Family offices have been around for generations. Historically, they were associated with Rockefeller, Mellon, or Vanderbilt, families that created generational wealth. They generated their wealth from many different industries. Having created massive wealth, they can invest conservatively. Preservation of capital is the first goal. Beyond that, they focus on the transfer of wealth to the next generation.
Brian DeLucia with Arrivato LLC provides a look from the inside of a family office. His family created its wealth in real estate, and continues to develop multifamily real estate holdings for the family.
Birds of a feather flock together, and so do family offices. There is a club of family offices where families socialize and communicate with each other. They have mutual interest, capital preservation and generational wealth. This common interest aligns their interest, which creates mutual trust in each other. From the trust grows unique opportunities to share and learn from each other.
Each family office is different. Some outsource all of the professional needs. Others handle everything inside, using the family business as a training ground for the next generation to learn the family business to continue the family’s mission.
Some look outside for investment options. If they created their wealth in a particular industry, they may possess a unique skill set that takes generations to learn. This can have tremendous value for investing in similar businesses where others are not experienced nor interested.
Other offices create multiple internal operational companies that allow multiple layers of opportunity to grow for generations. For instance, if a family created its wealth through real estate, they may have a management company, development operation, and together they build additional opportunities for the greater good of the family.
Are you writing a check to charity that is greater than your executive assistants annual salary? If so, it might be time to consider setting up the infrastructure to create a family office.
Traditionally an asset base between $100 to $250 million was considered the point of necessitating the need for a family office facilitate the transfer of wealth to the next generation.
The best way to work with a family office is no different than you would another professional. Build your relationship first. Once you have a relationship and trust is built, you will learn about the interest of the family and if your opportunity is a good fit.
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Passive cash flow from raw land, how can that be?
Mark Podolsky, The Land Geek, has mastered the raw land deal. Since 2001, he has done over 5,200 land flips, all across the United States that produce regular monthly cash flow.
Raw Land has no renters, rehab, renovations nor rodents. There are 3007 counties in the US with billions of acres of land. There is very little competition. In the raw land market place, there are no hedge funds, no DIY TV shows “Flip this Land”, etc.
The average return on investment is 300% on land flips and as much as 1,000% when he sells the land on terms.
Your ideal situation is to find a distressed seller. This is someone who does not live in the state who is delinquent on their property taxes. They are clearly not emotionally attached to this property. To these identified prospects, Mark sends out an offer to buy their property.
The “instant offer” is 25% of market value, including back taxes. He finds that between 3 - 5% of his offers are accepted.
When a potential seller replies, Mark has systemized the due diligence for quick confirmation of
The ideal buyer of your new property is a neighbor to the property. If that does not work, there are multiple online marketplaces, ie Craigslist & Facebook Marketplace that work exceptionally well
Because you are purchasing the property at a fraction of the market value, you are likely purchasing for cash. With no bank or lender to answer to, you the ability to be creative with your sale.
The ideal land flip takes 30 days from purchase to sale.
The perfect sale is when you collect a down payment equal to what you purchased the property for. For the balance, you can use a Promissory Note and Land Sale Contract, which is not subject to Dodd Frank.
A land sale contract does not deed the property to the buyer until the contract is fulfilled. This eliminates the need to foreclose. You can structure the promissory note for the buyer to pay monthly payments equal to a car payment for 84 months with 9% interest.
Need help collecting on your land sale contract promissory note? Mark has created Geek Pay which is available for you to use for payment collection. He has learned to collect multiple forms of payment, checking account & credit cards, to ensure you get your regular payments.
That’s how you create passive cash flow.
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Cash flow from day one is the key to building generational wealth that provides you options regardless of market conditions.
Daniel Ameduri from Future Money Trends has been investing in real estate since he was 18 years old. In a short time, he went from investing in properties that cash flowed to properties he hoped would appreciate in value.
When the market crashed, he lost those properties he was betting on for appreciation. The properties that cash flowed from day one, continued to produce and increased their output while the market was falling.
The lesson was learned. Invest for cash flow and you will be free!
An asset that produces regular recurring cash flow is the goal for any investor looking for a way out of the need for a job. A very simple plan, free from the hocus pocus of the stock market is real estate. For a modest down payment, you can purchase with leverage, a rental property. The tenant pays the rent, the rent pays the mortgage. When the mortgage is paid off, you get all the rent.
Compare this to saving cash, and earning minimal if any interest in the bank. You are way better off to invest in a tried and proven asset class like real estate.
Paid off real estate can be a tremendous base for your retirement future. Simple Retirement plan: purchase multiple single family rental properties. Pay them off. Cash flow for life. The key with real estate is time. So, the quicker you acquire, the sooner you will be free.
Financing. Unless you have an unlimited money supply, you will have to borrow to grow your real estate portfolio. If you have strong credit, and a good W-2 job, you can qualify for conventional financing.
However, if you have lesser credit and financial qualifications, you will have to get creative.
Seller Financing: Look for property and a seller with a problem. A property with a problem will not qualify for conventional financing. The seller’s problem is an opportunity for you to negotiate a low price, and determine what the actual cost to repair the problem will cost. A seller with a problem is more likely to agree to seller financing.
If they do not own the property out right, consider assuming their mortgage. All conventional mortgages have a due on sale clause. However, Daniel has never heard of a performing mortgage be called by the lender. So, this is your chance to take over an existing mortgage. Find out what the seller needs to allow them to move on. Most of the time, it is relatively little.
For a few thousand dollars, you can own a property that has a mortgage, and you get the equity the seller has paid down.
If you don’t want to keep the property, you can sell it. You can offer to carry a mortgage. When the original sellers mortgage is still in place, you create a “Wrap Around Mortgage”.
This is when your sell the property for more than you purchased it for. The new buyer gives you a down payment. You collect their payment, and make the payment on the original mortgage you assumed. The difference between what you collect and the cost to service the first mortgage is yours to keep.
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Cash Flow Monsters:
Private Money Lending is the debt side of real estate.
So much of real estate investment information is about how to. How to find the property, raise capital, improve the property, improve operations, refinance and disposition for a profit. Do you ever hear about the income the opportunity from the lender side of a real estate deal?
Anthony Geraci with Geraci Law specializes in working with private money lenders, from single property notes to hedge funds. Real estate investors who lend rather than borrow.
Traditional bank lending is not sexy. Banks are mainstreet. They are regulated. With this comes built in limitations and risk tolerance allowed by regulators. They like borrowers with proven credit history for buildings that are completed, occupied that provides a reasonable assurance of repayment. These properties provide the bank security. They can lien the property with a mortgage, collect regular payments consisting of principal and interest.
If you have a low risk deal that fits the buttoned up model banks are looking for, you will receive a low interest rate after proving you and your deal are worthy.
A private money lender is designed for risk. Often referred to as, hard money, for the risk they take and the rates they charge. Many commercial private lenders structure their loans so that they are interest only.
Because of the higher cost, private lenders are the option of choice for many real estate investors with a short term need to complete a project. For some investors, private money may be a necessity due to poor credit. However, for most, the use of private money is a preferred over conventional lenders.
Private lending is where sexy debt lives. These are the option for investors with an idea to improve a property, ie fix & flip. If you have a non conforming deal, a vacant building, a short term need for capital, or just don’t have the time to wait through the loan by committee process preferred lenders require.
The reward for private money lenders is significant. To guard against the risk, it is imperative that the proper legal contractual protection be used for if, when things go wrong. Each lender is unique and for this, the structure and offerings will vary depending.
Your legal team will advise you through all phases to manage the risk of your private lending business. Like any business activity, setting up the proper entity is a first step. Additionally, private placement memorandums are needed when raising capital from investors and loan documents for use with your borrowers.
When things go wrong; foreclosure, etc, your recourse is spelled out in the legal contracts signed by both parties. For this reason, it is a must to work with legal counsel focused on real estate.
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Do you have an 401K checkbook? Are you self employed?
If you are self employed and do not have a 401k, there is still time to take advantage of the beneficial 2017 tax law to substantially fund for your retirement.
