Epic Real Estate Investing - How to Find Money for a Rental | 792

Episode Date: October 1, 2019

This week, Mercedes, our turnkey girl, shares her secrets on how to find money to buy a rental property. Tune in and find out 5 proven strategies to use them in combination with traditional financing for your real estate investing! 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 brought to you by Epic Real Estate Investing. My name is Mercedes Torres, the turnkey girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire.

Now, this show is real estate for busy people. Busy people just like you who understand the importance of real estate just don't have the time or the desire to do it all themselves because, let's face it, it is a lot of work. So if this is your first time here, glad you made it, make yourself at home. And if this is not your first time here, for my regular listeners, welcome back, my friends. So this week, we are going to talk about finding the money for your first rental income. Well, you know, I'm going to say that this is not only an episode for first time investors, but also for the more see. reason investors that perhaps is a little bit stuck finding more money for their next rental.

So if this is your first rental property that you're attempting to acquire or maybe your six or seven rental property, you still need to find the money to buy it. Now, many of you can structure perhaps a deal that you find on your own with creative financing. perhaps by using Matt's three-option letter of intent, which, by the way, is genius. For those of you who are into creative financing for the deals that you find on your own, let me tell you, Matt's three-option letter of intent is utterly clever, genius, fast to the point. It is something that we created many years ago that we perfected throughout the years that we send to every person out there that's looking to sell their home.

To every motivated seller, we will send a three-option letter of intent. And this is how we're able to acquire so many properties on our own, you know, without financing in place from a bank or a private lender. This is when we go directly to seller. So three-option letter of intent, you can search it up. Matt created this whole genius master. that so many of our students and clients use on a daily basis to acquire their deals. But if you're building a portfolio of properties and perhaps are able to qualify for more traditional manner of acquiring an asset or traditional financing, this is the place to find money, more money. Because let's face it, for some of you,

it makes more financial sense for you to find money with conventional financing because right now it is dirt cheap. I mean, the money that you can find using conventional financing often times is less than private money. It's cheaper for you than private money. So if you are those people that can qualify for Freddie and Fannie loan. So conventional financing, by all means, jump on it at this moment in time because money is super cheap right now. Then these helpful tips that I'm about to share for you are a great combination for you to find this money to acquire your first or your next asset and combine it with more traditional finances. Okay? Ready? Great. Now, here are a few places where money can be found that are not the typical

places like your savings account or your stocks or your money markets. Now, let me just preface and saying, I'm a huge fan of using that money if it's available. Because let's be real, if you have money sitting around in that type of an account, like a savings account or a money market, chances are you have very little control over it and you're not making a whole lot of money just parking that money into one of these accounts. I mean, if you're lucky, you're making maybe one or two percent. But my suggestion, and my tips require you to think a bit more outside the box, if you will. I call it my outside the box thinking strategies because you are literally able to make more money

than what you're potentially making in your average savings or money market accounts. And by the way, I'm going to share these in no particular order. Okay. So number one, and I'm sure you've heard this before, it is really no secret, but it is completely underutilized. And my number one option for money thinking outside the box is the equity in your home, mainly in your primary residence, a he lock, if you will. They call it a home equity line of credit. And in most cases, if you choose to utilize or are able to qualify for a line of credit using your equity in your home, in many cases, if you choose to use it with a bank that is currently holding and carrying your mortgage, these rates and terms, tend to be friendlier than the terms you can get at a more common bank. So a bigger bank. So if you have your mortgage with a local bank or even a bigger bank that you've had a relationship for many

years and you go to them and you ask what is available as a home equity line of credit, chances are you are going to be able to borrow money with better terms. Often, you are able to borrow it at a lower interest rate and you're able to borrow it for a longer helot term. Now, helocks aren't normally available for 30 years. It's more common to have a heloct anywhere between five to 15 years. but the reality is some helox out there are as little as two to three percent and that my friends is great cheap money for you now let's talk about just helock in general because i have a love hate relationship with helots there's good and there's bad to it so the good is that generally speaking the terms are more favorable than a bank now you oftentimes will

will have to qualify for a HELOC, just like you were to qualify for a traditional loan, where there's an application process. And in many cases, they will evaluate your debt to income ratio. However, because the terms are favorable, it's worth you to dive into a deeper look into that option for yourself and your family. Here's the bad news with the HELOC. This is a line of credit. So many of my clients go out and they go get their key lock and they get approved with their bank and then they sit on it. They leave it there and wait for a great opportunity or for a rainy day, so to speak. Or some people are really dumb and they go out and buy a brand new car with their helock. Don't do that, my friends.

Don't jump into a liability. Jump into an asset that's going to pay you money. Okay. So you go get your he lock. The bank gets you your line of credit. Here's the problem with it. When they give you a line of credit, let's just say they give you $25,000, which by the way is very common. They give you $25,000 for your he lock. And now you have this available, mysterious, $25,000 available for you. The good part is that you have it at amazing terms. The bad part is that if you draw on your line of credit and you don't put it to work, you are having to make monthly payments from your line of credit. The idea is for you to draw that money and get that money to produce a return

for you so that when you start to pay it back, it's not costing you. It's costing the tenant that is paying you your rent. That's the idea behind it. Okay. So don't go out and buy a brand new car. Don't go out for a European vacation. Take that money, buy a cash flowing asset so that you can pay that money back. Don't draw the money immediately without having a plan for it with money that is put to work. Okay? So the bad part is if you do not draw on your line of credit, the bank can revoke that line of credit at

any time. So you can do all the work and think that you have the line of credit. And then if you've waited six months or a year and you think you can go back to that line of credit, the bank has the right to revoke your line. So I like the idea of applying for a line of credit within the next maybe month you know you're going to be using it and putting that money to work. Again, not that sports car, not the European vacation, but an asset that's going to produce a return so we can make that monthly payment with the money that is being produced from that line of credit. Okay? So that was a he lock. That was my number one suggestion. And I have to say, my friends, many of you own your primary residence and don't even know that that's an option. Take it from me, my friends. It is a great

option. Number two, line of credit. And in many cases, many of your credit cards have available line of credits that you can draw against. Now, here's the secret. The line of credit doesn't have to be your line of credit. It could be the line of credit of your spouse, of a family member, a mother-in-law, father-in-law, an aunt or an uncle that you can leverage. And now, again, the secret is to use somebody else's line of credit. And the beauty would be to take that line of credit to buy an asset, a cash flowing property that is going to make that minimum payment for that line of credit that you borrowed. And in addition, potentially pay the person. even if so, one or two percent more than what the asset is producing.

Now, in many cases, you are able to borrow a line of credit for up to 24 months for a zero percent. Whether it's your line of credit, a spouses, or a family member, let's just say you can borrow that money for zero percent. And you tell your friend, spouse, call your friend, spouse, you're borrowing it for 0%. What if I pay you 2%. They're making money on borrowed money, and so are you. Now, a lot of people aren't going to want to just randomly lend you money from a line of credit. Let's be real. That's the average person unless it's your spouse. But if it's a family member, there's nothing better than securing that loan with a percentage of ownership of your property. So let's just say you borrow, let's just assume $15,000 from your line of credit,

you use that as a down payment, you acquired the asset, and you also put the person on title who let you borrow the money for a percentage. of the title or percentage of the property. So let's assume you are 90% owner of the property. They would be 10% owner of the property. For that $15,000 that you are borrowing from your colleagues or your family members' line of credit. And in addition to borrowing that money, you are paying them 2%, for example, and you are securing that loan with a portion of the real estate that you just acquired. Okay, my friends, I've done this

many times over and over again with my family and I will tell you, my friends, it works. Cool. That was number two. Suggestion number three, my friends, 401ks. Oh, you guys have heard me go on rampages of 401 pays because let me just tell you, I'm not too fond of them because, you know, 401K, we all work really hard for our money. And the fact that your employer gets to dictate what you get to do with your hard-earned money drives me insane. However, some people, a majority of my listeners have 401ks. And so in many cases, if you are still currently employed with your employer, your employer will allow you to borrow, get this, borrow your money against your 401k. Again, it's your money and you can borrow against it, but your employer dictates how you can

borrow it. So, I have a love, hate relationship with a 401k, but I always try to look at the bright side of things. And if you look at the bright side of a 401k and, for example, your employer is doing an employer match, then it will work to your benefit to borrow against your 401k. Again, it is your employer's discretion, if you will. Got it? Okay. So, In most cases, your company, your employer, will allow you to borrow up to 50% of the money that you have in your 401k. And if you borrow against it, you have to pay yourself back with interest. Now, a little bit of a downside is the payment that you have to pay yourself back automatically gets withdrawn from your paycheck. So you have to not only be mentally prepared, but you have to be financially prepared.

But here's the beauty of it. You borrow against your 401k through your employer. You then buy a cash flowing asset, a three-bedroom, two-bath house that's going to cash flow roughly about a 7 to 9% cash on cash return. If your employer is requiring you to pay back at an interest rate of 4%, and let's just assume you're making an 8%, the reality is you are only paying back 4% to yourself. So get this.

You borrow against your 401k knowing that you are going to have to pay yourself back with a 4% interest. Your property is producing an 8% cash on cash return, of which 4 of that 8% is paying back your loan to yourself. So the reality is you are double dipping because not only did you borrow against your own money, to pay yourself back, you're paying yourself back with interest. Do you get it? You're borrowing your hard-earned dollars to buy an asset that is going to be occupied by a tenant that's going to pay you rent to then take that money and pay yourself back with interest. So, although I'm not too excited about money,

parking your money in a 401k. I'm excited that you can borrow against it and pay yourself back with interest from the money that you're acquiring from the tenant that's occupying your property. Again, all dictated by your employer. And in some cases, if you've already borrowed from your employer, there is a cap as to how much you can borrow when you can borrow it and how you can structure it. Regardless, if you can make the numbers work out in the big picture, it is by far a more solid and stable investment than keeping your money in your 401K. Cool. Awesome. That was number three.

Let's move on to number four. IRAs. Now, I am not an IRA expert. I have had IRAs through previous. employers when I was employed in corporate America back in the day. Many of you know that I started my real estate investing career in the mortgage banking industry. So I'm very familiar with the loopholes and what has to happen and how creative you can get with your 401k and your IRA because, well, I did it.

I did come from corporate America. I did have a little bit of money parked in these vehicles, which is why I know. know that you can do more than what the average person thinks they can do. But my favorite thing to do with IRAs is to self-direct your IRA, not only to create partnerships with IRAs, but to really get a keen understanding of how to get your IRA to work for you. Now, in many cases, the very simple way of doing it is buying a property in your IRA, but if you do that, the property is owned by your IRA and not by you. So keep that in mind.

If you have an IRA and you are not yet of retirement age and you buy a property in the IRA, the IRA is the owner of the property. So whatever monies you acquire during that time, that is money that is owned by your IRA, not you. That's not to say that you're not going to be able to benefit from that money when you retire. But as of today, you are not allowed to touch that money within reason. There are things that you can and can't do. There are restrictions. That's not going to be discussed on this podcast episode.

but what I'm trying to get at is you want to use your cash flow today and not wait until you're of retirement age to make that happen. So I like for my clients to self-direct their IRA so that they could create partnerships or they can also use the IRA funds of a family member or use. or you can do a business transaction with other family members with the money from your IRA. Now, again, this is a whole other episode in itself. And you know what? Maybe I should have an IRS specialist interviewed so we can kind of tap on what would be good and what would be not good for you to do and what's more so legal and not legal. There are restrictions that are very detailed.

And I really don't like to dive into these specifics because, again, I'm the real estate investor. I'm not the IRA expert. However, there are lots of ways that you can benefit that aren't common knowledge. But self-directing your IRA to create partnerships and to do business with other individuals that will allow partnerships are a very, they're a big deal and they allow options for you to cash flow today. Okay, that was number four, partnerships and self-directing your IRA. Number five, and by far one of my favorite strategies is colleagues and coworkers' loans and partnerships.

Now, I'm not against partnerships, but my first choice is doing deals on your own unless the only way you can do a deal is via a partnerships. I prefer borrowing money from either a coworker or a colleague and paying the returns as opposed to partnering. That's my preference. and that's what I understand many of my client preferences. However, I have a client who's a fighter fighter. His name is Stephen. Stephen came to me, oh, I don't know, probably about six years ago. And, you know, he is a firefighter.

He is a full-time firefighter. He is amazing. He's passionate. But he's always loved real estate. And I think one of the reasons that he acquired this just, I don't know, warm heart with real estate, particularly Section 8 tenants, is because while he was growing up, he and his family depended heavily on Section 8. He was raised by a single mother, and that's how they made ends meet. That's how they were able to put a roof over their head. So he always said, when I grow up, I'm going to have real estate, and I'm going to allow Section 8 tenants to rent them. So this guy, you know, when he came to me, he's a W-2 employee.

He's, you know, works crazy hours. And, you know, he acquired his first property, or actually his first two properties with conventional lending and really a down payment and conventional lending. And long and behold, he rented those properties to two Section 8 families. One family was 100% subsidized. The other family had to come in with a percentage of it. But my point with these two families is I have been very lucky to have experienced amazing Section 8 tenants.

And what we have found with our Section 8 tenants is that they stay in the properties for a very long time. Now, we go out of our way to weed out and weed through Section 8 tenants. and just all of our tenants in general. But we do take a few extra steps to qualify a Section 8 tenant that wants to live in our property. So Steve got amazingly lucky. And Section 8 tenants paid like clockwork because one, it's 100% subsidized. So no matter what, on the third of the month, he would get his Section 8 rent.

And then the other one, they were a little late because they would have to wait for their a paycheck to come in, but he was usually paid by the fifth of the month. So in six months, he was able to take all of the money that he was getting and start building a little bit more money for his third property. And he was always talking to the guys in the firehouse as to what he was doing. Now, what ended up happening is he got really good at this. And, you know, within a couple years, he acquired a few more properties. And the guys in the firehouse were like, Stephen, what are you doing? And then he borrowed the money from one of his colleagues. And, you know, his colleague was a little bit older. In fact, it was his captain, said to him, you know, what are you

doing? How are you doing it? And he said, well, you know, how much do you have parked in your 401k? So the captain told him and he asked him, well, how much are you making in your 401k? The captain said, probably 2%. So guys said, well, what if I offered you 4% on that money? And I secured it by real estate. So a couple weeks later, I guess the captain thought about it because of course, Stephen had been talking about this over and over and over again. And, you know, it just made financial sense, my friends. The math does not lie. Now, he started buying several years ago. So at the time, I believe he was making probably an 11% ROI, and he's paying the captain 4% for his money, so cheaper than what he would be getting with an average loan from a larger institution, but making his captain

double than what the captain was actually making, parking the money in his 401k. So think about it. Stephen was making 11% and was only paying out 4% of his money. This is a cash on cash return. So Stephen was still cash flowing and he bought the remainder of his properties leveraging leveraging 100% of the money. Makes all the financial sense in the world. So Stephen borrowing 100% of the money. was racking in a whopping 6 to 7% utilizing none of his own money because the rest of the money,

he was using conventional loans. So he was using the conventional loan for 80% and the 20% down payment was coming from the guys in the firehouse that were actually doubling their money because being parked in their 401ks and their IRAs, the guys were making nothing. So, Stephen is now working less hours. And after he borrowed money from one or two of the colleagues in the firehouse, the other guys just started seeing what he was doing and the rest is history. The guys started lending him money. They started wanting to partner with him.

To this date, Stephen has, I believe it, seven rentals. on his own and three rentals with partnerships. I mean, my friends, it is magical. Now, Stephen is still a firefighter and he works less hours than all of the other guys in the firehouse now because he's doing this part-time. Actually, I have to say he's doing real estate a little bit more full-time than he is fighting fires. But what we've done with Stephen is we've detailed his criteria so much so that with the cash flow savvy properties that we've acquired in his portfolio, we have strategically mitigated as much risk as possible for Stephen and the other three partners that he has now created partnerships with. So that's the point, my friends. If you think outside the box just a little bit,

it will make financial sense if you just structure the deals in a manner where numbers don't lie. Okay, my friends, so I've shared a few secrets on how Matt and I continue to buy more properties and how I continue to grow my portfolio. You know, as long as money is cheap and the numbers pencil out, when it's available, it will work, my friends. There is a lot of money out there. You just need to dig a little bit.

You need to scratch a little bit more under the surface. Because let's face it, the issue of finding the property fixing them up and then placing tenants in there to pay your rent, well, that's solved. Cash flow savvy does all of that for you. I've done it for Stephen. I've done it for so many of my clients. And our typical client buys three properties a year. And I assure you, the third property my client buys every year is generally because they've utilized strategic,

financing methods to jump into their third property. You just have to think outside the box, my friends, for just a little extra cash, because the idea is to get the money to work for you, not the other way around. That's it, my friends, for this week. I hope I got your wheels to turn, because again, that is one of the main reasons I do this podcast. Now, if you wanted to discuss your situation with me or one of my strategists, just reached out to us. We'd love to talk to you. You can either go to cashflow savvy.com, do the contact us, or download the rat race escape plan, because I will show you exactly how Matt and I did it, or shoot me an email. Myself or one of the strategists will get back to you. And by the way, we do get back to you. May take us a day

or so, maybe sometimes a little longer, but we absolutely respond to each and every one of you. All right, my friends, that's it for this week. Until next week, on the next episode of Turnkey Tuesday, have an epic day. 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. We're Cashflow Savvy, and we'd like to offer you free information that will show you how to take control of your investments and double, triple, or even quadruple their returns. And it's yours for free.

For the secret your financial planner doesn't want you to know, go to cashflow savvy.com. That's cashflow savvy.com. This podcast is a part of the C-Suite Radio Network. For more top business podcasts, visit c-sweetradio.com.