KGCI: Real Estate on Air - Investing in Real Estate - A Wealth Multiplier

Episode Date: May 14, 2024

Welcome, everyone. This is the abundant investor podcast, and we are Beth and Christine, your host. We are here to show you how you can live your rich life right now with the power of an abundance mindset and tools the wealthy have used for years that are accessible to the rest of us, things like real estate investing and using the powerful benefits of life insurance. We're so glad you're here. Now let's dive in. Hello, everyone. It's Beth and Christine from the abundant investor. We are back for another episode of the abundant investor podcast. We are so excited to be with you today. So happy to be here. We are talking about one of our favorite cherished topics today, and that is real estate investing. So real estate investing is one of three pillars that we've built

the business around the abundant investor. Those three pillars are money mindset, having a sound money mindset being really clear that you want abundance, what abundance means to you owning it, really standing in your power so you can have abundance in whatever way you want to. And we know for so many women, that means financial freedom. It means feeling that they have access to the tools and the life that they desire to live their rich life. It's also around real estate investing. It's our second pillar. And so we're going to take a deep dive in on that today. We're going to cover everything about real estate investing. This is a great conversation. If you're new to real estate, if you're trying to decide if it's something that you want to get into, if it's going

to be part of your overall investing in financial strategy, which we hope it is. And then finally, our third pillar, as a reminder, is creating access to financial vehicles that support you in reducing your tax bill and, you know, leveling into more abundance. And we like tools like whole life insurance to do that, cash value, whole life insurance. So those are our three pillars. I am a real estate investor. We both have a lot of experience in real estate. So we want to share a little bit of that with you today as we guide you through the really the basics of real estate investing 101. I currently have a couple of short-term rentals. They are in an area where we have more seasonal rentals. We are just getting into long-term rentals as well. And we've participated in some of the

other forms of real estate investing over the years, which we'll talk about a little bit too. Great. That's great. Yes. And I've had a, I've spent almost 18 years in real estate as a sales manager at some large offices in the greater Boston and downtown Boston area. So I've had a bit of experience with real estate from working with real estate agents to real estate investors to retail investors. So we're glad to share that wealth of knowledge with you all in today, podcast, and in future podcasts. And if you were a real estate agent and you're listening to this, we're so happy to have

you here in this community and appreciate you taking the time. I have always believed that real estate agents would make great real estate investors, and they have that front road seat to what's happening in markets and a natural ability to analyze property value pretty quickly. So if you're here as an agent and you're thinking about becoming an investor, we're glad to have you. If you're not a real estate investor, a real estate agent, and you're just, as Christine said, getting educated, we're happy to have you too.

We promise we'll give you some really great insight. today and leave you with some excellent, actionable next step. Absolutely. So why do people invest in real estate? There's really four main benefits to real estate investing. Number one is appreciation. And we've seen tremendous appreciation throughout the country, really, in the last seven or eight years.

So you buy a property, it depreciates in value, you sell it, you make a profit. Pretty simple, right? So number one is a price. appreciation. Number two is the almighty dollar, the cash flow, right? So you can get cash flow from rental income, from fix and flip. So you can get a good source of sometimes passive income, depending on the type of investment you make. And some of that cash flow is a little less passive with other types of investments, maybe like a short-term rental. So number one is appreciation. Number two is cash flow. Number three is leverage and amortization. So leverage is you now have an

asset that you can borrow against. So that is a tremendous and a very common reason why people invest in real estate. And the last one is one of our favorites, and that's the tax benefit to this. And it's something, again, Christine explained the pillars of what we're trying to do here with the abundant investor. And reducing your tax burden is. a big part of what we're talking about. And real estate is a tremendous way to do that. So those are the four main reasons. And I just want to say that there's a staff that Christine and I love, 90% of millionaires invest in real estate. And they do that really for those tax benefits that I just mentioned. So this is something that's a tried and true long-term strategy that wealthy people

have been using for generation. Yep, absolutely. And I think, you know, once we start to realize more abundance and we're getting into more investing and financial tools, we realize the importance of this, right? So I think maximizing or optimizing, I'll say my tax bill when I was right out of college and had a job and before I was really investing, it wasn't really on my mind. It wasn't something I really thought about. And I think the sooner we can get a handle on that and realize that the, implications as we're making more money we are paying more taxes and especially with things like investing if you've ever invested in the stock market or you've had options from or even a bonus a company

