MAKE MONEY BUYING REAL ESTATE USING THE POWER OF LEVERAGE
Let’s talk about my favorite subject-how to make money buying real estate with very little money down. On this podcast I will share with you a few ways you can uncover some down payment money by using other people’s money
My co-host, Alex Craig shares some wisdom he has learned from experience buying, selling and managing multiple properties over the years.
Subscribe to connect with me regularly at www.JoGarner.com. I you have a question or a real estate scenario to discuss, contact me at jo@192.232.195.219 or call me directly at (901) 482-0354.
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Good morning, Memphis! Good morning to our friends across the 50 states. You’re on Real Estate Mortgage Shoppe. This episode of Real Estate Mortgage Shoppe was sponsored by Joe Rojas, Elite Team at Fearnley, Martin McDonald Title Company (901) 289-5821. I’m your host, Jo Garner, Mortgage Loan Officer. You can find me at www.JoGarner.com. If you love real estate like we do, you’re going to connect with us on today’s topic-“MAKE MONEY BUYING REAL ESTATE USING THE POWER OF LEVERAGE. “ If you have questions or comments, join me while we’re live May 27th, 2016 at (901) 535-9732 or outside the Memphis area (800) 474-9732. You can also email me at jo@192.232.195.219. I want to hear from you.
Sitting across the coffee table from me is Real Estate Entrepreneur and Owner of Memphis Turn Key Properties, Alex Craig. Alex knows several success stories of how to use leverage to make money in real estate. Alex, you’ve been on Real Estate Mortgage Shoppe before and you were also interviewed on William Shatner’s show “Moving America Forward.” Tell us a little bit about yourself and what you do for your clients
(Jo) During our time together today, if you are looking for a way to minimize tying up your investment funds but yet want to leverage into more and more investment home purchases, I am going to share some ways you can LEVERAGE building up your real estate portfolio quicker using the right mortgage products. I personally am a landlord and it rewards me regularly. There were a FEW times when I felt I was paying dues when I had some unexpected expenses on properties, but mostly the properties have ended up paying me and making me a profit.
At the moment, we have a bit of a perfect storm with the fixed interest rate on mortgages sticking around 3.625% to 3.875% on the conventional 30 year programs and in the low to mid 3’s on the 15 year programs. You can actually get rates lower than these depending on certain factors in the file. With rates being this low and the cost of housing in certain areas of the country being fairly low—like in Memphis, for instance, it is much easier to find deals where you are getting a positive cash as soon as you buy the home instead of having to wait year or two. That’s the power of the combination of low interest rates, fairly low house prices and overall rent rates going up annually.
(Jo) My assistant and I work with investors who buy multiple properties over the course of a few years. We I have some clients who have done several loans with us over the course of time. There is currently NO LIMIT on the number of financed properties a borrower can own if they are buying or refinancing their own personal residence. However, the maximum number of financed properties Fannie Mae currently allows an investor to have is no more than 10 financed properties. Properties with over 4 units and commercial properties do not count in the 10 financed property limit. Freddie Mac currently limits real estate investors buying rental property to 6 financed properties. I have had husbands and wives team up or real estate business partners who want to acquire the maximum amount of low interest rate, long term Fannie Mae or Freddie Mac loans. Sometimes one partner will buy and finance 10 properties and the other partner will buy up to 10 different financed properties, giving them 20 properties with the low 30 year fixed rates on them. The 30 year fixed rates are popular with real estate investors because they have the lowest payment creating the most positive cash flow from the property to the investor. Since there is no prepayment penalties on these loans, the investor can pay extra on them any time he wishes. If you want to check on some real estate investment financing strategies, call me now while we are live at (901) 535-9732 or (800) 474-9732 or call me directly after the show at (901) 482-0354 (901) 482-0354.
(Jo) One of my biggest money-makers for real estate investors paying cash to purchase rental property is to be able to turn around right away and finance the property after they buy it without them having to wait out the 6 month seasoning period. So many of the investors who work with me will pay cash for a house because the seller usually sells at a steeper discount for a cash deal instead of having to wait on the mortgage to be approved. My real estate investor client usually renovates and repairs the home raising the value, then I refinance the property and give the funds from the refinance back to my investor so he can go do the next real estate deal. He uses his credit lines like a launching pad to get a great deal on the next house , refinances and pulls his cash back out then uses that cash to continue to acquire more property.
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⦁ ___2nd segment after 9:15 break: It’s time for the Look Back Memphis Trivia Contest. The Look Back Memphis Trivia Contest is brought to you by notable Memphis historian, Jimmy Ogle. Jimmy offers free historic walking tours in downtown Memphis in the spring and fall. To find out more, ask Jimmy at ⦁ www.JimmyOgle.com . Our Look Back Memphis Trivia Contest is sponsored by John and Jennifer Lawhon of Lawhon Landscape (901) 754-7474 the Lawhon’s can help you plan your landscaping if you have a BIG, BIG project or a smaller project . The Lawhons are giving away a $25 gift card to the first person with the correct trivia answer. If you know the answer to the Look Back Memphis Trivia Question, call us on the air at (901) 535-9732. 800 474-9732
Garner # 83 05/27/16
Mary Elizabeth (Proud Mary)
Question: I was a famous river vessel, often misunderstood, but proud to be a towboat. Who am I?
Hint: I was known as the OSSINING and first used on the Hudson River in 1907 ferrying prisoners from New York City to Sing Sing Prison.
Hint: That’s where the term “you’re going up the river” came from!
Hint: I was then sold to a towing company in Louisiana in the 1920s.
Final Hint: I came to Memphis in the 1930s and was used in the Memphis Harbor to tow barges and riverboats through the 1960s
Answer: MARY ELIZABETH (PROUD MARY). I began my service as the OSSINING in 1907 on the Hudson River in New York, ferrying prisoners from New York City to Sing Sing Prison. In the term “you’re going up the river” was coined for my legendary trips. I was then sold to a towing company in Louisiana in the 1920s and service on those rivers for about fifteen years before coming to Memphis. In the 1930s, I was purchased by Warner & Tamble, a midstream river service operating out of the Wolf River Harbor in Downtown Memphis. My name was changed to the MARY ELIZABETH, the name of a daughter of one of the owners. One of my pilot was Capt. Jake Meanley of the Memphis Queen Line, as I pushed the MEMPHIS SHOWBOAT on its weekend excursions.
Later, a deckhand on the MARY ELIZABETH wrote the lyrics for the song that became known as “Proud Mary” and recorded by Creedance Clearwater Revival – later covered as “Rollin’ On The River” by Tina Turner. The “big wheels that keep on turning” are not a paddlewheel that one traditionally sees on the stern of a large riverboat, but rather the screw-shaped propellors of the towboat below the water, also known in the pilot house by the Captains or pilots as “screws” or “wheels”.Attempts were made in the 1980s to restore the PROUD MARY as a floating museum, but never materialized. So, the next time that you hear “Proud Mary” or “Rollin’ On The River”, think fondly of a little Memphis towboat in the Wofl River Harbor.
Jimmy Ogle gives free outdoor walking tours on the sidewalks and parks in Downtown Memphis during the Spring and Autumn of each year, with the next Tuesday Tour being at Beale Street Landing at 11:45am on Tuesday, May 31; the Bridge Walk on the Memphis & Arkansas Bridge on at 2pm on Sunday, June 26; the Fairgrounds Walking Tour at 2pm on Sunday, June 19 (assemble at the Coliseum). The D’Army Bailey County Courthouse Tour (indoors): Third Thursday each month at 12:00 noon – the next being Thursday, June 16.
Go to jimmyogle.com for the 2016 Spring Season schedule and locations.
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MORE FROM ALEX:
1. Grizzlies & Tigers
Transitional times for these two organizations. Who would have thought Mike Norvell would be the senior coach among the basketball and football programs. With transition comes optimism and I think the Grizzlies have a great hire and Memphis basketball has brought in the most established coach in the history of their program in Tubby Smith. I think Tubby Smith is perfect for the program has he has a reputation of developing players, teaching and most important WINNING!!!! I do not know much about David Fizdale, but from what I am hearing, he is also good at developing players; it doesn’t hurt to have positive comments after the hire from Dwayne Wade and former Grizzly Mario Chalmers.
Speaking of developing, Memphis Turnkey has been doing a lot of developing these days…..(Alex discussing past 5 year run of low rates, cheap housing and the need for inventory in the form of excellent rental homes to come on the market)
2. What Memphis Turnkey Does
In the simplest form, Memphis Turnkey Properties buys distressed homes, renovates them into excellent rental homes, places tenants, manages the home and sells it to investors. Our business is geared for individuals who want to own rental homes to diversify their investment portfolio but do not have the time or desire to wear all the hats one must where to own rental properties such as property finder, rehabber, tenant screener, landlord, maintenance services or probably most challenging, tenant manager / free personal life coach! When our clients buy one of our homes, they are literally getting a home that is ready to start cash flowing on day 1 and because we have an incredible office staff and closing attorney, the client barely has to do anything. They key to the success of the property after the sell is our in house Property Management that was created to manage the day to day operations of the home from collecting rent, taking maintenance calls, placing tenants, advising our investors, tax statement preparation and everything else that has anything to do with the home.
3. Excellent Rental Homes
Twice you have mentioned “Excellent Rental Homes” when describing what you do. When I first got into the business of buying homes for my personal portfolio, the game plan was to buy and fix up the houses with minimal cost which basically consisted of fixing the immediate maintenance items, painting and carpet. If the counter tops, flooring, lights, doors, vanities, fences etc. were functional we kept them. Over time, we noticed our maintenance and vacancy cost was out of control to the point where we were barely breaking even. We changed our thought process and tripled the cost we put into a standard rehab. Our kitchens were updated with ceramic tile, new counter tops, pull out brush nickel faucets. Decorative ceiling fans were added, bathrooms are updated with new vanities, ceramic tile, new brush nickel faucets. We spent extra on vinyl plank hardwood floors in high traffic that looks just like hardwood, not only does it looks great and really open up the space, it is durable and we have dramatically reduced our cost to get houses back on the market as carpet is simply not durable to withstand a lot of wear and tear. Basically we are renovating the homes to a retail standard for the area; even to the point of putting in granite in our higher rent neighborhoods. The end result has been short vacancy periods and maintenance cost dramatically reduced. The biggest silver lining is we are providing properties that our tenants are proud to call home. That may be the most rewarding part of our business is seeing good people excited about the home they are about to live in. From a business perspective, when people are proud of where they live and they get excellent customer service, they tend to stay in their home. The downside is in the past month, we have had 2 tenants get very upset because someone beat them to our office to get their reservation fees in. There are a lot of landlords who have been in this business for a long time and I mean do disrespect to these individuals, but they are providing very basic stereotypical rental homes. If I can provide a better home in the same area, I have an better the excellent shot at getting my house rented before theirs.
4. Our Model
Our goal is to offer our investors a home that is positioned for success. That means a well renovated home that is designed to maximize cash flow through addressing all deferred maintenance items up front. That means replacing older HVAC units regardless if they work when I purchase them or replacing a roof even though it may have 7 years left on it, plus all the things I mentioned about what makes our properties excellent rental homes. I am not as interested in trying to offer a home at .70 on the dollar. The only way to do that is to ignore the obvious maintenance items that our investors would face in the first few years of the ownership. I would rather sell a home at .90 or higher on the dollar and be able to renovate it in a way our investor is not eaten up with maintenance. A HVAC and Roof cost us about $10,000 which eats up 3 to 4 years of cash flow on properties that have 30 year mortgages. I would rather replace the older high dollar items with new items because that $10,000 worth of roof and HVAC only cost an investor $2,000 on a 20% down 30 year mortgage at today’s low rates. I could easily put $15,000 into a house, but typically we are putting in closer to $25,000 to $30,000 in each house. Last week my wife brought in 2 stacks of baby clothes for our 22 month. She told me she got easily $500 worth of clothes for $250. My standard response to these kinds of deals is, “saving money is expensive.” Real Estate is no different. Trying to get equity by saving $10,000 to $15,000 on cutting corners during the rehab sounds great, but will be expensive. I operated my first several properties that way and when I we changed our renovation philosophy, I became profitable.
5. Leverage
Most of our investors utilize leverage with their purchase. While financing reduces the amount of monthly cash flow, it certainly allows the opportunity to buy more properties and with such low rates, it totally make sense to borrow. Plus the interest is deductible. Current Fannie Mae guidelines allow investors to borrow money up to 10 homes with 20 to 25% down. Being able to secure a $80,000 home with a 20% down payment allows our investor to purchase more and build a large portfolio of homes. Since most of the capital expenses are new, when those items need replacing 15 to 25 years down the road, our clients have the option of tapping into the equity the tenants have built to extract some cash to upgrade those capital expenses instead of using their cash flows.
6. Why Real Estate?
The ability to secure a $100,000 asset for only 20% down. Very few investments allow you to buy in like that. Real estate provides tax breaks in the form of an interest deduction, possibly deprecation and other various tax breaks that come with owning a business. Not only do you have extra cash flow in your pocket, but this also allows you to keep more of the money you earn. Most people look at the cash-on-cash return (money in vs money out), but real estate has a blended return of not only the cash on cash, but also appreciation, equity built by the tenant and the tax savings. Single Family homes are the easiest way for individuals who are not mega rich to own real estate. I am pretty confident Jack Belz is not going to call me to be a partner in his next big commercial project. So if I want to own real estate, it is going to have to on a much smaller scale.
7. Where do your clients come from?
Our clients come from all over the country, and really, the world. We have investors from 25 different states as far as Hawaii and as close as East Memphis. We have investors from 9 different countries. The most unusual places have been Prague or maybe South Africa. Right now, we are getting several new clients from Paris, France.
8. Why Memphis?
For our investors Memphis gives a combination of two things–. Purchase price vs Rent. An $80,000 home in Memphis will rent for $895/mo. and can be filled quickly using effective marketing. An $80,000 home in California does not exist and it is the same with several other markets around the US. Another reason that makes Memphis the place to invest, is the growing trend for the need of rental homes which is a nationwide trend; home ownership is at a 48- year low nationwide at a rate of 63%. Memphis is no different and actually, the narrative has always been that 50% of the city rents; I did a quick online search and found on www.civicdashboards.com that they reported Memphis to have a home ownership rate of 47.5%, just ahead of Knoxville at 44% and behind Nashville at 53%. Lower priced homes and a large population of renters are what brings investors to Memphis and to Memphis Turn Key Properties.
9. Elephant in the Room–Crime
Crime in our city is obviously a hot topic and Mayor Strickland and the city council have a difficult task ahead of them. You know what? We are a large city with typical problems all large cities face. Name a large city that doesn’t have issues? I think this topic is why we do not have more local clients as locals tend to focus in on the bad and not realize our backyard has a great opportunity to own real estate in very good areas. The problem is our local media has a tendency to focus heavily on crime and it gives locals a uninformative view on certain areas in our city are dangerous. I am not going to sit here and say there are not bad areas, of course there is. They are certainly areas that are struggling and do not make sense for our business to purchase and renovate. We avoid those areas. There are 2 ways to minimize crime opportunities with your investment property. First, avoid high crime areas. Notice if you watch the news, a lot of the crime happens in apartment complexes, so we typically avoid purchasing homes near apartment complexes which tend. You know what else apartment complexes do not do very well? SCREEN TENANTS!!! The whole key to the investment is the individual that lives in your home. We check credit, background, job verification and most important, verify their rental history with their prior landlord. In the past 3 years we have used social media too. We are the ones who have to deal with the individuals living in the homes, so we have the motivation to screen methodically. Evictions are no fun, not profitable for anyone and are the unfortunate part of our business, but so far this year we have only had to do 2 evictions out of 450 homes.
10. Number of properties sold
Last year we sold 62 properties in Memphis and 30 in Little Rock. This year, we are on pace to sell 72 properties in Memphis and 50 in Little Rock.
