KGCI: Real Estate on Air - Finding, Funding, and Flipping Properties

Episode Date: June 5, 2024

Welcome back to the Abundant Investor podcast. I'm your host Beth Rooney, and I'm here with my business partner, Christine Fis. We have a great episode in store for you today. We are going to talk about real estate investing, and we're going to take you from beginning to end, A through Z, and talk about the team that you need to build if you want to have great success. Now, throughout this, we're going to give you the types of business partners you can have, But of course, if you'd like to do any of these steps yourself, a lot of you may already have expertise to do that. So we're going to take you through the process and then talk about the

types of professionals that you get to work with along the way. I love this podcast. Yeah, I think this is so great, Beth, because there's so many people that are interested in real estate investing and they're thinking about getting into it and they might feel overwhelmed by the amount of people that they have to bring in and forge connections with. So I just want to pause for a second and say, you know, if that's something you're thinking about, please reach out to us because we are really connected in the area of real estate investing, real estate in general. And we love connecting people.

I would say like you and I are connectors, as they call them. And so we'd be happy to connect you with people that we know if we don't know them because you live in a different area and you need geospecific folks. We'd be happy to help you with that. But having a great team will really set you up for success and also make the experience more enjoyable for you. Yeah, I agree with you 100%. That is so it's a really good point. It's a really good point.

And we can provide you coaching along the way, the whole bit. So the process we've laid out is really seven steps, okay? I'm going to give you the high level of the seven steps. And then we're going to go back and drill down into each of those steps and talk about the types of professionals to work with. Okay, so the first step is finding the property. Step number two is funding the property. Step number three is fixing the property. Step number four is renting the property.

And then that's whether you do it, short term, midterm or long term. Step number five is managing the property. Step number six is perhaps refinancing the property. And step number seven is selling. the property to sort of rinse and repeat. Okay, you may have heard the term burr. We're trying to get a little bit more granular in today's episode so we can really drill down

to sort of more detail than just that high level burr method. Okay, so let's start with finding the property. This is the part that can really hold people up, right? How do I find a great investment property? Well, we've talked about that on other podcasts. We've talked about how to analyze properties, but who do you need on your team to find a great investment? Yeah, this is the first step, and it's a really important one. And I think how you feel about this one is going to be a large determination of whether or not you take the leap into real estate investing.

So I think really people fall on a couple different sides of the fence here. I do think that a lot of people get into real estate investing because they're already starting. to see properties that they're interested in. They may have inherited something that they're turning into more of an investment property. Maybe you've been looking for a while. Personally, I think I'm probably a little biased. I see a lot of people who, I talk to people who are getting an update every day or, you know, they're signed up for alerts of when things come on the market, or maybe they go through periods where they're looking for things. So certainly you can find something yourself. The other thing you can do is work with an agent who can say,

you up on an MLS search, like we do all the time for our clients, Beth. And you can have somebody feeding you leads of MLS opportunities. With real estate investing, a lot of people are looking like the entry point is really important. It's really important to make sure that the deal works on paper, the numbers work. And so a lot of times, especially in a competitive market, you want to look beyond the MLS. And so there's a lot of different ways to find off-market properties. We're not going to get into that right now. There are, we'll talk about this on other podcasts, and we did just wrap up a podcast a

couple of weeks ago about this, in fact, other ways to find properties. It never hurts to talk to an agent, though, and especially an investor-friendly agent. An investor-friendly agent, a lot of times we'll have done investing themselves, so they really have walked the walk and they understand what it's like. And I really recommend working with those people. And by the way, we're those people too. Yeah, that's great. And sometimes, you know, an agent will bring you something that's off market with the hopes of having you list it with them when you go to sell it at the end.

So you may work with an agent that you actually don't compensate in step one, but you do end up compensating in step seven when you sell the property that's done. And that's common. I mean, it's sort of common knowledge to say, hey, if you bring me a deal when I'm done fixing and flipping it in that case, I'm going to list it with you. So, yeah, that's really great. And there's also wholesalers that are available that are out there, you know, looking for deals that you can partner work with. And then, you know, like Christine was saying, you can get coaching on this. You can work with us so you can be the person that's out there uncovering these opportunities yourself.