bonus you start to see that uncle sam is taking a nice healthy portion of that bonus that investment and so that's always a factor and we've got to be aware of that and be thinking strategically in terms of how we're investing our money. And that's one of the, you know, it's a key pillar for us. Yeah, absolutely. Absolutely. So, you know, people have been investing in real estate for a long time. And this is something that, as Beth said, 90% of millionaires invest in real estate. That's huge. And in today's market where we've seen so much appreciation, there's more and more millionaires, you know, around us. So it's really important to be thinking about how are you putting your money to work for you, especially when you are a millionaire, which many of us in terms of net worth

may not even realize we are. So that's something to be thinking about. And, you know, Beth and I have experience with real estate, especially in her role as a manager, Beth saw so, you saw so much, right? Like between agents and clients and you have partners. You have so much exposure. And I want to say for someone like me who hasn't been in the real estate industry, it was still very accessible. And sometimes not having all of the experience can be your friend too, right? So I love Sarah Blakely talks about sometimes the when she created Spanx. She's a female billionaire for those, you know, who may not know her. She's amazing.

Look her up. She said ignorance was her friend in a way, right? She didn't know all the ins and out. So I want you to feel like if you're listening to this and you're curious about real estate, you don't have to have it all figured out. And this is part of the mindset that we like to practice, which is go in, confident, imagine yourself already a real estate investor, give yourself, you know, prop yourself up. You've got this. And we've got your back. So we'll talk about how we can support you and help you if you're interested in having more support through courses or

one-on-one mentorship. I just want to say, though, don't be afraid or feel like this is too overwhelming because you'd be surprised at the people that just jump into this and become millionaires pretty quickly because they figure it out. That's right. That's right. So we're going to get into the types of real estate, Beth, right? Yes. We're going to talk a little bit about the types of, you know, how can you get into real estate?

What are the different ways to start investing? And there's five main ways. So one is we're going to walk you through each of these. So just hold tight. One is a house hack. The other is a fix-in flow. lip. If you like HGTV, you've probably seen a lot of that. The other is rentals. So these range from short-term rental to mid-term rental and long-term rental. We'll talk more about that.

Then fourth is wholesaling. And five is passive real estate investing. I'm going to dive right into the house hack. So what's the house hack? House hack is it can be a great way to get started in real estate. And I'll talk a little bit about my personal experience. And it was my foray into real estate when I purchased my first condominium. House hack is where you take a property and you add value to it. A lot of times it's by adding bedrooms. It's by adding value to the house that will make it more valuable. So in a house hack, we are often adding value, adding bedrooms.

And then in my instance, I took a one bedroom, turned it into a two bedroom and then had somebody rent out the second bedroom, a friend of mine. and use that rental income to help me pay my mortgage. So if you're just getting started with your first home, especially if you might be living with roommates and you're all renting and maybe you're all paying $500,000 for your room in a property, an alternative to that, if you want to get into it,

real estate investing potentially maybe in your 20s, even later though, is to purchase a property and invite those same friends to come live in that property with. you and pay you rent for their room, right? So you might split it up four ways. So you're each paying $700. Although really, you're maybe not paying the $700 now because the $2,100 that you are receiving from your tenants, quote unquote tenants, your friends, is actually paying the full mortgage. So that can be a beautiful way to get started. Multifamilies are another popular way for people to

get started in real estate, buying a multifamily, living in one. unit renting out the other and using the majority of that rent to pay the mortgage. So wherever you can see and add value and with all of the home renovation shows on television today on Pinterest, on House, we can get a lot of ideas. And that's another area where we can help you out if you have questions about where to add value ourselves. So that's the house hack. That's the House Hack. That's awesome. Thanks, Christine. The next one we want to talk about is the fix and flip. And most people think of real estate investing as fix and flip that you don't live in that you do on the side. And that's really what most people do.

I've had some experience that we've lived through it as a using really our primary residents. So same as Christine. I started my real estate journey early on well before I ever was in real estate as a career. But my husband and I, our first property that we bought was a two family property that we, in Boston, that we converted to two condos. and added two bedrooms to one of the condos and really gave the whole building an upgrade cosmetically.

