Epic Real Estate Investing - How Does War Impact Real Estate Investors? | 1181

Episode Date: March 1, 2022

In today's show, Matt shares how war impacts real estate investors and on what they should focus in times of crisis. But before that, you will learn if you need an LLC to buy real estate as new investors are concerned with the liabilities when holding real estate in their name. Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Should I use an LLC to buy real estate? It's a common question, and it's a good one, especially for new real estate investors. As they're getting started, they're concerned about the potential liability of putting real estate in their name. Investing in real estate does come along with some inherent risks, and it can be a litigious industry. So you want to be protected. And there's some other benefits that people don't consider, and I'm going to walk you through all of them. Let's go.

Welcome to the all new, epic. Real Estate Investing Show, the longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, epic rei.tv. If you want to make money in real estate, sit tight and stay tuned. If you want to go far. Share this with a friend. If you want to go fast, go to r-eI-Ase.com. Here's Matt. So I'm going to go over whether or not you should use an LLC to buy real estate. Specifically,

one, I'll cover what an LLC actually is. Two, an LLC's benefits to real estate investors. Three, who should actually use one. And four, when they should use one. And five, how to easily set one up. And I'm not an attorney, by the way. My advice, would be to have an expert go ahead and walk you through this. But I'm going to explain it to you so that anyone can understand it. We can avoid all of the legal mumbo jumbo. If you decide that you do need an LLC and you don't have an attorney to speak to, I'll show you how to get some easy, inexpensive expert help.

First, what is an LLC? Well, LLC stands for a limited liability company. And you can either set one up by yourself or you can set one up with a partner or multiple partners that we refer to as a group. LLCs are regulated at the state level. So depending on which state you live in, there might be some nuances of how you actually set yours up. Like I said, if you need some help, I've got that coming. So that's what an LLC is. Number two, why would you need one? What are the benefits? And there are four benefits specifically that I'm going to cover. One, it limits your personal liability. If someone were to file a lawsuit against you

as an individual, then your personal assets, those could be at stake. However, if you were running your business as an LLC and that same lawsuit came your way, then your personal assets would be safe. Only the assets the business owns would be at stake. In other words, as a real estate investor, your rental property is really the only thing that's at stake. Your personal finances are safe. The second benefit is it keeps your rental properties separated from each other.

In addition to separating your rental properties from your personal assets, it can also be a really good idea to separate your properties, your rental properties from each other. If you have all of your properties under different LLCs and someone files a lawsuit against property A, then properties B, C, and D, they won't be affected. They'll be safe. This effectively separates and protects each of your properties. Now, each person's situation is very different and there are a lot of variables at play that you're going to need to consider. So consulting professional help, you're going to want to do that before taking any permanent action. Number three is pass through taxation.

You see, normally when a business generates a profit, they're going to have to pay taxes on that profit. And then they're going to have to pay taxes again on the income that they receive from their business. With an LLC, you get the benefits of those profits passing through to you as the business owner. Essentially, all income made through your LLC will pass through to you as the individual. And what this does is it minimizes the amount of money that's going to go to Uncle Sam.

You get to keep more of your harder money right there in your pocket. The fourth benefit is you get to easily separate your professional and personal expenses. When you create an LLC, you should create a separate LLC bank account. That way, your business expenses are separated from your personal expenses. This makes it much easier to claim the rental property operating expenses when it is time to do your taxes. When you have separate bank accounts, it makes it really clear as to which expenses are for your business and which are your personal expenses. So those are the primary benefits of running your business inside of an LLC. Now, who gets these benefits?

Who are they designed for? Well, any landlord can benefit from having an LLC, whether you've got one property or multiple properties, you're going to benefit from the pass-through taxation, and you're going to benefit from the liability protection. LLCs can be especially beneficial if there is more than one person involved in your business. What the operating of an LLC agreement does is it outlines the responsibilities of each person, each member of that LLC. And what this can do is it can help you easily manage the property

and protect each member of the LLC in the event something, you know, uncomfortable arises. Number four, regarding when you want to set up your LLC. Ideally, you want to set it up before you ever start conducting your real estate investing business before you ever take ownership of the property. Now, there's a lot that you can do retroactively. So if you didn't get a set up right away, don't worry. It can be a little more complicated and also be accompanied by some

elevated costs. So that's the win. Now, number five, how do you set up the LLC? You really have three options. You could employ an attorney, which is probably the best way to do it, but it can be accompanied by a hefty price tag. It's not necessarily essential. You could find an online service like a legal Zoom where you do most of the work yourself and it's actually rather affordable, but there is some heavy lifting involved and it's kind of difficult if you ever have any questions that arise. You're going to need somebody to turn to most likely. But if you're comfortable, and you know what you're doing, by all means, that's a great route to take. Or if you'd like some one-on-one help, but you don't want the cost,

I could help you out there by introducing you to my team and making sure that you get your LLC set up the right way. So I've worked out a deal for my clients to get some one-on-one expert consultation, where you can hop on the phone and you can brainstorm some ideas about you, your situation, your goals, all around helping you keeping more of what you make. And then, if it makes sense, they'll actually help you set your whole LLC up. They'll do it for you. Here's the best part.

They've agreed to absorb the bulk of the expense that would normally come with setting up an entity like this. So what's the catch? Because there's always a catch, right? No one is going to work for free. Well, their idea is if they show you what they can do and how well they do it and how comfortable and nice it is to work with them, you'll probably want to do business with them in the future. That's it. It's the old show them how you can help them by actually helping them trick.

So they're going to look at your situation, analyze all the different nuances, and just make sure that you get set up the wrong. right way, the right way the very first time. You see, when this is done correctly, you'll be able to write off over 250 different expenses, saving you thousands, even if you're just starting out. If you like the idea of this, get the rest of the details, book a time to set up this strategy session. You can do that at free entity.com. So you can protect your assets and start keeping more of that hard-earned money. Thanks for sitting tight while we pay our light bill. We'll be back. Right after this. Boarding for flight 246 to Toronto is delayed 50.

What? Sounds like Ojo time. Play Ojo. Great idea. Feel the fun with all the latest slots in live casino games and with no wagering requirements. What you win is yours to keep groovy. Hey, I won. Field the fun. Boarding will begin when passenger fisher is done celebrating. 19 plus Ontario only. Please play responsibly. Concerned by your gambling or that if someone close, you call 18665330 or visit Comex Ontario.ca. Ever hear someone say, I have too much money? Me neither. Let's get you some more.

Back to the show. So today I want to talk about how war impacts real estate. And you may be wondering about the dramatic thumbnail, right? Maybe a little insensitive, I don't know, maybe a little aggressive, or is it too soon? But I do have two specific reasons for it. and I promise you, neither of them are likely what you're thinking. Why the dramatic thumbnail? A lot going on in the world today, right?

Well, the first thing is, is to get your attention. But it's not necessarily me that wants your attention. It's YouTube that does. They want your attention much more than I do. The dirty little secret around YouTube is it rewards content creators for clickbait, meaning the more people that click on a video, the more people their algorithm is going to show it to. So essentially YouTube encourages clickbait.

So it's a fun fact. But that brings me to the second reason, and this one is much more important. Second, yeah, it got your attention, but it incites fear, and people are attracted to fear. And you're going to be seeing a lot of stuff like that. And, you know, I've already seen a bunch of it today. You're probably going to see it over the next coming weeks. You're going to see pictures like this. You're going to see headlines.

You're going to see quotes. all alarming stuff to get your attention. And that's why I'm pointing this out. You see, during a crisis like this, you want to be really careful about what you feed your mind with, right? I saw it happening all morning, and I mean, no news channel was immune. They're all guilty of it.

Yes, even your favorite one. Social media as well. If you're on Twitter, oh my gosh. I mean, I saw World War III probably a thousand times. I saw it all over the place. And that can be scary and that can incite fear. And I just want to kind of put you some of you at ease if I can. I'm no war expert.

I'm no macroeconomics expert. But I've been walking this earth for five plus decades. I've got a little bit of life experience. I've seen stuff like this happen. I've made some mistakes. And I just want to share with you that type of wisdom and what you should really be focused on and not to get paralyzed like so many people are right now.

You know, first of all, when it comes to World War, we're not in a World War. We are not. You're going to hear that a lot, but we are not in a world war. We're not even in a war. And the conflict taking place isn't even happening here on our continent. I mean, it's a concern for sure.

