your wealth and the accelerate the the building of your cash flow. And once you hit a point to where you're satisfied with that cash flow, then you want to start eliminating the leverage that you put in place, eliminating the debt. So you build or use leverage to build and grow, eliminate the leverage to sustain and preserve. So the holding period, it's, I mean, if you don't hold it forever, what are you going to do with the money that you get from it, right? you're going to go spend it or you've got to put it in another investment.

And, you know, with the real estate, there's just, I don't think there's a better investment out there. I just don't or else, you know, we wouldn't be doing what we do, I guess. Yeah. Well, you know, the longer you hold, the more money you make. And that's just kind of a rule of thumb. And, you know, numbers speak for themselves. And when you do the numbers, the more you hold, the more money you make. But I'm going to share something that I don't know if I've talked about it before on the podcast, Matt.

But so we have a son. our son is eight years old. His name is Mateo. And many of you don't know that when I gave birth at the hospital, I was at the hospital for five days. And the next day, my best friend, I had her do me a big favor. And she's a notary. And I said, go pick up documents from the escrow company and bring them to me so I can notarize them because I instantly thought, oh my goodness, this is my child forever.

And I'm going to have to put him through college. So the first thing I thought of was, how am I going to pay for his college? And I thought, if I buy a house and hold it for 18 years and refinance it in 18 years, I will be able to pull out enough money to pay for his college education. Well, Mateo just turned eight. I bought that property when he was born in 2011. And just a year ago, I was able to pull out enough money of that property to buy a second property. So I talk about holding period. I'm holding the first property forever. And now I have a second property for him that I'm planning on holding forever. But just think about it. I now have enough to not only pay for his college education, but who knows? I may be able to pay for his wedding because my thought process was, I'm going to hold this property forever. And his girlfriend's parents are supposed to pay for a wedding?

Well, you know, we're living in America. It's a new time. Who knows? You know, the way he's going, he's making his own YouTube videos now, and he's going to be selling something in a hot second. So, yeah. Holding period, yeah. I don't know what they're saying.

I consider the holding period. I, you know, I put it in there and hold it forever. Put as little money as you can down to acquire it. Enjoy the cash flow. And as you build equity, you refite out. You can take your money and create your liquidity that way and continue to hold on to the asset. And you still maintain the cash flow. You still get to benefit from the appreciation.

You still get the benefit from the depreciation. And you still get to benefit from the amortization. In fact, that amortization is what builds up your equity. And that's what gives you the liquidity to benefit from and get the cash out that you need. And you don't need to sell it to get the cash out. Yeah, absolutely. Good point, Mr. Teriel. So let's move on to the other one.

It talked about rental opportunities. And I'm going to kind of share something that I did. I think we did it maybe about 10 years ago. So that was point number two is rental opportunities. And what happens when you rent a property? There is so much opportunity when you choose to rent your property. And one of them is the mortgage is being paid by somebody else, number one. And then number two is,

is what if, and this is something that we did many years ago, is I took a property in Memphis, Tennessee that was by the university. And rather than just renting it to one family, I took the opportunity and rented each room out to each student. So I created more of an opportunity. It was still a single family residence. It was four bedrooms, two baths. But rather than collecting, I think it was $800 a month in rent, I rented out each room for $250.

So that meant that I was able to get $200 more a month on just doing something a little bit different and thinking outside the box. So think about it. When you choose to pick up a rental, consider the rental opportunities that you're getting from this particular property. Mm-hmm. You know, when I see rental opportunities, because I think it says fully vet rental opportunities, what I look at, what I see is the big opportunity is, and I think we're going to talk about this next, too, so this might kind of mesh right in. But when we find good property management, right, we've worked with enough bad ones that we know when we find a good one, we want to double down on those relationships, treat them really well and take care of that because it's really the property management that has the real estate perform. Like, that's the risky part. real estate. The real estate itself is relatively safe. I mean, it's kind of hard to mess it up, right? But it's the people that are involved that mess things up. So when you find good property management, and like right now, we've got really good property management in Birmingham. We've got good property management in St. Louis. We've got good property management in Indianapolis.