We lived in one unit while we upgraded the second unit, and then we brought in a tenant there. So it was a little bit of a combination of the house deck and the fix and flip. And when we were ready to move out of there, we sold the one condo, and we intended to hold on to the other condo, but we got an offer that we thought we could have. and refuse. And there's one of those lessons that we hope to use our experience to share with you so you don't make any of the mistakes that maybe we've made along the way. And in full disclosure, that was a big mistake. We really wish that we held on to that second condo because, of course, it would have probably quadrupled plus in value over time. But you live and learn. So a fix is

flip. There's so much opportunity here. And as Christine said, if you like HGTV, that's a great way to get educated. We also have some great resources for you in terms of how to analyze the smart investment. And I've had a lot of personal experience in a built a home from the ground up. And we're now on our third property that we've renovated. And so getting an estimate, getting an idea on what certain things cost is another way we could help you with that. But, you know, a fix and flip, it can be really fun. It can, you take a property that's typically outdated. And, you know, you can either expand on that property, make it larger, or just make it more cosmetically appealing.

And this goes over really well because most buyers, and I can say this with a lot of conviction from my experience of managing real estate offices, most buyers don't have any vision and have a really hard time seeing the potential in a home if it's not already up to modern standards. So if you can take a property that's maybe run down or, you know, hasn't been upgraded since the late 80s and you can bring that cosmetically into today's style without even having to add to that property, there's a lot of value there because there's so many working families, you know, both parties work. They just don't have the time or energy or desire to do any work to a property. They want to pack up their clothes. They're

tooth brush and move in. And so fix and flip is a great opportunity and we will help you with how to analyze whether it's the numbers crunch or not. Yep, I love that. And I think that there's, you know, where we're going to go from there is talking about rentals, right? And fix and flip usually typically is turning something around and flipping it. And you want to be aware of the implications from a tax standpoint, particularly your timeline when selling something like that, if you're going to go in and flip something. However, it's all very doable. It's all very reasonable if you know the rules. And again, like, that's something you want to be keeping in mind is the details and like the next level of details. Same with. We'll talk in a little bit around the financing

and ways that you can do some of these investments in a tax efficient manner. There's some, some hacks will teach you momentarily on that too. Exactly. And the other thing to know, too, is just understanding the property and what's the zoning, what are the regulations where you are. Regulations also come into play with short-term rentals. So when we think about rentals, this is the third type of real estate investing we want to talk about here.

You can think of rentals as the traditional long-term rentals. So maybe you've rented in the past, you sign a year lease, you're a tenant, you move in and you live in an apartment or a house as a rental, that's long term. And then there's short-term rentals, which is probably the next most familiar way of renting a property and it has taken off. This is the Airbnb model where people buy a property, they turn it into a short-term rental. And you might use it as your vacation home or not. In addition to a short-term rental, it can be a great way if you want to purchase a house

in a certain location that you love to go to, it can be a great way to. to make the numbers work and to financially make that a viable investment for you and your family. And so that's short-term rental where you're going on to VRBO or Airbnb or any other site and you're renting it out in shorter increments. And there's more rules and regulations around that that you want to be aware of in municipalities where you're buying. So we can get into all of that in a course that we have called A to Z Airbnb. That course is available as an online course and we'll talk more about that.

and put the details of that into the show notes. But we've created this whole eight-week course on how to create an Airbnb short-term rental. In addition, there's what's called a mid-term rental. And I think this is lesser known generally. However, it's gaining momentum. And it can be a great opportunity, especially in markets where there's demand for mid-term rental. What's a mid-term rental? It's a property that you rent for a minimum of 30 days.

So it's not a year lease, but it's also not short-term rental. typically midterm rentals are highly desirable in locations near hospitals where they're traveling medical professionals who are coming into the area for shorter stints so maybe it's a physical therapist maybe it's a physician or a nurse and they're looking for a maybe three month maybe six months day and so it provides them with that accommodation for that period of time if you're in a market where short term rentals are not allowed midterm rentals typically are So that's something to think about if you've got a property already in an area where you can't get a license to short-term rent it. You might be able to use the mid-term rental.

And Christina, I just want to add that oftentimes local municipalities will tack on taxes for short-term rentals, much like the hotel tax and what have you, as much as sometimes up to 15%. And so those go away once you rent a property for 30 days or more. So there's some gaining popularity. As you said, that's another reason why there's some gaining popularity in those midterm rentals. Exactly. So Beth, do you want to talk a little bit about wholesaling? Sure.

