Episode Transcript

Welcome to Episode Six of Season Three of the Growing Empires show. Today is our question and answer segment so stay tuned.

00:10

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.

00:29

Welcome, everyone, to our question and answer segment for Season Three. We've got a lot of great questions to get through today so I'm going to jump right in and get started. The first question is, how do I decide if doing a 1031 exchange is necessary for me? That's a great question submitted by my listener. So how do you decide if you're going to do a 1031 exchange, if it's necessary? Well, in all the times that I've talked to tax professionals, legal advice, exchange specialist, a lot of times what people say is, it's a really individual decision, however, we really have to take into consideration what your tax liability is going to be. So in the past, I've heard, you know, thresholds like $30,000, if I have more than $30,000 worth of capital gains, I should think about reinvesting. My personal opinion, though, is that if there's a way to save some tax dollars, if there's a way out there to reallocate your money, you should always consider it. In a lot of cases, completing a 1031 exchange is not expensive at all. And I think that sometimes people think that it's a lot more expensive than it really is. 1031 Corp was a company that I had been working with for many, many years. And you heard them on two episodes this season, what we didn't talk about there was any of their fee structure, and I certainly would want you to reach out to them directly to get the fee structure from them. However, what I will tell you in many cases is, you know, I've seen the fees for a traditional 1031 exchange, if we're talking a property under a million dollars be less than, say $2,000 in fees, right. So if it only is going to cost me $2,000, to save capital gains tax on even $10,000 or $15,000 of money, I think it's worth it, I definitely think it's worth doing the exchange. Of course, your legal professional, your tax advisor, or a 1031 exchange specialist can help you navigate that question directly for your specific situation. But I am a big advocate of anytime you can save money and reallocate it to something that's going to in return produce more money for you, it's likely a good decision. So great question.

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Next question is, should I shop around for a lender? And when? Again, a really great question posed by one of my listeners. Should you shop around for a lender? Absolutely. Without question you should shop around. The reason that you're going to want to do this is because not every lender is created equal. And I think Gary Mascitis touched on this in one of our episodes. And you know, he explained that, you know, there's a lot of consistency between the commercial market, the conventional market, as far as bank to bank to bank. But there are other programs that are out there that really are the difference between what lender you should be using or not. So I definitely think it's something that you should consider doing - shopping around is absolutely critical. Because every financial situation is different, and every need is different. Now, I will tell you from experience that just because you work with one lender one time doesn't mean that they get your business all the time. But I believe that there's a lot to be said about creating relationships and making your life moving forward easier, because you already have a relationship with a bank. So I do believe that you should shop around but what you should shop around for is not rate and terms necessarily, right? Because I do believe that people get really like, you know, fogged glasses in a sense where, you know, we always focus on what's the rate, what's the rate, what's the rate, however, we don't look at like amortization schedules, we don't look at the terms, we don't look at points, we don't necessarily look at length of loans, and other products that those lenders may have in the future that would be beneficial to you as you're growing your portfolio. So for example, if you go to a bank and all they do is conventional loans and you've got always a five year fixed rate, 20 year AM and there's a prepayment penalty 5, 4, 3, 2, 1 essentially, right? That's very standard, I can pretty much get that from any bank anywhere. But does that bank have opportunities? If you're refinancing inside that bank, will they still give you that prepayment penalty? Maybe they won't, maybe they'll waive it for you? Can you get something like 20% down versus the typical 25%? down? Do they offer any kind of home equity lines of credit or loans? Do they do any kind of portfolio lending? You know, do they have creative products that as you're trying to leverage up in the future you can take advantage of? So back to the question, should I shop around for a lender? Absolutely. But what you're looking for could be different from person to person. And when should you shop for a lender? Well, in the current marketplace, we've talked about in many episodes about how hot the market is, and how quickly things trade. So shopping for a lender needs to be done long before you start looking at the properties or analyzing deals, because by the time you talk to the lender and get comfortable with which one you're going to be using, the deal that you were you know, sourcing or maybe analyzing is going to be gone. So make sure that you're shopping for the lender prior to looking for or analyzing properties simply because the market is trading fast, and you want to be ready and willing and able to purchase when the best deal comes up. So make sure that you're doing that in advance without question.

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Is there anything wrong with using the bank that I have had a relationship with for many years? For example, a bank that I currently bank with for my personal finances? Another great question. So is there anything wrong with it? No. But can you do better? Yes, in a lot of cases. Now, I don't know what bank we're talking about specifically. So keep that in mind. But what I have found is that every bank has a niche, right, just like I have a niche, my niche is investment properties and being your advisor and providing a turnkey solution. But every bank has a niche as well. Sometimes they're in the residential capacity, sometimes they're in the commercial capacity. Sometimes they do more business loans and stuff like that. But every bank has a niche. When you're talking about national banks, for example, my experience has always been that national banks tend to make lending on investment properties much harder than it needs to be. Okay. So if we're talking like a Bank of America, or Wells Fargo, or, you know, again, any other national bank, they would not necessarily be the banks that I would suggest you go to as a matter of fact, I would actually suggest that you stay away from them when you're talking about buying investment properties, because that is not their niche, and they are going to require a lot more due diligence. They are going to require a lot more information, paperwork, the timing is going to be much longer, and they're not going to be sensitive to dates and timelines in a contract, because they're a national bank, and they don't really need your business. So I would suggest that you get a relationship going with multiple if not one lender that is going to provide you with opportunity and options. And somebody that is specializing specifically in investment real estate, because I was just having a conversation actually recently with a client where I was explaining how when you're buying a home that you're going to live in and you're in a residential product in a residential market, they are going to look at your finances - can you afford the property? Can you make the mortgage payments? Do you have enough saved in the bank? And it's very much dependent on you personally, your job, your finances, your history. When we're looking at investment properties, the telescope changes in a sense, and what we're looking at now is the debt service coverage ratio that the actual property, the financials on the property - is the property vacant? Is the property occupied? And we're looking at more of the financial health of that investment property and less on the financial health of the investor. Not that one is ignored over the other because they're certainly not, we still have mortgage payments to make. So if the property is vacant, you know, how are you going to make payments on that property? Right? So the bank is going to look at you however, it's much more about the health of the property, are you buying a good investment? Are you buying something that's going to cash flow? How much improvement Do you need to put into the property for it to cash flow? And it's again, the telescope changes a bit. We're looking more now at the property and the property's financials than you as the individual investor.

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The episode will continue in just a moment.

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As a real estate investor, understanding the nuances of the market is critical to sourcing the right property for your portfolio. Knowing what the market will support in terms of lease ability, and potential rental income is a vital part of that equation. You want your property to be in good condition and in a location that's attractive to high quality tenants. If you wish to acquire a property that becomes the gem of your portfolio, you're going to need help to do it right. The good news is you have a great resource who can help you slice through the challenges of finding your ideal property. And that's me. So whether you're just getting started and are unsure of which market to start with, or whether you know the market but can't find the right property, I can help. Visit GrowingEmpires.com and schedule a call with me today. One simple conversation can help you avoid wasted hours, days and weeks, and also help you avoid costly mistakes that will weaken your portfolio. Schedule that call with me today at GrowingEmpires.com, that's GrowingEmpires.com. And I'll make sure that I help you find that homerun property to add to your portfolio.

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So next question, I'm just getting started. Who do I need on my team? This is a really, really great question. So I'm so happy that this was posed by one of my listeners. You actually need quite a handful of people on your team, you truly do. To make this a long term plan, a long term goal to be super successful at growing an investment portfolio, a passive investment portfolio where you can be successful and make money even while you sleep - you need a large handful of people on your team. For example, you need a tax advisor, you need to make sure that the person is well versed in investment real estate, that they know what type of tax deductions you can take, that they're giving you advice on whether or not you should do a 1031 exchange, how to avoid certain taxes how to, you know really prepare yourself for future growth, and how to keep all the money that you possibly can in your pocket. You're going to need a financial advisor, and this person is going to help you know where to borrow from if you have IRAs or 401ks. Does it make sense to lien your current property that maybe you own free and clear? Does it make sense to just go to a strictly a mortgage broker and get financing? But your financial advisor is going to help you with a lot of that, they're also going to help you to diversify your portfolio. We've talked about this before that it's important that you don't have all your eggs in one basket. So your financial advisor should be working with you to help you diversify that portfolio and maybe have different options for financial growth. You're going to need a real estate advisor. You're going to need somebody that understands investment real estate and has, you know a turnkey solution for you. You're going to need an advisor in real estate that helps you pick out the best deals, know the market, know what some of the nuances are so that you can be successful in finding the right properties. But more importantly, finding properties that cash flow as you expect them to. You're going to need a banker, a mortgage broker or banker, and you may need more than one. You're going to need to have these people on your team so when it comes time to leverage properties, you have an avenue to do that. You may need an attorney, because you may need to do LLC setups, you may need legal advice depending on the size of the deal, depending on the state that you're investing in. Some states require actually attorneys to be involved in any kind of commercial real estate. So you may need an attorney on your side. You definitely are going to need an insurance broker and somebody that again, understands investment real estate and how to insure those properties and also protect you. So one way of protecting yourself, of course, is that LLC set up that we've talked about in the past. But another way is your insurance policies. It's not just about the hazard insurance on your property. It's about your liability, your umbrella policies, how do you protect yourself in the event of, you know, some type of catastrophe? How do you protect yourself from being sued, you know, and your insurance broker should really be able to help you with that. You're going to need a good title agent. That title agent is going to make sure that every property that you buy is free and clear. I'm sure you've heard in the past that there are people that have gotten stuck with properties that they couldn't sell because they didn't have clear title because either they bought it from a foreclosure or they bought a special type of deed, and they weren't able to satisfy something, you know, you can't take for granted how important a title agent is in this particular world, because again, the property that you buy, you may need to sell in the future. And if you don't buy clean title, you're not going to be able to do that on the backside. So make sure that you have a title agent on your side. My list is lengthy and there are quite a handful more people that I suggest that you have on your team. But those are some of the most critical in my mind when it comes down to protecting your money, protecting your assets, giving you advice, and helping you steer yourself in the path of financial growth and financial independence.

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Now, if you don't know these people, how do you pick one? How do you find them? When I get clients that come to me for the first time and they have no experience in this industry, the first thing that I do is I offer up connections with people that I trust that I believe are going to work with me as one large team to make sure that you are successful and I only surround myself with people that I trust that I know take their business and their industry as serious as I do. I'm never going to want to partner you with somebody that I don't trust. And it's got to be somebody that's going to work as hard as I do. You know that works day and night and somebody that's going to take care of you and hold your hand and help you get the most out of your investment purchases. So please submit your question to GrowingEmpires.com and we will definitely feature them on our upcoming seasons. Subscribe wherever you listen to podcast. And if I can ask you to do just one thing for me - I would really appreciate it if you could share my podcast with somebody that you think could benefit from some real estate and financial independence. I love helping people create their financial plan. I love helping people you know, achieve their goals in life. I love helping people be able to be independent from their jobs. And I love watching people succeed financially. I hope you enjoyed this episode. 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.