And once, now that we've found those, those really good relationships, I mean, we're buying as quickly as we possibly can there right now, even in this environment, in this market, just because we know what happens to real estate long term, as long as you can get it to cash flow during the ups and downs. And so I see that as the opportunity. So when it says fully vet rental opportunities, you need to vet the people that you have working for you as much as you do, the properties themselves. And the tenants as well. Of course, yeah. I mean, that's kind of indirectly a result of what the property management does. But yeah, absolutely. Right. So that takes us to our third point, which is quality property management. I harp on this all day long, because at the end of the

the day, my friends, it's really not how cute your property is or even so much where it's located. If you don't have a property management team on the ground that can get your property to perform, your property is worthless. And as Matt just mentioned, we have, you know, gone through our share of terrible property management. They've weeded themselves out throughout the years. but it's all about the quality property management team on the ground. And I have to even extend it to say the property management team that serves all of my turnkey clients needs to absolutely understand the investor. Because at the end of the day, if my property management team is not communicating with you,

what's transpiring with your property on a monthly basis, then what's, What the heck? So as Matt said, yeah, quality property management is just a huge key component to a successful investment property. It's such a big deal that, you know, one of the more common questions that we get, and we get it frequently and we get it several times a year is, you know, what markets are hot? What areas are you looking in now? And the answer that I give, nobody ever likes to hear it. People want to hear, oh, yeah, go 60 miles east of Columbus, Ohio. That's the hot market. That's where it's all happening right now. Like, they want to hear that where I'm going to drop that pin on the map.

Like, where's that location? And it has nothing to do for me because, I mean, this is why I went only read articles. And we can see who's writing it. Like, oh, this person has no experience whatsoever. And they're positioning themselves as an authority. And I'm getting off on a tangent. My point being is my favorite place to invest, my favorite market, the hottest market in the country right at this very moment is where my best property managers are. Yeah.

Because you can look at these different markets and, you know, read the news and the top 10 list of the emerging cash flow markets. And you'll read all those types of different headlines. And, you know, people, you know, it really attracts people like crazy to read those because they want to know where they're going to put their money next. But, you know, you could have all. all the perfect economic indicators pointing like this is just a giant thumbs up for this little city right here. But if you don't have good property management, that's going to be a terrible experience for you and ultimately a terrible investment.

But you can pick mediocre anywhere USA with great property management and it's going to be a fantastic investment for you. Yep. You know, we've lived it. We started off in markets where nobody knew where these markets were located. And we started in those markets because we had solid. teams on the ground. Believe it or not, we're still in some of those little small markets out there. So yeah, you're absolutely right now. All right. Let's go on to number four. Gange long-term

income potential. Oh, I can't say that any better. There's so many long-term benefits, specifically income benefits, from holding an investment property. I mean, not only are we talking about cash rowing if, of course, you buy right. But there's all of these tax benefits. And then you even get to write off the interest if you are doing it the way I kind of suggest, which is to leverage as much as possible without over leveraging. And that gets me to talk about even banking. You always want to consider leveraging other people's money, whether it's a conventional loan or maybe it's your uncle's old IRA that's doing nothing, that could be an income potential for you that hardly anybody talks about. Matt, you want to say something about that? Well, I mean, I think when you're looking at

real estate and perhaps any investment, when you're looking at long term, it's easier to analyze. It's easier to make a decision. And when it comes to real estate, I mean, it's just shelter, a roof over our head is one of the basic human needs. And when you're, you've got the growing populations, like each generation gets bigger than the previous, and we have a fixed amount of land. Like just the whole concept of supply and demand is in your favor as a real estate investor. So there's certainly, there's already enough people on this planet walking the earth to rent out every single possible property that any of us could buy.

