Top 5 Real Estate Questions Answered

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What’s the best market to invest in real estate?

This has to be the most common question I see in the BiggerPockets forums and real estate Facebook groups. The answer (like most tough questions) is: it depends. Also, there is no “best” market that fits every investor! There is money to be made in every real estate market in the country, it’s just a matter of figuring out which market fits your strengths, your goals, and your strategy the best. The ‘best market’ question always leads me to ask follow-up questions, such as: what are your long-term goals? What is your risk tolerance? Where do you have an advantage in the form of local knowledge, boots on the ground, or insight into the local economy?

I recommend people first determine their long-term goals for why they are even investing in real estate. Do you need the cash flow now or do you have a high-paying W-2 job that will allow you to focus more on markets expected to appreciate over time? Next, figure out how much capital you have access to for purchasing real estate. This is an important factor. It’s much more expensive to purchase an off-market single-family home in Southern California than Tulsa, Oklahoma. 

Another important consideration is: how much time do you have to devote to investing? If you work a demanding 9-5 job or just don’t have the desire to put in the work to actively invest (and it is a lot of work!), maybe focusing on 100% passive real estate investments like syndications is a better fit. More on that strategy later….

I don’t have very much money at all. How do I get started in real estate?

You must have a strong foundation in your personal finances before you get started in real estate investing. You will need a good credit score (650 or better), cash reserves, and steady income to qualify for mortgages. If you only have $500 in your bank account and a 550 credit score, you need to focus on the fundamentals of personal finance before you make the jump to real estate investing. 

While you’re working on this (Dave Ramsey’s teachings are a great way to establish a strong finance foundation) you can begin building your real estate knowledge base by reading books, listening to podcasts, watching youtube videos, and most importantly – connecting with other real estate investors! My favorite ways to connect with people are via the BiggerPockets forums, real-estate Facebook groups in your local area (or the area you want to invest in), and in-person meetups.

Once you build up some real estate knowledge and a network of real estate investors, I recommend you partner up with someone on a deal who can bring capital, and you do the work! If you’ve done enough research, you should be able to put a team together, find a deal, and get the whole process started. Then you can own 50% of a cash-flowing property with little or none of your own money.

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Should I buy a property at every duty station and rent it out when I move?

Again, it depends. You can’t use your VA loan an infinite number of times. Yes, you can sell a property and free up your entitlement, but if you’re buying and selling a primary residence every 2-3 years, are you really building long-term wealth? The transactional cost of selling real estate is high (usually 7-8% of the purchase price including commissions and closing costs) so that will likely eat into any appreciation you have if you only hold for 2-3 years.

If you want to rent out your property once you move from that duty station, you have to analyze the property as a rental before you commit to purchasing that property. Think of it as a long-term rental that you happen to also be living in for a few years before you rent it out. How much would that property rent for? What would the expenses be? How much is property management? If you keep that property, will you rent at your next duty station or purchase another property? How will you purchase that property – with a conventional mortgage or a VA loan?

My point is it’s not a simple answer. You need to do some research and determine if it makes sense to buy as a long-term investment or not. It might make more sense to rent! If you’re having trouble figuring out what to do, feel free to message me on Instagram @honorandequity and I’ll give you my thoughts on your situation. 

How many times can I use the VA loan?

The purpose of the VA loan is to provide a low/no money down mortgage to military members and veterans for a primary residence. You can’t just buy an investment property with your VA loan. That being said, you can use your VA entitlement multiple times. The thing to remember is that you have a limited amount of VA entitlement, and once you hit that amount, you have to sell (or refinance into a conventional mortgage – which you can do one time) that property to free up your entitlement. 

For more information about the VA loan, check out the interview I did with Jon Lallande, and make sure you read the article I wrote about the San Diego VA Loan house hack we did. This is the best way for military members and veterans to get started in real estate!

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What is a real estate syndication?

A real estate syndication is a method of investing in which multiple investors pool money together to purchase an asset. This is commonly used for assets like apartment complexes, self-storage facilities, and mobile home parks.

