Episode Transcript

Welcome to Episode Eight of Season Four of the Growing Empires show. Today is going to be our question and answer segment, followed by our trailer for Season Five. So stay tuned.

00:14

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.

00:33

So Season Four might have been my most favorite season of all. And I think I actually say that probably every season, but I just enjoy talking to people and I love investment real estate, as I'm sure you can tell, but Season Four I felt was packed with more information than many people may get in a lifetime, as far as advice and free advice no less. We talked to Bo Travis regarding tax advice in a two part segment this season and Bo went through how to take advantage of some of the tax benefits, 1031 exchanges, the new tax laws that had come out over the last year or two. We talked about how to make sure that you're capitalizing on all the deduction options that you have for an investment property and we talked about the regulations that change as far as taxation from S corps to C corps, LLCs versus individual ownerships. Then we talked to Ryan Daubert about insurance for investment properties and Ryan talked to you about how to mitigate your risk. We talked about things like sinkhole coverage and loss of rent coverage, and insuring your properties properly, liability policies and the difference between LLC and personal ownership and how that impacts your insurance for your investment properties. Last but certainly not least, we had a two part segment with Zachary Zawarski, a local attorney here in the Bethlehem area of Pennsylvania. And Zachary went into detail about how to screen your tenants for potential rentals, how to have the best possible application process, things that you need to look for when screening a tenant, how to make sure that you're finding only the best of the best quality tenants for your properties, and then how to set yourself up for protection with the right lease and which terms you need to have in those leases. I really hope that you got a lot out of this season. As I said before, it was jam packed with information and that's not going to stop, we're moving right into Season Five and Season Five we're going to talk about selling your investment properties. You've heard us reference how hot the market is right now and it's going to continue well into 2021. So we are going to discuss what you need to know about selling an investment property, should you choose to do so. With the market being so hot right now and prices skyrocketing, there's no shortage of built up equity and a lot of these properties. And part of being a really savvy real estate investor is making sure that you have the ability to know when to buy well - buy low and sell high, right? You want to buy low and sell high. And the same goes for real estate investing, you know, just because the market is hot doesn't mean that every property should be sold. What we really want to focus on is does it make sense for you to reinvest that money? And if so, where do you want to reinvest that money? Can you take the equity out of the property that you currently have, by way of sale or perhaps by way of refinancing? And can you make that money spread even further? Can you invest in a different manner or a different way? Or can you start over and duplicate the process that maybe you were so successful with before? But no matter whether you choose to sell or not, there are so many things that you need to know about preparing your property for sale. So that's what we're going to go over - we're going to talk about capital gains tax, we're going to talk about how to squeeze out every penny, how to know when it's time to sell or when to choose not to sell. We're going to talk about some marketing tricks that you need to know for 2021. And I'm going to challenge you to look at your investment portfolio whether or not it's time for you to take advantage of the drastic market appreciation that we're experiencing.

