Jesse S. Gines - INTRODUCTION TO REAL E$TATE INVESTING "RePros"

INTRODUCTION TO REAL E$TATE INVESTING "RePros"

Jesse S. Gines

Table Of Contents

Introduction

Thinking About Investing?

Financing Your Investments

Homes to Invest In

A Quick Guide for Wholesaling

Benefits and Risks of Wholesaling

A Guide to Flipping Houses

Making Money on Flipped Houses

Home Renovation ROI

10. Protect Yourself from Flops

11. A Guide to Investing in Rentals

12. Property Management 101

13. How to Sell or Rent Your Investments for the Most Money

125

14. Why Staging Makes All the Difference

131

15. Why Curb Appeal Matters

147

16. Why You Can’t Afford to Invest Alone

151

17. How Agents/Brokers Help Investors

155

Foreword In my many years as an agent with RE Property Services LLC, I can honestly say Jesse S. Gines is a standout. In addition to his vast knowledge of the local real estate industry, he consistently demonstrates an honesty and integrity not often seen in real estate brokers. I’ve watched him go above and beyond to close difficult deals for his clients and spend countless hours in and out of the office promoting his listings and reaching out to clients. He is also heavily involved in the community — in fact, you’d be hard-pressed to find someone more well-connected or respected in Central Florida. Jesse grew up in New York. He moved to the area and decided to stay here when he put down roots with a family of his own. In short, he knows the area he’s selling, and that’s something you just can’t teach. If you’re currently on the fence about hiring Jesse as a broker or considering any other agents, I highly suggest you stop your search. No one has more experience in Central Florida or will work harder to sell your home than Jesse S. Gines. With him on your side, you simply can’t lose.

Sincerely,

Pastor, Angel Martinez RE Property Services LLC Contact@ReProsRealty.com 407-777-2227

About the Author

Jesse had a very inconsistent upbringing. He was born in Valley Stream, New York, to a father who worked as a Correctional Officer in Riker's Island Jail and a mother who sang for the choir at Brooklyn Tabernacle Church. His parents separated shortly after his birth, and he relocated to Southwest Brooklyn with his mother and brother. When he turned three, his home in Brooklyn was burglarized, so he moved to Carolina, PR, with his mother to escape the neighborhood. Unfortunately, they moved to one of the islands' most notorious public housing projects in Torres De Sabana. In Torres De Sabana, Jesse was exposed to the shootings, gang violence, and drug abuse of the poverty-struck neighborhood. After financial difficulties left them homeless and his mother fell victim to drug addiction, Jesse lived on the street with his mother before moving back to New York to live with his grandparents. Jesse lived with his grandparents from the age of 8 until the age of 12, when he once again relocated after meeting his father. Jesse's father lived in Beaverdam, VA, in a residential addiction recovery program, New Life For Youth. After attending and completing the program for alcohol addiction, his father became a live-in minister and the assistant Director of the facility. Jesse lived in the facility with his father, brother, and all the residents while he attended middle school in Spotsylvania County. They attended NewLife Outreach International, a non- denominational church, in Richmond, VA, and mandatory for them and the residents. His father would take them to church every Sunday and Wednesday.

vii

At first, Jesse was a bit skeptical about attending as it was far different than he was used to while attending Saint Boniface Catholic Church in Elmont, NY, with his grandparents. Eventually, Jesse became fond of the church, getting saved at 13. He joined the church's Royal Rangers Program for youth and looked forward to attending every Wednesday. Jesse became a devout Christian after getting saved, often being made fun of in school for bringing his bible and preaching to other students. He would attend all of his father's sermons, and at one point, Jesse asked if he could preach a sermon to the program residents about the Ten Commandments. His father allowed it, and at 13, he had his first experience with public speaking. Soon after his preaching experience, his father was transferred to the Bronx, NY, to pioneer a branch facility. Unfortunately, it was shut down by the Fire Marshal for not meeting the fire code. Jesse's father then got a night security position at the World Trade Center, and they moved to the Allerton Coops', a low- income housing unit in Bronx Park East. With his father working late nights, Jesse fell away from his Christian faith, hanging out with the wrong crowd and experimenting with drugs and alcohol at a young age. His father, who has a background in law enforcement and has mentored troubled youth, believed Jesse needed to be put in a program like New Life for Youth. Jesse began hanging out with a local street gang, "The Bloods," when he turned 14. He became rebellious after his father re- married and would engage in various criminal activities with the gang. At one point, his father overheard Jesse and his brother conversing. They mentioned being an accomplice to a burglary where the house caught fire and burned to the ground. Jesses' father was concerned for their safety and at odds with

viii

what to do.

