All Forum Posts by: David Ginn

@Jessica Flint


I'm going to give you an answer that will be tough to hear and competently against what everyone has been telling you.

Renting homes is one of the highest risk investments you can get into and doing a cash-out refinance is even higher risk.

Let me explain. In Las Vegas, in 2006 a home could be purchased for $150,000.00. You could rent it for $1300.00 and after taxes and insurance, you would cash flow at over $150.00 per month. Then came the great recession. Prices on that home fell back to $50k. That home could be rented for $600 a month.

So let's look at the dynamics of a falling market. If I came to you and said, “I have a business that's worth $150,000.00. It will make you $150 a month. In two years the markets will fall and it will be worth $50,000.00.” Would you buy my business? You would say to me, “No! Do you think I’m crazy?”

You see in real estate for some reason we seem to think that we can deny all business fundamentals and that somehow, our situation is different. I have heard everything from, “You don't take a loss until you sell." to "It will rent during a down cycle." Most people who hear me say this still believe in defying the odds. They think of all types of arguments to try to prove my business sense is wrong.

Here is an actual example shared with me that happened at the start of the Covid-19 crisis. As you read this, keep in mind that this happened in one of the market segments that people would have said is the most recession-proof.

There was an investor in Texas that owned a 30 unit complex. COVID-19 hit and they stopped all foreclosures and evictions. All the tenants got together and decided to not pay rent. Now, whoever owned that building and had the loan on it just got trashed by his tenants. He and his family's financial lives have been turned upside down. He cannot even get to a judge until June, and then the courts will be so backed up, it could take months to get his tenants evicted.

Also, my local news reported that 1 in 5 market-rate apartments are missing rents right now, and nationally it's 1 in 3. The real issue is clear. You can buy and rent when a market is headed up a bit, just like a business or a stock that you sell before a market starts to fall.

Buy and hold investing is a term that does not make good business sense. There are much better strategies to do in real estate when a market could potentially fall or is falling.

@Tyler Olson


Hi Tyler,

The short answer is, I prefer an LLC.

Here are some things to consider when making this decision:

Asset protection is important to building wealth. The wealthy do not own assets (houses, cars, even LLCs), they CONTROL them. I have been through one of the worst down cycles in history. It was through that down cycle that asset protection became abundantly clear. One of the many things I learned is that single asset LLCs are critical for the survival and continuance of wealth. Look at it this way- If you put all of your homes or assets into one entity and someone sues you, what can they get? Everything that’s in that entity. On the other hand, if each property were held in its own entity, then the person suing you can only go after the profits in that LLC. If they can pierce the corporate veil.

In regards to your question about a Scrop:

There are two main ways a Scrop can be set up. One is to set up an actual s-corporation. This has more maintenance and requirements. The second, and better, the option is to set up an LLC and then take an S-Election. This is an LLC designation. The reason I prefer this option is that the LLC is less strict on its maintenance and requirements. As a side note, this entity must be a member manager-managed by you or your wife.

To be frank, you actually should have both a Scorp and an LLC with an S-Election. The Scorp should be set up to run your renovation company. It should not hold any major assets and its primary use is\\should be to pay you payroll and dividends. This reduces your tax liability. This renovation Scorp can act as a shield to protect your assets or homes that are held in your single asset LLCs. In contrast, the LLC with S-Election should be used to hold a property and is a single-asset LLC.

As a disclosure, I am not an attorney or an accountant. I have had on staff attorneys and accountants who help me set up asset protection. Please seek their advice. This is a subject I know extremely well because it is what helped me through the last down cycle. In the near future, I may record a video of a more in-depth discussion on this topic.

I wish you the best.

Remember flipping has its risks.

You need to buy right
You need to negotiate the deal right.
You need to get proper funding in place.
You need to renovate right.
You need to sell right.

If you miss in any of these areas, you can lose money.


Thanks and see you around,

@Talley Haines


Hi Talley,

I'm going to give you an answer that will be tough to hear and competently against what everyone has been telling you.

Renting homes is one of the highest risk investments you can get into and doing a cash-out refinance is even higher risk.

Let me explain. In Las Vegas, in 2006 a home could be purchased for $150,000.00. You could rent it for $1300.00 and after taxes and insurance, you would cash flow at over $150.00 per month. Then came the great recession. Prices on that home fell back to $50k. That home could be rented for $600 a month.

So let's look at the dynamics of a falling market. If I came to you and said, “I have a business that's worth $150,000.00. It will make you $150 a month. In two years the markets will fall and it will be worth $50,000.00.” Would you buy my business? You would say to me, “No! Do you think I’m crazy?”

You see in real estate for some reason we seem to think that we can deny all business fundamentals and that somehow, our situation is different. I have heard everything from, “You don't take a loss until you sell." to "It will rent during a down cycle." Most people who hear me say this still believe in defying the odds. They think of all types of arguments to try to prove my business sense is wrong.