If you are not able to take advantage of a self employed 401k, check out our IRA episode for the options available to you: CREPN #171 - Checkbook IRA with Bernard Reisz
Bernard Reisz with 401kcheckbook.com provides the education, structure and tools to help investors who are looking to take control of their financial future.
The 2017 tax code capped personal deductions for state and local taxes expensed on federal tax returns at $10,000. This will likely increase your tax liability for 2018. However, you can take advantage of the new ways to lower your tax liability if you fund it before the end of the year.
If you are in business and generating profits, you can create a 401k for that business. When you fund your 401K, it reduces your taxable income. If your company is set up to match, the match is an expense to the business which again lowers its taxable income.
The Qualified Business Income (QBI) Deduction is a new for the 2017 tax law. It provides up to a 20% tax deduction for any qualified business income up to $315,000. The amount of QBI reduces for taxable income above $315,000 for married filing jointly. Funding your 401K can help reduce your income and maximize the percent of QBI you are eligible for.
If you have no employees, the Solo 401K is ideal for you to maximize your retirement account funding. The Solo 401k is the ideal candidate for the Checkbook 401K.
Unlike the IRA, a 401K is not required to have a financial institution as a custodian. You are allowed to be the administrator and trustee. There is no requirement for a custodian.
The maximum amount you can contribute to your Solo 401k and deduct from your taxable income is $55,000. If you are over 50 yrs old, you can increase that amount to $61,000.
To contribute the maximum, you must:
Either a traditional 401k or a can be used.
Traditional 401K; You receive a current income deduction for contributions. The account grows tax deferred and is taxed at ordinary income tax rates when withdrawn.
Roth 401K: You receive no income deduction. Contributions are after tax, but grow forever tax free. There is no tax due when withdrawn.
Personal loans from your Solo 401K are allowed with few limitations:
You can set up an entity, LLC owned by your 401K to funnel your investments through. This is ideal for purchasing real estate and provides significant asset protection.
When purchasing real estate inside your 401K, like the IRA, the loan must be non-recourse. Unlike the IRA, your 401K can purchase real estate with leverage and avoid UDFI penalties.
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You have a checkbook IRA? Probably not. A Traditional Individual Retirement Account, aka IRA, requires a custodian to hold your retirement account.
The typical custodian has investment models to follow and limited products available for you based on your risk profile. Investments that are eligible to be held in your IRA are limited only in that you cannot invest in life insurance nor collectibles.
Notice that real estate is not prohibited? What if you could select higher performing investments beyond your custodians limited options?
Bernard Reisz with 401kcheckbook.com provides the education, structure and tools to help investors who are looking to take control of their investment strategy using a checkbook IRA.
There are two types of government sponsored tax deferred retirement accounts; Individual Retirement Account; and 401k. The IRA is for is a non employer sponsored plan while the 401k is an employer sponsored account. In this post, we focus on IRA’s.
There are two types of IRA’s:
Traditional IRA; You receive a current income deduction for contributions. The account grows tax deferred and is taxed at ordinary income tax rates when withdrawn.
Roth IRA: You receive no income deduction. Contributions are after tax, but grow forever tax free. There is no tax due when withdrawn.
Now you can take control of your IRA by using a Self Directed IRA, aka SDRIA. SDIRA custodians allow your to invest in alternative investments, including real estate. This keeps the investment inside the tax deferred account, including all income and expenses, as required. The manager of the account is you, the IRA account owner, or someone you choose.
The traditional SDIRA custodian can be fairly expensive. They charge fees on assets under management and per transaction. The checkbook IRA provided through 401kcheckbook simplifies and minimizes the cost to administer your SDIRA.
To do this, you will need move your funds to a SDIRA. The SDIRA creates an LLC that is owned by your IRA. To maintain the tax deferred benefits, the investment, returns and expenses must be contained inside the SDIRA.
Now that you have your checkbook IRA set up, let’s take a look at two real estate investment options; equity and debt.
Equity, ownership is an option to you. To do so, make certain the real estate is titled to the LLC your SDIRA owns. The funds for the investment come from your IRA.
Issues to be aware of when using your Self Directed IRA to invest in real estate.