In an attempt to teach them a lesson and keep them away from the gang, he contacted local law enforcement and turned them in. Jesse was arrested for arson and burglary and was sent to Spofford Juvenile Detention Center in the Bronx at 14 years old. He was later sentenced to Midlands' Evaluation Center, a quasi-military facility in Columbia, SC, for adjudicated youth. After his sentence, Jesse was released on five years probation. He reunited with his mother, who had moved to South Carolina to start a new life, as the state wouldn't transfer his probation. Struggling with finances, they wound up in the Salvation Army homeless shelter for several months until they found a residence at Valley Homes, a low-income housing development in Gloverville, SC. Jesse would go on to violate his probation as a result of drug abuse and criminal activity, spending most of his remaining youth in detention centers and institutions. He continuously moved back and forth from South Carolina to New York, among family members for the next few years, until he became wanted by the Aiken County Police Department for a gun charge. In early 2000, Jesse fled from S.C. with a warrant and settled in New York with his brother, who was a member of the "Latin Kings" gang in Jamaica, Queens. He became affiliated with the gang and involved in the lifestyle. Jesse was soon arrested for a robbery and was sentenced to a year in Nassau County Detention Center after his gang clashed with MS-13, a rival gang, at a bar in Hempstead, NY. While incarcerated, Jesse was separated from the other inmates, serving six months of his sentence in solitary confinement for continually lashing out at correctional officers and assaulting

other inmates. Jesse dealt with a lot of anger problems but managed to finish school while incarcerated, receiving some of the highest grades in science, math, and writing on his GED test. He saw this as a whim of hope for the future and planned to attend college and major in psychology upon finishing his sentence. Unfortunately, after his sentence, he was extradited to South Carolina to face the warrant that had been issued. Jesse was convicted of "presenting a firearm at a person" and sentenced, resulting in more time and probation. After his release, Jesse settled in Jacksonville, FL, with his Aunt Nilka and Uncle Gilbert, hoping to join the military and attend college. Unfortunately, he was arrested for a burglary charge and jumped bail, knowing it would result in a violation of his probation. Another warrant was issued for his arrest, so he fled to Miami, FL, to evade the warrant, not wanting to go back to jail. Losing all hope that he would ever escape the criminal lifestyle due to his pending warrant, he began selling marijuana and lived in hotels and hostels in South Beach, FL. Not being able to make enough money to continue paying for hotel rooms, he became homeless, living on the streets of Miami. Jesse felt the homeless life was very difficult, and he yearned for the opportunity to be somebody his family would be proud of. While in Miami at a club, he sold some marijuana to a salesman called "Dredd," who was on vacation. Dredd was impressed with Jesses' "marijuana sales tactics" and offered him a job that included a place to stay. Wanting to get off the streets, Jesse took the offer and joined the door-to-door magazine sales company Chapel Sales. For the next several months, he traveled about the state of Florida soliciting magazines. Dredd mentored him and taught

him the ins and outs of the sales business. It was at this time that Jesse says he initially gained his sales experience and learned how to approach people. While selling magazines door-to-door, Jesse wound up in S.t Cloud, FL. The city had a law against soliciting, and a homeowner called the police on him. The police officer sighted Jesse for unlicensed soliciting and discovered his warrant while running his name for the infraction. Upon his arrest, the officer found marijuana on his person. Jesse was charged with petty possession of marijuana and sent to the Osceola County Correctional Facility in Kissimmee, FL, to serve more time before being extradited to Clay County Jail to face his warrant. Jesse was sentenced to one-year probation for the marijuana charge in Osceola County. After extradition, he was sentenced to six months in the Clay County Jail. It was during his time in Osceola County Correctional Facility that Jesse re-dedicated his life to Jesus Christ. He became a "jail preacher" as an inmate and was soon extradited to Clay County Jail, where he served another six months for the burglary warrant and violating his probation. After his release from Clay County Jail in 2003, he moved to Saint Cloud, FL, to complete his probation for the marijuana charge. At that time, his brother had been released from prison on parole, and to reunite the family, his grandfather bought them and their mother a house in Saint Cloud, Florida. Jesse planned to pursue a college degree, hoping to land a solid career that his family would be proud of. His grandfather disapproved of college, wanting him to help his mother with the bills instead. Jesse began to settle down and soon found a job as a cook at a local restaurant. He began dating a girl he had

