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Passive Income Investment Strategy

Episode 012

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk different types of passive income strategies in real estate and what some of the pros and cons are for each.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.  

John Larson: Hey everyone, welcome to another edition of the Real Estate Cowboys Radio Show. This is John Larson. This week we’re going to be talking about passive investment strategies. Many times I have investors that come to me, and the number one thing that they’re looking for is cash flow. John, I need cash flow. I want the highest amount of cash flow. I just do not think that that’s the right way to start looking at any investment. If you’re looking at, what’s my highest cash flow, what’s my highest cap rate, so on and so forth; There’s a lot of other things that go into investing, especially, especially with passive real estate investing. And generally when you’re looking at a high rate of return, high cash flow, you’re also looking at a higher risk scenario in today’s markets. Uh, we’re definitely in a seller’s market. So opportunities for high cash flow in good neighborhoods, opportunities for high cap rates in good neighborhoods, with the rising prices and the rising interest rates, now, it’s going to be very, very hard to find. And so, when you’re going and looking at any investment opportunity, if you’re looking for a turnkey provider, whatever it may be, you’re trying to get into your dollars working for you in real estate passively. If you’re chasing the highest cap rate and the highest cash flow, you’re already setting yourself up for potential disaster. And I’m going to tell you why. We’ll talk about that as we go on with the show, but I also want to talk about different, passive investment opportunities that are available to you and what is the best passive investment opportunity for you at this stage in your life with the money that you have available to you, whether it be in cash savings or whether it be in a retirement account.  

Um, how old are you?  What is your current age? How soon are you looking to retire? When do you plan on retiring? Uh, what do you do for a living? Um, some people have a lot, a lot more going on than others. Me, as a business owner, I will tell you that my days are filled with a lot of different stuff. And the last thing I want to deal with, is trouble with my investments. I have a daughter that I try and spend as much time with as possible. I run a business. I have employees. I like to golf. I like to hang out with my friends here, if I can. I like to  spend time with my wife and my family, I like to go on vacation. Uh, the reason I invest in real estate as because I want a passive experience now. My job is an active real estate model where I’m going out and acquiring homes and doing the renovations and managing crews and managing the properties for our investors and all this stuff that goes in with running a business and doing the flips and doing all that stuff, which is very, very time consuming.  

And so I know what the active side of the business looks like. It’s a stressful job. I do not want the same type of experience with my rental properties, with my private lending opportunities, with my vacation rentals and so on and so forth. And so I do ask my investors many times, what’s your age? How many years until retirement? What do you do for living? Tell me about your family. How many kids do you have? I like to hear about their life because I like to tailor an investment strategy to not only what their goals are, but also you know, what they’re looking for in terms of how passive do you want this investment to be? I think passive. The word passive gets thrown around way too loosely and in this space and in real estate investing in general, not all markets are the same. Not all property classes are the same.  

You’re not going to have the same experience owning a rental property in one market as you would in another market. Um, you know, a market that’s not experiencing high population growth and high job growth, you’re going to have more vacancy. And you buy a C class property, you’re going to run into more trouble just because of the type of tenants that they attract and the type of areas that they’re located. They’re just more troublesome. The risks for crime, the risk for breakins, the risk for evictions, the risk for extended vacancy, the risk for all that just goes way up. Um, which is why I prefer, and I say very much on this show, to buy very close to or at the median value in whatever market you were looking to invest in. If you’re analyzing a market and the median, home value is too high to make sense for a rental property, don’t go buy a super low price property in that market just because you want a rental in that market. Don’t go invest in Phoenix where the median value is over 300K and buy a $100,000 house there because you want to invest in Phoenix. $100,000 dollar home in Phoenix is not in a good neighborhood. Same goes for Dallas. You want to invest in the Dallas market? The median home value here is $280,000. You want a passive experience, you better invest very close to that $280,000, at least start Looking at 200K and above, or you’re not going to be in middle class neighborhoods. You’re not going to have a passive experience. You want to buy $100,000 dollar property in Dallas, it is not going to be in a good neighborhood. You are going to run into trouble; it’s not going to be passive for you.  

So the reason I like to ask my investors, what do you do for a living?  You’re still working. Um, you know, how much time do you have each week to put into your investment? How much time each month you have to put in your investment? Uh, I’m not shocked to hear that most of my investors saying, not a lot. I have a family. I’m a physician, I’m a doctor, I’m an attorney, I’m,  you know, I run my own business. I don’t have a lot of time, John, to deal with investments, which is why I’m coming to a group like you, you guys find the properties for us, you renovate the properties for us. You manage the properties for us. Well, I can do that model in any market across America and I can do that model among all property classes. I can go buy properties in very distressed neighborhoods, high crime neighborhoods that on a spreadsheet will show a very high rate of return because it’s a 60, 50, $70,000 house.  But are you going to have the best experience? Are you going to have a passive experience? Can I guarantee that that property is going to run smoothly, consistently year over year? No. No, and so if you’re not, if you’re willing to take on the extra risks, if you’re willing to have the hour long conversations with your property manager, if you’re willing to sink money into a property year over year, if you’re willing to deal with high turnover and extended vacancies, um, if you’re willing to take the risk to, you know, open leave your property subject to being broken into and vandalized and, and things stolen from it. If you’re, if you’re okay with that, then go invest in C and D class homes and chase a high cap rate or high rate of return. But I’m telling you right now, you will not have a passive experience and you’ll probably end up kicking yourself that you went down that path and bought that property.  

Anybody can sell a lot. Anybody can sell high rate of return. Um, you know, in a fancy spreadsheet. Anybody can sell that. I don’t do that. I prefer not to do that. I don’t invest in that stuff because I want to the passive experience. I run a company, I do active real estate investing. I have a family, I have a child. I don’t want to deal with problems with my rental properties, so I don’t buy high risk, high reward rental properties. I don’t. I buy rental properties in the right markets where you’re experiencing high population growth, high job growth. Because I know that I can keep those properties leased consistently. And then I buy in middle class neighborhoods because I know that the tenants that I’m gonna attract to most properties have good jobs and they’re families and they’ll probably stay long-term because their kids are in a good school district and they’re going to take good care of my house while they’re living in it, paying their bills on time.  

I’m not going to have to evict them and if they do move out, I’m not going to sit on a property vacant for three, four or five months. I’m in a market that’s growing by almost 150,000 people a year. So it’s very easy to keep the property lease. But once again, we all know these don’t work unless there’s someone living in there paying rent. The property does not work unless someone is willing to live in the property and pay your rent every month, to pay for your taxes, pay for your management fee to pay for your principle and interest payments. Right? And a lot of investors look at the principal payment like it’s an expense. It’s not. if you’re keeping the property lease consistently, why is the principal payment an expense? They’re paying down your balance. The only time it becomes an “expense” is if  you can’t lease the property and you’re paying the principal payment. And we don’t want to pay our principal payment on a rental property somewhere. We’re inventing and are investing in rental properties for investing in rental properties so the tenants can pay the principle balance stuff, and if we select the right market where values will hold or continue to grow, go up in price. You’re hedging your bets. You have property values increasing while the tenant is paying the principal balance down each month. The interest expense, the interest is also a tax rate write-off. The property management fee is an expense, but it’s worth it because that’s where the passive experience comes into play. You don’t want to manage the property, you need a property management company, right, and you need to make sure you hire a good property management company, somebody that runs their property management company based on investor experience.  

They want their investors to have a good experience, so that means somebody with low or limited fees; a property management company that strives to keep your property occupied year over year. A property management company that strives to get you increases in rent year over year, not just set it and forget it–“I don’t want to bug the tenant. I don’t want to risk losing them, so I’m not going to ask for an increase.” No. We want rent increases and if you invest in the right markets where you can get rent increases, you can get them year over year. If you invest in markets where nobody is moving in, no jobs are moving in, there’s nothing going on. It’s stagnant.  And it also means that if we go through a rough economic time, which economists are predicting, that we could potentially be going through another recession as early as 2020.  

If you want to invest in the higher risk markets, the ones that are more susceptible to down economic times. Okay. Then not only can you have can you run the risk of more people leaving that city or other opportunities elsewhere like taxes and have higher extended vacancies, but also you’re running the risk of buying a property today at the top of market value and then having that property devalued greatly in the next 18 to 24 months and what happens if life happens? What I always try and tell my investors, what happened today? You’re in a good financial position. The economy’s doing well. We’re not in a recession. You feel safe and secure in your job, your healthy, everything’s running good. What happens if that changes? You just bought a bunch of properties in a volatile market that’s susceptible to a decrease in value in down economic times.  

You just paid top of market value for this house in Detroit, Cleveland, Memphis, Indianapolis, right, and now we go through a recession and now that property is worth a third less than what you purchased it for. In some cases, I’ve seen it as bad as a close to 50 percent in a devaluation and you need to sell. Well now you can’t. So many investors, when they start investing in property or in any investment, they’re excited, they want to buy something, they want to get their money to work for them in the real estate market, they want to avoid paying taxes on money. They want the highest cash flow they can get. They’re looking at this get rich quick scenario, Oh, I can put $20,000 down to buy this house, $15,000 down to buy this house and I’m going to make 20 percent return on my money.  

It’s just not actual. Just not actual. You can do that, and a spreadsheet will tell you you’re going to make 20 percent, but real life will tell you, you won’t make 20 percent. Because C and D class properties attract C and D class tenants. C and D class properties are not in neighborhoods where retail homeowners want to buy. Properties in those neighborhoods are treated on cap rates from investor to investor. If you need to sell that house one day, you’re not going to get a retail home buyer that’s going to pay you the top of market value, that doesn’t care what it rents for. They just want to live there because there is exemplary schools and it’s an awesome area to live in. The homeowner is not going to have that, so that’s why I don’t recommend that. I don’t recommend to put my investors in that type of scenario. It’s not going to be passive for them.  

It’s going to turn into a money pit at some point. C and D class properties attract C and D class tenants, Class C and D class properties attract C and D class property management companies. Now I think I’ve said on my show before. I’ve given an example. I have friends in the Detroit area. They run successful C and D rental portfolios. They manage them themselves. They know the tenants. They place the tenants. They knock on the doors when the tenants don’t pay. They train the tenants to not call for every little maintenance issue. Then you can have potentially a good experience, but it’s going to be a job. You’re not going to do your day job and be a doctor, lawyer, business owner, software engineer, and then go manage a portfolio of 10 C class properties. So I like to ask  exactly, age, years till retirement, what do you do for a living? I like to ask about family. Like I said, you like to vacation. What do you like to do in your life? Why are you investing in real estate? The cash flow, that’s what everybody wants to point to. But you hear me and Keith Weinhold, who was on my show, and if you listen to Get Rich Education. We talk about the five to six ways that real estate pays you. Not just cash flow. To look at just the cash flow is short sighted. To look at just the cap rates on rental income is short sighted.  Okay.  You need to look at the overall spectrum and you need to look at the fact of, do I want passive investing, passive income, a passive experience, or do I want to roll the dice for a higher risk, higher reward scenario, but I know I’m going to have to deal with problems.  I myself don’t want to deal with problems. So we get back. We’re going to talk a little bit more about this. Uh, this week on the Real Estate Cowboys, we’re talking about passive incoming investment strategies. Be right back. 

Welcome back to the Real Estate Cowboys Radio Show. This is John Larson. This week we are talking about passive investment strategies. We have no guest this week. This is just me on the show trying to provide some knowledge, experience things to look out, things to do, things not to do when looking at a passive income investment strategy. Keyword: Passive. So we’re talking about single family homes first. So, the reason why I like to ask age, the reason why I like to ask years until retirement is because I want to figure out, does the Fannie Mae finance opportunity, does that work for you? Does that work for you? And me being 32 this year, Fannie Mae finance makes total sense for me. Locking in 30 year fixed interest rates at five, five and a half percent makes total sense to me. I already have rental properties that I purchased. Those properties are going to be paid off when I’m in my fifties, early sixties. That makes total sense. I no longer have a principal and interest payment attached to these properties. At that point, I am now cash flowing fully on these properties. Now we can talk about cash flow. There’s no principal and interest payment. I have business professional tenants and my passive properties that I bought in good middle class neighborhoods in strong markets that are growing exponentially due to exponential job group. Dallas, Houston, Austin, Texas in general, Waco. Looking at many other kind of second tier cities in the Texas area and the Texas market. I’m looking for appreciation, looking for rising values, looking for stable economies and like I said, looking for consistent population growth because the properties do not work unless there are people willing to pay you to live in them.  Okay.  

I’m looking at setting myself up for the most passive experience possible, which is why I do not deviate too far below the median value in any market. Analyze the markets, whatever market you’re looking in a rental market, so even though Dallas, I consider it A class, high population growth, job growth, if it was 350K was the median value here, it wouldn’t make sense to invest. It’s $280K. You can buy a $200,000 house in the DFW area that’s in a great neighborhood that’s going to attract great tenants for years to come and should at least hold value, if not continue to go up in value year over year. Now I don’t go invest in A class properties in another fast growing city like Phoenix because the value’s too high there. I don’t do it in Austin anymore because the  values have gone too high there. The values will eventually run too high even in Dallas. The window is going to close here, but there’s other cities that are coming up which is why I will not really invest outside of the Texas market; I don’t think I need to. I still have property in Detroit that I bought coming out of the recession that I feel like if I was to buy those same properties today, I’m paying too much for them, which is why I’m not very bullish on any of the cities. The “cash flow markets” in the US right now because look at the pricing. It’s right back up to where it was pre-recession and if we go through another recession here in the next 18 months, 24 months, the prices are going to go down drastically again. It will happen. It has happened historically. It will happen again. Last recession, you didn’t see a big price price drop in Dallas, so you didn’t really see any drop.  

When you look at the economies that we have here in Texas, when you look at Houston and Dallas specifically, look how diverse they are.  Twenty three Fortune 500 companies in Dallas, 24 in Houston, 43 Fortune 1000 companies here in DFW, most corporate headquarters in America here in DFW. That’s why almost 150,000 people move here. For jobs. We go through another downturn in the economy, the rustbelt suffers. The Midwest suffers. Some of these other areas in the US suffer where values are too high. Where there’s not enough jobs to support, uh, the people that need jobs during a downturn in the economy. Where are they going? Where are they going? They’re coming to Texas. That’s what they did last time. They’ll do it again, so 150,000 people moved here last year. Let’s see how many people move here during another recession. This is where the opportunity is. This is why if I’m buying cash producing properties that are dependent on tenants living in them, why do you not want to invest in the areas where are seeing the highest population growth while it’s still affordable and guys, some of my investors who have just never been able to pull the trigger had been thinking about it for the past three, four years. And while they’ve been thinking about it, prices have continued to go up.  

They’ve missed out on the appreciation or a chunk of it while they’ve been thinking about it. The interest rates have gone up. Now the cash flow looks even less. The cap rates are even more compressed. And it’s not just happening in Dallas, people, it’s not. This is happening all over the US. You’re buying in good neighborhoods across the US, values are going up, cap rates are becoming compressed. You want to chase higher cash flow in today’s market, you are buying in a C class neighborhood,  a D class neighborhood. Your risk is going through the roof. Trust me, I’ve done it. I don’t invest in a high B properties because they’re pretty. Because you know I make more money selling them. I don’t do that. That’s not the case. Honestly, my holding costs to produce these types of homes, my Rehab budgets are much higher than if I was to dance with the devil and do the C and D class properties again. I won’t do it. There’s too much risk involved. There’s nothing worse than renovating a property, getting 80, 90 percent done, and in the middle of the night someone goes in and breaks in and steals everything. You’ve got to redo it again. It’s not good for the investor. It’s not good for the provider. It’s not good for anybody.  

My management company doesn’t want to touch that stuff. Why? Because it’s not worth the eight to 10 percent per month management fee to manage those types of tenants and those type of properties in those type of neighborhoods. They’re not safe. There’s too many problems. You’re always chasing, there’s issues, it’s not worth it, and if you really want a passive experience, once again, do not buy properties too far below whatever the median value is in any market. Medium value here in Texas, in Dallas right now and in Texas I believe is just over 200K in Dallas is $280K. That’s still affordable. The nation’s average is floating around, but we’re also investing in Kansas City where we produce properties for “cash flow” for our investors. The median value there’s 190K. You can get a $120,000 house in Kansas City and it’ll be in a good neighborhood still. $150K, you’re in a great neighborhood. You buy at 180, 190K, you’re in an A neighborhood. You’re buying right at the median value.  

