Real Estate Investing: Episode 7
Jason Bramblett Real Estate Show Podcast
Jason: Good morning, Triad. I hope everybody is doing well. Survived the storm last night. That was something else. I tell you what. It got serious down in our area for sure. So hopefully, everybody fared out pretty well. Today we are going to dive deep into the real estate investing topic we have been covering. This is episode four for you guys that have been following along. And of course, if you do not have time to make notes, jot it down, whatever, you can hit the website, Jason Bramblett dot com. Click on the blog, and we have got the audio saved there for you as well as a written version, transcription of the show. So you can follow along and read along, whichever you want to do. Fact check me. Whatever. You just check it out. It is there on Jason Bramblett dot com. Hit that blog site, and it will take you right to it. So just to recap. We have walked through several things. What to buy, where to buy, how to buy.
Jason: All right. Just kind of walking you through the whole series here. How to actually evaluate the opportunity to see if it makes sense to purchase the property, and then how to structure the purchase. Not only is the house the right fit, is the financing the right fit, is the property condition aligning up with the price, does the property condition line up with it being a rental home, does the location line up with it being a rental and or a flip property. So we looked at all those different things. Now we are dealing down in how to be involved in real estate investing if you do not want to be the landlord, if you do not want to be the one out there doing the work and flipping the property. We talked last week about taking your dead money, money that is just sitting around doing nothing, and how to get that moving. Dead money for us is just money that is sitting in a savings account earning basically nothing, and or is maybe in a CD that is earning 2% on a good day if you are lucky.
Jason: The downside with that is it is locked in, and of course, there are penalties for unlocking it. So most people do not want to do that. They want to have the freedom of flexibility and not tying that money up. But essentially, they do not also want to put it in the traditional stock market retirement accounts because then you can lock it up for a long time, and there are some very hefty penalties depending on the type of product you put it in, you may not be able to get that money out for a very, very long time unless you make a considerable donation to our lovely IRS.
Mikell: That is very true.
Jason: They would love for you to do that. Desperate times call for desperate measures, and when you look who is the recipient of that, the IRS fares very well in an economy that tanks and people panic and pull their money out of stuff that they should not. The tax consequences are severe. So you can end up with a situation where you are making a really nice donation of 30, 40, and 50% of your money in taxes because you unplugged it too soon, or you came out of the, basically you broke the agreement that you had by cashing out of the product, and it is going to cost you money. So dead money again for us is just money that is sitting in a savings account, checking account, and you do not know what to do with it. You do not want to put it in the market. You know that you do not want to be a landlord, and you know that you do not really want to do all the fixup. So we have got a place for you. What it looks like is this. We take your dead money, and we acquire real estate. We rehab the property, and upon completion or eight months, so our terms are always eight months. Whichever is sooner we will cash you out at 100% plus whatever our agreed upon interest is, which right now, I think is about 7 ½% depending on the deal that we are doing. So if you had $100,000, you would get $7500 in interest, and that would be either when the house is sold or refinance. A lot of the properties we keep, and we do not sell them. We do not flip the properties, but it is a really good tool in which if have got the capital and you want it to move, we can help you do that. So it is a way to become a real estate investor without having to do all the heavy lifting, if you will.
Mikell: So they can get that within eight months?
Jason: Yes. We are going to cash them out in eight months no matter what. Whether the house is sold, not sold, it does not matter. They will be cashed out in eight months.
Mikell: With the interest?
Jason: Yeah. Exactly.
Mikell: That is amazing.
Jason: We keep it very, very simple, and we create a lot of opportunities. It creates opportunities for us. The reason why we do this is because the bank never can move as fast as we need them to move.
Jason: Opportunity typically comes with pain, and when people are in pain, they want it over, and they want it over quick. Most banks that we deal with, and we deal with a lot of different banks, they simply do not have the speed in which we need them to move at. That is pretty much, that is nothing bad about the bank. It is just their product does not line up with our timeline. So we have to use cash, and we have to move quick. That is why we convert it later to a more long-term financing. We will refinance ourselves and the investor out of that property or out of that product. It is a fast-moving world, as they say. Speed, when you have issues, well, I will give you an example. We have people that do not plan for foreclosure, believe it or not. In America, when you miss a payment, if your payment is due on the first, they do not throw you out on the second.
Mikell: No. They give you a grace period.
Jason: They do. Then even after, they do not throw you out at 30 days. They typically do not throw you out in 60 days, 90 days, 120 days. We just bought a house that they have not made a payment in three-and-a-half years. So the bank –
Jason: -- yeah. Your deadline of when you are going to be moving is pretty well known.
Mikell: Their credit has to be terrible though.
Jason: Oh yeah, their credit is destroyed. Absolutely. But it is not a surprise date.
Jason: But yet, we have some folks that contact us and they will say hey, it is Monday. My foreclosure is on Friday. Can you help me out? Well, yes, we can, but I cannot do that with a traditional bank. There is no way in the world I can set up a loan process with a traditional bank to be able to buy a property or contract a property on a Monday and close it on a Friday, but if I have the cash, I can do that. Actually, I can close very, very quickly. And then we can switch it over to some other kind of long-term financing. But we have a lot of people that contact us for, and it is not just us. I am sure they are contacting many different real estate companies, and there really is not much that can be done with that kind of short notice. These folks did not get seven-days notice. They have had months of notice.
Jason: They have just procrastinated for whatever reason to make a decision until they actually have to make a decision.
Mikell: I think it is denial.
Jason: It is for sure. It is. For whatever reason, they think if they stick their head in the sand and it will all go away.
Jason: It does not.
Jason: It only gets more intense. You will leave. I promise you. They will send the sheriff or the highway patrolman –
Jason: -- and they will change the locks, and you will not be in the house any longer. It is just the reality. That is what you agreed to. You agreed to give the house as security for the loan that you took out. And when you stop paying your obligation, the bank has the right to recoup their asset to sell it to get some of their money back. Hopefully. Typically, they get a good bit of their money back. Sometimes, wow.
Mikell: Sometimes the bank does lose money.
Jason: Oh, there is no question. Absolutely. Sometimes they should in my opinion. But just because your creative loans that you come up with, but in the most part, if the situation is correct, where the buyer told the truth, the lender gave a good product, okay, everything being equal. No three-card monte on either side. All right?
Mikell: Okay. Okay.
Jason: All things being equal, then yeah, the bank certainly has the right to come back and take that asset. They should. They do all the time, as a matter of fact.
Mikell: All the time.
Jason: So with investing, what we are looking for in properties, we will get into that a little bit here. We are going to talk about that. Some of our opportunities just do not work with regular bank financing. So we created an opportunity for people that want to be in the real estate investment side, but they do not want to do any of the legwork. They do not want to be the landlord. They do not want to deal with all the stuff, so that is where we step in and take care of that. But they love the fact of having their money in the real estate market and actually seeing that grow. We have got investors who have been with us for over a decade. They understand our process. They understand how we work. It is usually very, very quick, very, very simple, and we are always looking for opportunities. So we are going to talk about that. Foreclosures, estate sales, probate, tax sales, all those things that, those are all the opportunities we look at out there.
Mikell: I can only imagine. It is like you said. Jason, this is a product that is tangible. You can see my sweat equity. You can see the finished product. You can see the process.
Jason: Absolutely. Absolutely. It is not always a foreclosure type of situation.
Jason: Some people look at foreclosures like that is the only way to –
Mikell: Make money in real estate.
Jason: -- well, whatever they think their perceived deal.
Jason: It is amazing what the word foreclosure does to the psychological processes of people. Just because it is a foreclosure does not mean it is a deal. We have had a lot of people over the years contact us about buying one, and we take a look at their financial situation, and it is like you are not set up for this. You do not have the means to be able to fix a home up, and depending on, a lot of times the product that they are looking at, it really is, they are not getting it at the right price. They are going to put $20,000 into it, and by the time you figure out what they pay, what they are putting into it, it is retail.
Jason: Basically, they are getting right back up to where the market is. They are not getting any equity or any benefit to doing all the work. So you might as well just go buy a house that is already to go. But there is something in the brain that triggers I got a deal with the word foreclosure. I have seen more people overpay for properties, buying foreclosures, thinking that they were getting a deal because the price was lower than the subdivision average. But by the time you factored in what you put into it, sometimes you paid more than the house you could have bought down the street.
Jason: Do not get tricked into the word foreclosure because it does not mean deal. It just means the house is foreclosed on. That is the only thing it means.
Jason: Whether it is a deal or not, that is to be determined. We buy a lot of failed rentals. There are a lot of landowners out here or property owners that thought they wanted to be in the real estate game and just made really bad decisions. They have a good house, but they made some really poor decisions. They typically rented it too cheap. They did not have enough cashflow, and then when something goes wrong with the house, what they do to save themselves is they defer the maintenance. So every single year the house keeps going in a downward spiral until where it is so bad nobody will even rent the house. We see that over and over again. There are some landlords out here. I think it is a strategy for them where they just defer maintenance until the house is trashed, and then they just sell it and go buy another one and do the same thing over and over and over again.
Mikell: That is terrible.
Jason: It is not really a good business plan. I have never really figured out the logic or the math in that, but we classify some of those folks as the term slumlords, and that does not necessarily mean they are in the bad part of town. I have seen them in some of the nicest areas in the Triad, and typically what it is is a desperation. They have got the wrong tenant in there, and or they rented the property too cheap because they could not hold out to get the right person, and if you cannot do that, then definitely real estate investment is not for you. If you have to buy a home, fix it up, and you have to rent it in a very, very short amount of time, you do not have what we call patience money to find the right tenant then, and not only find the right tenant, but have multiple options of great tenants, real estate investing is not for you.
Mikell: You do hear the saying that some money is better than no money. So you are saying do not feed into that.
Jason: Some of those folks, if we had them talk to us on the radio show they would say that statement is false in that sometimes some money is the only money they ever got. When you have tenants meeting you and they have a big wad of cash, and they want to advance pay rent two or three months, I know that sounds like you won the lottery, but guess what? That is probably all the money you are ever going to see. Then you have to wonder why do they have cash. Do they work for tips or do they just work off the grid? You want to make sure you are in good selection with the people you have coming to rent your home because it is your asset, and you want to protect that. Now the hat shifts, and you have to think not only like an owner, but a property preservation manager, and you want people that are going to take care of the property. There are some fantastic tenants out there. We have some great tenants. We have folks that actually take care, in my opinion, they take care of the property better than the previous owner did.
Jason: They keep up with it, and they treat it as if it was their own house, and they just have that pride of I am going to leave this better than what I got it. Now, you do have the other side of that where you have people that just they stay until it is so bad that they do not even want to live there anymore, and then they move. Again, patience money, you can weed those people out pretty quick. That is a lot of what we see, and we buy a lot of these type of properties. Sometimes we cannot even make the math work. We just had a lady call from a small town outside of Winston and the house was rented out of desperation, rented way too cheap, and she has no money to fix it up. Got some major structural issues, and it is a sad situation. She needs the money to pay the mortgage, and she is probably not going to be able to do that for much longer because the house is probably in such a condition now it really should not be rented. So the tenant probably just for safety reasons needs to vacate the property.
Mikell: You have to think about what are you doing with those rent payments. Some of the proceeds need to go back into the house.
Jason: Absolutely. You need to create what we call it a sinking fund. But basically all the properties that we own, we set aside a portion of the rent every single month for stuff. Emergency fund. Whatever it may be. Roofs do not last forever. Water heaters do not last forever.
Jason: You have got two choices. You can plan for those things knowing they are going to happen.
Mikell: Or you can get a loan when they happen.
Jason: Or you can get a loan or you can go to Mr. Visa or Mr. AMEX –
Mikell: There you go.
Jason: -- which really is not a good financial plan. If Visa and AMEX are your backup, that is not a plan. That is a reaction, and reactions typically do not work out well. They are very, very expensive. So you want to have a plan. You want the property to work for you, and you not work for it. There is a big difference in that statement. You need to make sure that you are setting yourself up. It is just not only the bad tenants sometimes. Sometimes it is bad management. Some people do not need to manage property. They cannot even manage their own household. So you have got to have systems in place and processes in place to protect your asset, but also to make sure you are taking care of your tenant. That is your responsibility as a landlord to provide safe housing. Now you will have some people who will work against you in that, and then there are means that you have legally that you can take to fix that. But it all comes in, it is selection up front, and it is choosing the right person. Let’s do this. We are going to take a quick timeout. We are going to go pay some bills because hey that is the responsible thing to do. But we will be right back. We are going to dig into a few more and talk about security and your money. We will be right back with the Jason Bramblett Real Estate Show.
And welcome back to the Jason Bramblett Real Estate Show. We were digging into the dos, the don’ts, the hows, and what not to do. Do not get yourself in a desperate situation. I see a lot of times folks forcing deals, and that is the worst thing you can do. When you want to buy a house so bad, you want to be a real estate investor so bad, that is when I see most issues really kind of –
Mikell: What do you mean forcing deals?
Jason: Force the deal. When you are financially not ready to do it.
Jason: You either financially do not have the funds or you do not have the discipline. It is like Kenny Rogers. You have got to know when to hold them and know when to fold them. Right? Unfortunately, I see too many people get caught up in the hype and excitement. A lot of these seminar things you go to that are in these hotels, and they get caught up in stuff that just mathematically, if you stopped at looked at it from about a 30,000-foot view you would know it is not going to work. But they get too close to the deal, and they get too emotional with it. I think that is one of the things that has been beneficial to me with real estate is being able to remove the emotional piece out of that. Because everybody that is selling their home is emotionally tied to it.
Jason: I am able to come in and help them get past that, get past themselves, and look at it very much from a mathematical process. We tell a lot of people no. You should not do this. You should not buy, and you should not sell your house. We have a lot of folks where it just does not make sense. Some of them still do it; they just do not do it with us. We just do not participate in stupid if we can help it. I do not want to be associated with that. So we will tell people no, and we will walk away from the deal, whether they are buying or selling. That is pretty rare in our industry because most people will sell anybody anything. We just do not sign up for that.
Mikell: Let me ask you a question. Say someone wanted to rent their property, would you help them basically be their landlord as well? Say they wanted to rent, and you get a percentage, your company gets a percentage?
Jason: Yes, we have a property management division of our company. We do full property management services. Carolina Rental Management is our rental arm of that, and yeah, we absolutely take care of everything. So you could own a property and still not have to deal with anything. There are decisions you have to make, but as far as the how to and the tenant selection and screening and all that, we do all that. Check backgrounds, everything.
Mikell: The reason why I asked is because you said a lot of the people were taking rent that was not what they needed to. It was too cheap. You are someone who will not settle.
Jason: That is true. But most of those people do not use our services either.
Mikell: They should. They should though.
Jason: If not us, they should use a professional property manager. Most people have a problem with the word no, and when somebody calls, everybody has got an excuse for everything. Some people are just too soft.
Jason: And they should not be landlords because you can get yourself into a situation where you get taken advantage of.
Mikell: Yeah, they put the kids in the story.
Mikell: And I am having a hard time.
Jason: Absolutely. Like is about hard times. That is exactly right. You are not the government. Now if the government allowed me to hook my printer up to the printing press and just print my way out of my problems, I would be happy to let anybody stay anywhere they wanted as long as they wanted to regardless of whatever excuse Mama has.
Mikell: Not a problem.
Jason: But we do not have that luxury, and so we have to make good business decisions. Sometimes tough love is good love. We have to help some people through their problems. We approach everything with a plan. My property manager, Elizabeth, is phenomenal. She actually sits down with people and will help them work out their finances. Help them get a budget established if they need to.
Jason: Some people never had that education.
Jason: And they will do it, but somebody just has to tell them and give them a guideline. We can help them through that. Well, we were talking about money, investing, and obviously when you put up money, you want some type of security. Right?
Jason: Everybody wants some type of security. The security you get in the stock market, I do not know what that is. I guess if you can push the button fast enough and sell fast enough, you do not lose as much. Right? You can have a perceived security in that you can invest in things that typically have a lower return, but they are also more secure. You could also just leave your money in the bank. Right? That is pretty secure.
Mikell: That is very secure.
Jason: It is FDIC-insured up to $250,000. It does not do anything. It just sits there and looks at you, and it is pretty secure.
Mikell: And that is comforting for some people.
Jason: It is. It is. Security in our situation is what we do. It is just the same thing as the banks. We secure everything with a recorded deed of trust in the county where the property is at. If you give us $200,000 to invest, it is going to be a secure lien of trust against that property, and then we will not be able to do anything with that property until you are cashed out basically. So we cannot refinance the house, and we cannot sell the home until you get all of your money back. That is a public record recordation in the county, so it is about as secure as you can get. Of course, if we did not pay you back, you could always foreclose on the house because that is what a deed of trust lets you do. Then you would have a really good deal on a house because I only buy houses that make mathematical sense. So it is a good deal for everybody. If you would like to get more information, you can go to Jason Bramblett dot com. Next week we are digging deeper into how to get into real estate investing. So everybody have a great weekend. We will see you next week right here on the Jason Bramblett Real Estate Show.