But, I mean, it's nothing for us to ignore, but we need to keep it all in perspective. So you have to really protect. your mind, right? The news and the social media are coming after your attention and they're going to do whatever they can to get it. And you might start to, starting to like come to your senses, maybe even at this very moment and starting to realize that. Protect your mind. And because your mindset during a crisis like this is really important. Even more so are the actions that you take as a consequence of your mindset. So I'm going to give you some things to do to pull you through this

and make sure that you stay productive and you continue to improve your situation. But let's do this first. Let's look at how war impacts real estate, how it impacts the market and how it impacts real estate investors. And if you have that type of information with you, there might be a little bit more clarity on what there is for you to do for your situation. So I'm going to look at a little bit of the stock market for a second. This is a real estate channel, not the stock market channel.

I do have a few little mutual funds and stocks, but nothing significant. But the reason I'm going to show you something real quickly with regard to the stock market is because typically when the stock market is doing good, the real estate will be doing well also. And also the thing about the stock market that we want to look at, it's live. It fluctuates as when news breaks at the moment. Real estate, because of the 30, 45-day closing process, it can be a lagging indicator of what's actually. we're going on and our mind and our imaginations can get a hold of us and we're going to have these doomsday type scenarios when we really have no idea what is actually happening okay so here

I'm going to show you this image right here this has been this one here all right so this has been circulating for a little while on the last couple weeks here on on the internet and social media but you can see what you're looking at here are you're looking at the Vietnam War up in the top left, the Gulf War, the Afghanistan War, the Iraq War, and the Crimean Crisis. And that line of demarcation, that dotted line that goes vertical in those graphs, that's when the actual invasions happened. And then you can see the red line is the actual stock market. So in the Vietnam War, we had a nice little dip because we knew we were going to war,

and then once the actual war began, look what happened after the fact. The war, excuse me, the stock market continued to improve. You look at the Gulf War. You know, just leading up to invasion day, we had this nice little drop down. And as soon as that we were, the invasion had started, the market bounced right back up. And then again in the Afghanistan War, almost the exact same thing. And you can see the same thing in the Iraq War. Almost the exact same thing.

We have a nice dip leading up to the invasion. Once the invasion happens, the market actually rebounds. Right? then right here in the Crimean crisis, the most recent one, for sure. So the whole thing is to buy the invasion, right? And as an investor, that's what we're looking at. And I understand that there's a lot of, gosh, I guess just misfortune. I'm a little bit of loss of words because I can't even imagine if this was happening on our soil,

what would be talking about, what would be going through right now. So my heart is out for the Ukrainian people. I know they don't want it. And based on everything I saw this morning, the Russian people themselves, don't want it. So it's just it's the leaders that are having their issue. But as we have to still have our livelihood and those that care about us, we have them that are depending on us and we have to perform. We can't curl up into a little ball and go hide somewhere. We have to look at the reality of what's going to happen and or at least take that as much information

and educate ourselves so we can make some good decisions going forward. Stuff that's not fear-based type decisions. Right. So this is what we've seen in the past and how the stock market reacts. and very much the real estate market reactions somewhat the same way. So if we go here and we look at what happened today, this is the Dow Jones. And then right here was kind of when the news broke as far as Russia invasion invading Ukraine and we dropped here. And just through the day, we almost bounced all the way back up.

In fact, if I just look at the one day, we ended the day, the Dow Jones ended the day in the green. And then if we look at S&P 500, it was deep red. I don't know how early you were up this morning, but it went down really deep right here, the first thing this morning, and then boom, bounce right back up. And then here we are with the NASDAQ chart.

I mean, I don't think anyone was predicting this yesterday. Well, I guess if you'd seen this before, or excuse me, this before, probably could have made somewhat of a prediction like that, but did we really believe it was going to happen? It was going to happen so fast. Well, it certainly happened with the NASDAVs, And then Bitcoin, Bitcoin went to, ended up in the green effect.

Bitcoin is almost back up to its five-day heights. It rebounded really, really well. So as I'm showing that with you, it's not all bad news as far as our finances and our economics, right? This is how the market has initially reacted. Now, there's tomorrow, and then there's the next day and the next day and the next day. So that all remains to be seen. But the real question is, was this the invasion of our time that we're looking at? Right? I mean, it appears as such, but there's a lot of questions to be answered, right?

How serious is this going to get? How long is this going to last? We don't know. But based on everything that I've heard and seen today, and I'm not an expert by any means, if you've been watching TV and flipping through the channels like I have, you probably know as much as I have. But based on everything I've seen and heard today, the actual aggressive fighting, the actual war, going to last a few days. maybe a week. And then Russia will install their own leadership and will strive to the Russian leadership. We'll try to get back to the Ukrainian people back to their normal way of life. So then now that Russia is in control, at least for now. That's the short-term goal for now what he's going to do next. That remains to be seen. But President Biden has taken, woke up this morning, had some good meetings and put some new sanctions in place.

And as I'm understanding it, it's a very sensitive issue because we haven't done the best job at maintaining our independence. And I'm not going to get political by any means. I don't think this is the time for it. This is something that we could definitely unite over the whole strategy. We could have done this. We should have voted this way. He should have done that.

And, you know, whatever it may be, that's all in the past. We have to focus on what's happening now, right? So I was actually for the very first time, was rooting very hard for President Biden to make a good speech this morning. And, you know, Biden was Biden this morning. But he's certainly been worse. And it actually gave me a little bit of relief. And I think that's where the market started to devout as well.

Because I think the market had the same sentiment. Okay. So President Biden has put the sanctions in place to slow Putin down a little bit. Hopefully it ends up deterring him. And then we've got a united NATO, more united than it's ever been, as he says. So it looks like for once we're not going to be the only dog in this fight. And as bad as this is and as best as this thing could get, I'm not panicked. and you can't be either, right?

You have yourself that's depending on you. You have your friends and your family that is depending on you. You can't allow yourself to get panicked over essentially nothing so far for us. And for the most part, fear is not a useful emotion in this day and age of man's evolution, right? Certainly fear can be useful in life or death situations, whether we're walking down, We're being followed down a dark alley by someone that we don't know, or we're in the jungle and being chased by wild animals. Certainly fear kicks into action and can certainly save us.

Close to being into something like that. So you've got to protect for fear. And here's what happens because if you allow yourself to get fearful, fear causes irrational decisions and irrational actions. And there was a saying when I was in the Marine Corps during boot camp, they would really test you and they would push your emotions and then you have to make

these important decisions really quickly and they always would point out when emotions rise intelligence falls so keep that in mind when emotions rise intelligence falls so you got to keep your emotions to check and then you want to avoid a fearful

defense and essentially you want to embrace confident offense because during times like this a crisis like this people like to pull back and they like to hold on tight to their resources They don't let go and they curl up in a little ball and they wait for the storm to blow over. And then once it seems clear, they kind of poke their head up and look around a little bit. And then they're like, okay, let's go and we'll get back.

And really in hindsight, I've been through that several times in my life. I wish I wouldn't have done that because there was no reason to stop. You know, and for the most part, people are focused on what's happening and it paralyzes them. So something I always say to myself that really helps is rather than focusing on what's happening, focus on what you want to have happen. That's what the focus needs to be. And so us as investors, real estate investors, we got to keep our businesses and we've got to keep our assets performing.

And really, the real enemy that we've got to pay attention to, and it's kind of an indirect enemy of this so far, that could change for sure. I'm not making light of this by any means. But the real enemy or an ally, depending on how you look at it, It's really inflation. We've been dealing with inflation already leading up to this. And then if the supply chain is going to be further interrupted,

inflation could take off even more because there's less goods for the money that we have to spend and that causes prices to go up. So people are pulling back from, they're cutting their expenses. They're going to watch them and be very careful with their money. They're pulling back from risk on assets. you know, like your growth stocks. And they're investing in risk off assets like commodities, gold, wheat, oil, as those things tend to do well, inflation and uncertainty.

So that's likely a smart decision to pursue these types of risk off assets, but you don't want to stop, right? You don't want to just, you know, roll up into a little feeble position and kind of hopefully somebody comes and protects you or saves you. You've got to take responsibility for your situation and those that depend on you, they're counting on you. And so real estate, though, where does that fall into the investment, off investment, or is this a risk on investment? Well, I'd say realist is viewed by many as a risky asset. Most people will say it's very risky, right?

Oh, just wait until the market crash. So most people view this as a risk on asset. And that's how the layman looks at it when they've only focused on. appreciation. This is essentially a gamble. That can be a risky bet for sure. Although I don't think it is going into the next decade or so, I think the appreciation is almost guaranteed.

We might go up or down a little bit along the way, but I think it's almost guaranteed. But that's not the point. The more educated real estate investor focused on real estate's other profit centers is going to place more emphasis on the income that real estate produces. As real estate's value up and down with inflation, so does its income. Let me show you this here quickly. I pulled these charts here. So if we look over time, this is from 1906 all over to 2020.

So the blue line represents the real value, the nominal home prices of real estate. And then what this orange line represents is the inflation adjusted home price. And you can see how that orange line is either flat because that's hedging against inflation. maintaining the real estate's value or it's rising up with it when it rises. So just by owning real estate, you're hedged against inflation. So that's commonly known. But what most people aren't really considering is when we go into the income real estate produces. So this light green line is the real estate net operating income that you can see right here, right?

is this line here. And then the dark green line is the consumer price index represents basically our inflation meter. And you can see that we're going up at the almost the exact same pace. Even the net operating income is going up and up and up, right?

It's starting to separate. It's actually outperforming inflation. So right there between the value of real estate and the income of real estate when it comes to inflation, it's really the best investment that you got, the best option that got out there. So you can't stop.

It's not time to sell your real estate. Please do not sell your real estate because you think you're going to need to be liquiding, get the cash. Don't do that. And then further, what you might have noticed, maybe not. But this came from New York Post. This is from February 1st. And I had probably 30 different headlines I could have chosen for it. I just picked the one that it's kind of easy to read and kind of said the story the best.

But it says U.S. rent prices are the highest in decades, and they aren't coming down. So that is kind of those in line with this chart right here. The rents are not coming down. I live here in Las Vegas, and we moved here a couple years ago, and we rented our house. First, just to see what we wanted to stay here who were going to like it. And we absolutely did. And so when our lease was up after two years, we went out looking for another house or another place to live. Because I've always believed in renting my primary residence.

That's always what I believed in. And I've just let my investment properties pay my rent. It was allowed me a nicer lifestyle and for a much lower price. But we went out and we started looking around and rents had increased so much that it actually became cheaper on a monthly basis for us to actually buy a house. The mortgage was cheaper than the rents. The point being is rents are going up. But if you look at the, this is the rent tracker. This is the National Multifamily Housing Council.

Here we don't. So as you can see, this shows the rent tracker. weekly results and these are how what percentage of rents are paid by the sixth of the month. So you can see it's about 80% all the way across. So like we just looked at December in 2019 it was 83.2% and 2020 is 75%. So we had COVID right so it dropped a little bit and then 2021 we went up a little bit because we've kind of coming out of COVID and that's what most people think. And I kind of look at this like oh my gosh look at all the people that were late on rent because of COVID and the eviction moratorium and all that type of stuff, right?

But this is week ending by this. So if we come all the way here, now these are rents paid by the end of the month, what's paid for by the end of the month. We went all the way from the 80s up into the 95s, right? So we're at 95, 93, 92. So not a big significant difference. So a lot of people thought that the eviction moratoriums had a big impact on rents being paid. But it really didn't.

I mean, certainly people not being able to pay their rent is a problem, but it wasn't a direct correlation with COVID. It wasn't a COVID problem. It wasn't a addiction war-train problem. But I'll tell you a little story about when it comes to real estate, when it comes to business, and it's totally a coincidence, or maybe it's ironic that a good friend of mine,

he went over to Russia. This was about nine, 10 years ago. Like I said, that's the ironic part, right? That it was Russia. But he went over there, and he got to talk about real estate to a big group of people, and he talked to a lot of people in. And what he found,

he learned so much when he was over there, when they were talking about the fall of Russia, right, when the USSR fell, that really the only people that pulled through, the only people that survived, and it wasn't easy for them, but the people that pulled through were business owners and real estate investors.

So that is a big clue, and it's just a coincidence that this is a Russian topic today. but keep that in mind that you want to be owning real estate or owning a business and that's why I do what I do. I chose the best of both worlds. I made a business out of my real estate investing. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you, and so do I.

Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home boy, we got the cash low. At Desjardin, we speak business. We speak startup funding and comprehensive game plans. We've mastered made-to-measure growth and expansion advice,

and we can talk your ear off about transferring your business when the time comes. Because at Desjardin business, we speak the same language you do. business. So join the more than 400,000 Canadian entrepreneurs who already count on us and contact Desjardin today. We'd love to talk, business. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.