04:15

So let's jump right into our question and answer segment. The first question from one of my listeners is what are the best tips you can give me for mitigating risk? And that is a loaded question, but I'm more than happy to share some of my top tips for mitigating risk. So the first thing is use the buy and hold strategy. There are so many things out there that you can read and do but it is really important that you pair your strategy with what is going to give you the best bang for your buck in the marketplace. And right now buy and hold strategies are by far one of the best ways to mitigate risk in your portfolio. In short, what you're doing is you're buying a property hopefully it's a value add proposition and you're going to improve that property by several different means - perhaps it could be increasing rents, increasing the quality and the condition of the property, putting in capital improvements. But whatever your strategy is for your hold pattern, you want to make sure that you are increasing the value of the property both naturally, market natural appreciation as well as forced appreciation by the energy and money and time that you put into that property. My second tip would be focus on multifamily rentals. I personally believe that multifamily rentals are less risky than single family homes and I believe we talked a little bit about this in one of our earlier seasons. But it's simply put, if you have a single family home, and that tenant moves out, you have no money coming in, but you still have bills to pay. Whereas if you have a two unit, three unit, or so on and so forth, you've got multiple units there. The idea is that, for example, let's say we have a two unit, if one tenant moves out, hopefully the rent that I can still obtain on the other occupied unit is enough to cover my bills. So instead of being redlined, and in a deficit as I would be on a single family home, hopefully I can scrape by long enough to pay the bills and make potentially a little bit of profit while I'm turning over a unit and perhaps finding another tenant. So I really think having a variety of things in your portfolio makes sense. But I would urge you to focus on multifamily rentals, starting from two units on up. Another tip on how to mitigate risk is buy the types of properties that people will want to live in during a recession. I've been in real estate long enough to see at least two drastic impacts to our economy. One was the recession and the second was COVID. But I got news for you - there are definitely ways to mitigate your risk by buying properties that people will want to live in during these situations. Let's talk about that A property. Think of that modern apartment building - covered in glass, has a dog park, pool, you know, has all the amenities that you can think of. Well guess what? When jobs are lost and the economy changes, those are the first people that are impacted by it. It's not your warehouse workers. It's not your grocery store employees. It's not your essential workers. It's the highest paid employees, you know, it's the people that are being laid off, because companies are forced to downsize, or they're forced to move and they're forced to move into the B and C class neighborhoods, because that's what's most affordable now after they've lost a job or have been forced to take a lower paying job just to make ends meet. So I really believe that buying the types of properties that people will live in no matter what is happening in the economy, is a really great way to mitigate some of your risk. Focus on smaller units - don't get caught up in trying to buy a big house, a four and five bedroom house, you know, or maybe larger, those are the hardest things to rent. The things in highest demand are, believe it or not, one bedroom apartments and then two bedroom apartments kind of in that order in our area. Even studios do really well. So focus on the smaller units, it's not about how much rent you can get, it's not about the largest property, it's not about the space - people are living more economically and that's going to make that one and two bedroom apartment complex in much higher demand. Definitely make your property the nicest on the block. If there's 15 available rentals, all within a small radius, you need to make sure that your property stands out. And I'm not saying that you put in granite countertops and stainless steel appliances, or anything of that nature. What I'm saying is that you want to make it look the nicest, you want it to look the cleanest, you want it to show the best. And you want to show to your tenants that your buildings are always kept in tip top shape. But that doesn't necessarily mean that you have to use high end finishes. Finishes don't make you more money - having the nicest property from an aesthetic perspective and showing prospective renters that you care for your building better than anybody else around you is going to get you a quality tenant over anything that is a premium price, or something that is apparently unkept. When buying the properties, use 30 year loans - spread out your debt, as far as you can, you can always prepay, you can always pay down that debt. But people go into sometimes investment properties and they're thinking of, oh, I don't really want to be in debt for too long. So I'm going to take a 10 or 15 year loan, but with 10 or 15 year loans, your payments skyrocket. If you have the ability, spread out your loan as long as you can possibly spread it out, spread it out 20 years, 25, 30 years as long as you can. And then as you are making profit on the building, pay additional payments to pay down that debt faster. That will turn out better for you financially than if you just shorten your loan term to 10 or 15 years. You already know that I'm an advocate of putting properties in an LLC and getting great insurance and I really believe that it's not one or the other. I really believe and as you've heard from my guests this season, it's really about both.

10:06

The episode will continue in just a moment.

10:11

To keep your real estate investments working hard at growing passive income, you need to have the right resources to help reduce risk and exposure to over taxation. Having the right attorney, tax advisor, and insurance protection is critical to ensuring your investments are safeguarded and set up for success. Knowing tax laws and legal regulations while securing experts who care and understand your goals will allow you to prosper. If you need help finding the right resources to mitigate risk and maximize your tax advantages, let's talk. I can help you know what to look for how to scrutinize new or existing resources that you have the right fit and get the best protection. Schedule a call with me today and I'll listen to your goals and make recommendations. To get even more information that will make you a smarter real estate investor, be sure to sign up for the Growing Empires Advisor Guide at GrowingEmpires.com. That's GrowingEmpires.com, and I'll help you get the right resources to protect your investments in your future.