So the demand is already built in. And who knows, that may change. but it's not going to change during our lifetimes. So I look at the long-term income potential is just, it's wonderful for real estate. I mean, there's four different things. You've got the ability to use leverage, which you don't have that ability. The average person doesn't have that ability in any other investment like you can in real estate. So that right there, that's five times your return, five times the power of your money of how hard it works for you.

Then you've got the appreciation, which we've talked about is the icing on the cake. You've got the depreciation. you've got that amortization, which so many people don't really understand what that means. You could break even on your cash flow, which would be the other one. You could break even on the cash flow and you're not getting any income. But that tenant is buying that investment for you. They are paying for it. They are giving you the money to make your mortgage payment.

And over the long term, that's, I just, I think that's the most sexiest thing about real estate. Because when you're buying a stock, That's your money that you're putting into the stock to buy. When you're buying real estate, that's not your money buying it. It's somebody else's money buying it for you. And over the long term, that just gets really, really juicy. It's true. I think we're getting a little bit too descriptive here.

But no, you're absolutely right, Matt. We talk about this all the time. And we talked about our holding period is forever. And Matt and I have purchased properties when we first started investing. And, you know, we pull money out of properties to buy more properties because that's just kind of what we do and it's the nature of our business. But sometimes by just having the tenant pay the rent, I don't even think about it. And I look at it, you know, six years later, seven years later. And I'm like, holy cow, that tenant paid this much in rent.

And I was able to pay this much off the mortgage. And oh my goodness, now I'm able to take that money and do something else with it. So, I mean, think about it. If, you know, I say this often. were to just buy one property a year and forget about it. What is that going to do for your future? And, you know, we say that all the time. But I specifically say it to get your wheels turning because what Matt just said is exactly the reason why we do real estate. So, yeah, well, that brings us to point number five. Pay attention to taxes. And this is an area that, first and foremost, is way under the

radar. Hopefully, you are with a financial advisor, you're a tax preparer, you're the person that does a tax is at the end of the year. Hopefully, they're well-versed enough to know all of the benefits that will serve you at the end of the year when it comes to rental income, when it comes to just having an asset. And, you know, as Matt just mentioned, it's not only the appreciation, it's the depreciation. It's the rehab work that you did on the property or it's even the upgrade that you did on the property. It has huge financial benefits for you that many people don't even understand and it's completely under the radar. You know, I'm going to read this last little part in this article.

It was actually, this is a testament to how powerful the tax benefits of real estate are. So it says owning turnkey homes comes with certain tax advantages for investors. Expenses allotted to the mortgage interest, property management fees, operating expenses, property taxes, and repairs or maintenance can be claimed as deductions. It's funny that right there just confirms yesterday's comment on when she was totally wrong. I was saying it didn't go to the tax deductions. Anyway, he adds that investors can also deduct travel expenses associated with inspecting or maintaining a rental property. But there are some caveats. This is funny.

Here's the caveat. Okay, here's the catcher. Here's the big trap on the whole thing. Investors aren't always aware that the rent received is taxed within the year it's earned and not when it's due, Hill says. This can affect tax filing, for example, if a renter makes advanced rent payments several months or years ahead. Additionally, turnkey investors need to be aware of what is or isn't a deductible expense. This can help avoid surprises when it's time to file income taxes for the year. ultimately consulting a tax bill you need to do.

Okay, blah, blah, blah. The point being is, the only thing that he could come up with that was negative about it was what if the tenant pays you all of their rent in advance? What are you going to do? Oh, my God, it's going to be a nightmare. That's the only thing he can come up with. You know, most people don't realize that over our lifetime,

up to 50% of our income will go to Uncle Sam, go to some form of tax. So if you're going to escape the rat race with that formula being to get your monthly passive income to exceed your monthly expenses. So you can do that a couple ways. You can increase your income or you can decrease your expenses or you can do both, right? So if part of that equation is decreasing expenses, it just makes sense to me to work from big to small.