previously met in Jacksonville who got a job with him at the restaurant. While at work, she met a man named Guillermo Montanez, who happened to be an ex-gang member of the Latin Kings Chicago Branch. She introduced Guillermo to Jesse, and he invited them to his church, Freedom Tabernacle (now Freedom Life Church) in Kissimmee, FL. They became church members, and Jesse attended Freedom Bible College to strengthen his walk with God. He began working with Guillermo in construction. Wanting to settle down, Jesse began looking to rent a house where he and his girlfriend could live together. After finding a mobile home for rent near his job, Jesse and his girlfriend decided to get married to not live in sin by cohabiting out of wedlock. They married in 2005, and she soon became pregnant with his first child. Jesse's brother, David, attended the wedding and was excited for him and his life change. Unfortunately, a change in life wasn't something David felt he could attain, as he continued living the criminal lifestyle he had been acquainted with before prison. Yet, hoping for the best, Jesse and his friend Guillermo continued inviting David to church. He attended the church a few times, and Guillermo had the privilege of leading him to Jesus Christ in prayer. Unfortunately, he found it difficult to leave the criminal lifestyle after salvation. On April 27th, 2005, David suffered an accidental gunshot wound to the leg and died when the bullet hit a main artery in his thigh. Jesse fell into a deep depression after his brother died, but he continued going to church and exercising his faith in Jesus

xii

Christ. Jesse says 2005 was the worst and best year of his life, teaching him that nobody is exempt from the unforeseen issues that life will dish out. Fortunately, alight at the end of his tunnel of depression was when his first son was born later that September. One year later, in October 2006, his second son was born. Unfortunately, his first marriage would later end in a divorce, leaving him a single father to two young boys. In 2007, Jesse decided to join the military in order to provide for his children. He scored very high on the Armed Service Vocational Aptitude test (ASVAP) but was denied his chosen Military Occupational Specialty (MOS) due to his previous felony record. Not wanting to settle for the military-recommended MOS as an "Infantryman" he chose to go to college and pursue a degree in psychology where he could help others deal with life's challenges. He applied to Valencia College and was accepted in 2008. The struggles didn't stop there. Jesse worked two jobs to pay his tuition without help. Wanting to make more money and provide for his children, he decided to start a business following his childhood heart's passion, making music. Jesse opened a music recording studio in a local thrift shop called J. Box Recordings. He worked long hours selling beats, producing and editing music for aspiring musicians, and rapping at local shows and venues to pay his way through college. Having difficulties with the financial aspects of business, Jesse didn't make enough money to keep the business open, so he was forced to close it down. He got a job in construction with a concrete company, Prestige A & B Ready Mix. He was quickly promoted to concrete repair manager due to his excellent work

xiii

ethic and acquired his CDL at the company.

While fixing a pool at a mansion in Windermere, FL, Jesse met Michael, a venture capitalist from New York. Michael and his wife had become quite impressed by Jesse's work ethic and invited him to lunch after he completed the job. During this lunch, Jesse's eyes were opened to what he calls the "entrepreneurial spirit." During the lunch meeting, Jesse asked Michael and his wife for financial advice that may help him become successful in business. Michael's advice was to work hard and save money, but his wife recommended that he read three books: Rich Dad, Poor Dad by Robert Kiyosaki, Think and Grow Rich by Napoleon Hill, and How to Win Friends &Influence People by Dale Carnegie. He was thankful for their advice, yet he didn't see how reading three books could fix his financial situation. Nevertheless. realizing he had the "entrepreneurial spirit," Jesse decided to "try his luck." He used his savings to open a home recording studio and tattoo business to spend more time with his children. Unfortunately, it also failed because he didn't have sufficient start-up capital and made poor financial choices. Throughout those failures of what he calls "trials and errors," Jesse learned that there was more to business than the desire to own one. He knew that if he was ever to become a successful businessman, it would take a lot of work, and he would spend less time with his children. In 2009, Jesse became reacquainted with his high school sweetheart, Brenda. He initially started dating Brenda at 15 when he lived in New York with his grandparents. After finding her online through Myspace, they talked over the phone for quite some time and soon became very close.

xiv

She later moved to Florida and got a job at the University of Central Florida as a secretary for the business incubator. She began attending his church and lived with an elderly couple who were also members. Jesse and Brenda began courting in 2010. In 2011, they got married, and she adopted his two children. With support from his wife, Jesse would finally use that advice to read those books, which he says changed his life forever. He began attending business networking events and meeting successful business owners. He dedicated himself to reading 25 to 50 self-help and business finance books per year to gain knowledge about business ownership. After much support, hard work, and dedication, Jesse opened his first successful business, We ROC Construction LLC, with help from his friend Guillermo, who also started a business, GM Master Painting LLC. Jesse got involved in the real estate industry in 2012 while working for his own business as a remodeling contractor. He scored several large contracts with local hotels and real estate investors and began saving money to purchase a property with the intention of "flipping" it for a quick profit. He finally purchased his first investment property after getting a $20,000 loan from his grandfather. Jesse set out to get his real estate license to save money from selling the property, only to become frustrated after failing the real estate exam six times. When he finally passed on the seventh try, more difficulties emerged. Jesse was forced to move into his investment property after his home burned down, and his insurance company, Security First, denied his claim. Jesse ran out of capital while remodeling the investment house as unforeseen issues arose, leaving him without enough money

