1107: Q&A "Ask Jennifer" session
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00:01
Welcome to episode 7 of season 11 of the Growing Empire Show. Today we are going to do our question and answer segment. So please stay tuned.
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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.
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We've got a lot of great questions this time. So I'm gonna jump right in. Going into a time of higher interest rates and inflation, what is your best advice for investors? This is a great question and actually something that I talk about a whole lot lately. Because it's a fear and likely going to be a reality for everybody. We are going into a time of higher interest rates and inflation, and it's only a matter of time until they are the reality of our current life. And my suggestion for investors is fairly simple, but it is this. Number one, I suggest that you get as much leverage as you can know. So while interest rates are lower, you want to take advantage of any cash out refinance. You want to build up your lines of credit, home equity loans, anything of that nature. You want to have disposable cash for the future. So I'm not saying go use it right now. But what I'm saying is if you've got properties that have great equity in them, do a cash out refi, get that cash out, and you can use it for later. Whether it's renovations on properties or purchasing other properties, personal reasons, you know, consolidating debt, you can use it for a million different things. But definitely, while interest rates are lower, utilize and get as much debt as you can. So you're going to want to cash out refi, you're going to pull home equity lines, you're going to you know, get lines of credit. Whatever you can do, try to get as much cash as you possibly can for future needs. Now, with that being said, if you are a habitual spender, I caution you. Because I do not want you to go buy a new car and do things that are going to put you in a financial deficit. What I want you to do is be smart about your money. So while interest rates are lower, you want to get as much available cash as you possibly can for future purchases or future spending, for things that are going to create more wealth for you. So that is the caveat there, you are not allowed to spend that money, unless is going to create future wealth for you. But that would be my advice regarding higher interest rates. That does not mean, by the way, that you are not going to be able to buy property, some people do think that oh, well, I'm not gonna be able to buy because interest rates are going to be high. Well, if you get your home equity lines of credit now you could potentially use that equity to purchase other properties, and then you're potentially purchasing cash. But it doesn't necessarily mean you can't buy. It just means that the deal changes. And it means that you need to assess the deal, and be a little bit more diligent in your analysis of the properties that you're purchasing. But it does not mean for any reason that investors will not be able to purchase, it just means that the cost of money is different, right. But that's no different. Like you can't compare 10 years ago to today. And if you did, you'd never buy any properties. Because what was happening 10 years ago, and what's happening today are two totally different things, the prices of properties have skyrocketed again. So you know, you don't want to compare the past to the future, that's not beneficial for anybody. But higher interest rates doesn't mean you can't purchase, it just means you can't purchase at maybe rates that you purchased before. What it does mean is that you have to reanalyze that deal. And you've got to make sure that you've got enough flexible cash in the deal for to make sense. Inflation is a real thing. And what it means is that the cost of goods and services is going to be highly inflated. And that really is more about preventative maintenance and future maintenance on your properties than anything. Because it's going to cost vendors more to drive to your property, they're going to likely surcharge gas and different things like that, that they may not have surcharge before. You can expect all of your vendors to increase their rates. That's what happens in inflation. Because just like you're suffering they are suffering to to operate their business. And when the cost of goods and services are rising and it costs them more to be able to continuously create that service to you, they're going to have to raise their prices to stay in line with the competitive market. Also in a time of inflation, don't forget, wages go up too. So if it costs more for your vendor to have employees is going to cost more for the services. Again, it doesn't necessarily mean anything other than if you were hesitating on getting stuff done, you would want to think about doing the those improvements now versus later. Because they are going to cost a lot less now than they will in the future. The reality though, is that I think that, you know, the interest rate rising and the inflation is going to be more toward the end of 2022, I expect us to see it in like November, December, and then into 2023. It's not going to happen tomorrow. So you do have some time to strategize with your tax advisor, you do have time to strategize with your investment consultant, and really come up with a plan that's going to help you, you know, ride the wave of inflation and higher interest rates.