A real estate syndication is comprised of general partners and limited partners. The general partners are core team members doing all the work on the deal, which can include finding the property, underwriting the deal, raising money, managing the property, and more. The limited partners are the individuals (or entities) that invest in the deal. They are called limited partners because they do not have a say in how the deal is structured or how it is managed: they are strictly passive investors. 

Syndications are a great option for individuals that have capital sitting in an account but don’t have the time or desire to put together their own real estate deal. 

I have personally invested in one syndication as a limited partner – a mobile home park in Colorado. You can read more about it here

I hope you found value in this article. Please let me know what you think by sending me a message on Instagram @honorandequity, or email me at doug@honorandequity.com

First Real Estate Syndication – Mobile Home Park in Colorado

A lot of people would think I’m crazy to invest $50,000 in a mobile home park I’ve never been to, located over 1,000 miles away from where I live, with a team of people I’ve never met in person, at the height of the COVID-19 pandemic.

And they might be right.

More Than Money

However, I think I will look back on this decision and see it as an excellent one that greatly contributed to wealth generation for my wife and I. But that is just one way in which it will benefit us. This is my first foray into the real estate syndication world, and thus far, I have a seemingly insatiable desire to learn as much as I can about the process. In the real estate context, a syndication is a method of investing in which multiple investors pool money together to purchase an asset. This is commonly used for assets like apartment complexes, self-storage facilities, and mobile home parks. I’m listening to syndication podcasts and reading articles every day. I’m having conversations with individuals in my mastermind about it and consuming as much as I can on the topic. So even if the deal doesn’t work out as well as I think it will, I am GUARANTEED to learn a great deal from the process.  

I had a conversation a few weeks ago with a gentleman in my mastermind group who has much more syndication experience than I do – which isn’t saying much! He said the sponsors (the team of individuals who are doing the actual work in the syndication) will send out quarterly statements with information on how the property is performing. He said that just by reading this information, I will be ahead of most investors. Apparently, not only do most investors not read these documents, most don’t even open this email. This is baffling to me. Wouldn’t you want to know how your investment is performing? Then again, people throw lots of money at the stock market and have no idea about the companies or funds in which they invest.

Invest in People, Not Deals

One thing I’ve learned so far is when you invest in a syndication, you’re not investing in the deal, you’re investing in the people doing the deal. The numbers make sense, and I wouldn’t do it if they didn’t, but the team and their actions and character will likely determine the success or failure of the venture. I found out about the opportunity through Stu. I have purchased two turnkey properties through his company and both have been great experiences. I trust Stu and David (his business partner) completely, so when Stu sent me an email about the mobile home park, I knew this would be a good opportunity even before I read the specifics. Literally the day before I received his email, I was reflecting on how much money I had saved during deployment and wondered “what am I going to do with all this cash?” Stu’s email seems serendipitous in retrospect.

Stu and David are only two of the people on the syndication’s team though. I asked Stu how he knew the others on the team and if he trusts them. He said he has known the lead sponsor – Byron – for over 3 years and trusts him completely. If Stu trusts him then I do too, but I still felt like I had more work to do before I wired the money.

Due Diligence

As part of my personal due diligence process, I reached out to Byron – the “Chief Vision Officer” who is overseeing the syndication. I had a number of questions for him, and not only did he respond within a few hours, the responses were excellent and significantly increased my confidence. I also read his bio which mentions his experience as an attorney, business owner, and the work he has done in other real estate syndications. A key element of his bio that jumped out at me was his 24 years of service as an Army officer. Though this alone is not indicative of someone who will manage a syndication well, it does indicate to me that he can be trusted, he has integrity, and he will work hard to accomplish a task. Prior military service – especially over two decades worth – speaks a lot about someone’s character, in my opinion. After reviewing his biography and reading his thorough email response, I decided I would wire the $50,000 and commit to the deal as an investor.

These early steps and due diligence just reinforce what I have heard about the importance of relationships and networking. Your net worth is determined by your network. I feel thankful I have developed such a network around me to help me as I begin this journey, and I will continue to grow my network regularly – to help myself and to help others.

Look out for my quarterly updates on my first syndication deal. Thanks for reading and please let me know your thoughts in the comments section below.