to join the National Association of Realtors (NAR). Membership was required by his broker, who had been a member of the third-party organization. As a result of these financial difficulties, he was forced to get a seasonal job using his real estate license to sell timeshare, where NAR membership wasn't required. While building his construction business, Jesse found his stride working in sales again and was soon promoted to management (T.O.) at Westgate Resorts. After taking additional sales courses, he was recruited as a sales trainer, becoming an expert in the psychology of sales and new agent recruitment. By 2016, Jesse had sold over $1,000,000 in timeshare and was honored as the sales trainer of the year at the annual Westgate Resorts Sales Convention in Kissimmee, FL. Since then, Jesse sold his first business, left the timeshare industry, and opened a real estate company that focuses on investors, Gines Investment Group LLC. He then opened a traditional residential real estate brokerage, RE Property Services LLC, and an online real estate school, RePros Agent Academy that both focus on new real estate agents. Aside from real estate, Jesse serves as a jail minister in the Osceola County Correctional Facility, where he had re-dedicated his life to Jesus Christ while serving a sentence. He is also the Founder and President of Fortified Life Ministries INC, a nonprofit organization that helps men and women who struggle with addictions. Throughout his journey, Jesse has earned numerous accolades, including:

• Florida Real Estate Brokers License • Million Dollars in Timeshare Sales Accomplishment •

xvi

Certified Real Estate Investment Advisor • ACTIVE Investor • CEO of Gines Investment Group LIC • President of Fortified Life Ministries INC •Broker/Owner of RE Property Services LLC • Owner/Instructor of RePros Agent Academy • Husband, Father, and Author

His grandparents always taught him that if you want something great in life, you'll have to work hard for it. With that in mind, he worked hard throughout his life's traumas and developed a strong work ethic. He aims to provide the highest level of service to his agents and clients and takes pride in helping them achieve their real estate goals. Jesse now lives in Central Florida with his wife and five children. He enjoys spending time with his family and helping others in need. He is an active church member and a great asset to his community.

xvii

CHAPTER 1 Introduction

Congratulations! If you've received or purchased this book, it's most likely because you've recently gotten into real estate investing or are interested in beginning the journey. It's no secret that the real estate industry is one of the few investment choices that enables investors to make an extraordinary income with no ceiling. Truly, the sky is the limit to how much money one could make or lose. Unfortunately, many investors enter the industry with their heads in the clouds. New investors formulate narcissistic thoughts concerning their success. They develop this "lookout real estate world; here I come" mentality that ends in failure and disappointment for many. When I started out in the industry, I had that same view. I was among the many and was quickly hit with a rude awakening. I came from a tough, inconsistent upbringing. As a child growing up in Brooklyn, life wasn't so easy. Dad worked as a corrections officer in Rickers Island, often bringing his work issues home. As a result of domestic abuse, my parents divorced when I was too young to remember, mom was forced to do whatever she could to make ends meet. By the time I turned four years old, New York life became too difficult for a single mom, so we took a trip to live near family on the beautiful island of Puerto Rico. Nevertheless, Mom soon realized that no matter where you go, life has a way of throwing you the same problem. Money! Family help would soon run out as the cost of living in Puerto 1

Rico wasn't much lower than that of New York. By the time I was five years old, we had wound up filing for welfare and moved into one of the worst projects on the island, "Torre De Savana." It was there that my strength and determination began to be nurtured as I dealt with the struggles that accompanied poverty and lack. Overall, the experience was awful, yet it made me tough and capable of dealing with multiple problems simultaneously. For many, life has a way of going from bad to worse in the blink of an eye. It wasn't long before the crack epidemic consumed the entire island, and nobody was exempt, not even Mom. Eventually, Mom and I lost our apartment in the projects and wound up on the streets of Carolina, Puerto Rico, where "hustling" was the everyday agenda, and boy, was Mom a hustler. It was in those times that I learned how to understand and read people. Mom was what I call an expert "people reader." Her talents often got us out of what could have turned out to be life-threatening situations. She taught me not to be ashamed to ask for help, to read the eyes and know when someone has bad intentions, and most importantly, to overcome my fears and push through life's difficulties against all odds. Like good things, all bad things come to an end for a time. My grandparents received word from other family members that we weren't doing so well. Sometimes, pride could keep you from crying out for help. I moved back to New York when I was about eight years old to live with my grandparents while my mom began to get her life straightened out. Grampa and Grama's house was a whole different world. Grampa was an avid real estate investor and construction boss in the union, overseeing some of New York's most significant building projects, building the World Trade Center, Battery Park, and TRUMP Tower. He was among the most demanding people I've ever known. He would take me to some of his projects as a

