Epic Real Estate Investing - How to Be on The Right Side of The Economy | 1220

Episode Date: July 21, 2022

We have got more than a decade with a deficit of new homes built. People think it is some sort of pandemic-induced real estate crisis but it's just a lack of building crisis. What makes builders scared and what future are we going to witness? Stay tuned and find out answers to this and many more questions. BUT BEFORE THAT, Matt goes around creative real estate financing methods that will work for you. Are you ready? Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Creative real estate financing methods, specifically ones that work, ones that you'll want to embrace for maximum opportunity as this market is shifting. I'm going to let you in on what's working right now and what's going to work for a while. You ready? 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, EpicREI.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 reiase.com. Here's Matt. All right, so before we're done, you're going to know several creative financing methods that can jumpstart your investing career or expand your existing one. And as the name states, creative financing, you're limited only by your own creativity. But these 10 or a combination of any of them are going to get you started. And stick around until the end should you want some additional help. I'll tell you how to get it. So in real estate, the term creative financing is used to describe any type of financing

arrangement that doesn't involve a conventional mortgage law like the ones most people use to buy their homes. And what most people don't understand when it comes to creative financing, as long as the buyer and the seller agrees, anything goes. A seller has the right to sell their property for whatever they want for it, however they want. I mean, if they'd trade their house for a plate of chicken and waffles, they can do that. And that would certainly be creative. And I'm actually still working on that one, but let's get more practical. because it was being pragmatic that gave birth to creative financing. You see, it was during the late 70s when the 1973 oil embargo crisis,

it plunged the economy into a period of hyperinflation, and the Federal Reserve attempted to counter the hyperinflation by raising interest rates. Early similar to what we're dealing with today, right? Thus the importance of brushing up on your creativity. You see, prior to the embargo, mortgage interest rates hovered around 7%, but fairly quickly jumped to 17% pricing most homebuyers out of the market. And because it was more difficult to qualify for and even afford a loan, the need for creative financing was born.

And I'll run down 10 different creative financing methods that you can use right now. So number one, the cash out refinance. So this is a transaction in which you tap into the equity of your home, which frees up idle funds to invest elsewhere. And this move here, this could be an uncomfortable one for some people because they hold a higher value in owning their home free and clear than they do of financial independence. So I'm not going to hold this against anybody if the goal is to pay off their home. But it does tell me that they don't understand how the velocity of money and inflation works when it comes to creating wealth. So this is my request.

When that next investment opportunity comes across your desk and you need the funds to make it happen, just do the math. weigh the costs of the refinance versus the benefits of that investment and then make your decision that way. Number two, the home equity line of credit, or commonly referred to as a HELOC. Unlike a cash-out refi with a HELOC, you don't pull cash out of your equity. You borrow against the value of your equity. It's a subtle difference, but there's a difference. Helks generally, they have a draw period, typically lasting 10 years or so and a repayment period,

often lasting, well, no more than 15 years. So when would you use a HELOC and not use a cash-out refi? It's perfect for doing repairs or upgrades, like for your income properties. It's ideal for situations for, you know, smaller amounts of money and for shorter periods of time as opposed to a full property purchase. If you need more money and for a longer time, maybe option one, the cash-out refile would probably be the better option. Number three, a personal loan.

You know, though a personal loan, it doesn't offer the same great tax. tax benefits as a refi or a helic would, there are some compelling reasons to consider it. You know, for one, you likely won't be required to put up your property as collateral. In many cases, you aren't required to put up any collateral at all. Second, it's advantageous in real estate to have some sort of liquidity giving you the ability to act fast and get that particular deal done that requires such speed. Now, this next one, this one's my favorite and the one that I use most often. Number four, seller financing.