Right, right. And we can also help point you in the right direction. So we have a network of realtors. I think, you know, we're tuned into some areas that are. where the numbers are really working right now. And we are also can coach you through the whole process. And that does start with this piece. So we can get into the weeds with you

if that's something you're interested in. So yeah, absolutely. The next step is funding. So funding your investment property really is typically comes down to two phases. There's the down payment and what you're going to pay up front. And then there's the financing. Now, it should be said also that a lot of investors

are doing all cash deals. So that is the thing in investing. And if it's your first, you know, if you're early in the process, that may not be you. Or it may be, but if it's not you, that's okay, because there's an opportunity to get into a lot of deals and then finance part of them. We're very tuned into this as we work with a number

of mortgage experts who are specialized in working with investors. So that's also important. And this is where you're, want to find again an investor-friendly professional. I think it's in your best, you can find others, but I really think it's in your best interest because they will look at different ways to finance deals that perhaps other mortgage brokers aren't really tuned into. They're not quite dialed in. A lot of the mortgage folks that we know Beth are investors themselves, and they really know how to turn the dials and look for things, products for you that will suit your specific

needs. So that's really important. And there's a couple different ways to finance your down payment and then do the financing later on. So you might save up for your down payment. And there's a couple ways to do that. Yeah, I'll talk a little bit about that. So, you know, exactly. So there's lenders that, you know, that are, I echo what you're saying 100%. You want to work with a lender that knows how to work with investors because they have a whole separate set of products. Then there's hard money lenders, and they're really great for more typically for shorter term lending. So if you're going to do, say, a fix and flip. But I want to take a second and talk about the cash portion of your financing, because if you're going to work with a hard money lender

or really any type of lender, you're going to need to put typically 20% down. Sometimes it's more, you're a new investor. But managing that 20% in and out of a bank, there's a concept called becoming your own bank or being your own bank. And that's using life insurance to be your own bank. It's a concept that's been around for decades, really hundreds of years. It's using properly structured life insurance to create a, amazing way to manage your cash.

So we're not going to get into the details of that today, but know that we are experts in that as well, and we would be glad to provide you more information on that. And as a matter of fact, we're going to be having a separate seminar on that on May 30th. So we'll put a link to that in the show notes. But it's a really interesting way that many, many real estate investors manage their cash to get the most.

most out of it to get the most bang for the buck and to be able to continue to gain compound interest while they're investing in real estate. So more to come on that. I'll look for the link in our show notes. Awesome. Yeah, the third part of this is fixing the property. Now, not every investment that you're buying will need fixing, but most of the time, that's where you can really gain some equity. That's right. So when you're purchasing a property for investment, you're going to make a decision about how much work you're eager to and interested in and available to put into the property. I would say most of the properties that we look at require some upgrade because this is an opportunity to build equity. And building equity is a big part of how you're making money in real estate

investing, whether you're turning it around to flip right away or whether you're going to hold on to it. You also want to think about who's the end guest or buyer of this property when you're considering fixing it up. We've dedicated other podcasts to talking about where does it make the most sense to invest in that property. The team that you want to think about, though, it really comes down to thinking about how big are the projects and what is your skill set. Are you going to take these on yourself or do you want to hire professionals? If it's a bigger renovation, if it's involves installing a kitchen, taking down walls, putting an addition on. If you're not a contractor or have somebody that you love in your family who's going to come in and help you, you're going to

want to find a great contractor to work with you on this. I would say, yeah, you want to interview a couple of different people. You want to ask for recommendations. I don't like to find contractors on the internet randomly. I find that getting referrals and recommendations for your fixed team is really important. There's also sometimes you're going to need an architecture, an architect if you're doing a bigger project. And if you don't like to do the design and you're doing either the structural design or you're setting up a short or midterm rental where you're actually furnishing the property,

you're going to be looking for a designer as well. There are people that specialize in short and midterm rentals. We've done, I've done many of these myself as well and enjoy doing that. So consulting and coaching people on that as well. You're going to want to make sure, though, that you've thought through those key things and got your team in place. And by the way, if you get a great contractor, a great plumber, electrician in your pocket, those people can you can carry on with you if you end up holding on to the property and they'll become part of your maintenance team later on. Yeah, that's great. That's a really good.

That's a really great list. It's a complete list, Christine. I just would emphasize that your contractor needs to be licensed. and that oftentimes when you go to pull a permit, the town that you're pulling the permit from will want your plans stamped by an architect. So or a mechanic, you know, they'll want a stamp on those plans. So depending on how big your project is, be prepared for that. And you can really, your budget on this is where it can really, really vary.

So it's a good area to take the time to. to do your due diligence and build an awesome team here. So I'm just echoing what you're saying there. The next step in all of this is now finding the tenant. And so as I mentioned when I kick this off, if you're going to hold onto a investment for a long term, you're going to want to decide if you're going to rent it long term, midterm, or short term.

