Epic Real Estate Investing - Portfolio Loans – What Are They and How to Grow Using Them... | 1098

Episode Date: November 17, 2020

This week’s episode is inspired by a letter that Mercedes received from Chris, a long time podcast listener asking how to grow his business from 6 to 20 properties. Therefore, the Turnkey Girl reveals what portfolio loans are and how to use it so that Chris and YOU can nourish and expand your business further! Tune in and find out 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 brought to you by Epic Real Estate Investing. My name is Mercedes-Torres, your turnkey. girl, and I help busy professionals acquire passive income through real estate investing so they can

retire even sooner. So this show was created to share tips and advice and real life real estate experiences so that you too can create passive income in your world. That said, if this is your first time here, glad you made it, make yourself at home. If this is not your first time here, welcome back. So this week, our episode is inspired by a letter that I received from a long-time podcast listener, an epic real estate follower by the name of Chris. And Chris writes, Dear Mercedes, I listen to your podcasts weekly and I really enjoy them. And here is what I struggle with. I live in a smaller community in eastern Ohio with a population of 10,000 people. and I currently own six single-family homes.

I'm trying to expand to 20. I've attended a couple of real estate seminars and bought some online courses. It's just kind of hard to implement the knowledge in this area, especially owner financing. I have yet to find anyone take me up on my offer. My buys have all come from lowball, cash offers being accepted, then I rehab it and do the Burr method. So for those of you who don't know

what the Burr method is, it's buy, rehab, rent, refinance, and repeat. He continues by saying, it just takes capital to operate this way. Also, mostly everything here sells on the retail market. When I do see a FISBO, for sale by owner, it always says, No land contract, no owner financing. I've even spoken to some friends to just let them know if they're interested. If so, we can do a deal together. But no one has seemed interested so far. I own several businesses, but I really enjoy real estate and I want to grow my holdings. Just sometimes it's frustrating and grind you down when you can't get anywhere. Do you have any suggestions for people like myself in smaller markets? Best regards, Chris. So Chris, first and foremost, thank you for your heartfelt, honest letter. I feel you on every single level.

And believe it or not, I was once there. So know that you are not alone. Now, I need to say, Chris, and most importantly, Those six single family residents, congratulations. You're actually doing what less than one percent of Americans do. They're buying real estate and holding them, or I should say, they're not buying real estate and holding them just like you are. So you are officially that 1% of Americans that are actually doing something different. So for that, my friend, kudos to you for making that happen. Then you go on to saying, I'm trying to expand to 20. Now, I'm going to explain to you how to do that.

But before I do that, I'm going to tackle a few other things that you said in your letters first, because I think they're just as important and just as relevant. And more importantly, Chris, I don't believe that you are the only one that's experiencing this. You've stated, I've attended a couple of real estate seminars and bought online courses. Now, I am a huge fan of real estate seminars that have implementation components. I am not a fan of that rah-rah pitch fest kind of thing where you run to the back of the room with your credit card to buy the next best online course that's out there, those are not the seminars that I like. For example, if you've ever attended an epic intensive, our education component, that's where

Matt actually teaches you how we do real estate in our office. I mean, our intensive is nothing but meat and potatoes. We show you how to do real estate. It's classroom style. It's broken down step by step on what we do in our office. And for example, we will take a strategy of owner financing and we will walk you down from A to Z on how to do owner financing in your backyard. So that's what we do. Then we offer an implementation where you come to our office and you work side by side with us so you can see and experience the systems that are working for us. Because our law, is if it's working for us, why is it not going to work for you in your office? And many times, it's just the systems or the lack thereof that are not allowing you to maximize what you have

out there. So keep that in mind. When you attend a seminar, you want to be consistent with a few things. Number one is you want to be consistent with who you are following. You need to make sure that you're following someone that is doing exactly what you want to do and that has a proven track record of doing it themselves. So, for example, if you are fixing and flipping, then you want to follow that guru or that individual, that mentor that is actually fixing and flipping in your backyard and not necessarily in your backyard, but is doing it on a level that you want to do. Then you want to be consistent with the strategy. Real estate is one of those things where you will come across a deal that may not work for your standards, but it's still a deal. And you still want to do it. So a lot of times,

you get lost in that. You know, you're looking for a fix and flip, but you find something that you could possibly wholesale. Then you start spinning your wheels, even if you're a fix and flipper, you start spinning your wills to see how you can make a buck wholesaling it. And what happens is that detours you from your vision, from your goal. So keep that in mind. Be consistent with your strategy. Also, be a consistent implementer. And this is what happens when you attend a RARA seminar. And the seminar is Friday, Saturday, and Sunday. And then you get back to the grind on Monday. you're exhausted. On Tuesday, you try to get to those activities that you learned over the weekend and you're just burnt out. And by Friday, you realize that you've implemented very little. And you're not doing the activities that you just learned about that weekend. So keep in mind that those consistent activities of you doing the mundane things that you have to do is what's going to get your name out there. And what's, it's going to pull in deals. And then most importantly, when you attend these seminars, or even when you

leave these seminars, you want to be able to have a clear vision of a system that you are going to implement. It is critical that whatever it is that you choose to do, that you create a system around it because if you don't, then you're going to be like that little hamster on the wheel that just spins and spins and spins and spins. You have to create a system that you are able to execute with only a couple of keystrokes on a keyboard, for example, if you're doing a mailing, or if you're doing signs, you need to create a system for your signs. And it may mean that you pay your kids to go put your signs all over town. Whatever the system, is you have to be consistent. And most importantly, you have to have some kind of tracking system.

A CRM, it could be just even a basic Excel spreadsheet that's color coded based off of what you're looking to achieve. Whatever it is that's out there, we, for example, have a full-on CRM system that does everything for us, from our marketing to our ringless. voicemails, to our text, everything. Now, you may not be on that level yet, but you have to start somewhere. And no matter where it is that you start, it has to be a system. Okay. Then you talked about, you mentioned owner financing. Now, let me tell you, owner financing is not the norm. The typical seller doesn't even know what owner financing is. They don't even know it exists. It takes a lot of educating, especially if it's a seller that is looking to sell because of a life,

unexpected emergency, a death or a divorce. The last thing they want to hear is for you to talk about a long-drawn owner financing type of a deal. So finding an owner financing deal is not as easy as is finding that average seller. But what makes it easier to find these sellers that offer and that are open to own her financing are number one, consistent marketing, number two, consistent follow-up, and most importantly, number three, is an offer. Every single one of the people that I come across gets an offer. Let me clarify that.

Every single one of the individuals that has a house for sale gets an offer. We here at Epic Real Estate, we use the three-option letter of intent. Now, that was something that Matt created because we figured out that every time we sent an offer as opposed to just sending a leaving a business card or sending a postcard, we would get more of a response sending our three-option letter of intent. So having said that, it is critical that when you contact somebody that has a property for sale, give them options. Because when you give somebody options, you never know what.

that seller has going on in their world that's causing them to sell this house. They may be an investor, or they may have experienced an unexpected death in the family, and they have to sell. So if you offer a three-option letter of intent, you may be able to start a conversation and educating them on the three options and two of those options consisting of seller finance, or they may take you up on that low ball cash offer. Now, you did mention that low ball offer being accepted. Then you rehab it and you do the burr method on it and it just takes capital. Now, let's dissect that a bit.

Low ball offers are great. And as I just mentioned, the three-option letter of intent was designed exactly for that. it has one low ball cash offer and then two seller financing options. Option number one is the low ball offer, low ball cash offer. Option number two is seller financing with a large down payment and smaller monthly payments. And then offer number three is for that individual that wants larger monthly payments. So it's a smaller down payment to get into the property and then larger monthly payments until you pay off the loan. Now, that's what a three-option letter of intent does.

And what it does is it opens up the possibilities for the potential seller to consider something other than that low-ball cash offer. So kudos to you if you are getting your low-ball cash offers accepted. but how great would it be if they didn't take your low ball offer, but they did accept one of your seller financing options after you've educated them on what seller financing means to them. So, food for thought. Now, you go on to say that it just takes capital. True. The world revolves around capital.

And so you're right. It does take capital, but it doesn't have to be your capital. As you mentioned earlier, you've mentioned it to a couple of friends that haven't taken you up on your offer yet to partner on something. But let me just tell you from personal experience. When I first started real estate, nobody wanted to partner with me. I didn't have enough experience because even if I had a small portfolio of 10 properties, it wasn't enough for them to see the difference. It wasn't until I started growing where people began to ask me what I was doing and how I was doing it.

So it's only a matter of time. All you have to do is continue to do what you're doing. And eventually, I promise you, people will start to see what you're doing and they will come to you. So, know that. I speak from personal experience. This happens to our students every day. And it likely will happen to you once you start to do more of this. Now, capital can be found in your 401k.

It could be found in your IRA. It could be found in your co-workers' money markets. There are so many options out there. There's even options with Epicfunding Solutions.com where they are able to offer you money for your rehabs. Or you can go to Epic Fast funding where you can get lines of credit. And so all of these resources are open to lending you money so long as they know that you work or that what you're doing is working.

So it's only a matter of time. But you mentioned you have six single family residents. Did you know that you can borrow against the cash flow of your six single family residents? Well, that's called a portfolio loan. And this, my friend, is where you start to grow your real estate empire to 20 properties from 6 to 20. Now, let me break down what a portfolio loan is. Now, a portfolio of properties, well, that's entirely up to you. In this case, Chris has six single family residents, and I'm assuming they are all cash flowing.

Now, I don't know if they're owned free and clear or if they're financing on them, but that's besides the point. Because portfolio loans are a little bit different than a typical conventional loan. They're not your Freddie and Fannie type of loans where you can get your 10 magic tickets where you can come in with only 20% down. The bank will finance you with 80%. That's a conventional loan. A portfolio loan is a little bit different. unlike a conventional loan that bases their lending on the borrower, where the borrower has to have a decent credit score, where they have to be employed, and they ask for pay stubs and W-2s,

and they take into consideration the debt-to-income ratio. On a portfolio loan, it's quite the opposite, because a portfolio loan is based on the asset itself, and they allow you to borrow a against the projected income of the asset. So what does that mean? They will allow you to borrow against the cash flow that your single family residence is generating. So the bigger the portfolio, the more cash flow you have,

the bigger the loan amount on a portfolio loan. Now, there is a downside to the portfolio because once a portfolio, always a portfolio. So let me explain what that means. In this scenario that we're discussing, Chris has six single-family residents. These six single-family residents are individually owned, probably by Chris himself or maybe his spouse. I don't believe that they are owned by an entity, but if they are, that's great. because with a portfolio loan, once you put a property into a portfolio, it is no longer six individual

properties. It is now one portfolio of six properties. Meaning, if you decided to sell one of those six properties, you are unable to do it without selling the entire portfolio. So, one of those six properties, you are unable to do it without selling the entire portfolio. So once a portfolio, always a portfolio, which is why I'm always particular about the number of properties you put into a portfolio. My magic number, ironically, is anywhere between six and eight properties. I like to keep my portfolio size between six and eight single family residents for a number of reasons, but primarily because if I wanted to, to sell randomly one of those properties, I have to take the whole thing apart. And again, once it's in a portfolio, that portfolio, even if there's six single family residents in that portfolio,

is considered one structure, one entity, one portfolio. And you cannot cherry pick out of that portfolio. Now, the downside to this is also the underwriting process is a little bit more extensive because they are scrutinizing the asset, not so much the borrower, but the asset. And with a portfolio loan, there are higher interest rates. They tend to be a little bit higher than conventional. And the terms tend to be a little bit shorter.

Not quite the 30-year fix, but you can get, I'm seeing some 25 years, 20 years as well. Needless to say, even with all of this in place, you can still cash flow in a portfolio even if you pull out cash based off the projected income of your asset. Here's how it works. So, Chris now has six single family residents that he owes individually. Chris will have to create a structure. And in this scenario, we are going to call it Happy LLC.

So these six properties personally owned by you or by Chris will have to be placed into Happy LLC. Happy LLC will now own six properties that constitutes one portfolio. Once you do that, you create and do a cash out refinance out of your personal name into the portfolio. of six properties now called Happy LLC. So what does that mean? That means that we took these properties from his personal name into Happy LLC, have done a cash out refinance that now allows him to take the funds from the cash out refinance to reinvest again.

You take that capital and you invested in assets now that you can buy, using conventional financing once again. Because remember, we took everything out of his personal name doing a cash out refinance into the portfolio. And now Happy LLC owns all of these properties and they're no longer owned individually by Mr. Chris. So we now have this cash out refinance that we did. We have this cash at Hens. that we can now use it to invest in assets personally or to invest in assets using conventional financing again or even better using creative financing. You take that capital and you buy more properties and you repeat the process and you do it over and over again. So first LLC is

called Happy LLC. The next LLC that we're going to do with a total of six properties or maybe eight properties that we've acquired from the first LLC that we refinanced. Now we create Money LLC. We do the same thing. We repeat the process. We do a cash out refinance from our personal names into Money LLC. Have the properties owned by portfolio. number two called Money LLC, and then we do a cash out refinance again and repeat the process. Take that money again and we buy more properties using conventional financing, creative financing, and we keep doing it again. You can keep buying properties and repeat the process over and over again because there's no limit to how many portfolios you can have.

There is no limit to portfolios, like there is a limit to the number of properties that you buy personally using conventional financing. Now, this is how we built our portfolio. Now, I will say the disclaimer of these very unpredictable times, the market is changing. I'm seeing changes every day, but I am currently working on a portfolio of 12 properties for two of our clients that have done this two times already. So they're working on their second set of properties to go into a portfolio so that they can continue to do this over and over again. Now, this is a lot of information. It's a little bit more advanced because it's not so common, but it's very very doable. So the final thing that Chris said in his letter to me was, do you have any suggestions for people like

myself in smaller markets? Well, as a matter of fact, Chris, I do. It's turnkey real estate. You know, if you can't find a deal in your backyard, go to somebody else's backyard that has deals that you're looking for. Because I promise you, there is so much real estate out there to be had. If it's not in your market, go find it in another market. As a matter of fact, that's exactly how cash flow savvy, our turnkey division. That's how it was born. I was living in Los Angeles. I couldn't cash flow in Los Angeles if my life depended on it because the price points are absurd in that area. In that whole Southern California market, they're insane. So I went from fixing and flipping to cash flowing, and I couldn't cash flow. So I looked for markets in middle America that made sense for us that served our purpose, and it turned out that I created cash flow savvy out of it. So perhaps in your market, if it doesn't exist, look elsewhere. Because I promise what you are looking to do, it is. exist somewhere else. I will say, the hardest part about turnkey real estate investing or really

letting somebody else do the work for you is letting go of control, especially if you've been running your own operation for a minute. It's hard to let go of that control. But once you wrap your head around the fact that, heck, I'm not able to do it in my backyard, but why can't I do it in somebody else's backyard. And once you really understand that somebody else, an expert, is doing all the work for you while you're watching your portfolio grow and while you're getting to see your dreams built right in front of you, I mean, it's so worth it. I truly hope this episode shed some light for you, Chris, and to that person that can identify, with Chris's story because so many times what you're experiencing in life, chances are somebody else is

experiencing it too. So if you have a question that's related to building your portfolio or getting out of the rat race or you're stuck in this real estate world and you just can't see the door out. Reach out to me. Send me an email and maybe the next episode. will be all about you. That's it for today, my friend. I really truly hope that I was able to reach out to you to make a difference in your world. But if you do want to reach out to me, feel free to go to cashflow savvy.com. That's savvy with two Vs. Fill out the contact me and we will reach out to you or just email me directly. My email is Mercedes at epic real estate.com. Until now, Next week, my friend, where cash flow is king. Have an epic week.

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 cash flow 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.