This is when the seller of a property agrees to stand in place of the bank. So instead of making payments to a bank, you'll make payments to the seller. And think of it as buying a house with an I owe you to the seller. So purchasing a property with seller financing can get pretty deep when it comes to finalizing the terms of that financing. So if you'd like a copy of the creative terms cheat sheets that I give to my private clients, you can grab a copy for free at epicbracthrough.com. So I built my entire passive income portfolio and escaped the proverbial rat race in less than four years by combining seller financing with number seven on this list.

But let's look at number five right now, and that would be lease options. A common school of thought among real estate investors is that it is always better to buy than rent. The problem with this sentiment is the word always. You see, it ignores the fact that lease option contracts are a very viable route to buying property. You know, real estate investors, of all experience levels may occasionally encounter a property they are not ready or sometimes able to purchase, which is where a lease option contract can make for a perfect fit. A lease option allows investors to take control of a property, typically to generate some passive income for a period of time, and maybe do some repairs or rehab along the way, while holding the exclusive right to purchase

the property at a predeterminate price by a predetermined date. Number six, a self-directed IRA. So investors with existing retirement savings can tap into that money prior to retirement without penalty through a self-directed IRA. So this technique it gives investors control over their retirement investments as opposed to relinquishing it to some financial planner or the Human Resources Department at their day job. If you don't already have an IRA, the setup process is relatively straightforward. Reach out to us over here. I can connect you with the best person in the business. Number seven, private money. Private money is relationship money, meaning it comes from your business.

your private relationships like your friends and your family, your neighbors, your coworkers, or essentially anyone else you'd like to involve in your investing. See, you'll be able to negotiate more flexible loan terms with your private money lenders because the entire transaction is less business-oriented. So here's a tip for you, though, especially if asking someone that you know for a loan feels a little awkward. Well, rather than asking them for a loan, offer them an opportunity, an opportunity to make more money with you than what they're like.

doing with their money at the moment. Given the investment opportunities that are available to the average person these days, it's not difficult to do better for your friends and family. Number eight, hard money. You see, a hard money lender frequently was, at one time, a private money lender, and they liked the results and decided to go ahead and make a business out of it. So while the terms of hard money can vary greatly from loan to loan and lender to lender, often it's more expensive than anywhere else. There are several scenarios where it can be very useful. And one of the reasons, reasons hard money may make sense for you is the approval requirements are typically asset-based rather than credit score based. So if you've got a good deal that you want to buy,

it can be much easier to get funding as there's limited personal underwriting involved. Another reason hard money can make sense. Hard money can move quickly. Like if you need funds in a few days, it can happen just like that. This can be a great option if you need fast money. And establishing a good track record with a hard money lender can result in even faster money, in bigger money, more flexible money and with lower rates. Number nine, FHA loans. These are loans that are backed by the federal housing administration, and FHA loans are perfect for first-time home buyers who don't qualify for a traditional loan. So while you are still technically borrowing from a conventional lender, this loan, it allows those with lower credit scores, scores of 580 or above, to pay as little as

three and a half percent for a down payment. But keep in mind, you'll initially have to live in this property to qualify. But when you're ready to move, it can become a super income property for you. Using an FHA loan can be an excellent, low-risk method for getting your investing started. Then number 10, crowdfunding. Now, this financing strategy, it's relatively new and allows investors to use money from the public. And several well-known crowdfunding platforms like, GoFundMe or Game Starter, it authorizes users to raise money for anything that they want. However, a website like Vendor the Nest is a crowdfunding. platform designed specifically for real estate investors and home buyers.

So you just go create an account, make your case to the public, and just wait for the funds to roll in. So a traditional mortgage can be a great way to purchase real estate, but a creative way could be and often is much better. And if you'd like to take the first step and dive deeper into creative financing, I've got a series of free lessons that break down each one of these methods that I mentioned and so much more in much greater detail. You can get them all for free at creative financing.us.

We'll be back with more right after this. Boarding for flight 246 to Toronto is delayed 50 minutes. 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! Feel the fun. Play Ojo. Boating 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 1-8665-3126-0 or visit Comexonterio.ca. Hope is not a financial strategy. Let's get back to work. So what we've been seeing in the news is this headline right here is three hours where real estate mobile rips, no concerted political focus to build more affordable housing.