And if you're going to be renting it long term, you're likely going to want to either do it or hire a local agent that can help you find a tenant. We do that for people. We just found a great tenant for one of our clients. And so, again, you can do it yourself, or you can hire somebody that can help that the, and find, A, help you find what the right price is to charge,

and then B, help you find the right tenant. So there's the agent portion of it. You also can look into perhaps hiring, it's going to be a short-term or mid-term rental, a co-host. That co-host can provide a variation of support for you from as simple as helping you with the bookings to as detailed as managing the entire process. So managing the cleaners, managing the guest communication, managing the price that you're charging. And then, you know, all of these things, you can do yourself as well.

That's right. And there's a lot, you know, there's really a lot that goes into this. So I think, again, like, thinking through what are your strengths and where do you want to be involved in the business? Do you want to be constantly looking at your calendar and pricing things out? Maybe you want to be leaning on some software tools and you like to use those. Great. Go for it. However, if you're not into that, a co-host might be a great option for you. And an agent might be a great option for you to assess the market and really tell you what you think you can get and what it will yield. I mean, just going back to that example, Beth, that you mentioned, where we help someone with a rental. I know we mentioned a number to our client and she said, wow, that much, right? So a lot of times, your local agents, people that are well versed in the local market have a they're really tuned into what the market will bear and have a really good sense of how to price things. Yeah.

And just, you know, going back to our coaching, and we were able also to say, because we did a, we did sort of an analysis with this client. And we said, no, it doesn't midterm rental work. We knew short-term rent it worked because of the restrictions in this particular city. But when we looked at the mid-term numbers, we couldn't really make a case to say that we thought it would be worth the investment of furnishing. This happened to be a larger property. And it just didn't have the payout. So that's another thing we can help you do.

Absolutely. Yeah. It's a fun work. It really is. Absolutely. So the next step, phase five, is managing the property. Okay. Christine, I'll let you talk a little bit about that. Awesome. So once you've got the property, you've either got long-term tenants in, which typically is a year lease or longer, or you've got a short-term, mid-term rental situation. So depending on your needs, and how, again, how involved do you want to be? Do you want to be the property manager? Do you want to be the person that gets the phone call when the toilet doesn't flush? Hopefully people aren't calling you for that and you set those expectations up front. That's another podcast. Do you want to be in the weeds of it? A lot of people will say yes because they don't want to pay the 15, 20,

25% that a property manager will yield from the property, right? And other people will say they build that cost into their assessment and when they do the analysis of the property and they're committed to paying that out. And that makes sense. for them. It might be out of state. It might be in their neighborhood. And they just, they're busy with their nine to five and it's not something that they want to get involved in. So there are a lot of property management firms out there. You want to really interview and choose wisely, get recommendations. I know that some people have had a hard time finding property managers in certain markets. And so I think this is a, it's kind of like a contractor,

right? You've got to find someone that's really a good fit for you. If you really want to be responsive to your tenants and you want to command a higher rent. Having a good property manager is really important. On the short and midterm side, we talked about a co-host and having a co-host can help facilitate all of the other people that come in and out of the property, right? Or maybe they don't. Maybe that you have a co-host and you still kind of oversee the other people coming in and out of the property. That other team could include cleaners. Even if you have a long term, you want to have cleaners on hand for when you have tenant turnover. It will involve a maintenance person.

So like a handy man, handy woman type person who can come in and do things like install air conditioning units for you or fix a lock that might be broken. You also want to have a great plumber, electrician, those two types of people to have them on hand. They're going to come in really handy when something happens with the wiring or something in the plumbing is like something. you discover that something really isn't working in the plumbing and you need to take care of it. You don't want to have to find that person at that time. You want to have them in your back pocket ahead of time. So your team really involves all those folks and just keeping them and all their names in some type of file or database is a great idea so that you've got that at a moment's notice. Yeah, I love it.

And if you really want to dig into what does a property manager do, when you recorded a podcast, And so if you go back in our archives, you'll see it with a woman that owns a large property management company down in Texas called SmartAX. So it's another podcast you can take a listen to and really understand what does that involve. And you help me help you make the decision, do you want to do this yourself or do you want to outsource everything or do you want to do some type of hybrid in between. So step six for a longer term hold is to perhaps refinance. And the goal here would be to pull out some cash, your equity that you've hopefully created through steps one through five, and be able to pull some cash out to rinse and repeat and do this again. So your team members here would be obviously a lender to help you do that.