So wholesaling is a way that a lot of real estate investors get started in real estate because it doesn't require a ton of capital up front. Basically what you're doing is you're identifying an opportunity and you're playing matchmaker to the seller of, that property and an investor who's going to either buy that and fix and flip it or rent it or what have you. And you're basically scouring the public records. You're out there hustling, identifying great opportunities that you can bring to developers

and real estate investors. And then you're sometimes you're putting that property on your agreement and then you're selling the purchase and sale, the right to buy that property at a certain price to your end investor. In some cases, you're actually buying the property, closing it and turning it around and selling it sometimes right in the same day. So I'd give you an example of this locally in our community. Recently, we had a home that had burnt down or partially burnt down, and it was in a terrific location. So anybody that was on MLS looking, any potential buyers looking at properties, they probably loved the location, but they weren't going to get traditional funds.

financing for it. It was kind of scary walking into a home that had had a major fire. So it wasn't for your retail buyer. So wholesaler ended up buying it and identifying a developer that is going to either knock it down or completely get renovated. And those investors, they don't necessarily have the time to be borrowing, you know, a whole state, for example, for knowing a good deal. So a wholesaler can add value by identifying an opportunity that they're typically off market and bringing that opportunity to an investor or developer. Awesome. Yeah.

And they're the internet, I would just say like Facebook groups and communities online have made it a lot easier for folks to find these opportunities through wholesalers. And wholesalers have strategies that are tried and true these days that we're seeing that they're using. So yeah, connecting with wholesalers could be a really interesting way to get started. Finally, we want to talk about passive real estate investing. This is where you're not actually involved in the transaction itself. You are loaning money to go towards a real estate investment opportunity. So I'll just talk a little bit about a recent experience we had where we were presented an opportunity to be a passive investor in a real estate investment. It was a larger investment of a

portfolio of homes, multifamily homes, single family homes in an area that we're looking to invest in anyway. And the opportunity was mapped out. There was a PowerPoint deck that was shared with all potential investors with all of the details. What was going to be purchased? What were the expected rates of return on the investment properties? What was the desired investment from people like my husband and myself? So people who are real estate investors, And then what could we expect as a potential return? We met the entire team in this presentation, and we learned a lot about the overall investment. So typically, a lot of information is required to do your due diligence.

You want to look at the material that's provided by the person putting together the opportunity, and then also do some additional research, typically is how most savvy investors will operate. and then they'll make a decision about how much money to invest in something. So a lot of times there's a minimum, it might be a minimum of $25,000, $50, $100. And then you basically write a check to the real estate investor and they will hand you a promissary note and with, you know, just like you would with the bank. And they are saying that they are going to pay you the return on the investment over time in the terms that they've come up with. So, this is more and more available as well with the internet, Facebook groups where people are

investing. And I think once this is probably not for, it might be for the first time investor, it might be something you hadn't really thought about. And you'll want to really get your feet wet with some real estate investing and going around and understanding the local markets where you're doing things like this before you actually dive in. So for me, I prefer to be more hands on in the beginning and to understand what's the process before handing my money over to someone else more blindly, I would say, without really understanding what's the process of investing in a property. But now that I know, I'm more comfortable to do something like this. So there's really not much work involved in passive investing. You're typically allowing all of the other parties to take

your money. You're trusting them to do good with it, make good with it, and then pay you the return, whether it's 10%, 12%, 15%. So that would be, yeah. Yeah. That would be the final way. Yeah. I mean, that is really the truest form of passive investing as it relates to real estate. And there are some tools you're going to want to use and deploy to know whether or not this is a legitimate and good investment.

But there's lots of opportunities out there and people have made a lot of money doing real estate in this passive format. So those are the five areas. I'll just recap quickly. So you have house tax, you have a fix and flip, you have rentals, and within rentals, you have short, mid, and long-term rentals, you can wholesale, and you can invest in real estate passively. So those are the five, the general categories. And now the question is, okay, so how do I finance these? So for most of those, not all of them, for the first three, you're typically going to need a down payment about 20%. If you are a individual real estate purchaser and you're buying a residential property that you're going to live in, you can get started with as low as 3 to 5% if you're a

first-time home buyer. But when you go to invest in real estate and you're not going to be living in the property, you're going to need a larger down payment. So typically it's 20% down and then the rest of it is financed either through private lending or a traditional bank loan from a bank. So where do you get that 20%? We have a couple of ideas. I'm going to share those with you now. Obviously, the first and easiest one is you save up and you have that cash available. But not everybody has that kind of cash laying around.

