All Forum Posts by: Chad Olsen

I have a Indexed Universal Life policy that is 7 years old. I'm learning that this may not have been the best move for me and my situation. Does anyone have any experience with doing a 1035 exchange between permanent insurance policies/companies? I could use some help finding a good intermediary and would love to hear what someone experienced/learned by going through this. Thank you!

I may be the black sheep here, but I'm not interested in having anything in the stock market. But I may also not be your target audience. I've made the concerted effort to be an educated investor about my retirement and passive income. So I have tried to take as much of my retirement funds out of the market and put them in an SDIRA which I can then direct to investments that I would want to be in rather than mutual funds etc. I like having the control over the investments, even if it could go south. If I'm going to lose money, I'd rather learn something over just hope and pray for the market. For me, a diversified portfolio looks like cash flowing assets and growth assets and as much good credit as I can get my hands on. Right now those assets are predominantly real estate for me. But over time I know that that can and will change. I'm already looking at investing in a business to learn about how to intelligently invest there. I've talked to a number of friends who do royalty deals, equity deals and debt deals and combination deals. I still think that Warren Buffet and others like him have it right. If everyone is doing one thing, look to do something else. When "everyone" says that the stock market is the place to be, I'll be looking elsewhere. More and more people are looking at real estate lately. So I've started looking into personal finance, private lending, businesses and commercial properties. The nice thing here is, for me any way, is that the average investor is not likely to come and play in these waters for long. This is big deals and typically more work than just becoming an accidental landlord, which I've done. Three times. Sometimes it works and sometimes you learn.

At the end of it all, I think that what you really need to be thinking about is what do the clients want from you? If they are comfortable with being in the stock market and 401ks give them the best options that you can in that space. If you have more and more clients coming to you for things outside of that then you can have a more detailed conversation about what their goals and risk tolerances are. I like where you are going with looking at the "best distribution" based on math and facts. But at the end of the day this mostly comes down to intuition, preference and some luck.

@Benjamin Small Congrats on getting to this point! Many have made good points already, but I would recommend that you take your $20k and find a 2-6 plex to purchase. If you want to get into living comfortably multifamily is where you need your experience. There are lots of podcasts, posts and whatnot here on BP talking about the BRRRR method and others. If you can buy a multi family, live in one of the units and get the others rented while you fix it up and bring up the value, you can rent your current primary and have 3 or more doors to live off of. Then either 1031 the first or buy another with the stockpiled cash flow.

I'd also try and convert your 401k into an SDIRA. Just my opinion there, but leaving your money to someone else to manage is a sure fire way to lose it. @Brian Eastman was very helpful in helping me out. Again, my two cents.

Good luck!

@Josh Lawson I won't repeat what many have already said here. As everyone has made many of the points I would make. The one that wasn't stated that I think could help you is the following. I don't know the amount of liquid cash you have but lets say its $100k, your rental portfolio consists of 5 SFR with a mortgage of $80k each and your primary note is for $150k. You want to find the "perfect nexus of math and peace of mind." Which doesn't exist for most people. But you want to get close.

I would recommend taking your $100k and doing one of the following two options. 1) Pay off one of the rentals completely. 2) Pay down as much of your primary note as possible. Then get a HELOC on which ever property you paid down and then pull out that $100k again and put it back in your account as liquid. Then start using your excess income to pay that back down. Now you've got $100k in the bank and $100k HELOC to use to for emergency fund, family bank, private lending, JV, etc. I would not use the HELOC for down payments on other real estate. I personally feel that that adds an element of risk to the deal that could be better dealt with by raising equity from a partner.

My personal opnion would be to use it to pay off a rental and then use the equity of the free and clear to act as your emergency fund or as your slush for future deals. At the very least you can talk to the banks and say "I have $100k in the bank to mitigate the risk of future loans" and you can say to equity partners "I have this $100k in the bank AND a $100k HELOC that I can use to ensure that this deal goes well." And raise the $100k from a partner, you've effectively tripled your money at that point and it cost you whatever the interest of the HELOC is.

Just my thoughts though. Good luck!

This is a very interesting article. Being in the private lending and real estate business I can understand how more and more HNWI are moving away from the large institutional banks and looking for something that is less regulated, more interesting and potentially higher returns. Conversely, however, these same HNWI are the primary reason that funds like Blackstone are buying up every available SFR for rental returns. Often at a premium at or above MLS. This hurts the smaller investors who can't afford, or are smart enough not to buy, such a high purchase price. As they drive up the cost of property they eventually hurt themselves since they now have a significantly under performing asset. So is this an early indication that the big REITs are on their way out and collapsing? Or just a minor bubble burst down to realistic levels?