Debt, a loan with your SDIRA LLC recorded on title, are an exceptional opportunity for significant returns. As a debt instrument instead of equity investor, the SDIRA is not subject to UDFI. All gains are tax free. So, if you are able to make an interest only, hard money loan secured by real estate at 20%, the entire gain is free from tax.
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Qualified Opportunity Zones, a late add to the 2017 Tax Code, are designed to stimulate neighborhoods in need of investment.
Kathy Fettke, author, investor, syndicator and host of RealWealth Show Podcast shares her views on the new tax law. For investors with capital gains who are looking for a way to lessen their tax liability, this just might be the answer to your prayer.
Markets cycles are affected by supply, demand, interest rates, etc. When needed, the tax code is a proven tool the government can use to stimulate growth and change the behavior of investors. Opportunity Zones are the newest iteration for investors looking to lessen their taxes and get a better than average return on their investment.
Do you have an unrealized capital gain? Unlike 1031 Exchange, the Qualified Opportunity Zone is not exclusive to real estate investors. All investors, who have taxable gains from the sale of stocks, bonds, business, real estate, etc are eligible. You have up to 180 days from the sale that caused the gain to invest in an opportunity zone fund.
The opportunity zones are in neighborhoods needing a jumpstart. New investment will likely not be a cash flow opportunity. Instead, over time, the expectation would be for significant appreciation. It takes time to improve a neighborhood. The goal is to find a neighborhood with momentum that will attract other investors. If you find this, and you can be patient, the reward will be worth it.
Disclaimer: The information presented is is for discussion purposes only.
The QOZ details are developing. It is up to YOU to engage a tax professional for advice on how to proceed and benefit.
There are over 8,000 qualified Opportunity Zones in the US. States had 90 days from the date of the act to apply to the US Treasury for zone status. To find one near you do an internet search, “opportunity zone map”, or click: ttps://www.cdfifund.gov/Pages/Opportunity-Zones.aspx
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Multifamily Syndication Structure and Fees provide a significant opportunity to make money. Who better to ask about the numbers than the sponsor of twenty-six syndications, Vinney Chopra.
To buy a large multifamily property, it takes the coordination of several like minded investors. The General Partner, finds the deal, builds the team, and gets the commitment from the limited partner investors to close the deal.
The owner of the property is the LLC entity created specifically for this property at closing. Members of this entity are the General Partner, sponsor, and the Limited Partners, investors. The range of ownership depends on the specific deal, but a split range of 20-40% for the General Partner and 80-60% for the Limited Partners is common. The specific opportunities are spelled out in the private placement memorandum. The opportunities to make money are numerous for the Limited Partners including:
So what’s the reward for the General Partner? Below are the various ways to get paid as the sponsor of a syndication.
The acquisition fee ranges from 2 to 4% of the purchase price. It is the sponsor’s reward for putting the deal together and raising the funds needed to close. A good rule of thumb for the capital raise is 30-35% of the purchase price. The money raised will cover;
In order to borrow the funds needed to close the deal, the lender one investor guarantee the loan. This individual must have a personal net worth greater than the loan amount. The fee for this obligation ranges from a flat fee to a percentage of the General Partnership.
Throughout the course of holding the property, the asset manager is responsible for overseeing the property manager and any repositioning of the asset if a value add plan is to be executed. A sponsor will also prepare and provide regular reports to investors on the property’s performance. The Asset Management fee is typically 1-2% of annual collected income.
If you have enough units, consider creating a property management firm. This is an excellent opportunity to serve your investors and collect a fee. Fees range from 4-10% of the total income collected depending on the size of the property. When you are the property manager, you can negotiate better deals with your suppliers for the benefit of your investors.
While operating the property, if the market supports, there may be the opportunity to refinance and return some equity to the investors. The proceeds of the refinance are paid to the investors to return their investment capital. When you can return the investors original capital and continue to pay them a quarterly distribution makes investors happy. The sponsor can charge a refinance fee, 1%, for doing the work necessary to complete the refinance.
When it’s time to sell the property, sponsor will charge 1 - 2% of the sale price. The fee is for the work required to prepare the property for sale. This includes: conduct property tours, gather the broker price opinions from four different brokers, and meet with CRE Brokers.
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Text: SYNDICATION to 474747
Prior CREPN Radio Multifamily Syndication episodes with Vinney Chopra
Real Estate Investing has benefits that are not always recognized by investors.
Tyson Cross is a former Teacher turned Commercial Real Estate Broker and investor based in Portland, OR. His journey from educator to investor is a common progression for investors; awareness to action.
Do you understand the fundamentals of the stock market? You know you need to invest, but where? How? If you have a W2 job with an employer sponsored 401K, that may be all you do. In this options, the only control you have is the amount you put into your account and which investment fund you select. Your employer contribution and the market performance are out of your control.
Outside of your 401K, you can choose any traded stock on the exchange. What do you know about any of the companies on the stock exchange?
Now, think about real estate. It’s everywhere; big cities to rural towns. In every city, people need a home, and over time, what happens? Rent and the cost of housing go up. If you understand this, you understand the upward trend line for real estate market fundamentals. Your understanding of this makes the benefits of investing in real estate tangible.
Your 401K is essentially a savings account. Every payday, you buy shares, which over time adds up to a substantial sum. What’s not so well understood is that when you are ready to take your money out of your 401K, you have to sell shares. When you sell them, they’re gone! The remaining shares have to increase in value for you to stay even. This is out of your control.
Real Estate is not as liquid as stock. However if you keep your property for several years, you can borrow against the equity. The proceeds from the loan can be used to invest in additional properties, or taken as cash. Neither use is a taxable event.
Don’t forget the cash. Investment real estate valuation can include positive cash flow from day one.
The increase in value difference between a percent of a small number, your 401k or a big number, a leveraged asset, like real estate.
Example: If you have $100,000 saved in your 401K and the market goes up 8%, you made $8,000. Not bad.
If you purchased a property worth $500,000 using your $100,000 as a down payment, and the value goes up 5%, you made $25,000, which is more like 25% return against your $100,000 investment.
The difference between the $8,000 and the $25,000 is $17,000! This is the power of leverage.
The percentage increase or decrease in value is directly proportional to the amount you have saved. With leverage, you benefit from a large number increasing by gives you the benefit of a big asset increasing in value
Real estate provides the opportunity to control an expensive asset with help from leverage, a loan. You collect rent from the residents and pay off the loan over time. Now let’s look at the benefits unique to Real Estate.
There are no guarantees in life. But, for those who take action, real estate investing is a proven path for wealth accumulation If you know why you are investing, get educated, get your mindset right, focus, and take action, and you will overcome the risk and be successful.
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Insurance is required to close any Multifamily Real Estate deal with lender financing. Recently, Rod Khleif invited me on his podcast, Lifetime Cashflow Through Real Estate to discuss insurance for Multifamily.
Rod Khleif is a veteran real estate investor syndicator, real estate mentor, and podcaster based in Sarasota, FL. We discussed steps multifamily investors can take to be successful in procuring insurance for your property.
Insurance for Multifamily is very specific. To make certain you are working with a broker / agent that can help you, here are some questions to ask:
If you are purchasing a property that is more than twenty-five years old, you have to ask some questions not required for newer properties. There are 4 Building Systems that every Insuance Underwriter wants to know about on older buildings. If you want the most affordable insurance, find the answers to the age and details of work done to these systems:
Sometimes, you can determine from the seller’s financials dates and significant amounts spent on system updates. During the due diligence period, review the financials and ask quesitons.
For Liability you want to walk the property looking for trip and fall hazards. Are the hand railings firmly attached, stairs in good shape, any uneven walking surfaces, or cracks in the concrete? All of these are potential claims that the insurance company is looking to avoid. If the insurance company’s inspection finds that your property has these, you will receive a cancellation notice, or inspection report requesting that these need to be repaired for the carrier to continue providing coverage.
For your best pricing, start talking with your Insurance Broker early. The older, more value add opportunity you are buying, the more information will be required, including Seller Loss History, to tell a story the Underwriter wants to hear.
Insurance is complicated. There are lots exclusions and endorsements that if you or your insurance broker do not ask for can leave you with big coverage challenges in a claim. The following are a few specific items to ask for: