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The latest episode of the Invest Four More Real Estate Podcast features me (Mark Ferguson) talking about financing. I know many people are scared of debt and feel cash is the best way to buy properties, but using cash actually decreases your returns if you are buying the right properties as flips or rentals. In this podcast episode I will talk about how financing is not as risky as you think if done right and how it can increase your returns as well!

Why isn't financing as risky as you may think?

Society tells us debt is bad and we should do anything we can to get rid of it. However, the biggest companies in the world and riches people in the world almost all used debt and a lot of it to get where they are. Debt is an awesome tool if used correctly, but it can be dangerous if it is not used correctly.  

If you use debt to live a lifestyle you cannot afford then obviously that is a dangerous situation and could cause serous problems. If you use debt to fund real estate deals that make you much more money than the debt costs you then debt can be an awesome tool. There are a few guidelines to remember:

How can debt increase your returns on rental properties?

Whether you are flipping or buying rentals debt can increase your returns. At the same time it can also reduce your risk! Yes, reduce your risk as opposed to using cash. When you use a loan on rental properties you are able to buy three rentals for every rental you could buy with cash. You may make $800 in cash flow with a house that is bought with cash and only $400 a month on a house bought with a loan. However, you can buy three more houses with a loan, which would equal $1,200 a month in cash flow total versus only $800 paying cash. 

Cash flow is not the only advantage to using a loan. While you own three houses you have more tax advantages, your paying loans down every month, you have more possible appreciation and the biggest advantage is more equity gained through buying below market value. 

When I buy flips or rentals I always buy houses below market value. I get great deals by purchasing REOs, short sales, estate sales or auction properties. In some cases I will even use direct marketing. For every rental property I buy I usually gain at least $20,000 in equity because I get it less than market value. If I buy one house with cash I would gain $20,000 in equity, but if I can buy three houses with a loan I can gain $60,000 in equity. 

How can debt increase your returns on fix and flips?

When you flip houses it is tough to get financing. Some portfolio lenders will finance flips as well as hard money lenders. Financing on flips can be expensive, especially if you use a hard money lender. I may have to pay $8,000 in financing costs on a $150,000 house I own for 6 months. Some people may look at that figure and want to pay cash to save the $8,000. But what are you giving up when you pay cash? If I can finance just part of a fix and flip I can buy at least one other flip or possibly two with the same cash I needed to buy one. I average about $30,000 in profit on each of my flips. While $8,000 will cut into my profit, I would much rather have three flips going that make $22,000 each than one flip making $30,000.  

Why isn't using debt riskier than using cash?

The biggest reason using debt is not as risky as using cash is diversification. I would rather have three rentals in different locations, instead of one rental. Plus if something happens to a rental I am better off the more I have. 

Why does using cash limit your options for future purchases?

Using  cash seems like the safe bet when buying properties, but what if you need that cash later? You can refinance properties, but it is not always easy to do even when you have no loans. Lenders like to look at debt to income ratios and if you are retired or living off rental income you may not make enough to get a new loan. You might buy properties when you are working and making good money. You paid cash then thinking it was a wise decision, but then decided to retire want to access that cash. But if you aren't making any money you might not be able to refinance and access that cash without selling the house. 

Conclusion

Using leverage to buy flips or rentals is a great way to increase returns and even reduce risk if you buy the right properties. If you buy houses that don't cash flow then it makes no sense to use leverage to increase negative returns! Be sure to listen to the podcast for much more information or check out the transcript below. 

Products and coaching from Mark Ferguson:

I detail how to find financing for rentals and flips in my coaching program The Complete Blueprint for Successful Real Estate Investing. Use coupon code Secret25 to get $100 off!

Most of what’s been covered on the Invest Four More blog and podcast have been fix and flip, rental, and wholesale deals. Today’s show is a world different - land deals. Seth Williams got into real estate investing after reading the classic book, “Rich Dad, Poor Dad” and hasn’t looked back since. The very first deal he found was a land sale and he made a profit on it. That set the course for him becoming very proficient at finding and working land deals and in this episode of Invest Four More, Seth’s going to share the basics of how to find land, how to make contact and work a purchase, and then how to resell the land for the best price and least amount of work possible. It’s an out-of-the-box episode you’re going to love.

In the real estate investing world it’s not uncommon to see so called gurus telling you how to find and close deals for pennies on the dollar. Many times, those promises are too good to be true. But in this situation, it’s a real thing that can happen and Seth Williams has proven it time and time again. In this episode of Invest Four More Seth is going to share how he finds his land deals… and the source he typically gets them from provides a pool of very motivated sellers that fit his needs perfectly. You won’t want to miss this one.

Clearly, it’s a viable option to sell land you’ve purchased through a real estate agent, and Seth Williams did that early on. But what he found was that his own efforts were a lot more effective and he often had the land sold before a real estate agent even got started. As a result he decided that in most cases he would simply sell the land himself. Not only did it save him the commission payment to a broker, it also enabled him to make the most out of the profit margins of some very small deals. You can hear Seth’s tips on how to sell land yourself as you listen to this episode.

Land deals are no different than typical real estate transactions in the sense that they too can have liens against the property, back taxes due, and other complications. For that reason a title search and title insurance may be a very good idea. But Seth’s background as a commercial banker enabled him to learn how to do the title research himself in most cases so that he can make the most out of his profits on a smaller land deal. In cases where there is a lot more money involved, he does go with a title company to ensure that he’s not missing anything or messing up the deal by his own oversights. Find out more about Seth’s strategy and tips for doing his own title work on this episode of Invest Four More.

Seth Williams very seldom holds a land purchase in hopes that something big will come down the line. Instead, he typically tries to flip them as soon as possible to increase his cash flow and enable him to do more deals. The few times he has held a property is when he knows a new development or project will be starting near the land he’s bought. That way he can make a wider spread on his profits by selling when the land is in a place of greater demand. You can hear Seth’s thoughts on holding land, selling land, and even finding the right deals, as well as advice about getting started and moving forward in land investing by listening to this episode of Invest Four More, with Mark Ferguson.

www.BiggerPockets.com

www.RETipster.com - Seths’ website: Contact him there!

BOOK: “Rich Dad, Poor Dad”

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Are you working at a low paying job? WalMart? Target? Convenience Store? Do you feel like you’re never going to be able to get into real estate investing? Today’s interview should be a very encouraging episode for you. Nate Armstrong was working at Target and watching all the fix and flip TV shows. In his own words, he was addicted to them. He was excited to flip a house himself so he financed his first deal on a credit card and with a bank loan… and that’s how an incredible real estate empire began. Don’t believe it? Listen to Nate’s entire story on this episode of Invest Four More.

Sites like Invest Four More (this site) and many others post tons of blog posts, videos, audio blogs and other resources to help new investors learn how to do the real estate investment game the right way. That’s exactly how Nate Armstrong, today’s guest, learned how to do real estate investments himself. You can learn a lot if you’ll simply take the time to find the resources and soak up all you can. But don’t take too long in the learning process. There are elements of the investing process that you’ll need to learn “on the ground” as you do investments because of the unique issues relating to your particular market. Hear how Nate took advantage of the free resources available to maximize his business quickly on this episode.

Nate Armstrong, today’s guest on the Invest Four More podcast, is an expert at turn-key properties. His company finds, repairs, and rents properties that will produce good cash flow for a person desiring to be a landlord. That’s the basics of what a turn-key property is. You buy a property, get it fixed up, find renters, then sell it to an investor. Often the margins on this sort of deal can be better than a fix and flip because your end purchaser doesn’t need the same equity spread as a typical investor, simply because it’s going to be a cash flow property for them. Nate’s got a ton of good information to share on that segment of the real estate investing market for you, so be sure to listen.

But only if you know what you’re doing. Nate Armstrong, today’s guest, recommends that you not get into commercial real estate as your first rental deal. There are lots of variables that you need to learn before you will be able to handle a commercial deal. But once you’re ready the advantages can be awesome! For example, many commercial leases can be set up with large corporations which makes the payment of rent consistent and reliable. You can also set longer term leases which gives you dependability on your cash flow. In this episode Nate shares a lot of knowledge about commercial properties, so be sure to listen.

A large part of Nate Armstrong’s business is done with out of state investors who want to buy one of his turn-key properties. His strategy is to build good relationships with local banks that are near the property the investor wants to purchase and find out if they will work with the investor. How does he do that? He’s got a series of 5 questions he asks the banker to know if it’s going to be a good fit all around. Want to know what those questions are? You’ll have to listen to this episode of Invest Four More!

www.REGoldrush.com - Nate’s website.

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One of the best investments possible - yes, one of the best possible, is in rental properties. Why? There are many reasons, which Mark Ferguson is going to cover as best he can in this episode. But one of the biggest reasons is the cash flow good rental properties provide. Cash coming into your bank account, month after month, enables you to do lots of things: supplement your personal budget, buy additional rental properties, pay off debt, and many other great things. The stock market can’t provide that. Neither can government bonds. And on top of that there are other advantages to rental properties that Mark’s going to cover in this episode.

Why does Mark want to own 100 rental properties? Because he knows the advantages to having rental properties first hand. If he could own that many properties he’d have adequate cash flow to do anything he wants. His life would be entirely his with the cash that supports it coming in independent of his daily work, month after month. Imagine what kind of life you’d live if you had that kind of rental portfolio. It’s possible, through rental properties. In this episode you can hear the details of where Mark is on the way to that goal and how he’s managed to get there.

When Mark Ferguson first started purchasing rental properties he focused on using the cash flow they generated to pay off their mortgages quickly. That’s a valid strategy that worked for him for some time. But when he realized that he could have used that same income to put down money on an additional property and increase his overall cash flow, the lights went on and he changed his strategy for his rentals. In this episode Mark is going to tell you how he goes about expanding his rental portfolio by not paying down his mortgages and how he’s reaping the benefits. If you’re interested in buying rental properties, you won’t want to miss this one.

Besides the obvious cash flow benefits of purchasing good rental properties there are tons of other benefits that are not commonly spoken of. First off, every property typically appreciates in value over time. That means your property is actually becoming worth more over time, which you can leverage to take out home equity loans to purchase additional properties, or by selling the house to reap a large profit. But rentals also have huge tax advantages. You can write off a certain amount of the actual dwelling’s value every year which can make a significant impact on your tax liability each year, even if your properties themselves don’t show a profit. Those are just a few of the benefits that Mark covers in this episode, so make sure you listen.

It’s not easy, but it can be done. The main way is to buy the property as an owner-occupant and move into it. The best scenario is to purchase a duplex or triplex and live in one unit while you rent out the other(s). After a few years you can refinance the loan and move out, opening up the unit you’ve been living in to bring in even more cash flow. It requires patience and discipline but is a way that many rental property owners get started with their first rental properties. Does it sound like something that might work for you? Listen to Mark’s explanation of how it works on this episode of Invest Four More.

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BLOG POST: How 11 rental properties increased my net worth $600,000 in 3.5  years

Mark’s rental property cash flow calculator: http://investfourmore.com/rental-property-cash-flow-calculator/

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Mark’s Complete Blueprint for Real Estate Investing - http://investfourmore.com/blueprint-for-successful-real-estate-investing/

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You don’t have to reach your goals in order for them to #ChangeYourLife

Why #RentalProperties are such a great investment, on this episode

#CashFlow is one of the best reasons to buy rental properties over stocks

The top mistake #RentalProperty owners make that kills their investment

How to buy properties below market value and turn them into rentals, on this episode

Is your corporate job getting old? Is the rat race driving you crazy? Today’s guest, Daniil Kleyman had a successful career in the financial industry but was not happy with his life. The 8 to 5, the corporate politics, the stresses that came with the job, it was all too much for him and didn’t provide the life he wanted. When a shift in the company caused him to be laid off, it was the kick in the pants he needed to get out on his own. He started real estate investing and the rest is history. Now he has a 10 million dollar real estate portfolio and is developing properties through new construction. Hear his amazing story on this episode.

That’s an amazing accomplishment for anyone, and Daniil Kleyman did it. But he’s quick to mention that some of the reason is because of the way the real estate markets were at the time. The crash had just occurred and he was able to buy properties far cheaper than ever before so he had the opportunity to get into the game with a small amount of cash. His strategy was to buy properties, fix them up, fill them with tenants, then refinance the property based on the higher equity value, and do it all again with a new property. It as a strategy that worked for him, to the tune of an eventual $10,000,00. Find out more about this strategy on this edition of Invest Four More.

Daniil Kleyman has moved forward in his real estate investment career to the point that he’s actually becoming a developer. He would prefer to build new properties over buying existing properties any day. Why? Because he thinks there are far less variables and headaches building a property from scratch than trying to rehab an existing property. The three things he cautions about are zoning issues, utilities, and foundations. Learn all you can about how your local municipalities handle those issues and you’ll be fine. Want to become a developer? Hear Daniil’s story on this edition.

As with any real estate project, the subcontractors who work on your projects are key to keeping budgets, timelines, and quality of the work to the levels you desire. Daniil Kleyman has found that it works best if he is the general contractor and then finds and oversees quality subcontractors for the specific areas he needs: plumbing, electrical, drywall, etc. That way he knows that each aspect of the project is being done professionally, but he’s able to keep his finger on the pulse of the overall project and push the deadlines as needed. It’s am amazing skill set this guy has developed. Listen in to hear how he got there.

Daniil Kleyman first developed his “Rehab Valuator” to use for his own projects. But after sharing it with some wholesalers and flippers he knew, he realized it would be a great help to others. That’s why he’s made it available to anyone who wants to use it. You can find it at www.RehabValuator.com. Be sure to check it out and let Daniil know you found out about his great tool on the Invest Four More podcast!

Daniil’s software: www.RehabValuator.com

Contact Mark for a $100 discount on all his programs - [email protected]