“Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.”
– Robert T. Kiyosaki
Have you been wanting to find more passive multifamily deals but don’t know where to look?
Or are you hoping to get into your first deal, but you haven’t found a deal that looks compelling?
Lucky for you, the process is easier than you might think. It boils down to two major things.
Deal Flow and determining how you will invest.
The mistake I see a lot of people make is only looking at one deal at a time. Then they stare at it and are unsure whether or not the deal is good.
How about this?
Look at a lot of deals without any commitment and see what is out there.
You want to look at the lay of the land. Once you get into a place where you see more deals, you can start to learn how to spot a good one.
The idea of deal flow, then, is increasing the flow of information and opportunities that are coming to you.
For example, once you see 50 or 100 deals, you’ll be able to evaluate each deal and compare them to one another.
That’s all well and good, but how can I be sure which of these deals are good?
You will start to see some patterns for sure. However, the best way to make your hunches concrete is by networking.
I know a guy that is part of 70+ deals. The way he started? He networked, accumulated all that valuable knowledge, and he turned that into action.
There are no limits to the ways that you can network!
You can talk to other investors, go to live events, do a simple Google searches, listen to podcasts, etc.
Doing all this will help you achieve two things.
You will learn to spot a good deal from the lessons you learn from others, and you will start to see some common operators.
Now that you have done all this networking, find 2-3 operators you would like to work with and develop a relationship with them
Schedule a call, get on their list, and ask hard questions!
What are their minimums? What went wrong on a previous deal?
For example, if they don’t answer honestly about what has gone wrong before, you will know that is a red flag.
And don’t forget to talk to their other investors!
Remember, you don’t have to be married to the operator. You can start relationships with as many of them as you want. Once you do this, then you can decide which 2-3 you want to invest with.
Cast a wide net, and then you can throw back the fish you don’t want.
Now comes the fun part!
Once you have formed these relationships and you are on the operators’ lists, you will be able to be part of their investments.
You have successfully created deal flow! Congrats!
But be on your toes. These deals can disappear fast. That’s another benefit of casting a wide net, more chances at-bat.
When presented with a deal, be quick and be attentive. If there is a webinar, watch it live. These deals can go fast!
For example, one of our deals filled up with $8M raised in 24 hours and many usually fill up in a couple of days.
But this is why you network! You ask the hard questions and have multiple operators in line so when the opportunity comes, you are prepared to jump right away.
Now that you have an understanding of locating the deals, you have another decision to make.
Determine how you will invest
You have the deal lined up, you are ready to invest, but then…
How am I going to get the operator my investment?
There are a lot of ways to invest in anything. That’s why you are here, right?!
It can get a little complicated, that’s why a lot of people tend to go for the simple solution.
A simple wire transfer, and you are done, right? Sort of.
Contact your bank for wire transfer information. Many banks have a limit of what you can do online, but a much higher limit that you can do in person.
If your bank’s limit is too low to meet your principal investment, talk to the operator and see if you can do the transfer over a few days.
There are also the tax advantages of this method!
When you invest using a cash account, you get to write off or defer a large portion of your gains through the depreciation of the property. This will allow you to pay less in taxes while still making gains!
While this may be the simpler way, there are still other ways that you can invest.
IRA – SDIRA – or QRP?
Given that you are reading this, I can tell you are a smart investor that has a retirement account.
Did you know there are ways to use the money in those accounts to invest in a multifamily deal?
There is! If you have a lot of money in your retirement funds, this can be a great way to get into a passive deal.
The downside is that funds used to invest from retirement accounts don’t allow you to use the same tax advantages as a cash account. This is because retirement accounts are already considered tax-advantaged.
You can’t transfer money to these deals from the more traditional IRA that you would get from places like Vanguard or Charles Schwab. You have to be in a specific account that allows you to take your money and put it into real estate.
This is why you want checkbook control.
This allows you the ability to fully control the money in your IRA account and put it towards your investments. You often find this in SDIRAs.
But if you don’t have checkbook control, there is a LONG process involved. Days of back and forth paperwork. Sometimes weeks! And you want to act fast, right?
However, when working with your IRA you also want to watch out for UBIT.
UBIT stands for Unrelated Business Taxable Income. This is when a tax-exempt fund makes a profit by non-tax-exempt means, such as real estate.
Meaning, the IRS can tax you based on how much debt the property took on.
Really quick example.
If you invest $100,000 into a deal and you doubled the money in five years, but 70% of the property was financed, then they can tax you on 70% of your gains.
So at $100,000 invested, that could cost you between $20,000 and $30,000 worth of taxes taken out of your IRA.
This is why QRP accounts can be so great!
QRP stands for Qualified Retirement Plan. This type of account offers checkbook control, and they are not subject to UBIT! This is among other amazing advantages over standard IRAs.
Alphabet soup? Maybe a little. But luckily I have a guide in the resource section of my website that can tell you all about QRPs.
While there may seem like a lot of steps in finding more passive income deals, it is actually quite simple.
Make deal flow so you see investments, develop relationships with operators, do your due diligence on the deals you are interested in, and be ready to invest by knowing where your money is coming from.
This is a learning process!
If you are interested in learning even more, we have a special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch!