DGS 32: Help Investors Get Additional Rental Properties Without Involving Banks

Being a property manager is a great career and a great way to earn an income. Getting in on a growing opportunity and building a solid business is fun and profitable. Yet, many property managers can get stuck on depending on only transactional income through adding clients. In this episode, we learn about a way to break this cycle.

In this episode my guest is Jim Ingersoll from Big Money Investor. Jim shares creative ways to fund deals. He is a real estate investor with a lot of great ideas. My goal for this show is to make things very relevant for property managers. We discuss how property managers can break through the transactional cycle and purchase their own investment properties to manage and grow revenues for themselves along with their clients.

You’ll Learn…

[02:05] How Jim helps people get into owning properties of their own and not just managing them for everyone else.
[02:33] How property managers often get stuck in a transactional income stream. They would like to break out of this cycle but don’t always know how.
[03:00] Why some property managers don’t have properties of their own.
[03:47] Getting rid of the 20% down bank-funded myth.
[04:35] Assuming loans, letting an owner be the bank, joint ventures – funding through someone else, real estate can be a retirement account.
[07:16] Buying a property “subject to” an existing loan staying in place.
[09:53] Structuring financing through free and clear owners who want to sell without any management responsibilities.
[12:52] Joint venture with someone who has money on the sideline, where you do the work and they provide the capital and you share cash flow and equity when you sell.
[16:34] How joint ventures would be a great method for property managers to get properties.
[21:34] Investing retirement accounts in real estate. You are not limited to stocks and bonds.
[22:33] Using self-directed retirement accounts to invest in real estate.
[25:03] Using leverage in real estate is a huge benefit.
[26:01] Creative options with short-term rentals Airbnb to traveling nurses.

Tweetables

Resources

Big Money Investor

Free Gift from Jim

Quest IRA

Equity Trust

Airbnb

Transcript

Jason: Welcome DoorGrow Hackers to The DoorGrowShow. If you are a property management entrepreneur that wants to add doors and expand your rent roll, and you are interested in growing your business and life, and you are open to doing things a bit differently then you are a DoorGrow Hacker.

At DoorGrow, we are on a mission to grow property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, expand the market, and help the best property managers win. If you enjoy this episode, do me a favor, open up iTunes, find The DoorGrow Show, subscribe, and then give us a real review. Thank you for helping us with that vision.

I’m your host, property management growth hacker, Jason Hull, the founder of OpenPotion, GatherKudos, Thunder Local, and of course, DoorGrow. Now, let’s get into the show.

This is episode number 32. In today’s episode, I’m hanging out with Jim Ingersoll. He is from bigmoneyinvestor.com. In this episode, Jim is talking about some creative ways to fund deals. He’s a real estate investor. My goal is to make this very relevant to you, property managers. I hope you enjoy the show. Let’s check it out.

Alright, we are live here on the Doorgrow show. I’d like to welcome Jim Ingersoll.

Jim: Hey, it’s really nice to be here today with you. Thanks a lot for having me on. An awesome show you’ve got here.

Jason: Jim, thanks so much. Jim reached out and he has this interesting special niche in helping people get into managing rental properties or owning rental properties. We’re gonna have a conversation today about why property managers should also be owner-operators and not just manage rental properties for everybody else. There’s a lot more money in that. Does that sound accurate Jim?

Jim: Yeah, absolutely true. I really love the property manager I use. But in talking to so many different property managers, they get stuck in this transactional income stream where they’ve just got to keep adding more rentals into their management contracts in order to increase their income streams. They would like to break out of that and learn to be the owner and principal in the deal but they don’t really know how to put the pieces together.

Jason: Let’s talk about that challenge. Why are property managers not owner-operators? Some are but they usually are just owner-operators. They’re not doing it for anybody else. But the ones that are out there, just managing properties for everybody else, and they maybe only have one, or two of their own rental properties, or none. What are they missing?

Jim: I think a lot of them get nervous because they don’t know how to do the acquisition side. They understand what a motivated landlord is like, when they want to exit out of their property, but they don’t understand how to connect the dots and to actually make the acquisition the right way.

One of the things I really like working with property management companies on who want to become principal owners is getting rid of that whole myth where you’ve got to have a 20% down payment and really strong bank funding in order to pull that off. Get rid of that myth and change their mindset a little bit, all of a sudden, they’re able to make acquisitions, and really build their networth up, and prepare for retirement, Jason.

Jason: Let’s talk about that. You say having 20% down payment is a myth, and you say, that they maybe don’t understand the acquisitions–how that process works. Let’s break down some of these steps so that they can understand how they can make this work for them.