kid, where I often had the pleasure of hearing him yell at and cuss people out who weren't doing their jobs correctly. A meticulous man with an incredible eye for detail, Grampa knew everything that was happening at all times. A Sicilian Brooklynite who worked his way up the construction ranks in Manhattan, Grampa left no room for error or mistakes. Grama was a tough cookie as well, born in Carolina, Puerto Rico, and raised in the Yunque mountains of Rio Grande as the daughter of a farmer. Together, they made my life a living hell. But sometimes, you have to go through the fire to shine at the end. Grama had always wanted to be a real estate agent, but having to be a full-time homemaker, she never had the opportunity. Luckily, Grampa acquired enough money to purchase a big house in Elmont, Long Island, with three apartments upstairs. Grama got her shot and rented out those units as possibly the best property manager I've ever known. While Grampa was at work yelling at laborers, architects, and contractors, Grama was at home yelling at the tenants. As you can imagine, we had a very loud house. These experiences prepared me for the real estate world and enabled me to deal with the many issues involved in the industry. So, what are these issues? Why do so many real estate investors fail, and how can you be among the few that don't? Have you ever watched one of those house-flipping or income property T.V. shows? They seem to just update what needs to be updated, then sell or rent it — and quickly — at a profit. Sure, there are always unexpected expenses, but for some reason, it seems to always work out in the end. And it’s exactly that portrayal of real estate investing that draws people in. Who wouldn’t want to do a little cosmetic work to

make a place look more attractive and walk away with thousands (or tens of thousands) of extra dough in their pocket? I’m guessing you since you’re reading this book, and I don’t blame you one bit. The problem is that there is so much more that goes on in real estate investment than television can show you in 30-60 minutes of heavily edited content. That doesn’t mean there isn’t potential to earn money this way — there definitely is. It’s just that there’s a lot you need to know in order to actually make this happen. This book will help someone exactly like you: hardworking, intelligent, realistic, and ready to change your financial situation — and your life — through real estate investment. In the following pages, you’ll learn about how to get started in real estate investment, including what types of properties to invest in and how to finance your purchases. (Note: If you’re already an investor, I suggest reading through this section anyway, just in case there are strategies you haven’t tried yet that could enhance your ability to make more money.) I’ll also teach you the different types of real estate investing, which includes resources and tips to succeed in each arena, the real ROI (return on investment) for home projects (i.e., how to spend your money the right way), marketing techniques that will make you and your properties stand out, how to build your investing team, and the benefits of working with an agent.

CHAPTER 2 Thinking About Investing?

Before we begin, I want to point out that this section is geared more toward people who are interested in becoming a real estate investor but want to know more. If you’ve already started down this path, you could theoretically skip this section; however, if you flip through the pages of this section as you move to the next, you might find some new information. Maybe you’ll learn some strategies you haven’t tried yet or weren’t even aware of. Perhaps you’ll find validation you’re on the right track or a reminder of why you got into investing in the first place. As for those of you looking to get into the real estate investment game, my goal here is to give you all the information you need to decide whether real estate investment is suitable for you and then teach you how to jump in. So, let’s get you started!

THE STATS

According to a 2019 article on Investopedia.com, the average commercial real estate investment returns over 20 years are around 9.5%. Diversified and residential investments average about 10.6%. Both are higher than the S&P 500 Index, which has an average annual return of about 8.6% over the last 20 years. By the way, all these figures include the housing price burst in the 2008 recession, during which real estate investment still did better than the housing market. These stats alone obviously show a great reason to buy real estate. But what do investors hope to get when they’re buying property? 5

According to the 2017 National Association of REALTORS® (NAR) Investment & Vacation Home Buyers Survey, 37% plan to rent it for income, 16% for the possibility that the price will appreciate, and 15% because it was a good deal. This sounds great, but I’m guessing the main stat you’re interested in is how much you can make. (Am I right?) Well, here’s the answer you’ve been waiting for: According to a survey of real estate investors done by ZipRecruiter.com in spring 2019, investors make an average of $123,937 per year, with the low end at $47,000 per year and the high at $261,500. Most make within the range of $100,000 to 150,000 per year. That's a lot of money, but it's important to know that there are different types of real estate investments. In this book, I will touch on a few, but I'll mainly focus on "house flipping" and "wholesaling" as these are the areas I have the most personal experience. But first, let's talk about financing a real estate investment, being most investments are done with OPM (other people's money).

CHAPTER 3 Financing Your Investments estments

Now that you know why real estate investment is a good idea, it’s time to learn how to do it. But before we get into the nitty-gritty details of each investing method, let’s address the elephant in the room: To make money, you need to have money to invest, right? Well, yes but there are many ways to get it. While you do need money to invest, it doesn’t necessarily need to be your money. If your only reference for real estate information is house-flipping T.V. shows, you might assume real estate investing is all about cash buying. This is my specialty, but it's not the only way. There are many investment deals that transpire throughout the real estate market on an annual basis. The majority are achieved through traditional lenders and institutions such as banks, but some are accomplished through less traditional means. In most cases, it’s because the investor couldn’t raise the capital or didn’t have the credit score to do so. According to the 2017 NAR® Investment & Vacation Home Buyers Survey, 47% of investors financed less than 70%. And more than half — 64% — used a mortgage. So, whether you’re reading this as a newbie or a seasoned pro, you shouldn’t feel bad — not even for a minute — if you don’t have the cash necessary to fund your investment. In fact, the ultimate goal for real estate investors is to not use any of their own money at all! This works to every investor’s advantage — those without the funds can still get in the game, and people who’ve been playing for a while can use other people’s 7

money as a way to invest more, which leads to increased income.

Obviously, there aren’t a bunch of people out there willing to just hand over their cash so you can invest. This is when having a solid network is important. You’ve got to be clear on whom you access for help and how to best use the help they give you. It’s also to your advantage to have a high credit score when borrowing. Why does this matter in this business? First, you’ll get more access to working capital, but you’ll also have lower interest rates if you do take out mortgages or loans, which can lead to significant savings versus people with “so-so” or low scores.

WHERE TO GET MONEY Investing without Your Own Money

The first and most common option is hard (i.e., private) money lenders. In this case, people or businesses loan you money as an investment for themselves. They make money through fees and interest rates, both of which tend to be higher than other types of loans. One way to make sure you still come out ahead in the deal is to use these loans to buy homes at 50 cents on the dollar. I've had the privilege of working with several hard money lenders throughout my journey. I took the liberty of listing an example of what is typically needed to receive a hard money loan. This was sent to me by one of my hard money lenders and is pretty much what most lenders require. Check it out!

NEEDS LIST

• Pre-Loan Application – Download the sample document from the portal, fill it out, sign & upload • Schedule of Real Estate Owned – Download sample document from portal, fill out, sign & upload

• Schedule of Real Estate Sold – Download sample document from the portal, fill out, sign & upload • Zero Tolerance Fraud Policy – Download the sample document from the portal, fill it out, sign, & upload • Broker Fee Agreement (if applicable) ENTITY DOCUMENTS • Articles of Organization/Incorporation • IRS EIN Letter • Operating Agreement or Bylaws GUARANTORS ON THE LOAN • ALL Guarantor(s) – ID • ALL Guarantor(s) – Social Security Card or ITIN letter (Signed) • Most Recent 1040 Personal Tax Returns – Pages 1 & 2 (Signed) CONTRACTS • Purchase & Sales Agreement • Earnest Money Deposit (if applicable) BANK INFORMATION • Bank Statements – 2 Full Months, All Pages • Investment/Retirement Statements (if applicable) – 2 Full Months, All Pages • ACH Form and Voided Check – Download sample document from portal, fill out, sign & upload INSURANCE INFORMATION • Hazard Insurance Binder for Subject Property • Flood Insurance Binder for Subject Property (if applicable) TITLE INFORMATION - (Provide contact information, and we will order this for you!) • Preliminary Title Report • Property Survey (if applicable) REHAB INFORMATION • Contractor Bid, License, and Insurance (if applicable) – Required PRIOR to appraisal

being ordered • Draw Schedule – Download sample document from the portal, fill out, sign & upload As you can see, when you are initially looking for a hard money loan, the "needs" are pretty exhaustive. However, once you receive and pay back your first loan, it gets a lot easier. Most of the documents you provide can be carried over to the next investment. You may want to have an LLC in order to be approved, but it's not mandatory for all lenders. They also may want to see that you've done this before. They will want to know your experience, such as previous properties you've purchased and sold. The good news is because of these other requests, most hard money lenders don't care about your credit history. Partnerships are another popular way to get funding. These can work in a variety of ways, but you want to make sure that you balance each other out well. For example, if you have a less- than-stellar credit score, make sure your partner has a great one. Perhaps you can be the one to find the ideal properties and your partner can get the financing, which will come with lower fees and rates thanks to that higher score. Keep in mind that you don’t want to partner with someone just because you already have a good relationship. The key to a fantastic partnership is being in sync, such as agreeing on what kind of risks you’re willing to take, determining what short- and long-term goals you have, figuring out who will do what, and deciding what kind of return you’d like. Make sure everyone's duty is clearly written out and signed by all parties. Fortunately, I've been involved in several partnerships. Because of my real estate and construction background, I've been able to make many good deals. I've negotiated in partnerships where

my partner handles the purchase while I handle the repairs and sale of the property. In these cases, I mostly provided my time, experience, and labor, while my partner used their money for the purchase of the property and the materials needed for the repairs. There are many ways to make a deal work in a partnership.

Investing with Your Own Money

If you don’t have access to private lenders or partners, you can still start your investing career without having all the money on hand. One way to do this without paying any money upfront is through home equity. You can use this by taking out a home equity line of credit (which leaves your mortgage as-is) or rewriting your mortgage and getting a cash-out refinance. Of course, this works only if you currently own property and there’s capital in it. Another route is a lease option, also known as an option to buy or rent to own. In this situation, you would rent the property but sign an “option to buy” at a later date for an agreed-upon price. This legally binding path to property ownership might take a little longer, but it is still a viable option if you have the funds. Most lease-options are written up for five years or less. They typically require a 10% (or more) down payment, several monthly payments, and a balloon payment before the end of the term. A portion of the monthly payments will go towards the purchase price while the rest will be considered rent. If you don't fulfill the terms, you will lose all of the down payment as well as the entirety of the monthly payments that you made. Seller financing is just like getting a loan through a bank — except you agree to the payback and terms directly with the seller. This loan should include a repayment schedule, interest rate, and consequences should either party default on their agreement.

Often, these agreements include a significant down payment (sometimes higher than mortgages). Many of these agreements also involve the seller holding on to the deed until the buyer has completed all the payments. An option that may or may not work for you is investing your retirement funds. This typically doesn’t work for people over the age of 60 because there’s not enough time for rental income to pay off the mortgages. The so-called “sweet spot,” age-wise, is around 35 to 40. This is because people this age have theoretically been paying into a retirement account for about a decade and might have a fair amount to spend. Also, there’s time to get a good return. Perhaps the mortgage will be paid off in 10 years; after that, the net income after operating costs is all yours. Your retirement account can be used for purchasing, and maintaining properties as well as collecting rent. However, none of that money can go directly to you until you’ve reached the age when you can start withdrawing money out of the account. (Well, you technically can withdraw in many cases, but if you’re younger than the legally allowed age for withdrawal, there might be a significant penalty. This could mean losing thousands of dollars, depending on how much you take out.) Self-Directed IRAs (SDIRA) are traditional or Roth IRAs (individual retirement accounts) that allow you to invest beyond the usual mutual funds, stocks, etc. With an SDIRA, you can invest in precious metals, tax lien certificates, and — most importantly, for our purposes here — real estate. When you use your IRA to buy real estate, there are some important things to keep in mind. First, you’re required to report the value of your investment to your IRA custodian every year. Also, the fee structure can be complicated, so you need to understand what you’ll owe and how that relates to your overall profit. Also, your investment needs to bring in enough money to

pay for both regular maintenance and any expenses that come up without you having to add cash. The major benefit of using an SDIRA for your real estate investments comes down to taxes. With a Traditional IRA it’s tax-deferred income, but with a Roth IRA, your gains are tax- free, and the money will also be tax-free when you ultimately withdraw it. If you go this route, you can move funds around from multiple projects without affecting your taxes. (Keep in mind that tax and financial laws can change at any time, so make sure you keep on top of any changes and make any adjustments as needed.) One tax downside is that if your property has a net loss, you don’t get the tax breaks other investors get. You also can’t claim depreciation. Another advantage of real estate over traditional retirement accounts is the return. Real estate can net you perhaps an 18-20% return over 30 years, whereas the more common accounts, IRAs, 401(k)s, etc., might only get you 3-6%. Not only that, but you can use compounding to your advantage. If you keep investing your money for the first 20 years, you can leave it for the last 10 and just let it grow. Doesn’t doing almost nothing while still making plenty of money sound great? As with any investment, there are risks to using an SDIRA. You might make a bad decision or get scammed, which is so common the SEC has an investor alert about the scamming risk for SD- IRAs. Other risks include not having enough diversity in your investments (it’s hard when you have limited funds) and potentially not being able to access the money — even once you’re retired, due to liquidity issues. This means you might not be able to take out the required minimum distributions. Again,

this is why diversification is important; you need to have enough cash to meet all the requirements. Speaking of “following the rules,” it’s vital you know them all. If you do something wrong, you might accidentally disqualify the IRA, which means you would owe taxes. This includes not purchasing property for yourself or your immediate family members. (You can’t buy property from them or sell property to them, either), but there are many other more nuanced rules, as well.