I think also it's a good idea to talk to an agent. You really want to get an idea of what that market value is of the property so that you're not over-leveraging yourself. it's a good time to check in with your agent. Maybe the market has shot up tremendously, and it may make more sense to sell or as opposed to hold on to it. But I think it's a good time to check in with an agent

and, of course, a lender. And then step seven is selling, and I'm just going to kick us off on that because there's a great opportunity to use something called a 1031 exchange if you decide to sell and say you want to move, say you had an Airbnb that was going great, but now you decided that you wanted to buy a two-family or another type of property. You could use the 1031 exchange to do that.

So having somebody that is a specialist with 1031 exchanges is a great idea to speak with somebody like that before you just put the house on the market or the property on the market to sell because you can defer a ton of taxes using that, that code. If listeners aren't familiar with the 1031 exchange, it's a way to avoid tax, it's a tax strategy essentially. So if you are purchasing another property in place of the investment property you're selling, you can avoid or change really the situation with your taxes and avoid paying the capital gains tax that you typically would pay when selling a property.

So it's deferring them, right. So you get to defer them down to move them down the line. Down the line. Exactly. This is a strategy a lot of sophisticated investors use. And a lot of people, once they get into this real estate investing game, become really familiar with it because it's a great way to continue to stay invested in property and just change things up when and if you need or want to.

So that's a really great person to have in your back pocket and to know a 1031 expert. We know one here in the Boston area. She's going to be part of this panel that we've talked about having next week. And so that's another reason to work with investor-friendly agents is because they typically are working with 1031 specialists as well. Yes. Yeah. And so, again, this is another opportunity to work with an agent, right? So it's, you know, finding out what the market value is of the property and then deciding

if you're going to use the 1031 exchange or not. Right. And if you decide to sell your home, again, this is you're working with an agent. You want to work with someone that really understands selling and helping you get top dollar for your investment. And then I would also say, you know, along the way, if we have, this is kind of like an all-encompassing role, you want to run your investment as a business. You want to think about this as a business. And if you are not managing your day-to-day books, a bookkeeper is another person that you would have throughout

the entire process. They're helping you to look at your numbers because they're keeping them organized. They're helping you get ready for tax season. You also want an excellent tax person. And your bookkeeper and your tax person are going to work together. A lot of the benefits of real estate are the fact that they are really supportive in optimizing a tax strategy. So you want to work with people that really get that so that you can take advantage of all that there is to offer. I love it. I love it.

Another person to help you along the way is an attorney, right? So for buying and selling real estate, you 100% want to work with an attorney that is a real estate attorney. We have, you know, I've talked about, I've had a lot of experience managing offices. So as an office manager for 15 years, I usually get the problem cases that come to my desk.

And a lot of times the problems were because the attorney involved may not have been a real estate attorney. I have examples of people hiring a malpractice attorney to do a real estate deal that didn't go that great. So we also have some amazing real estate attorneys that we work with. And they can also be there, you know, as you're creating leases. for your tenants. There's lots of times along all of these steps that having a good relationship with a really great attorney is really important as well. Totally agree. Yep. That makes a lot of sense. And, you know, your team is so important because the people that you surround yourself with are going to impact you. They're going to impact the process of the investment and the

investing. And having that great team just feels really good. It's going to increase your confidence. and it's going to help you feel like you're well equipped to dive into this. So if you're just getting started or you're maybe have one property and you're thinking about making this either a career change or you want to just own more properties, this would be a great next step to take while you're waiting for that next property to come into your lap and buy it. Talk to other people, see who they're using.

Reach out to us. We're happy to recommend people. We're in Greater Boston. We have a nationwide network, a global network, really. And we have hooked other people up with people in their market. So we're happy to help you. We love to help people with real estate investing. So this, you know, you want your A team.

So go get the A team, attract the A team by being the A team member that you are. And, you know, go get it. We can't wait to hear about your real estate investing stories. And if you are able to, you know, if you hear this podcast on the day that it's released and you're able to attend our power panel in the Boston area on Tuesday. Amazing. We'd love to see you there. We have a great panel that we're pulling together as a service to our clients and our community.

This is what we love to do. So thanks so much for listening and hope this was a helpful, informative podcast for you. Good luck. Good luck, everybody. We hope you've enjoyed this episode of the Abundant Investor podcast and learn something new. We would love to hear from you. And if you did get something from this episode, please subscribe and rate this podcast so more people can find it and live their rich lives too.

And remember, an abundant mindset means there's always plenty to go around and through giving we receive.