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SUMMARY:

Today’s video outlines four of your most asked questions lately. We talk HELOCs, down payments, minimizing risk, and timing the market.

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I get a lot of questions from you guys. Sometimes it’s in your comments or in our “BNB Inner Circle Private Group” on Facebook. 

And I love it. Keep ‘em coming.

In today’s video I address the four most common questions I’ve been getting lately.

First is “Should I take out a HELOC for investing?”

I explain what a HELOC is, how they work, and what you have to do in order to make it work as an investor.

Question two is, “Can I get 10% down on a vacation home?”

This one’s asked quite a lot. For a $500k home, it’s the difference between $100k (20%) and needing $50k (10%). 

Watch the video to see my answer!

Question 3 is, “Is the market too high right now?”

Lots of variation to this question like, should I wait to invest / when is a good time to jump in / etc etc. 

But I address the core question which is how to time the market. (Spoilers: you don’t.)

And the last question is “How do I minimize risk?”

There’s one major element I look for when analyzing for a property to minimize risk. Find out what that is and how to do it for yourself with my answer to this one.

For more about Airbnb investing and property management, watch the video and subscribe!

VIDEO TRANSCRIPT:

What's up guys? It's James here and in today's video I'm going to be answering some of your guys's Airbnb investing most frequently asked questions, so hopefully this video will help to answer some questions you have. If you have other questions that you'd like me to address in another video like this in the future, then make sure you drop them in the comment section down below. Let me know what questions you have about investing in Airbnb or short term rental properties. And I'll be sure to get them answered in the next q&a video. Also, if you guys are interested in learning more about step by step exactly how to invest successfully in short term rental properties. There's a link in the description down below for our free training that walks through exactly how to do that step by step by step. So I highly recommend you check that out as well. Again, link is in the description down below. So let's get started. I've got some written down on my computer in front of me here. So the first one is should I take out a HELOC for investing. So I get asked this a lot. People say, Okay, I've got a lot of equity built up in my home. And I am wondering whether I should took take out a home equity line of credit for investing purposes. For anyone who's not familiar with a HELOC or home equity line of credit. It basically is, what it allows you to do is take let's say that you have 50% equity in your home. So in other words, your home is maybe worth $500,000, and you only owe $250,000 on it, you're carrying a mortgage of 250,000. And so you've got 50% equity in your home. Well, generally speaking, you can pull out up to about 80% of the value of your home. And so if you don't want to get a refinance and re mortgage your property and deal with the headache of all that, you can generally go and basically open up what's called a home equity line of credit, where you're using the equity that you have in your home as collateral against the loan. So that if in the event you ever did default on the loan, they would basically have your house as collateral to back that up. And so it basically just allows you quick and easy and relatively low interest access to capital because that collateral is obviously very solid in the eyes of the bank. And so what you can then do is let's say that you've got $250,000 worth of equity in that $500,000 home. And you may want to go to More like $100,000 in equity and basically pull out an additional 150 through a home equity line of credit, you can do that you just basically go to the bank, typically you go to the bank that you have your mortgage with, and then you can basically just start a open up a home equity line of credit, and they'll give you a line of credit for let's say $150,000. And so that just allows you to then pull out some equity from your home that you then don't have tied up in that home, that's obviously not producing you a return. Now you may be earning a return in your home's value by the value of the home increasing. But generally speaking, a home is more viewed as a liability than as a investment if it's your primary residence, because you're not generating cash flow from it. Any returns you are making or just from either the principal pay down the mortgage, or from the value of the home increasing, which can fluctuate depending on what the markets doing. And so, you know, generally speaking, yes, I do recommend pulling out a using a HELOC for investing purposes. So long as you're smart about it, it's obvious that anytime that you're using leverage to to invest, you want to make sure that your returns are disproportionately, you know, outside so that they can compensate for the cost of capital. So what I mean by that is if you take your own money, and you go and invest it, and it would otherwise have just been sitting in a bank account, well, then there's no cost of having that money other than the time and energy and whatnot that it took you to earn that money, right, which obviously, is something but there's no actual cost like monthly cash flow, that it costs you to have access to that money, because it's yours, it's your money. Whereas if you're getting any kind of a line of credit or a loan, if you're taking on debt to use that for investing, then there is going to be a cost of borrowing that money of using it. So if you have a home equity line of credit, I let's say a 4% interest rate, then you need to make sure that you're going to be bringing in more than 4% return on that money that you're once you go and reinvest it because it's going to cost you 4% If you don't have the home equity line of credit, not money is going to be sitting in equity, and it's not going to cost you anything to just have that money