1101: Using Equity to build More Equity
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00:01
Welcome to episode one of Season 11 of the Growing Empire Show. Today we're going to talk about what you can expect from Season 11. And I'm going to introduce you to our theme. So make sure you stay tuned.
00:16
Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:37
So, season 11 is going to be about how to buy your investment properties without using your own money. And let's be honest, that's really the name of the game. The richest of the rich got wealthy because they stopped using their own money to purchase investment properties and they started using other people's money. Today, we're going to talk about how exactly you go about doing that. So let's jump right in. There's many different ways to use other people's money, the most common is to get a mortgage. So instead of buying a property, all cash, you can get a mortgage on the property. You can also buy the property cash if you're worried about being able to negotiate. So a lot of times people say you know, cash is king. So I want to purchase properties cash, because I want to make sure that I get the best deal. And if we're in a marketplace where cash is king, and that does make a difference, you certainly can use your cash to purchase your investment property. What I would highly suggest you do though, on the backside, is do a cash out refinance right away. I would not leave all your cash held up in a property in an environment where mortgage rates are so low. And where we're constantly talking about inflation, rates going up, you want to take advantage of the moments that you can. Real estate is very much like trading stocks, you got to know when to hold and you got to know when to fold. Real estate and finances the very much the same thing, you've got to know when to hold your properties, you have to know when to sell your properties, you have to know when to leverage your money, you have to know when to use your cash. We are currently in an environment where it makes complete sense to leverage as much as possible. And many financial advisors will suggest that you do the same thing. At this moment, while interest rates are low and prior to them growing and inflation being a real thing that's going to affect your ability to purchase and get good services on your building because the cost of goods and services will be rising, it makes a whole lot of sense to use as much leverage as you possibly can. Using leverage means that you're not using your own money. And that's one of the easiest and most common ways to buy investment properties without using your own money. And the theory behind that is let's say for example, you go to buy a property, and that property is $100,000. And you put 20% down on that property. So your investment, your cash is $20,000 plus, of course closing cost. However, the bank has the other $80,000. So you're only using $20,000 of your own money. Which means that if you actually had $100,000 to spend, you really have an additional $80,000 to go and buy more properties. The trick with investing is that you want to leverage as much as you can, and you want to buy as much as you can as quickly as you can buy it. So if I have $100,000 to spend, I don't want to spend $100,000 in one property, I want to spend $100,000 over the course of multiple properties. Another way to buy investment properties without using your own money is to have a partner. And I know that sometimes people shy away from having a partner. But the reality is, is that if you are cash poor, or you're just starting out, there's nothing wrong with having a partner. The most critical component to having a partner is to make sure that everybody is on the same page. And while I don't believe that, in any partnership, everybody is going to do an equal share. There's reasons to have partnerships. So let's say you're a hands on manager, and you're going to take care of the acquisitions of the properties or you're going to be the one responsible to talk to the property management company. Well then having somebody else investing their cash allows you to a get away from using your own money for your investments, but it also allows you to share the responsibilities in that partnership. You do want to make sure that any type of partnership arrangement that you do make comes with a ironclad contract. Whether they are your friend, your spouse, your partner in business, no matter who this person is a family member, you want to make sure that you have an ironclad contract. Because everything is great until things are not great. And then you're going to wait so that you had that contract. But having a partner to help you build equity, and build your portfolio in the very, very beginning stages of your investment strategies makes a lot of sense for many people.
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We've talked about initially getting mortgages, we've talked about partnerships. Let's talk about other options, cash out refinances. So let's talk about the properties that you currently own. You may have a house that you live in, there could be equity on that property. If you did a cash out refinance, or a home equity line of credit, whichever way you want to go about it. And I will explain more about the different types of home equity lines of credit, cash out refinances, the differences and what they mean for you in the later episode. However, you could definitely take that cash, that equity, that you have in your property, your personal property and use it to buy investment properties. That's another way to scale very quickly without using your own money. Because what you're using, again, is the equity that built up over time, you're taking that out, and you're going to use that to buy other investment properties. If you already own investment properties, you could take the equity out of those properties to buy. I've heard people taking the cash value out of their life insurance policies to buy real estate investments. That is a feasible option as well, you could invest in something like a syndication or a hedge fund. And while it does take a little bit of money to actually invest, what you're getting involved in is something far greater or far bigger than you would get involved in yourself. So in a syndication or a hedge fund, a lot of times what happens is you have a nominal investment, sometimes it's, you know, 25, $50,000 $100,000, maybe, and you take that money, but that 50,000 or $100,000 worth of shares that you own in this syndication, or in this hedge fund now allows you to be a part of ownership of real estate that could be 20,50 $100 million or more. Again, a great way to start to scale your own ability to purchase future investment properties is to, you know, surround yourself with people that are already doing it that are already very wealthy. Surround yourself with partners. And if you are doing it by yourself, you're probably going to have to go the route of mortgaging properties using cash out refinances, taking the cash value out of your life insurance policies. Another thing that you could do is you could use your 401 K's, if you have a 401k. Specifically, if you have a self directed 401k, you can use that money in that 401k to purchase real estate investments. And so that's another way to buy properties without using your own cash. Ultimately, what it comes down to is the trick of the trade is you want to be able to be creative, and you want to be able to use everybody else's money, the banks, other partners, equity, you know values of policies that you have, you want to use that money to fuel your investment portfolio purchases. And after you get the first couple under your belt, they're going to continuously build equity. And as they're building equity, you're going to likely take that equity out and buy more properties.