Jim: Okay. How about I give you four ways that it can be done. We can pick any of these that you would like. The first one would be basically assuming or taking over somebody’s loan. Somebody, another landlord that’s already got it, they’re just burned out, and they need to exit. and they don’t know how to do it. One of the things you could do is take over their loan.

Another one is, if you’ve got a long term landlord who’s on the property for a long time, and they own it pretty clear. In other words, there’s no bank loans on it at all. That owner could become your bank. A third way that I love doing is what we call joint ventures and that’s where we go out. What we do is, somebody puts up all the funding, and we do the rehab, and we do the long term management. That’s what managers are good at anyways, but they don’t use any of their own cash from that.

Then the fourth way, it’s a little bit unique but there’s another big method that I want to break, Jason. That’s with retirement accounts because we’re so taught by Corporate America that we can only invest in stocks, bonds, and mutual funds but the truth is, you can also have your retirement account invest in rental properties. If you’ve money on a 401k, or something like that, instead buying stocks, bonds, and mutual funds, you can use it to buy rental property. It’s four ways. I’m not sure which one you want to talk about first.

Jason: Okay, let’s just go from the top. Taking over somebody’s loan. Doesn’t that put like an incredible amount of risk on their shoulders if you’re taking over somebody’s lone and you don’t completely get them off the paper?

Jim: Sure does. It does for the person that is selling you the house, not for you as the owner, because this works well when you’ve got truly somebody who’s not just motivated to sell, but somebody who’s pretty desperate to sell. They don’t really have any other options, maybe they’ve got half a dozen rental properties, and they’re vacant, and they don’t have the money to fix them up to attract good tenants. They’re sort of caught because they don’t have the capital required to fix them up to get good tenants, they’re vacant, and yet they’re shelling out thousands of dollars on their bank loans every month. If you go to that person and they are truly motivated and you offer them debt relief like, “I will start making that thousands of dollars a month payments for you.” Then you come in, you provide the capital injection that was needed, you fix it up, you get good tenants and move on. The key, is to motivate it’s seller in that case.

Jason: You’re buying the property basically off them. You’re taking over the loan.

Jim: Yes.

Jason: Yeah, okay.

Jim: It’s not really an assumption. We call it subject to, you’re gonna buy subject to the existing loans staying in place. The way that it works is, somebody’s gonna take a bidding, convey the ownership to you, and typically, when you do a real estate transaction, that loan typically gets paid off at closing. In this case, we’re not gonna pay it off. Instead, we’re gonna buy a subject to the existing liens staying in place, and instead of him–the person you’re buying from making the payments, you’re gonna make them as the real estate investor, or owner of the property.

Jason: Now, is that dangerous? In that they could just later on, kick you off the property, and say, “Well, it’s mine.”

Jim: No. They’re gonna give you a deed. You could do a lease option, that’s a whole ‘nother approach. That would be number five on my list, by the way.

Jason: Okay. That’s not the worst one.

Jim: But no, they don’t know own the properties so they can’t do that. In order for them to get debt relief, they’re gonna sign a deed and convey the ownership of the property to you.

Jason: That one works if they have the capital. If they’ve got financial resources to do this then it sounds like a pretty option.

Jim: Yes.

Jason: Alright, number two.

Jim: Number two would be under financing. A lot of landlords are long term landlords, I’m one as well, Jason. I love being a landlord. What happens is landlords begin to age. Sometimes their children and families are pressuring them to sell because sometimes, there’s kids that won’t want 2, 5, 10, 20, 40 houses given to them after they pass. The kids start pressuring them to sell but the landlords really love having cash flow. If you loan property 10, 20, 30 years, you’re gonna have it paid off.

Jason: Right.

Jim: They have this dilemma that they love cash flow, the property is paid off so the cash flow’s really good, but yet they’ve got this tension in their family, or from some other source that says, “Now is the great time to sell.” I’m meeting a landlord later today, Jason at [5:00] P.M. They have five houses that they’ve owned for a very long time. The husband started to have medical issues. They want to sell the package of five. I’m hoping I get all five of them.

When somebody owns property for a long time, they’ve got it totally paid off instead of you giving them, let’s say a $100,00 for the house, there’s ways to structure where you can creatively buy it. I could probably give you three to four different ways you could buy that house without needing a bank and potentially without needing much or any down payment.

Jason: This is the number two you said was the current […] owner.

Jim: That’s owner financing.

Jason: Owner financing.

Jim: The owner will be the bank that provides them with the comfort of continuing to receive cash flow without any of the property management responsibilities.

Jason: Okay. Great question is, how were you finding these type of properties?

Jim: You’ve got to do marketing or you’ve got to have a really good referral base. I get a lot of my leads directly from referral. I know lots of other people that will do everything from direct mail, to bandit signs, to calling for sale by owners.

Jason: The message is basically, do you have properties that you own free and clear that your wanting to sell?

Jim: I mean, you’re looking for motivation of the seller and then depending on where they’re at in the cycle of being landlord, you may want to try to buy subject to, you may offer them a cash price, or you may offer them to be the bank for you. One of the things when I’m negotiating per terms where I want the owner to be the bank is, one of the things I ask them Jason is, “What are you gonna do with the $100,000 when we close in 10 days?” Typically they’ll be like, “I’m gonna put it in the bank.” If you put it in the bank, you throw it in the CD, you know you’re gonna earn ½% interest, at best.

Jason: Right.

Jim: That doesn’t even keep up with inflation. I would turn that around and say, “Alright, you’re happy earning ½%? How about if you finance to me a 5%, 6%, 7%? You can earn five to six times more, and continue your cashflow coming in.”

Jason: Number three, JV, or joint ventures.

Jim: Yeah, I love doing joint ventures. They work very, very well. There’s two people involved in this deal. One person is the person who wants to own the property, they go out, they market, they find the landlord who’s motivated to sell. All of a sudden, you’ve got an offer to purchase. But the problem is, they won’t to take owner financing, you can’t take over their loan. They only want cash.

Let’s say that number is $16,000. The person that files the deal could stroke the check for 60 grand to buy it. But I really like to encourage people to try not to use your own capital. That’s the ultimate leverage when you’re making acquisitions. What you could do is, go out there and find somebody who would really like to invest in real estate because they know it’s red hot all across country right now, but they don’t have the experience, they don’t know how to find a deal, they don’t know what a deal is, they don’t even know how to manage the property which is what your listeners are experts at.

But they’ve got money sitting on the sidelines, they might be nervous about the stock market, could be sitting in a CD, maybe it’s a small business owner. What you do is you come together on that deal and one person does the work, one person injects the capital, sort of like shark tank or venture capital I guess, Jason. One person does the work, one person provides the capital, and then what you do is you share the monthly cash flow. Someday when the asset is sold, you share the upside on that as well. That could be 60/40, 50/50, 70/30 or whatever you work up. Works very, very well.

Jason: Now, if you have quite few of those, doesn’t it get challenging to manage and to know everyone that’s being paid out and this sort of thing.

Jim: Yeah, you do have to have systems. No different than a property managers that are listening right now. You’ve got to have systems too because you’ve got to be able to market for tenants, you’ve got to screen for your tenants, you’ve got to have leasing, they‘ve got to me able to make payments online, you’ve got to pay back to your owners. I use Buildium, it’s a great system for all of that.

Jason: Right.

Jim: If you’re gonna go into acquisitions and become the principal instead if a manager, you’ve got to have systems for payables and things as well.

Jason: Yeah, instead of just paying out a certain percentage for this, you’re pulling in a lot more, and you’re keeping a lot more, and you’re just paying out, maybe half out back to the person that  […]

Jim: One of the dilemmas of landlords run into even with like a 20% on payment is, your cash flow can be pretty tight. Particularly if you’re in New York, or on the West Coast, or somewhere else. It gets tight because you’ve got to pay the bank mortgage every single month. What if you don’t have a bank mortgage? Then you’re just sharing the cash flow.

If you collect say, $1,800 of rent, or $1000, or whatever it is. You just subtract out your escrows for taxes insurance, the rest is purely cash flow because it doesn’t go to the bank. You just take whatever is netted and you divide is however you agreed. Just as a quick example, let’s say that you’re renting a house for $1,200 a month, and you have $200 a month because the numbers were good in taxes and insurance. Here in Virginia, the numbers are not too dissimilar to that. You’re gonna net $1000 a month, out of that $1000 a month—let’s say you’ve joint venture on a 50/50—you keep $500 a month and you send off $500 to your joint venture partner per month.

Jason: Yeah.

Jim: Both parties come out pretty darn good on that example. For the principal owner, for every two of these steps or deals you do, basically, it’s like having one free and clear house. Because there are no loans on these properties, there’s just a joint venture only, and you’re literally sharing all of the cash flow because there are no bank mortgages on it.

Jason: Fantastic.

Jim: Works very, very well. You get into that deal a 100% with none of your own money. Your partner puts up all of the capital for the acquisition, all of the capital for the rehab and renovation–and by the way, if you have a vacancy, you don’t owe anything. There’s a lot of benefits to owning property in joint ventures when you want to go that route.

Jason: That’s a fantastic model for property managers because they’re out there they can go out and find these properties they know would make good rental properties.

Jim: Right, they do.

Jason: They already have all the marketing, they have all the tenants coming to them, and they know which properties could be rented out if they were fixed up. They know what it takes to make them rent ready. They can go to these investors and say, “Hey, I found this great property. We just need to purchase this thing. If you want to put up the capital to purchase this thing, we’ll manage it, and we’ll rehab it, and we’ll split all the profits every single month.”

Jim: Right. The benefit to the owner is increased cash flow, no banks, no down payment, and less risk. The benefit to the financier who puts up all the money is, they get involved with real estate without having the experience of it and less risk as well. We can still make a great return security against Main Street, instead of Wall Street.

Jason: Right. That makes a lot of sense and I think property managers, it’s kind of a natural fit.

Jim: I do too.

Jason: They can go out and find the property, and nobody is more qualified to get investors into new properties than a realtor that runs a property management company.

Jim: Yeah, I agree.

Jason: Let’s talk a little bit more about that. This joint venture, how does this actually happen? How can they get started doing something like that?

Jim: If you find a good deal, it’s easier to find the money.

Jason: Okay.

Jim: The people with the money don’t know how to find the deal. The people with the deal don’t know how to find the money. But the truth is, when you have both sides come together, there’s a lot of synergy and you can get the deal done very, very fast. There’s no underwriting, there’s no appraisals, there’s no fuss, no muss, you can close 10 days, or whenever you want to bring the money to escrow and get it done.

I think the key starts with finding a really good deal and then knowing some people who might be interested participating in that deal. There’s a lot of private practice owners, or small business owners, there’s people with retirement money sitting on the sideline. There’s a lot more money out there available for real estate deals than people think. If you’ve got the skill to find a good deal and manage the property the right way which is all of your listeners are great at, by the way. That’s what scares people is being the landlord.

Jason: Yeah, nobody wants to be the landlord.

Jim: I love being a landlord.

Jason: Yeah. Most people don’t like being a landlord.

Jim: I know, I know.

Jason: They want peace of mind.

Jim: Yes.

Jason: It’s like, they see the tenant’s phone number on their cell phone like, “Oh my gosh.”

Jim: Right. This is a very passive way for people with some finances to jump into the real estate market that’s red hot, right now.

Jason: Yeah. There’s a lot of people that would love to get involved and get into real estate investing, but they feel like, “Man, I’d have to go get a degree in real estate or something in order to figure all these out.” They probably don’t trust the average real estate agent because they’re going to be serving their own interest.

This model is genius because this property manager person that’s going to be finding the property, instruction the deal, and managing the property is going to have skin in the game, and they’re gonna be involved in this. They’re splitting the rental properties so they have a natural incentive to make sure the property is always gonna be rented out, and it’s gonna be well taken care off, and that they’re getting in a good amount of rent. It’s natural built-in incentive. Yeah, it makes a lot of sense.

Jim: Works very, very well for everybody involved. That’s the key with all that your deals is, everybody’s gotta do well.

Jason: Now on those JV deals, let’s say they’re nicer areas, more expensive properties. Maybe it’s difficult to find investor they can do, foot the whole bill to rehab that one property. Would you recommend doing multiple investors on a single property or does that get a little too hairy.

Jim: Yeah, I would be a little careful with securities in that case. I don’t think you really need to pull money. If you need to, if you’re working with people that don’t have very much money, maybe you want to invest in a mobile home on land, or something a little different, maybe a two bedroom instead of a four bedroom, or maybe instead if investing in LA, maybe you want to go to South Bend, Indiana, or maybe you want to go to Pensacola, or maybe you want to go to Detroit where there’s great cash flow.

Jason: Now, number four. Fourth item you said, retirement accounts using a 401k. How can these property managers help get their existing owners to recognize this. I think this would be great for them and it’ll also be great for them to get their owners to get more properties. They want more properties, bottomline.

Jim: They do. One of the things they were talking about is, you can only take your retirement accounts and invest in stock, bonds, and mutual funds. That’s because the people—the financial planners and all those folks—they enjoy selling those products and they make good fees on mutual funds and things like that. There’s this little niche in retirement accounts that’s growing extremely fast and it’s called Self-Directed IRAs.

They really seem to start taking up when people saw how Mitt Romney was doing it when he ran for president 4 ½ years ago, 5 years ago. They were seeing he was doing a these deals in his Self-Directed IRA, and he had a gigantic account. Everyone’s kind of wonder like, “How can Mitt Romney be investing in businesses, real estate, other assets when I’m told, all I’ve got is the stocks, bonds, and mutual funds?” You can roll over or start a new account with a Self-Directed IRA custodian.

The one I like to use a lot is Quest IRA. Acquity Trust is another good one out of Ohio. These are folks that allow you to grow your retirement and you, as the the account owner, can self-direct it to anything you want. You could invest in stock if you wanted to, you could invest in another business, you can invest in real estate, you can invest in notes, where a wide variety of other things. Truly, the owner of the account has a ton of freedom to invest anywhere they want. Including one of the things you can do is, you could take your retirement account and you can buy a rental property.

A lot of people have, say a $100,000 sitting in a 401k or retirement account. If you get tired of earning just returns from the stock market, you could take that and go buy a rental property. Then your tenants would go through your property management company, would actually just make the monthly payment directly to your account. That’s how I’ve been doing. It works very, very well.

Once a month my property manager will collect the rent. Then he just sends it direct to my retirement account, works extremely well. You can do that in a Roth IRA, you can do it in a Traditional IRA, you could do it in a SEP, I also do it in an HSA because health insurance is a big deal now. Imagine with very high deductible medical insurance, $5000, $6000, $7,000 a year. What if you had and account called the Health Savings Account that own one or two rental properties? That could fund your medical expenses the rest of your life.

Jason: You’ve got a handful of accounts or properties that are your, basically, savings account.

Jim: Sure. You could it in Roth IRA, a health savings account. If you don’t have any employees you can do it in Solo 401k. There’s like seven or eight different types of of accounts, you can do these deal, and each of those accounts can invest in rental property, you could buy note, you could do private lending, and a lot of other really creative transactions that allow you to escape Wall Street, if that’s what you want to do.

Jason: Alright. This is some really cool info, that’s really interesting. Now you have mentioned that there is the fifth but it’s probably not a great option.

Jim: Sure. You could pay cash.

Jason: Oh, you could pay cash. Okay, yeah, you could pay cash.

Jim: Or you could put 20% down and go get a loan.

Jason: Yeah, a typical, typical thing.

Jim: I don’t want you to do that. Don’t use your own money. Real estate should be leveraged. It’s a huge benefit.

Jason: You’re talking about long term rental management?

Jim: Yes.

Jason: One of the things I’ve also seen some of our clients do is short term rental, vacation rental management.

Jim: Yeah.

Jason: Which has really high margin, usually.

Jim: I love them.

Jason: Do you have any of those?

Jim: No, but I’m working on it.

Jason: Okay, yeah. I hear if you get these properties in a good area but they tend the need to be really like, high-end properties like, big properties.

Jim: Not necessarily because the reason, they’re not legal everywhere in United States. You got watch your local ordinances. But I know people that are doing them with traveling nurses, they’re doing them with people that are building homes, and it could be vacation, it could be this time of the year, people coming in for college graduation, sporting events.

Jason: That’s good point.

Jim: Think about all these opportunity that’s out there. Instead of earning $1000 a month, you might earn $2000 or $3000 a month and really jack up that income using Airbnb, VRBO, and a lot of other great sources.

Jason: Yeah, fantastic. This is all really fascinating stuff. Jim, tell everybody what it is that you do and then how they can get a hold of you.

Jim: Alright. I’m buying a lot of property. I’m a landlord. I’m doing a lot of flips and a lot of rentals. If you want to connect with me, I’ve got a free gift for your listeners. Just go to bigmoneyinvestor.com/fre. You could pick up a little investing kit and get started.

Jason: Fantastic. Reach out to Jim if you’re curious about some of the stuff that he spoke about today. Jim, I appreciate you coming out here on the Doorgrow Show and dropping some knowledge for the property managers out there. Any parting words?

Jim: Yeah, just for your property managers that are out there. Instead of making all your landlords rich, it’s time for you to grab the reins and do the same thing. You’ve got great income with all these manage […] and all these rentals but you need to work on your net worth and your equity. Becoming a principal will take you from A-Z. Get it done.

Jason: Yeah. Don’t just help the investors. Be an investor.

Jim: Right.

Jason: Alright. Thanks Jim appreciate you.

Jim: Alright, thank you very much.

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