sitting there. But as soon as you open up that home equity line of credit, you're even paying interest on that because it is ultimately a loan on the money that you have in equity. And so the way that works is now you're gonna have a cost associated with it for your interest charges. And so you just need to make sure that you're earning more than that. Now, is that tough to do with real estate and short term rental investing? Absolutely not. If you're not making a 4% return on your money. That's pretty insane. Like you're obviously doing something very, very, very wrong. There's not a lot you have to do to get better than a 4% rate of return on your money when you're investing in something more active like real estate. If you're talking about taking out money out and putting into stocks, I would say maybe not a good call because stocks don't cashflow really well unless they pay a great dividend. And generally because it's such a passive form of investing, you're not going earn that much better than a 4% rate of return on your money, you should do a bit better, but not nearly as well as you'll do in something more active like real estate investing, specifically short term rental investing. So should you take out a HELOC a home equity line of credit for investing in short term rentals? Yes, it is a really great way to access some of that capital that otherwise would not be put being put to good use and wouldn't be earning your return. Another question I get asked all the time is can I get 10% down on a vacation home. So a lot of people are curious about how you're able to get 5% 10% down on a short term rental property. And the reality is that really depends on the lender that you're working with and the area that you're in. But in a lot of circumstances, a lot of situations, yes, you can get a 10% down loan, meaning that you're borrowing 90% of the value of the property and only putting 10% of the value down. So let's say that you have a $500,000 property again, you can acquire that property for only $50,000 out of your own pocket as a downpayment. Obviously, there'll be additional costs for closing costs, home inspection, that sort of thing. But you can get it for 10% down in most cases, if you're planning on using it as a vacation home. So you can't do this with you know, 20 different properties. But a lot of time for a second home, you can get it for 10% down, and there's nothing that that prohibits you from using that as a short term rental then so it can be a good strategy just really depends on the lender and the terms of the loan. But yes, you can get it if you know what to look for what lenders to work with. And again, we can help you with all that. If you want to check out the training that's linked in description down below. We're talking about how to finance deals and everything like that is the market to hire right now I get this question a lot. People always ask me like, is the market too hot? What do you think about the market right now? Should I invest right now? Should I be worried about investing? Should I wait until the market cools down? you phrase it 100 different ways. But they're asking the same question Is now the right time. And ultimately, I always answer the same thing to people, there's never a great time, there's always great opportunities. There's never going to be a time in all of history, when you don't need to look at not actual properties, you can just go and buy whatever property you want. And it's going to make your return just because the timing is right. Similarly, there's never going to be a time in history, or in the future where there is just gonna be a terrible time and that no property is going to make sense to buy because it's just a bad time. There's great deals, not great time. Yes, sure. Some time is better, that are better than others. But if you constantly think that way, you're constantly going to be sitting on the sidelines. And you're going to be kind of saddled by the fact that ultimately no one knows, nobody knows when the best time is like, obviously we look back and we look at 2008. And where everyone was freaking out and selling all the real estate, a lot of us look back and say, Yeah, that was the best time to possibly get in real estate. But Hindsight is 2020, it's a lot harder to know that it's honestly near impossible to know when the best timing is. And so I always recommend to people that time in the market always beats timing the market. And it's always better to find a great deal than it is to try to wait for the perfect time. And so when the market is really hot like it is right now, especially in a lot of markets where vacation rentals are doing well, real estate values are increased. Now as in as interest rates increase as well, we're going to see some of those values come down, just because interest rates are going up and property values are going down. That doesn't mean it's a better time to invest. It just means that the landscape has changed a little bit. And so what it really comes down to more than trying to figure out the best timing for your deal is finding the best deals, finding deals that specifically cash flow really well. So you don't have to worry so much about the equity, the long term actual value of the property. Now, sure, I don't recommend buying a property that's way over inflated, that you're never you're paying above market rate, and then you're never going to be able to sell it for as much obviously you need to look at that stuff too. But if your concern is, hey, what if the market Takes a Dip and it takes several years to correct, then either you're looking at the wrong deals, meaning that they're not going to cashflow. And so you would potentially have to sell them when the market takes a dip, that's a bad deal. Don't buy that one. Or you're looking into short term of perspective, you shouldn't be looking at this as a one or two year play, you should be looking at any kind of real estate investing you're doing as a multi year play unless you're planning on flipping it, which again, is an inherently risky strategy for flipping properties. Because if the market does take a dip while