05:36
Next question. I'm looking toward retirement, and I have so much equity in my properties. But I just don't want to do it anymore. I don't want to own these properties. I don't want to have to think about it. But I'm afraid to sell as well, because of my tax consequences. Do you have any recommendations? That was quite a loaded question. And I think I could probably go on about this for more than an hour. So I'm gonna try to keep the answer to this one very short and sweet. But if you are in this situation, I highly suggest that you reach out to me so that we can talk through some specific strategies for you personally. But you're looking to retirement, it sounds like this person may very well own all of these properties free and clear. And that could be a very, very scary thing. The good news is, is that 1031 exchanges are still the wave of the future. And until the government decides to restrict our ability to defer those capital gains, I think that that is a really great strategy for anybody looking to minimize their tax consequences. Now to 1031 Exchange, though, you do have to move money from your real estate investments to other investments of like kind for you to be able to complete the exchange. Now, the good news with the 1031 exchange is there's no rules that say that you have to reinvest 100%, if you want to take 100% of your potentially taxable income, and defer that, yes, you will have to reinvest 100% of the money. However, maybe you don't need to reinvest all of it. And you're only going to take out a small amount for your retirement or for other reasons, only the amount that you take out is taxable. And what I suggest people do is, you know, let's say you've invested in, you know, rental property. So it sounds like this person likely was involved in rental properties. And it sounds like you know, there's there's still a lot of involvement by an owner, even with a management company, right? Because things break, things need to be fixed tenant issues, there's all kinds of things that go on. So it sounds like this person likely owns some type of apartments or residential housing. And I can see why in your retirement days, you don't want to be getting those phone calls. Couple of things to think about is, especially if you're trying to utilize the 1031 exchange is number one, you could put your money into something called a DST or a Delaware Statutory Trust. And essentially what a Delaware Statutory Trust is, you are investing in shares of companies that are investing in other types of real estate assets. It is the only vehicle besides purchasing the investments yourself that I'm aware of to date, that allows you to still realize the benefits of a 1031 exchange without being penalized and without paying capital gains. So you can either buy more investments, or you can move your money to a Delaware Statutory Trust. And I have to be honest with you, this is something that's pretty common for people that are looking to retire. Because your money is still A working for you. But B it also is allowing you to defer those capital gains. Now the downside to a Delaware Statutory Trust is you're involved in like a share. So there is risk involved, but there's not a whole lot more risk than you owning the investments yourself. The difference is you're investing in things that are far larger than you would probably ever require yourself. And a lot of times these Delaware Statutory Trusts are involved in acquisitions in commercial real estate, large complexes, different things like that potentially syndications. So it's not accessible money though right away. So you would have to want to be able to keep your equity and keep your shares in this DST. If you are looking to take a monthly check out a DST is not going to be something that you're going to want to move your money into. If you need that money, and you need to make monthly payments to yourself to hold up your retirement, then what I would suggest you do is instead of the DST while your money is kind of on hold for a period of time, usually about five years or so. You would want to invest in other types of real estate. But just because you've owned residential real estate all your life does not mean you should not invest in other two types of real estate. There are other types of real estate that is far less risky, or far less time consuming on your part. And one of those things could be investing in commercial real estate. It is very typical in commercial real estate that the tenants pay for all of the fixing of the property. Meaning if something breaks, they fix it. There are a lot of times they're responsible to take it from a what they call a white box, which is just walls, floors and ceilings to whatever they envision. So a lot of times the Leasee will be the one that is doing all the renovations on the property. So you don't have to worry about that as the landlord. And it is very common to have what they call triple net leases, which means that the tenant pays not only for their own utilities, but they pay a portion of your taxes and insurance, they pay CAM fees, which is common area maintenance is CAM fees. That's like snowplowing, landscaping, stuff like that. So if you want to own real estate that essentially is mindless real estate, you probably want to get into commercial real estate and get into triple net leases, where you not only do not pay for it that the leasees pay for it, but you also don't have to really think about it. A lot of times commercial real estate is very long term leases. Sometimes 5, 10, 20 years or longer. Now, with that being said, if you've never, if you've never ventured into the side of commercial real estate, you know, as my advice would be for any type of investment, don't ever go at it alone. You need to surround yourself at all times with people that are smarter than you so that you can learn and grow. And you do not want to venture into any type of real estate investing without having a sound knowledge or advisor on your side. But you can easily move your money from real estate investments on the apartment residential side to commercial real estate, triple net leases and find yourself really sitting back relaxing and enjoying that pina colada on the beach. Because you're really not going to have to worry about it. Industrial purchases as well. Warehousing especially in the Lehigh Valley. I mean, we are though the warehousing logistics center of the world. I mean, it is, it is crazy how much logistics comes in and out of the Lehigh Valley. So just owning a warehouse, you know, owning the building, owning the real estate and leasing that out to companies like Amazon, FedEx, whoever it may be, again, a very smart move for just moving your money into something that would be less time consuming on your part, but still allow you to likely take monthly profits out of your real estate investments for your retirement plans. So great question.