Here is an actual example shared with me that happened at the start of the Covid-19 crisis. As you read this, keep in mind that this happened in one of the market segments that people would have said is the most recession-proof.

There was an investor in Texas that owned a 30 unit complex. COVID-19 hit and they stopped all foreclosures and evictions. All the tenants got together and decided to not pay rent. Now, whoever owned that building and had the loan on it just got trashed by his tenants. He and his family's financial lives have been turned upside down. He cannot even get to a judge until June, and then the courts will be so backed up, it could take months to get his tenants evicted.

Also, my local news reported that 1 in 5 market-rate apartments are missing rents right now, and nationally it's 1 in 3. The real issue is clear. You can buy and rent when a market is headed up a bit, just like a business or a stock that you sell before a market starts to fall.

Buy and hold investing is a term that does not make good business sense. There are much better strategies to do in real estate when a market could potentially fall or is falling.

@Mark Rogers


What appears to be happening nationally is that the markets are bouncing back strong.

If you look at the showing histories of listings on the MLS, there were 85% drops in showings due to the Coronavirus. We are now seeing strong rebounds across the board in many states. In addition, we anticipate seeing pent up demand that pushes past year over previous year's numbers. (Those buyers that have been holding off due to the virus, now coming at full force to purchase the property.)

Texas, as an example, is already back to normal market showings with a little over a week of opening back up.

I learned the hard way to track market cycles. In 2006, 2007, and 2008 market collapse, I lost tens of millions of dollars. This market cycle is different, however. The key this time is to keep your eye on the numbers, as Mark is doing. We will see drops in closings going into May because the lenders have stopped many closings. This has happened due to people being furloughed. They said they will lend again once those buyers who were furloughed get back to work.

It is very important to not be shocked by drops in closings for April and May. The key is to watch the showings. Look for pent up demand. If the showings convert to closings, these will be the numbers to watch. If we start to see demand significantly decrease, then it will show that Covid-19 has created major economic damage in itself.

I specifically told my investors that there were no real strong numbers that supported a strong market downturn pre-COVID-19. In fact, there were exceptionally hot market signals nationally in the sub 200k markets and sub 300k markets in many places in the US.

It is important to watch the new construction numbers. Builders have a tendency to overbuild. This, in turn, increases supply and by its nature cuts down demand. When this happens, we should watch the markets fall back based on oversupply. This is why it is wise to flip in the markets where there is no new construction competition.
Pay attention to SSD (Specific Supply and Demand), also pay attention to GSD (General Supply and Demand).

Stay on your game and keep watching the numbers or the market will eat your lunch and dinner

@THU NGUYEN


I personally prefer a self-directed IRA with checkbook control. I work in North Carolina, where the American IRA is based out of, and also work in Texas where Quest Trust is based. I personally prefer to go with the local IRA/401K administrator just because you can get local service. For example, Quest Trust is constantly putting on educational workshops and venues to get their clients educated and networked. I also use their Meetup space in Houston on a regular basis at no cost. They are big on community and helping you succeed, so the value is definitely there. One thing that I have not liked about Quest is that they are not supportive of the self-directed IRA/401K with checkbook control. With American IRA, they are very supportive of this feature. So there are pros and cons to most providers.

The reason I like checkbook control is that many times in real estate investing you need your money quickly. If your money is “Administered” it means that each time you do a deal, you have to send in the deal to that Administrator and they will check the prongs of your deal to make sure you are investing properly so as to not expose your IRA/401K. This is based on someone who may make a mistake and violate the law and expose their full retirement account.

Each time you do a deal you will need to fill out the paperwork and then send it into your administrator. This takes time and costs money. They will all tell you that they will get back to you, in most cases within 24 hours, but the truth of the matter is that it normally takes days because you are tied up with the bureaucracy. I have seen deals lost because of the time it takes to jump through all of their hoops.

On the other hand, if you have checkbook control, you control every financial transaction - from writing a check to wiring funds. Very fast and easy. The question you need to ask yourself is - “How well do I know what I can or cannot do with the IRA/401K?”
In our case, in order to avoid complications, most of my clients just lend funds to an investor/flipper. Because they fund only, this makes any 401k questions obsolete. Most of the buyers we have in our group pay 12% and 3.75 points to the lenders. This is a solid way to make money. Remember here, the key is to make sure you know what you are doing. If you do, then you are safe. Many of the people I work with have IRA’s/401K’s. They all know the rules pretty well. They all network with each other and normally choose to operate on the safe side of things.

In the end, I think most IRA/401K companies are created equal. Their fees are about the same. They all claim to do it better than the other guy. What I have seen is that they all administer at about the same pace with similar fee structures. The thing that makes the difference to me is the one that will set you up in the self-directed checkbook control situation, but you must be a savvy IRA/401K investor or have people around you that know what they are doing.