you're flipping, you're left holding the bag. So my recommendation whenever people ask me is the market to highs at the right time. I always tell them go and find the right deals. If you can find a great deal, for example, one that cash flows really, really well. Let's say it cash flows 2530 40% cash on cash return, then it doesn't matter what the market does short term, right? We know from history that the long term performance of the market is going to be great. We're going to be on the up and up and things will rebound even after 2008 Things still bounce back up, you can also invest in any area in the world. So it's virtually there's virtually never going to be a time when it doesn't make sense to buy a short term rental property. It's just that if you have a 3035 40% cash on cash return that you're getting with it, you're never going to have to sell, right? If the market Takes a Dip and property values dropped by 10%, over the next couple of years, doesn't really matter. Right, you don't really care about the value of the property because it's cash flowing for you. And that's where you're getting your return. That's your game, your project project protection. And so you can weather whatever storm the market throws at you and sell once the property values come back up. But where people get into trouble is that they buy property that doesn't cash flow, well, the market then dips, and then they're left in a tough spot where they're actually left paying out of pocket to carry the property, pay for the mortgage taxes, insurance, all that sort of stuff. And that's where it gets risky, because then if you can't afford to pay for it anymore, you then have to sell it, you sell it at a loss. That's where everything goes really terribly wrong. So that's my recommendation is don't try and time the market try to find really good deals that give you a lot of good cash flow that will protect your investment and minimize your risk. My My last question here that I've got got noted that a lot of people were asking was how do I minimize risk, and I think I've pretty well just covered that was actually cashflow like that's ultimately the number one way to hedge your risk is to find deals with really great cash flow. And always be looking at cash flow. Again, if you want the actual analysis spreadsheet that we use to analyze these deals and make sure that our downside is protected, then check out the link in the description down below. There's a free training, we're going to give you our analysis spreadsheet once you register and check out that free training, we're going to give you the analysis spreadsheet completely free as well. So make sure you check that out. That's always what we look at. So whenever I'm analyzing a deal, I'm always asking myself, What is how is this property going to do? Right? What's the cash flow going to be? That's always the first thing I care about. I don't really care about appreciation on the property, I don't really care about equity, I care about cashflow, the other stuff is secondary, because if I don't have my cash flow taken care of, then my risk is substantially higher, it's not going to matter if the value of the property goes up over the next 1015 years, if I can't hold on to it for the next 1015 years. So that's always my number one. The other thing I'm looking at is cashflow in the worst case scenario. So if everything goes terribly, horribly wrong, and I'm in the worst case scenario, how's my cash flow going to look then? Right. And that's where a lot of the time long term rentals and other investment assets, they fall really short, they do well in a good scenario, but not in a bad scenario. And so what I always look for is I'm gonna if I'm going to be buying a thing, I don't want it to only meet my criteria, if it's in the best case scenario, or a good case scenario. I want to know in the worst case scenario, how well is this thing going to do? And so I want to make sure it's going to cashflow positive, every single season no matter what's going on, I want to be cashflow positive, even in a worst case scenario, because that means that even in a worst case scenario, I won't be forced to sell the property if the property value does dip and performance isn't doing well. So cash flow is the biggest protection, you can also look to have like a long term rental backup plan or midterm rental backup plan that worked with some properties. And again, you're still just looking for the cash flow on it, to see how you can make those numbers work. But yeah, as far as minimizing risk, it really just comes to knowing your numbers and analyzing both your best case, your moderate and your worst case scenario, and really making sure that your cash flow is going to be solid in any in any scenario. So yeah, if you have any other questions for me, let me know in the comments down below. If you want to learn more about the step by step process for exactly how to invest successfully in short term rental properties, check out the link in the description down below for that free training. If you want access to our spreadsheet that shows you exactly how to analyze deals, and allows you to analyze them and make sure that your downside is protected, that you're getting good returns and that everything you're doing makes sense. Then check it out again link in description down below for that free training, sign up for it and we will send you that analysis spreadsheet completely free. If you liked this video, if you got value from it, please give it a thumbs up hit that like button it really helps me out. Also subscribe to the channel if you haven't already. I know from checking my analytics that a lot of you people are watching these videos and you're not subscribing so make sure that you're subscribed to the channel. Because we post two videos every single week. I don't want you to miss any of them. I want you to get all the value that we put out here. That's why we make these videos so make sure you hit that subscribe button. All that said Have a fantastic rest of your day. And as always, I'll see you in the next video.

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