Let's start with your biggest expense in life. And let's start whittling away at that. And let's just leave the coffee alone. You can enjoy your Starbucks. That seems to be the popular financial advice. Eliminate your $4 coffee every day. And at the end of the year, you would have saved $1,500. Right?

But by the purchase of one rental property, you get triple that in your tax deductions. Right? So the tax advantages of real estate are available here like they are anyway. anywhere else. Yeah. You know, Dave Ramsey would take offense to the Starbucks Carmen or your coffee comments. I think that's a Susie Ormond. Oh, Susie Ormond, yeah.

So, you know, I happen to agree with you, Matt. I mean, you and I laugh about it all the time. And I speak to so many investors that, you know, call me and our followers of different people, but they do say, I don't know how eliminating my $3 coffee a day is going to make a difference. And I laugh because I agree. But I will say something that, I don't know, at the high. height of our real estate investment career. I think we had about 140 some rentals. And I don't know,

but I never experienced one tenant that paid a whole year of rent at one time. I mean, have you? No, but if they did, that would have been a terrible thing. I would have been really happy. We had somebody that was going to the service. They paid, they were going to receive. They paid six months. They paid six months. Yeah, we had that. And then I also had an insurance claim that the insurance company paid us, I think it was six months exactly as well, because the house burned down and it just happened to be a house burned down about a block over, and they had to stay in the same zip code to keep their kids in school. So they rented our house and paid us six months. That was the only time. I mean, in 15 years, that's happened to us twice with over, I don't know,

all these properties. Even how ridiculous it sounds. If you have to pay extra taxes in real estate, it's because you made extra income in real estate. That's true. Right? Yeah. It's like you made more money. That's why you're paying more taxes. That's a good problem to have I would say.

Yeah. That's why we're doing it in the first place. Exactly. Exactly. So, you know, my friends, I hope that this episode kind of shed a little more light on just turnkey real estate investment properties and why Matt and I are so passionate about it. Now, there's no secret to kind of what we do because to this day, I personally still buy turnkey real estate investment properties for our personal portfolio because Matt and I are still

active buyers. In fact, I closed two properties this month in Birmingham, Alabama because we practice what we preach and I am a huge fan of turnkey real estate investing. Love the idea that a real estate professional buys an asset that fixes it up for you. you, places tenants for you, and most important, collects the rents for you so that you can reap all of the tax benefits so you can hold it forever so that you decide who your property management team is based off of a proven system and proven property managers that do it. I absolutely love the idea of turnkey real estate investing because I see the power of what

it's done for Matt and I, and I hope that it does the same for you. So, Matt, before we depart, is there anything that you want to say to our turnkey listeners? I guess I think what people find surprising sometimes when I tell them that we have a turnkey operation and, you know, we help a lot of people, the busy professionals get involved in real estate investing. We do a lot of the heavy lifting forum and we take kind of all that burden off their hands. And I think they sometimes they're surprised when I tell them, yeah, we're turnkey customers as well. We buy turnkey properties because sometimes we just don't want to get out in the trenches and go do what it takes.

Sometimes we don't want to do the heavy lifting because we've got other things to do, but we still have capital laying around that's sitting idle that we want to place. And so we'll leverage somebody else's system in a different area that we might not be able to access or don't have access to. And so my point being is when you advocate how much you believe in it, I think people are surprised sometimes when they hear, we don't just believe in it. We are customers of it as well. We do it as well, yeah.

Yeah, you know, there's something to say about a system that's already working, and there's something to say about there's no reason to fix what's not broken. So I will leave it at that. My friends, it was a pleasure being with you on this Turnkey Tuesday until next week, have an epic week. Bam. If waiting for your investments to grow feels like waiting for pink to drive, there's a powerful secret your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street, but great news for you.

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