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The episode will continue in just a moment.
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As an investor, we know it's important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you're interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today's and tomorrow's real estate opportunities. As a member of the Empire Investment Club, you'll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you're an active investor, passive investor, a combination of both or just starting out, the club is where you'll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we'll see you in the club, where everyone's on a journey to becoming a better investor.
09:18
The other thing that you could do to fuel your investment strategy is to take some of the initial properties that you purchased that now have significant value because the market has likely changed, and to take those investment properties, sell them and buy more properties. Now, why you would do that over potentially doing like a cash out refi is, when you're doing a cash out refi you can only take sometimes 70 to 80% of the value of the property out in eq. Meaning that you have to leave that other 20 to 30% down and that's that's different per bank. So if you're going to do a cash out refinance, you would want to do first understand the terms of that cash out refinance. And I've seen them go anywhere from, they required you to keep 30% equity to as little as 20% equity. But what that means is that that 20 or 30%, equity, whatever those banks terms are, is not money that you're going to take out. So if your property is worth $100,000, using the same math that I used before, you may only get 70 to $80,000 out, you're not going to get $100,000 out, if you want to be in a position to realize all of the value of your property, you have to sell your property to do so. And there are many instances where that makes a lot of sense where you can sell an asset to acquire more assets. And again, you're buying investment properties without using your own money. Because you likely had a mortgage on that property that never paid off. When you sell the property, you're going to satisfy that mortgage. But then you're going to take all of that profit, all of that equity, and then you're going to use it to fuel your investment strategies moving forward. As I had said earlier, you got to know when to hold them, and you got to know when to fold them. And when you decide that you're in a position where you've got to decide if you're going to do a cash out refinance, or you're going to do a sale of a property and using that equity to buy more equity, really, the determining factor is have you maximize the profitability of the property that you're currently in. If you feel like you've already hit the ceiling, it may be a great time to sell. I have heard investors say to me before, well, I've always expected that I will hold this property forever. It's a great property it's doing well, you know, it's an easy property to have. And that's great. However, if that property is fully maximized, and today, you can sell it for a million dollars. But a couple of years from now, it's only going to be worth $700,000, you should sell it now. And, you know, it's really going to be very much directed by the time of year that you sell. When you sell what type of market we're in a buyers market seller's market. But ultimately, what you want to make sure that you do is when you have a property that you have maximized to its fullest potential, and you do not believe that it's going to appreciate further, that is a good indication and attempt to sell that property, take all your profit, and then move that money to another real estate investment purchase.
12:14
So how do you buy investments without using your own money, any of the things that I talked about, and I'm sure as you talk to other investors, there's some other creative ways that I haven't even mentioned here, make sure you take the time to network with other investors. Make sure that you take the time to read and acknowledge and devour and listen to podcasts about real estate investing. Some of the things that I know that allowed me to be very successful, my own investment purchases, were things that I learned from people that were more successful than me. So make sure that you take the time to learn about what you're investing in that you learn about all the tricks of the trade. But there's multiple ways to buy investment properties without using your own money. Get a partner, have a mortgage, do a cash out refinance on your current home, the home that you live in, or your other investment properties. Use the cash value of your life insurance policies. Use your self directed IRA to purchase investment properties. And I'm sure like I said, there's many other options. But that is actually how you get started. And once you get a few under your belt, you will see that it continues to grow very, very fast. Getting Started is the hard part. Growing is the easy part. You just have to be buying successful investments. So what can you expect from the rest of season 11 on our topic of buying investments without using your own money, I have the most awesome guest for you to listen to. That's going to cover a couple of episodes. His name is Trevor Colton. He's with Evergreen Capital. And he is just a fountain of information. He has done everything from real estate brokerage to real estate education. He does seminars. But he is a financial guru and his current role is a mortgage broker. So he is going to talk a lot about the difference between debt and equity capital. He's going to talk about how to find the best deals for you when you're going to leverage your properties. How to know whether or not you should use a mortgage broker, your own bank, what to look for. Things to know when even making deals happen. And I think that you're going to really enjoy that. We will have our question and answer segment. We're going to elaborate more on the difference between cash out refinances, home equity lines of credit personal loans, the differences between why you would use one over the other. And of course we will have our trailer for season 12. So I hope you are as excited as I am and I hope that you stay tuned for all that season 12 has to offer and until next time, take care.
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For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com