12:45
Next question is, do you have a partner that you invest with? Wow, great question. So yes, I do. And I've had many in the past, not all that I have now. And partners come and go for different reasons. But yes, I have had partners. And the second part of that question is What recommendations do you have for having partnerships? Number one, I think my recommendation is going to be number one, have a plan. Know why you need a partner, right? Don't just have a partner to have a partner. The partner has to bring something to the table. So do they bring expertise, you know, maybe you're partnering up with your tax advisor, or maybe you're partnering up with their attorney or your developer friend, you know. Make sure that they're bringing something to the table, that is going to be beneficial in your acquisitions. Maybe they're the one bringing the money and you have the expertise. But either way, make sure that your partner is bringing something to the table. You certainly don't want to invest with a partner only to drag them along. But yes, I have partners. And originally when I started having partners, I was new in the game of investing and you know, didn't have a whole lot of cash to spend. So I wanted partners to add some equity to the deal. And, you know, I can say that these partnerships are ongoing. While we've continued to invest and grow our portfolios together as partners. I've also ventured out and purchased a ton of real estate on my own, and I own things from other apartment complexes to single family homes to commercial real estate, warehouses and kind of everything in between. So for me, the partnership was about not really about bringing any knowledge to the table. It was about bringing cash to the table so that we could purchase more and quicker than if I had gone at it alone. And those partnerships are still around some of the properties have been sold. Some of the partnerships have been dissolved, not for any negative reasons, just because the assets that were owned by those partnerships were dissolved. But it was very beneficial for me and I would do it all over again. The advice that I have regarding partnerships is in addition to knowing what the other party is bringing to the tables having a rock solid contract. You need to know what happens in the event that let's say your partners are married couple, what happens if they get divorced? Who has access to that money? Who has access to that equity? What if they have a nasty divorce? You know, that would be something that I want to make sure I was very, very clear in my partnership agreement. In the event of a death, what happens? Does the money pass to the heirs and are the heirs underage children? You know, different things like that. So you want to just make sure that, you know, for any legal contract, I think what you're trying to do is protect yourself. And you also want to make sure that you are thinking about all the potential worst case scenarios, and devising a plan for all those worst case scenarios. Now, we certainly hope that none of those worst case scenarios ever happen. But in case that they do, you'd want to make sure that you have a plan for each of those worst case scenarios. And that would be what is your partnership agreement. I definitely advise to not go to a resource like LegalZoom and create a contract yourself. If you're going to go in with partners, you need an attorney. And you need an attorney to help you protect yourself and protect your own interests in whatever investments you're going in. And your partner may be your best friend. But I assure you that when money is involved, that best friend could be not your friend any longer if things were to go south. So make sure that for your own sanity and for your own family and for your own wealth protection that you get an attorney that is going to advise you on how to protect yourself in the event that you choose to have a partner.
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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.
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Next question, I'm thinking about investing in a syndication or a hedge fund, how would I choose which one I want to invest in? Another great question. So I think it's important to first point out the difference between them. A hedge fund is likely involved in multiple acquisitions, they could be residential, commercial, mixed, use industrial, that can be pretty much any type of real estate. Hedge funds usually are a collection of many, many investors and they're used to purchase real estate and a lot of times a very specific format. So for example, maybe they only invest in commercial real estate, maybe they only invest in businesses. Maybe they only invest in value add properties, but a lot of times it's a pulling together of money for multiple acquisitions. The difference between a hedge fund and a syndication as a lot of times syndications is the raising money for a future development project. So in a hedge fund, you're putting your money into something that is going to be used by the hedge fund manager to purchase acquisitions in the future. So we're not raising money for a specific acquisition, we're raising money, and then going to use that money in the future to buy real estate. That's a hedge fund. A syndication, usually, you know, up front what your money is being invested in. And it's usually one larger acquisition. So for example, if there's a big development project in your area, let's just give an example here, the Boyd theater, everybody knows what the Boydtheater is, if you're anywhere from the Lehigh Valley, and it's this defunct, you know, theater that has been abandoned for many, many years. And just recently, they have gotten approved plans to knock down the theater, build a high rise that is going to be a function of retail centers on the on the main floor of offices, apartments, condos, you name it is going to be in there and it's going to be gorgeous. That would be the type of project and I'm not saying that they're raising money for this and I don't actually think that they are. But that would be the type of asset that would be commonly done in a syndication where they would be raising money for the demolition and reconstruction of this high rise building. So when you go into a syndication, a lot of times, you know what they're already using your money for. And in a hedge fund, you're putting your money into a pool, and that money will be reinvested later. You don't always know what they're investing in. With that being said, though, in a hedge fund, they're literally going after a common theme a lot of times, so you will know the types of assets that they will potentially acquire in a hedge fund. I don't necessarily have a recommendation for one or the other. Quite frankly, it just it's a matter of the details of what they're investing in, right. So if you have no knowledge or any experience in any of these things, I wouldn't go at something blindly. But every syndication, and every hedge fund has a different term. They have a different investment that you have to put in, they have a different amount of hold period for your equity for your money, and they could all have early options to terminate, but they could also give you no option to terminate. So you just want to make sure whichever you decide to go with, that it aligns with how much money you want to invest, and how long you want to have that money held for. And that there's not any kind of penalty, should you be in a situation where you need to potentially move that money for emergency purposes. Okay, so, but whether it's a syndication or hedge fund, the main difference is what they're investing in, but which one you choose really is, you know, do the terms apply to you? Do they make the most sense for you? But great, great question.
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Next question is I am just starting out investing, and I am literally scared to death. I have money sitting aside, sitting in the bank, which I know is not doing me any good. But I am scared to death to lose everything that I've earned to date, what is your best advice? Wow, this is a, again, an incredible question. You know, the reality is, is that anytime you take your money, and you use it for something, everybody is scared, right? If you've ever had to go purchase a car or purchase a house, right, there's some uncertainty there, that gives you a little bit of anxiety. My first piece of advice would be, do not take every dollar out of your savings account and invest it. Because there is some risk. And if you do lose it, you don't want to go broke. So don't take every cent that you have. You need to keep some money set aside for, you know, the what ifs in life. You know, your car breaks down or something breaks at your house. You need to always have money set aside for the what ifs and the best person to get advice on how much money you should have set aside just for the what ifs is your financial advisor, I certainly go to my financial advisor and take advice, take his advice on how much money I should have sitting in the bank. Because not all money sitting in the bank is a bad thing, either. It's certainly not creating any wealth for you, because the interest rates are rather comical to be quite frank. But you know, I definitely take my financial advisors advice on how much money I should have just sitting in the bank account for the what ifs right things that happen in life. But assuming that the money that you're trying to invest is not that money that your financial adviser told you to keep liquid, what I would say is maybe make your first investment, the least amount of risk that you possibly can. So maybe go in with a partner. So it's not only your own money, you're going with a partner, just make sure that this partner, again, is bringing something to the table, I talk about that all the time. You don't you don't want to just invest what your friend just because you guys both have a great idea. Somebody has to bring something to the table. So if you're bringing money, they should be bringing experience if you don't have any. But I would also suggest that you try to take the least amount of risk possible, you know, potentially purchasing a very small investment property, maybe one that's already stabilized. So there's not a lot of ups and downs and fluctuation in it. That could be a good smart move for a first time investor. Going small, a single family home a duplex. If you don't actually own real estate yourself. Think about where you live, right? Could you get a duplex and fix up one side while you live in the other and then essentially create wealth because now that tenant that you place in there is going to pay your mortgage, maybe doing something like that makes sense. I would definitely not do something risky like cryptocurrency or anything like that. I also would not suggest that your very first investment, unless you have expertise, be anything like a flip or trying to do a wholesale deal. Because unless you have a lot of experience in something like that, that could go very bad very quickly. But there are many types of safe investments many, many types. Again, residential real estate is one of them. You have to make the right deal. But short of that residential real estate is is a great place to put your money. And it's far safer and far less volatile than the stock market, or any of those other types of things that I have discussed. But don't use every penny. And definitely make sure that you are getting advice from people that are more knowledgeable about you and your investing strategies. And I think that's the best way to start out. But I will advise you pull the trigger, definitely pull the trigger. If you want to create great wealth, you have to make the first move, you have to use your money. And if you've taken all this time to earn money, and you've got this nest egg that's just sitting there, it's time to make your money work for itself. You want to have your money working for you even when you're sleeping. And that is essentially the foundation of how the rich get rich, and how the wealthy stay wealthy. And real estate investments are far less risky, in my perspective than most other types of investments that you could make. So I would definitely think about doing something like that. If you want to take it slow and steady, you've got a lot of time on your hands, meaning that you don't need to necessarily take money out of your investments immediately. A syndication or a hedge fund might be the way to go. Just make sure that if you get involved in a syndication or a hedge fund that the hedge fund operators and syndication providers have experience and that they have definitely had successes that they can prove to you first. Don't ever go into a new venture with somebody that doesn't have far more experience than you do. So that's it. That's my best advice. And I wish you the best of luck.
26:49
So that is it for our question and answer episode and I hope you got a lot out of these questions. They were certainly great questions with a lot of information shared and I hope you enjoyed. So 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