Now obviously as you buy in better neighborhoods that are going to attract better tenants that are going to result in more passive experience. The values are going to go up, which is going to mean that your principal and interest payment is going to be higher, which is going to lower your cash flow. Okay? Which is going to lower your cap rate, but your chance to attract good tenants year over year? The desirability of those neighborhoods is higher, so your vacancy should decrease, the opportunity for you have more long-term tenants is greater because there’s families and good schools and they want to keep their children in those schools, and the opportunity to achieve passive returns and a passive experience is far greater in that neighborhood and at that quality of a property in that class of a property. Which is why I really try to push my investors into the high B, A class inventory because I know it works.  

It works for me. It will work for you and for many others, it will work for you. It works for many of my clients, which is why they want to come back and buy more. The only thing that disappoints them is that they bought from me in two or three years ago and they were able to get a $150,000 house in Dallas in a good neighborhood. But we can’t do that anymore. The values have run up.  They’re looking for the same type of returns in the market that they got three years ago. The market is not the same as it was three years ago. The interest rates are higher. The values keep increasing. We can’t stop the values from increasing in a market like this where there’s 150,000 people moving. It’s just, you can’t. The demand is too high.  

The supply is not there, and so it’s predicted that you know DFW,  right now it’s sitting at about 7.1, 7.2 million people. It is predicted that it’s going to reach 9 million people within the next decade. That’s the market I want to invest in. While it’s affordable. And let’s not forget the principal paydown, in my opinion, it is not an expense. It only becomes an expense if you can’t keep your property leased. But if you can consistently keep your property leased with good tenants, they’re paying your principal balance down and if you’re targeting the right market while the principal balance is being paid down and you’re targeting a market where prices are going to continue to increase or at least hold value, you are hedging your bet. And so like I said, when I’m talking to my clients, what are you really looking for, sir, ma’am? You told me you’re looking for cash flow, but now I just told you and explained to you and educated you on the fact that that higher cash flow is going to come with higher risk, higher, higher headaches, more problems.  

It’s gonna make you have to become more active in your real estate investment. Then they start to doubt, and they will think twice about that and I need to remind them that there’s six ways that real estate pays you – not just cash flow. And then we need to talk about what truly are your goals with this investment? And many times I find out that really the real reason my investors and why people want to invest in real estate is for the tax shelter, so I have years where I make more money than expected, and I’m sure there’s other people listening to this show where it’s the same thing. I received a bonus, I got a promotion this year. I made a bunch of extra money. What am I going to do with this money? I don’t want to pay taxes on it. I don’t want to pay taxes.  

I don’t want to pay 25, 30 percent on this money. So you decide to put it into real estate, where real estate provides you a tax shelter. You stick the money in assets. You get that money working for you. But don’t get the money working for you and something that’s going to be troublesome, that’s going to end up turning into a money pit. How does that help you? Don’t chase the high cash flow, high rate of return, because there’s a good opportunity you can lose that money. Put it to work for you in an investment that works, that’s stable, that’s consistent. That’s going to attract good tenants. That’s going to be passive, that’s going to work, and I will promise you five years from now you will say, John, thank you. Thank you for that advice. I didn’t need the cash flow anyway. I’m a doctor. I’m a lawyer.  

I’m a business owner. I’m making good income. I’m 35, I’m 38, I’m 42. I’m making good money. What’s the extra $200 that I could’ve gotten in Indianapolis with a C class property a month? What does that extra $200, what does that extra $2,400 a year really going to do for me? If it’s just coming with five times more risk? What is an extra $2,400 a year going to do for you if you’re probably just going to end up having to put it back into the property. Let’s really think about that. And then you’re buying in a market that’s just, you know, never know. We go through another recession. The property’s worth $130K in Indianapolis right now, $100K, $180,000. What is it going to be worth during another recession? History tells us that those property values devalued as great as 50 percent, and then you have to sell the property. And you sell it  at that point. Now, how could you? You just got a mortgage on it for 60, 70, $80,000 and now the property’s only worth 60, 70, $80,000. You can’t sell it. You’re stuck with it. So a lot of investors I feel they just don’t take into consideration exit strategy, which is so important. They’re excited. They want to buy something that they have not considered. What if life happens? What if I need to get this money out of this investment or am I buying in a neighborhood where there’s a huge demand for property. Am I buying in a market where it’s stable and safe, where it’s not susceptible to down economic times where you see large evaluations. The Texas market has proved that it can withstand a down economy. One of the worst recession we’ve ever experienced in US history and it was resilient in coming back.  

So I think it’s very, very important thing that’s overlooked and I feel like I have my money in assets right now, and we’re holding assets that our company in Dallas, Fort Worth market, because we know that this market is resilient. We know that this market is stable, we know this market is secure and it’s just because of the jobs, plain and simple, and the fact that the market’s so affordable. But that could change. So the opportunity here is becoming less and less. All right, we’re going to take another quick break. When we come back, we’re going to talk more about passive investment strategies. Uh, I want to talk about private lending when we come back so stay tuned.  

And welcome back to the Real Estate Cowboys, I’m John Larson, your host. We are talking this week about passive income investment strategies depending on age, depending on years until retirement, a lot of different things depending on the fact that you have retirement accounts. Do you have a healthy retirement accounts? Um, so now I want to talk a little bit about private lending as well. So we talked about single family homes. We talked about ways to achieve passive income. We talked about ways where single-family homes makes sense for the investor. Are you in that age right now where it makes sense for you to take that long-term Fannie Mae debt? Are you in a position and at an age where when that 30 year loan is paid off, you’re hitting retirement, right around, you know, just a few years into retirement where you can really maximize the cash flow on your property taxes. If you own five homes in Texas, because I do A class properties that rent for a high rate. When they’re paid off, and there’s no principal and interest payment attached to it, they’re all cash flowing over a thousand dollars a month. Five homes can get you $60,000 or greater in passive income; truly passive income, because they’re going to continue to attract good business, professional tenants for years to come in this market. People that pay their bills, people that take care of your home, people that are very easy to deal with manage.  

Now, let’s talk about private lending. Now, let’s say that you are in your fifties, late forties, and you have access to 401k money. You have access to an IRA. I highly, highly, highly recommend getting that account self directed and doing private lending. And doing it in the markets where there’s very low risk; investing in projects that are very low risk. When I’m thinking about lending money, yes, number one, I want to hear, what’s my interest payment?  What am I going to get? What’s my, what’s my return. But I also want to know how am I going to get paid back. Exit strategy, people. How am I going to get paid back? I want to make sure that I’m lending money to a borrower with a proven track record that’s trustworthy and honest and I want to make sure that I’m investing in a project that’s a safe project and that’s in a good market that can withstand down economic times, right? Because with private lending on development, your main risk is really going to be speed to market because markets change, and doing private lending opportunities in markets that don’t have high job growth, population growth, high demand. If you’re developing a single family residential neighborhood, if you’re developing mixed use commercial buildings if you’re developing retail space or industrial space, and you’re doing it in the market that does not have high population growth, high demand of that stuff, and you can foresee in the future going to continue to have that demand, you are risking that money. That risk is high.  

And I’m sure the borrower is probably offering you some very, very high rate of return; high interest payment. Of course they are. They have to. Once again, selling the lie, or fluffing up something that’s really not that attractive, but you’re fluffing it up with high rate of return. That’s the only way you can get people to invest in money in projects like that, or in markets like that, is by offering some unrealistic super high rate of return. Now, if you’re going to do private lending, I definitely recommend, yeah, look for the double digit returns, I mean you can get 10 percent or better by being a private lender and 10 percent or better monthly dividends that go into your self-directed retirement account, tax free or tax deferred. That is an awesome, awesome, awesome investment strategy, but do it with the right people and in the right markets and make sure you have some recourse.  

So with our private lending opportunities, we do a deed of trust. We develop land, we develop buildings, we flip single family homes, and we give the lender a deed of trust. So if we did default, which I don’t feel we will ever default in this market, if we’re doing things right, which we have a proven track record for doing things right, we’re picking the right projects we’re in the right market to where it’s fail proof. But if we did fail, you have a deed of trust and you get to go ahead and proceed with the foreclosure process; take ownership of that land in that project and then sell it and recoup, you know, a portion of your funds or all of your funds, but at least you have that recourse. You have that protection. So private lending, I mean is honestly the most passive model that’s out there. You loan 100K, you get 10 percent on your money for that year. Let’s just use simple numbers. You’re going to make $10,000 on that 100K over 12 months, 800 bucks a month, whatever it is. Passive.  

And that’s why I don’t really recommend to my investors who have retirement funds to buy property within their IRA or 401k. Because we all know rental properties come with expenses and I don’t want people’s retirement account to dwindle due to expenses, and I don’t want my investors to go buy C and D class properties in risky markets with their rental portfolio. Because you can experience extended vacancies. Where are the expenses? Whereas the money for the expenses is going to come from? From your retirement. If a roof goes bad and you need $4,000 to $5,000 to replace it, it’s coming from the retirement account. I’m all about growing the retirement account passive and you can do that through private lending, so for those of you that are listening and you have access to retirement funds, look into private lending, look into self directing.  

Here at the Real Estate Cowboys and at American Real Estate Investments,  we can help you get self directed. We can help you start diversifying that money. And Fidelity and those guys are going to hate to see that money go because they’re not getting paid on it anymore. They only get paid on that money by keeping the traditional investments. They’re going to try and talk you out of it, but we have partners that work with you and work with your custodian and work with your financial advisor to get that money moved over. Private lending is an awesome way to earn that fixed rate of return. The stock market did great in 2017. This year, not as good. Private lending, in the right market and with the right team can keep earning 10 percent or greater on your money, monthly dividends, tax free, tax deferred into the account growing that account.  

So for those of you that are looking for cash flow – cash flow right now; they don’t want the six ways that real estate pays you the tax benefits, right?  The appreciation potential, okay? The leverage. If you just want cash flow – Do you have an IRA? Do you have a 401k that you can access? Self-direct that money? That’s a great way to get cash flow. $800 a month cash flow on $100K, and we can just keep rolling that money in the future projects. Just keep rolling it. Just keep working. Just keep that 100K working for you. Just working, working, working, working year over year, and you do it in the right market with the right team, it’s just gonna…money’s gonna come. Money’s going to keep coming. Risk for default, very limited. But like I said, you’re younger. You’re in your twenties, thirties, early forties. You’re still working. You qualify for Fannie Mae finance? Yes, definitely diversify. Take some money, take advantage of leverage, buy some single family homes in the right market, some single family homes that are going to get you a passive experience, right? Because what we want to do, we want to pay the loans off, we want to use the tenant’s money to pay the loans off and then once they’re paid off, free and clear, we can either sell them, put a big chunk of change in our pocket or just keep holding them, pass them on to our kids; pass them onto our grandkids. Then they get to reap the benefits of having these awesome properties in the Dallas market, Houston market, other awesome growing markets across America where there’s no principal and interest payment attached, owned, free and clear, and they’re generating $1,000, $1,200 a month.  

That’s a great idea, but then, hey, you got retirement funds? I don’t know. I wouldn’t buy any property. Buy property early on in your life; lock in 30-year debt. You know you’re 50, you’re 55, you don’t own any rental properties, you have a retirement account. Let’s look at private lending. It might be a little too late for you to get in the real estate game. Okay, let’s look at private lending, though. Let’s grow that retirement account, so that’s why I ask all the questions. I love to talk to my clients, my potential clients. I love to find out about them. I like to find out what is your why? Why do you want passive income? Why do you want to invest in real estate, and I find out a lot of times they need the tax shield. Everybody starts with cash flow, but through the conversation I find out, tax shelter, I find out, I’m money’s not doing very well in the stock market. Money’s not doing well in these other investments that I invested in. I’ve heard real estate’s a great opportunity to build wealth passively. It can be passive or it can be very troublesome and very active. Buy the right property, buy in the right market, buy in the right neighborhood, and then for those of you who are retired or on the cusp of retirement, I had a friend of mine that reached out to me actually last night. We, uh, knew each other in Michigan. He now lives in South Carolina. He reached out to me for some advice on some vacation rentals, which is another thing that I’m a big proponent of because I believe, you know, real estate investing can also give you that return on life. And he asked, “John, should I invest in a property in Myrtle Beach or should I invest in a property in Panama City Beach?” 