In general I would think that working with a private bank is a better move for everyone since they are more apt to work with an individual to give them the right service at the right time. However, most people are probably not sophisticated enough to handle the choices and should be with WF or BoA. I wouldn't want them to get taken advantage of. Though the big banks haven't had a good track record of that lately either.

And where to find these private banks? I would like to think that I'll be one of those people with over a million to invest and need this. But in the mean time I have smaller resources and needs, but see the value in working with someone like a private bank that can help catapult me into the next level.

@Darren Sager Thanks for the insights. I agree that finding a product that fills a need for people is the most important aspect of the deal. Low vacancy is the goal while maximizing cash flow. Are you doing anything besides buying cash flow properties? One of your stories in the podcast was about how one of your houses has 4x in value since you bought it. You said that you don't really sell your properties since the cash flow is so good. But are you buying other kinds of assets that do give you the big growth? While I agree that cashflow is king, at the end of the day it is a job, but a great paying one. After learning and going through a number of learning experiences I've figured out that I want cash flow to live on, but that growth assets are what will make me wealthy. So I'm curious about what you are doing?

Thanks again for the insights!

@Darren Sager I just listened to this podcast and thought it was great. I think that your quick tip was great about having the paint code and specification in the lease. It is something that I worry about as a tenant myself when we eventually move out. We are also doing buy and hold, as well as a number of other income and growth assets in our portfolio. But we are in the final stages of doing a 1031 exchange to buy some turnkey cash flowing properties. We have done a lot of learning and feel that we made some pretty good choices with these new properties.

My question is what metrics do you use to qualify and then execute on purchasing a property with? I love BP and I too come across stuff all the time that I learn things from. But a conversation that I feel is woefully neglected is that of metrics. To help get things going, the primary metrics that I use when looking at a property are the CAP rate, NOI, Loan Constant (LC), Debt Coverage Ratio (DCR), Break Even Ratio (BER), Spread (LC-CAP) and the most important reserves.I have other things that I look for as well but these are my main focus when looking at the numbers. This assumes that I've vetted the location and market already. So I was wondering what a very successful Buy and Hold investor such as your self has used to get to where you are now?

Thanks!

@Brent Coombs It really depends on your risk tolerance and financial goals. Right now we have 3 LOC's that we use for different things. One is as our primary account doing the sweep systems described above. One is for business use which is used to operate and fund things. And one is used to help shift higher interest debt around. Ideally, this last one would be used for funding deals, but not as down payments. Rather private lending or other site m sorry term deals. The reason I say using LOC money as a down payment is bad is because you are into a rental for long periods of time which can be costly, as well as the variability in the rate. It is safer to have an equity partner as the down payment as there is no interest obligation. So if the deal goes south you don't have to keep paying on something that you no longer have. I think it really is a personal preference.

@Karen Hopson The idea behind a sweep account is that you have a Line of Credit that you utilize as your "daily" transaction account. Typically this is done with a paired checking account. You have all your income come into the checking account and then "sweep" it onto the LOC right away. Then you pay your bills as you normally do with your CC throughout the month. Then on the due date of your CC you "sweep" money from the LOC back to the checking account and pay your CC off in full. That's the principle behind a sweep account. Family Offices and nearly all big corporations use this as the foundation of their financials. The reason is that you recapture significant interest during the month and over long periods of time. We have been doing this in our personal finances for 2.5 years and we have recaptured high 5 low 6 figures in interest. This is a financial system that costs you nothing and can give you everything. I can't promote my own content, PM if you would like to know more.

I would never use any LOC (HELOC or otherwise) as a down payment for a piece of real estate. It is too risky that you could have the rate jump or the note called due at a very inopportune time. If you really need the cash look for your equity partner like

@Joe Villeneuve indicated. I am not sure I fully agree with what he is saying about HELOC v. Equity partner, but that is a great idea. Even better would be to get your equity partner in, buy down the mortgage another $60k and then get the HELOC. Just be careful about bringing in money on one deal and using it elsewhere. That is a great way to get into litigation. @Melanie Siegel just remember to be upfront about what is going on if you are bringing in your equity partner. You don't have to do deals solo, in fact you will make far more money if you bring in partners.

Let us know what happens!

i think you would be better off getting a HELOC on the property and using that as a sweep account. That is an amazing amount of equity to have in a deal and most lenders would be more inclined to do that. But you should start with who ever had the first on the house. Typically that's who will do HELOC's.

If you implement a sweep account into your weekly financials you will end up making/saving far more that you would with another rental.

Just my thoughts. Feel free to reach out if you want to know more.