11:05

And last, but not least, as far as my best tips for mitigating risk is buy in multiple states, multiple locations, and diversify your portfolio. Don't buy all single family homes. Don't buy all commercial properties. Don't buy only rentals. Don't buy, you know, only office buildings. Make sure you diversify not only the location, the states, the areas but also the type of properties that you are buying. Next question, what happens if the market crashes? Well the market is going to crash, so we're going to get prepared for it. Every market has highs and lows, the market goes up, the market goes down, the market goes up, the market goes down. And that is always the roller coaster that you can expect in any market anywhere in the country, highs and lows in real estate. If you're buying the right types of properties, if you're buying the properties that people will live in in the recession, you're going to be prepared for the market crashes. You also want to make sure that you are investing in an area where the job market is very stable. And you know when different things happen, like COVID, and certain economic things that are out of your control and certainly going to impact you very quickly. So the great thing is, is that everybody needs housing. So you're investing in something that is not going to be necessarily impacted by market crashes, because everybody needs a place to live. But you want to make sure that you're casting the widest net and to cast the widest net, you need to be investing in areas where there's the largest pool of potential renters and the largest pool of potential opportunities for you. And that's how you protect yourself from market crashes.

12:41

Our last question for the day is how does the right property manager help you mitigate risk? Well, honestly, I could go on for days about this subject. So I am going to just point out some of the quickest tips that I can give you. First of all, please understand that not every property manager is going to help you mitigate risk, you have to find the right one and buy the right one I mean, one that has a similar business model as you, maybe one that invests like you, but certainly one that has their fingers on the pulse of the market, both from the real estate world as well as the rental market. But the right property manager is going to help you mitigate risk by putting into place policies and processes that protect your money. So for example, what happens when the tenant gives notice that they're going to move out? It's not something you can control, perhaps you can get tenants to stay longer and you certainly want to try to find ways for tenants to stay year over year, the longer they stay, the more money you make, as long as you're increasing rent. But I want you to also keep in mind that time is money. So any day that your property is vacant, you're losing money. So what is your property manager doing to help make sure that your properties are being pre leased? What policies do they have in place? What procedures do they have in place to make sure that as one tenant moves out, a new tenant moves in? Another thing that the right property manager can do to help you mitigate risk is they could make sure that your tenants are well cared for. That doesn't necessarily mean that you give tenants everything that they want, but it does mean that they are taking care of all your tenants needs. One of the quickest ways to get a tenant to stop paying rent or to move out of the property is to upset them when maintenance issues or their needs are not addressed in a timely fashion. So what procedures and policy does your property manager have in place to make sure that your tenants are well cared for? Happy tenants equal paying tenants equal long term tenants and all of that helps you mitigate risk because you don't have vacancy, but it also makes sure that you're keeping money in your pocket. Does your property manager have a policy for making sure that you're always compliant with health and safety and fire codes and occupancy codes? Or is that something that they're going to require you to keep track of? Making sure that your windows open and close, make sure that there's no trip hazards on the property, make sure that the handrails are always secured to the building - that's going to help you really mitigate a lot of risk. And you never know what a tenant is doing - you never know if they're dismantling smoke detectors or fire extinguishers. So you want to make sure that they have a policy and a procedure to make sure that the properties are being checked on, not only to make sure that your tenants are behaving and doing everything that they're supposed to be doing under the terms of the lease, but you want to make sure that your properties are always safe and have all of the safety measures in place like smoke detectors and fire extinguishers, etc.

15:28

I hope you enjoyed all that Season Four had to offer. I don't know about you, but I'm really excited for Season Five and talking about how we can maximize our income potential by selling properties in a hot market. As always, thank you for listening. And don't forget to share with any friends or family that you think might benefit from a little bit of real estate help and knowledge. So until next time, take care.

15:52

For more information about how Jennifer can help you plan, develop, and manage a strong real estate investment portfolio, visit GrowingEmpires.com.