So there are ways you can leverage your personal assets to obtain that 20% down. The first one is if you're currently a homeowner and you've built. up equity in your home, you could take a he lock against your home. If you've already started investing and you own a portfolio of real estate, you can do a cash out refinance. So you can use one property to leverage and buy another property. That's sort of when we talked about this is how real estate investors grow their portfolio exponentially.

So you have those two options. A third option is using your what's called a self-directed IRA. So if you have been employed and you had some type of a retirement plan like a 401K and you no longer work there but you have that retirement plan, you could roll that into what's called a self-directed IRA and then use those funds to invest in real estate. In really any of the ways that we mentioned, as long as especially for the short-term rental, you don't live there.

So this is a great way for financing passive investing like Christine spoke of. It's a great way for fix and flips because it's a little bit more tax sheltered. So we talked about that and we talked about fix and slips. If you're doing that, you're paying taxes on any gain that you've made that year, unless you're doing this within a self-directed IRA. That's a tax-deferred vessel that you can invest within. So that's a really great way to do it. You could establish a whole life insurance policy and leverage that to fund real estate investing.

We have lots of videos on that. It's something that we really like, and you're going to hear a lot about that in future podcasts. And then once you get started, another way to kind of make this more tax efficient is used what's called a 1031 exchange. So if you had a long-term rental and you went to sell it, you could have quite a large, tax bill there, if you had a 1031 exchange, you could trade up or trade into a like property and do that in a much more tax-efficient way. So those are some of the ways that you can finance this. We'll provide a lot more detail in future podcasts, and Christine's going to talk about

how you could work with us one-on-one, where we can drill into your personal situation and really vet all of these options around the types of investments, and the types of ways you can finance it and work with you to build a plan that's really going to meet your needs and desires. Absolutely. So there were so many ways, people say to me all the time, I just want to follow up on that. They say, I don't know if I can get started in real estate investing. I don't know if I have the money for it.

I don't know how I would afford that. And so it's really always interesting to start to have conversations about money with people and their personal financial situation. And so much, I would say more often than not, maybe 75 to 85% of the time people have more accessibility to assets than they realize to invest in real estate. And it's really powerful to just even have that conversation to come to realize that you have access to tools and wealth that you've already created. And sometimes you even have access to people in your community, your family, who want to support you in real estate investing, maybe they want to become a passive investor

and you go in and purchase the property and you fix it up and you add value, right? So so many times those resources are right there and we just don't even realize it. So this is part of why we love to have our discovery calls with clients to really open up the conversation. We really want women and men to be talking about money more because we feel like the more we talk about it,

the more empowered we will be. It's these forbidden topics like money when they don't get talked about. We start to create beliefs and assumptions that aren't always true. And there's a lot taboo that doesn't have to be. So we're super excited to have these calls with you to start to look at the possibilities, to explore properties with you, to explore these different ways of investing and to be thinking about the finances. Like that said, you know, selling a piece of real estate that's an investment can come

with a big tax burden. If you're not careful, that's why something like a 1031 is so valuable to understand how that works. And that's just something to consider later on once you've already gotten started, for example. So how can you take action? Like, we're about action. We're not just about the mindset and informing you. We want you to act, right?

I just want to mention, Beth, we haven't really talked about this, but I want to mention if someone's interested in just starting to understand more about real estate investing and the power of it. If we could recommend one book, we love rich dad, poor dad. It's a bestseller. You've probably heard of it. You might have it on a bookshelf in your house. And it's really powerful.

It's by Robert Kiyosaki. And he explains how you can leverage real estate as an asset and how to build wealth through real estate investing. So take a look for that book. And if you want to learn more with Beth and I, we invite you to set up a discovery call anytime. That's always available. If you go to the abundant investor.com, you can find places easily marked to book a call.

Same with social media. And if you're interested in our A to Z Airbnb course for a short-term rental, that is available as well for purchase on our website. And we link to that as well in our link tree and our social media. So feel free to check those out. And then if you want our free course, we're going to make that available as well in the show notes. So our free real estate investing 101 masterclass is a free resource. It's a masterclass we ran that had great reception and shares a lot of what we talked about today and even another

level of detail. Plus, if you're a visual person, it's got the visuals. It comes with a presentation. So please reach out to us anytime with any questions. And we just can't wait to keep talking to you more about real estate and financial freedom and ways to have a mindset of abundance so that all of this flows really easily to you. That's true. That's true. And thanks for tuning in. We look forward to hearing from you. Take care. 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,

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