11. Why Little Rock
A growing trend for investors is to spread their exposure across multiple markets. Little Rock made sense as I have family in the area who already owned real estate and allowed us to capture more business from the investor who likes to own in multiple markets.
QUESTIONS ANSWERED BY JO GARNER:
⦁ Treasure hunting for down payment funds . Using OPM-Other People’s Money
-Owner occupied homes only require zero to 5% down payment. Investment properties require at least 20% down.
-Substitution of collateral
-Borrowing against your 401K
-Cash out refinances on other homes you own other than the rental house you are trying to buy
-Cash value in a life insurance policy
-Find a real estate investing partner with cash.
⦁ Do your homework-know what the market rents are for the property you want to purchase.
-Know the selling prices of houses like the house that interests you, in that same neighborhood over the last 6 months to a year. (Appraisers look at comparable sales over the last 6 months to a year of houses resembling your subject property when they make an estimate of value on the house you want to buy)
-watch out for comparable houses in the neighborhood that have recently sold for a very low price and later the same day or shortly after show a sale of the same house for a much higher price with no evidence of renovation or upgrades having been done.
3. Refinancing and getting your cash back from a cash purchase without having to wait out the 6 month seasoning period.
The refinance program I use allows an investor to pay cash for a home and then turn around right away and refinance it, get his cash back and use that cash to leverage his way into an additional property or more.
4. How to stretch the maximum 10 financed property rule and make it double—legally.
-maximum number of financed properties for Fannie Mae is 10. Freddie Mac regulations now have a maximum of 6 financed properties. Properties with more than 4 units or other commercial properties are not counted as a financed property when determining the maximum limit.
Only in America can you buy a $100,000 property by investing only $20,000 of your own, get a fixed rate for 30 years … When you combine the ability to use leverage in real estate with appreciation, you have a perfect storm and a money making combination.
If you want to talk over YOUR plans to build YOUR real estate portfolio, call me while we are on the air at 901 535-9732 or call me after this show directly at (901) 482-0354 or email me at jo@192.232.195.219
REAL ESTATE TIP OF THE WEEK: (Alex Craig shares a tip about the importance of not getting in a hurry to put a tenant in your property. Your property is worth a lot of money. Take the extra time and money to get someone who passes the high standard level credit, income, reference and background check)
ANNOUNCEMENTS:
For Memorial Day weekend we want to take a moment to say thank you to our veterans and families of our fallen heroes for their sacrifice to our country.
1. Talk Shoppe offers free education and networking to anyone interested in real estate or business. This Wednesday June 1st, 2016 Talk Shoppe will be presenting “Resources For Greater Memphis To Connect Businesses With The Right Workforce” presented by Glen Fenter, president of The Greater Alliance For A Competitive Workforce. http://www.gmacw.com/ Special brief overview of “Hot Topics in Memphis Real Estate and Business” by Kesha Whitaker, David Lenoir’s Shelby County Trustee office https://www.shelbycountytrustee.com/
Talk Shoppe is free for the next 2 months thanks our sponsors like Troy and Lynn McDonald of Erin McDonald Insurance Agency (901) 849-7101. You’re in good hands—Lynn’s. Supporters like Kim Hummel, creative director of Sauce Marketing at www.saucememphis.com –spice up your marketing with a little sauce. Thanks to Talk Shoppe’s advertisers like Leah Anne Morse of Cartridge World in Collierville-saving you over 30% on printing costs with machine-compatible recycled cartridges. (901) 853-3230. For more information about Talk Shoppe, go to www.TalkShoppe.com
2. This episode of Real Estate Mortgage Shoppe was sponsored by Joe Rojas, Elite Team at Fearnley, Martin McDonald Title Company (901) 289-5821
⦁ 2. To hear today’s podcast of the Real Estate Mortgage Shoppe and others, go to ⦁ www.JoGarner.com
-3. “MAKE YOUR PLAN, WORK YOUR PLAN. IF THE DEAL WORKS FOR YOU TODAY, DO IT TODAY.”
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QUOTE CORNER: “Buy land. They’re not making it anymore.” Mark Twain
“Ninety percent of all millionaires become so through owning real estate.” Andrew Carnegie
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Rejoiners-
⦁ Joe Rojas, Elite Team at Fearnley, Martin McDonald Title Company (901) 289-5821
⦁ Mark Cardona, Environeeds, a mold inspection and remediation specialist 901-277-8976 ⦁ mark@environeeds.com
⦁ Terri Murphy, ⦁ www.MurphyOnRealEstate.com
Transitional Music: “Money Money Money” by ABBA; “Money Song by the Muppets; “If I Had A Million Dollars” Barenaked Ladies; “Memphis” by Johnny Rivers for the Look Back Memphis Trivia Contest
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ABOUT ALEX CRAIG:
Real Estate Entrepreneur and owner of Memphis Turnkey Properties, a turnkey company offering investment rental properties with tenants and Property Management in place. Our goal is to offer all the services that allow investors to own cash flow rental properties with minimal involvement. We have expanded our offering to Little Rock, AR and currently looking at other markets. The goal is to be able to provide properties in multiple states while offering Customer Service to our clients under 1 roof instead of having to manage multiple property managers.
Alex Craig is a true local Memphian. Born here, graduated from Christian Brothers High School and the University of Memphis. He started a Real Estate business with a focus on the residential investment side of the business in 2008 while working as a Sales & Marketing Manager for IPS Corporation based in Collierville, TN. He started by purchasing his first income property in Collierville and today he continues to buy and now how 17 units. While building his own portfolio he started Memphis Turnkey Properties which has all the in house services one would need to own investment properties, but simply do not have the time. Along with owning Memphis Turnkey Properties, he also owns CB Properties, which is the in house Property Management company to manage the day to day operations of the properties in which they manage. In 2013, Memphis Turnkey expanded into Little Rock, AR and now offers their clients opportunities to not only diversify their investment portfolio into Real Estate, but also diversify their holdings to another market. In his free time, he enjoys spending time with his wife and 3 daughters, along with following the Memphis Grizzlies and University of Memphis athletics.
ABOUT JO GARNER-MORTGAGE LOAN OFFICER:
www.JoGarner.com (901) 482 0354 jo@192.232.195.219 twitter @jogarner
Jo’s job description: “As a mortgage loan officer, my job is to give my client the benefits they want from their financing terms—listening to my client and determine what’s of the most value to THEM– What is their comfort level on a house payment, how much are they comfortable paying down, what type of financing do they need to get the house they want to buy or refinance. Different clients have different priorities in life—some are buying their first home with very little down payment funds. Some are recovering from medical challenges, divorces or preparing to send children to college and some are embarking on a long term goal of buying properties to build rental income. Whatever their personal priorities are, my job is to put together a mortgage with comfortable terms that will help them achieve their goals.”
Jo Garner is a mortgage officer with extensive knowledge in tailoring mortgages to her customers who are refinancing or purchasing homes all over the country. She offers conventional, FHA, VA or other loan programs for refinancing and purchases.
Jo can help you look at rent vs buy, when it makes sense to refinance, how to get the best deal on your home purchase financing.
Jo Garner has been in the real estate/financing business since 1987. She got her start in Portland, Maine where she first began her real estate career. She received her real estate education from the University of Southern Maine and was personally mentored in San Diego, California by Robert G. Allen, author of Nothing Down, Creating Wealth and The Challenge.
On moving back to West Tennessee in 1987, she went into business buying and selling discounted owner-financed notes secured on real estate. In 1990 Jo went to work for a residential mortgage company and has been a mortgage loan officer for over 20 years. Her goal is to offer excellent, affordable service to her customers, tailoring the loan programs to the specific needs of her clients.
In addition to her work in the mortgage field, Jo Garner is the primary sponsor and founder of Talk Shoppe in Memphis. www.TalkShoppe.com She was also the editor of Power Shoppe, a free weekly e-zine designed for real estate professionals and others indirectly connected to the real estate industry and currently publishes on her blog www.JoGarner.com .