Winning with Real Estate Part 2

The U.S. Navy SEALs have a saying: “Get comfortable being uncomfortable.” If you can be comfortable being uncomfortable, you’ll be prepared to handle whatever situation comes along in your own life. Now, you don’t have to subject yourself to the extremes these individuals do, but progressing in any part life will likely require you go through some uncomfortable stages.

Remember, it’s a good thing to feel uncomfortable. It means you’re moving forward and exploring new territory.  This certainly applies to how and where you invest to create income and grow your wealth.  Keep exploring as you never know what you’ll find.

Key Takeaways

  • Real estate can be a contact sport, but there other ways to play in this game.
  • In addition to full ownership, you can be a lender, passive investor, limited partner or turnkey property holder.
  • Most real estate opportunities require some cash up front. Did you know that whole life insurance can help?

In my last post we discussed the five “IDEAL” ways you can win financially by investing directly in real estate. Here we’ll discuss the many different ways you can participate.


  1. You can be a lender; you don’t have to be the owner


If just starting out in real estate investing, it may be too intimidating to be an outright owner. There are many other ways to play in this space. I got my own start in real estate investing by being a “banker.” I made private loans to real estate investors in both single-family and commercial properties.

Even after all these years, I’m still collecting monthly checks from those early investors I backed. The key is really knowing who you are working with (whether individual or sponsor) and making sure that your investing values are aligned with the owner’s. Also, make sure to have a legal advisor draw up any contract you negotiate. You always want to make sure you are protected.


  1. Participating in syndication as a limited partner


With this approach, you have an equity stake in the deal and get tax benefits too, but you’re only held liable up to the amount you’ve invested in the project. The syndicator pools money from numerous investors and uses that money to buy an apartment complex, mobile home park, etc. and execute the project’s business plan.

Typically, there is a fixed minimum rate of return that investors will receive monthly, but you they can also participate in the profits from the deal. This could include a portion of the additional cash flow and/or proceeds from the sale of the appreciated asset.


  1. Investing through turnkey rental property providers


Under this approach, the rental property providers find the properties for you, and they fix them up so you can immediately rent them out.  Most turnkey rental property providers provide a property management team to oversee the property for investors.  When it comes to turnkey rental properties, there are three keys to consider:

  1. Team.
  2. Market.
  3. Property.

I won’t go deep into the details here, but the Team is the most important component, since these are the people who are going to oversee the performance of your asset (i.e. your investment).

With turnkey properties, the property manager takes over after you secure the home. They lease it out for you (for a fee, of course) and continue to take a management fee for about 6 to 10 percent of the rental income they bring in for you. The property manager will take care of calls from tenants and will recommend repairs as needed. Don’t underestimate the value of this service!

Cash on Cash returns from turnkey rental properties should be around 6 to 10 percent annually. This means your monthly positive cash flow–after expenses and mortgage payments, if financing the property—should be 6 to 10 percent of your initial investment in any given year. Even better, since you’re depreciating the property, you won’t have to pay taxes on that cash flow in most cases.


  1. Real estate is a contact sport. Benefits of being an owner


Many people have done well with the three approaches above. But, if you’re willing to take the ownership leap and invest some time and effort along with your money, then the payoff in real estate can be substantial.

I started my own real estate journey by reading books like Rich Dad, Poor Dad and by joining organizations such as BiggerPockets to connect with other real estate investors. That’s where I met my first partner to whom I provided a loan for an investment property he was securing.  As mentioned earlier, I started out by making private loans to local real estate investors that I knew.

As I got more comfortable in the real estate world, I took a chance after meeting with a number of “turnkey” providers.  I purchased several rental properties–single family homes that were renovated—and still own them today. The properties were located outside my home state, since I was targeting markets that had better economics for rental properties.  I still follow this philosophy and have since added more single family rentals and duplexes.

Through my research and connections, I’ve since invested as a limited partner in apartments and mobile home parks. These plays provided passive income, but with higher returns than I would have earned by lending to investors (see #1 above). That’s because as an owner, I had an equity stake in the deals. In syndications, you can earn well over 20 percent annually after factoring in depreciation and equity gains.

NOTE: These types of limited partnerships are primarily for “accredited investors” given the structure of the deals. To be considered an accredited investor in the U.S, you must have a net worth of at least $1 million–excluding the value of your primary residence–or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount in the current year. There are cases in which limited partnerships invite non-accredited investors to a deal, but by doing so, they are NOT allowed to advertise the deal broadly.

Although the returns and tax benefits can be significant with real estate investments, they often require significant cash to get started. You can draw from your savings account, which is okay in this low-interest rate environment. Those accounts are highly liquid and you’re not giving up much interest potential. But there’s a better way.


How life insurance benefits real estate investors

The best place I’ve found to store safe dollars that could be used for investments such as real estate is with specially designed whole life insurance. This financial tool can provide returns that are two to three times higher than bank rates. Also, your money grows tax-deferred and you can leverage the life insurance company’s money through a guaranteed loan provision of up to 95 percent of your cash value.  And you get a tax-free death benefit on top of it which is multiple times higher than your cash value.


Taking this strategic approach allows your dollars to work in two places at the same time and leverage someone else’s money to grow your wealth. For more, see How to Make Life Insurance an Asset, Not Just a Bill