And that's a big issue right now because of the increasing interest rates. And it's pushing your your first-time home buyers and much of your middle class right out of the market. And it's really slowing down the sales activity. And we could look at this from a few different ways as real estate investors. One is, and I've talked about this many times before, you know, we've got more than a decade of a deficit in new home builds. So we're really behind this. You know, people think that this is some sort of pandemic induced real estate crisis when really it's just a lack of building crisis. And I don't know if you've seen the building starts.

They've gone down like seven sessions in a row. Builders are scared to death right now with regard to building houses. As based on supply chain and supplies and labor, they just can't build it or build anything at a price where they can make a profit. So that's why building is slowing down. And then we're also following that up with 10 years of a building deficit. You know, that is not a precondition for anything to crash. In fact, if you just saw this today,

day, June home sales, they fell, right? They fall 5.4% from May, and that's a lot, right? But prices set yet another record. So the sales activity is declining, right? Not as many sales. I just spent this weekend in Arizona with my family, and they had some friends that came over across the street, and both of those people that came across the street were real estate agents, and they said the phoneers will stop rain. But we continue to set. records and it's all because of the supply and demand. Sales of previous owned homes and June fell 5.4% from May. This is the slowest pace since the same month in 2020 when sales dropped very briefly at the start of the COVID pandemic. And the median price of an existing home sold in June

set yet another record at $4,000. That's an increase of 13.4%. So if you are owning real estate already, you're in good shape. If you don't own any, you probably want to start buying some and investing stuff, specifically income producing real estate because the prices will continue to go up because the supplies is crunched and there's nothing affordable. And the interest rates are continuing to go up. And what's funny about that is that might be pushing some people out of the market for with regard to their affordability, but actually cash sales are up. So there's plenty of people in the market that said, screw the mortgage rates. I'm just going to go pay cash.

I covered that last week. And there's the grim outlook for housing market, the CEO warns, because they can't build them cheap enough. So they're not building any more homes. That's just not a, that's not a condition for us to have any sort of crash, even a correction, which is remarkable to believe in these times. You know, the stock market is down, the house down, the NASDAQ is down. People are scared there.

Crypto is down. and, you know, and another thing, but this inflation thing, inflation is up 9.1% per the last, a report just last week, I guess. You got to get on the right side of his economy because inflation is going to absolutely crush you, particularly if you're an employee and that's your only source of income, or if you are a retiree on a fixed income from your investments. Those two people are going to get crushed the most. if you don't have real estate to hedge against this because the appreciation is going up still,

the rents are going up even faster than the appreciation now, which historically speaking, I don't think this is, I don't remember that ever happening. I did some research. I've never seen it happen. Usually rents are about a three-year lag behind the actual house prices. And so,

you know, you've got to have something else working in your favor because we're just not, still can't do it all on our own. So you've got the assets that are producing income, assets that are appreciating. That's how you're going to start. thrive. It's got how you're going to actually thrive, but you got to have a lease on. If you got another question, let me know. Okay, let's see. Got another question. Good.

Let's take advantage of this time together. So I just turned 18 and I'm trying to do all the research I can. What is the advice you give me starting out? Okay, so there's two things. One thing I wish I would have done with the day I turned 18 was to go and buy a house using my FHA loan. So I don't know what market you're in, but for most parts of the country, you can do that for less than $10,000 down, even if I had to get a co-signer and just did that. And then if I had trouble making those payments, I'd have rented out the rooms. They call it house hacking these days. That's kind of expression.

But I would have rented those out, and that would have been a good start. And it doesn't have to be a perfect house. It doesn't have to be your dream house. But it will get you started. And once you're ready to move up, you're going to keep that one. You turn that into a rental, and then you can go use your FHA again. You can just kind of play leapfrog. If you did that, you're 18 years older.

You did that once a year for the next 10 years. you probably wouldn't have to ever work again. You can be retired essentially by the time. You're 28 years old. And you don't have to make a full-time business out of this. You don't have to put it for any extraordinary effort. This is I've got to keep on saving those little three and a half percent down payments with your FHA. And your credit, it doesn't have to be perfect.

I think anything above a 5, I think a 560. 580 is 3.5%. If you're low 580, I think you have to come down with 10%, but still really, really low. I should have done that. So I'm over $4.52. So it's 8. So 28 out at 10, 30 at 10 more.

4.8, 10 more. I'd have just done that. I would have never had to become like a full-time real estate investor. That'd be 30 properties. I did that just once a year. If you did it once every other year, that's still been 15 properties. Imagine if you bought 15 properties 15 years ago, 20 properties, 20 years ago, 30 years ago, you know, life would be really, really good.

Thanks for the question. What's this? When you say notes, do you mean? lease options or land contracts. Very good. When I say notes, this is what I did. When I bought all my properties,

or I had all those, those 350 properties, I was like, you know, a lot of the, you know, I'd say good 15, 10,

15% were real management headaches. I was constantly getting tunnel where I was constantly putting money in these properties to fix them up. Constantly getting calls from the property manager about these deals or about these properties.

So what I did is I started to reallocate and it is reorganize. And I did the 80-20 rule where I focused on my 20, 20% of my favorite properties that gave me no headaches and produced the most money. So what happens there when you start owning a lot of properties, when you have that many properties, you start showing a loss on paper and you virtually eliminate your tax liability. And so what that means is you've got all of these losses carried forward. And if you never make the money, you never get to actually use them.

And this is like why someone like Donald Trump, you know, who knows how much money has millions, right? Some say he's a billionaire, but it's the reason that he only has a $700, $800 tax bill, the one that became so famous. And it's because he's had got all these losses he's been able to carry forward. But you don't need to have millions and millions of dollars in real estate or be a billionaire to be able to maximize that tax advantage. Just, you know, once you get three, four, five, you're going to start experiencing that. So what I started to do was I started selling some of my properties with seller financing. So I'm actually holding the notes. So they're not land contracts.

I'm actually holding a mortgage note recorded against the contract, just like a bank would. And now I don't have the property management headaches, and I still have passive income. And it seemed like a great strategy in there. There's a couple guys on YouTube and podcast and stuff that say that's the best strategy. Buy the house and then resell it with seller financing. But it has its disadvantages too, because one, as you're receiving payment for those notes, Your asset is getting smaller and smaller and smaller. They're paying down the debt.

So your asset, you're not getting wealthier that way. You just got nice passive income. The second thing is it's taxed at a much higher rate. So it's taxed the money you receive from in your notes versus the money received from your properties. It's taxed different. So what that allowed you to do was every two years or so, my CPA and I will get together and will do a balance of how many properties I own and how many notes I own.

Try to get those to a point where I can. can maximize the money from the notes without having to pay taxes. The properties offset that. I've used pretty software. It's a direct to NLS software platform use. Yes, I just got a free account and I'm doing this marketing master class with Benson, the owner this weekend on Saturday. If you like to join us, you can at ryeimarketingmasters.com.

I'm really interested in. And he's done a great job at putting this together. He's got a lot of fantastic information stuff that takes, you know, a lot of research. and a lot of clicking around to determine on your own. And it seems to be a little time saver. And he's been wholesale properties on there too as well, so I can't get to learn about that. And I guess, you know, maybe if inventory rises,

there might be a lot more opportunities on the multiple listing service. I haven't played too much in the world of on-market properties just because all the competitions that we've got to pay more. So I like off-market properties. But that's one of the things we will be talking of seven different things this Saturday. So if you'd like to join us, you can go to R-E-I-E-E-I. marketingmasters.com. So it'll be myself and six other all-time, billionaire real estate investors showing everybody what's working for them.

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. the dream.