And just not knowing that much about each area, but vacationing in each area. I immediately said, well, Panama City Beach probably sounds like a better option just because I feel like there’s probably more rental demand year round as opposed to Myrtle each, which is a little bit more cyclical I would think. But I don’t know. So what I did is I referenced him to AirDNA, which we talked about on last week’s episode with David Leroux and we talked about short-term rentals. He heard that episode. That was what kind of piqued his interest to reach out to me. And so, uh, after doing a little bit of research he found out, yeah, John, you’re right, actually Panama City Beach, they get higher rents and higher demand for more months throughout the season, throughout the year. So we also do vacation rentals, because for my investors who are on the cusp of retirement or who are retired, you know, they want to live out the rest of their years, enjoy life, enjoy life with their spouse, their families, their friends, and a vacation rental is a great way to give you that lifestyle investment. Give you an opportunity to go down, experience paradise when want and when you don’t want to use it, you have a full service management team down there. They rent your property out for you on VRBO. And if you’re investing in the right market, right? Which Belize and Southern Belize is a fast growing area. Imagine if you could have brought property in Hawaii in 1950. That’s what we have in Belize. An opportunity to get in on a fast growing area. The second fastest growing area in the entire Central American region. And beautiful properties. David Keener, who was on my show, my development partner, beautiful, beautiful properties. We just got our other island just finished. You should see these photos. They are beautiful. And a friend of mine is actually getting married on the island in September. So we’re really excited about that. We have a great tour coming up. We do a tour and show them the opportunities that we have. And like I said, if you like to vacation, if you love the Caribbean, you know, if you want to get in on an area outside of the US and diversify some money outside of the US, uh, a country that is very similar to the US and the type of laws that they have, and especially laws with real estate. You get a title when you own one of these properties. It’s not like these other areas around the world where you are on a 99 year lease.  

You own this property. And we’ve created a fractional model to where we can make it very, very affordable for you to be an owner of a private island, to be a part owner of a resort, to be a part owner of a luxury home for a fraction of the cost. It’s much more affordable than you think. And the fractional model makes sense because you’re not going to be there all the time. So this is not a timeshare. This is a fractional model. You own a property with partners; you own it. You’re not buying time. So this is a great opportunity to look at as well. Um, it just depends on what your goals are, what you want out of your money, what you want out of life. But what we’re doing in Belize is an awesome opportunity as well. And so if any of this interests you, if you found any of this information informative, got something out of this show, please subscribe to the podcast Real Estate Cowboys. Get the update. Every week the show airs on Sundays a so you can get the newest episode. And you can also go to, and if any of these investment opportunities sound good to you, and you’d just like to find out more about them or more on how to get started in any of these investment opportunities; how to invest in Dallas, how to buy single family homes, how to get involved in great private lending opportunities. How do I get self-directed? I have retirement funds. I’m not self directed. My money’s in a rat race in the market right now. Um, or Belize sounds great, I’d love to join you on one of these upcoming tours which are deeply discounted. Take you and your wife, you and your husband down on one of these awesome tours, for a very affordable rate.  

Just inquire on the website. Um, and when you inquire, you’re also going to get weekly updates on investment opportunities that are available so we can keep you in the know on all these great opportunities, single family rentals for equity, single family rentals for cash flow, private lending opportunities that get you a strong fixed rate of return. Very passive. Or vacation properties which are also professionally managed in beautiful Belize. You can get all this information, more information on this. Just go to Put your information in, tell us what you’re interested in. We’ll make sure you speak to the right person and you get all the data that you need to make an informed decision. But for those of you that are ready to take action and start getting your return on life and investing in real estate, taking advantage of all the great things that are available to you through real estate investing passively..  

If you are ready to take that step, go to My book is coming out soon. The Passive Income Guide. Be on the lookout for that. There’s great information in that as well. I will let you all know when that’s available. It’ll be available for purchase on the website. And then also for those of you who like everything that you’ve heard, but you aren’t sure what type of investor you are. Go on our website, and take our investor quiz. 10 simple questions will tell you what type of investor you are. So once again, thanks everybody for listening to this week’s episode of the Real Estate Cowboys. I hope you found this to be very informative and got something out of this episode and I can’t wait to put out another great episode next week. So thanks again for listening. Have a great weekend. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.