TAX BENEFITS FOR REAL ES R REAL ESTATES INVES TES INVESTORS

Because both federal change and state/local taxes can vary, there’s no specific guidance I can give about that here. However, please understand that the tax ramifications of any kind of real estate investing will depend on your particular location and circumstances, as well as annual changes in the tax code. I strongly recommend that you consult with a CPA or tax attorney before beginning any real estate transaction or investment. With that being said, at the time that I wrote this book, there were some general tax-related benefits for real estate investors that I want you to know about. The first has to do with all the deductions real estate investors can get: mortgage interest, business expenses, such as property management, office, mileage, travel, educational events, etc.; repairs; and improvements made that increase your property’s value. All of these can be immediately deducted, with the exception of improvements, which are depreciated over time. Depreciation of the property itself, regardless of any work done, is also a tax deduction, and it’s done over the course of time. Commercial properties can depreciate over a longer time than residential (currently 39 years versus 27.5 years). The land on

which the property resides never depreciates. If you rent out a property, sometimes depreciation can get you a phantom gain. Here, on paper, the numbers look like a loss; however, because of the depreciation amount, you actually come out ahead. A tax attorney or CPA can help you figure out exact numbers for your situation.

1031 Exchange

Another benefit is the 1031 exchange, which allows you to put off paying capital gains taxes if you use your profit from a real estate sale to buy another property. This makes your income essentially tax-free, and you can put all your profits toward the next property, which is called trading up. A 1031 exchange covers only business or investment properties. In general, vacation or second homes don’t qualify, but you should check with a tax expert to see if there are any exceptions, especially when it comes to the usage test. There are three specific requirements to qualify for a 1031 exchange, and you must meet all of them: • The like-kind exchange. The property you buy must be similar to the one you sold. The purchase price of the new property must be the same as, or more than, the one you sold. There’s no switching from commercial to residential or vice versa; however, you can often exchange property and land. • Time restrictions. You must officially record identifying a

new property within 45 days of selling your old one. There are different ways to identify replacement properties:

1. Find three properties, not worrying about their fair market value. 2. Identify as many properties as you can, as long as their aggregate fair market value is less than 200% of the sold property on the date of the transfer. 3. If the above two rules are exceeded, you can buy 95% of the aggregate fair market value of the identified properties. You also have to close on the new property within 180 days of the previous property’s sale. • A qualified intermediary. Not only can you not be directly responsible for the transactions or money, your intermediary must be someone with whom you haven’t worked for at least two years. Let’s use this example from a March 2019 interview that “The Motley Fool” conducted with Thomas Castelli: Let’s say you have a property you bought for $100,000. Ten years pass, and now it’s worth $150,000. You have a $50,000 capital gain. Break it up in between capital gain and depreciation recapture however you want. You’re still going to have to pay tax on that $50,000. So, when you pay tax on that $50,000 of capital gains, you’re going to have less money you can reinvest. What a 1031 allows you to do is invest that entire amount so you’re not paying the taxes today, and you can purchase a larger property. You could continually purchase larger and larger properties and continue to use the 1031 exchange pretty much forever. And if you really wanted to — I’m just going to be honest, as it’s easier said than done — you can eventually leave the property to your

heirs and they’ll receive that property at the fair market value on the date of your death by eliminating all of this capital gains depreciation recapture that you should have paid during your lifetime. In theory, you can just keep purchasing larger and larger properties, making more and more cashflow, but never actually paying any taxes on that property. In the interview, Castelli also talked about opportunity funds, a new way to possibly put off or completely eliminate capital gains taxes. Opportunity funds are a way to invest in opportunity zones, which low-income communities’ governors have identified, and the Treasury has approved. The funds come with tax incentives, including the ability to defer capital gains on a variety of capital assets. These include not just real estate, but also stocks, bonds, and more. A CPA can give you all the specifics. The timeline has the same 180 rollover as the 1031 exchange, but you’re only required to roll over the capital gain, which means you’re free to do what you want with the money you invested.

Castelli gave this rundown of the numbers:

If you hold that capital gain in the fund for five years, you’re going to receive a 10% stepped-up basis in that gain. Let’s just say you have a $100,000 capital gain, and in five years, you receive the 10% step-up; you’re only going to pay tax on $90,000 of that capital gain. If you hold it for another two years for a total of seven years, it’s going to step up [an additional] 5% for a total of 15%, and you only pay tax on $85,000 of that gain. Now, if you hold that investment in the fund for 10 years, your investment in the actual fund itself will be tax-exempt. Just, say, that $100,000 you put into the fund; 10 years from now, it’s worth $150,000. That $50,000 capital gain is completely exempt from

tax. Now, this is a little longer-term play. You have to keep your money in there for at least five years to see any benefit from it. I think there’s over $7 trillion or some crazy number of appreciated gains in the United States. So all of those appreciated gains are technically eligible for opportunity funds, and I think the background behind this is they want to take those appreciated assets and move them into low-income communities that need renovation and raise the status of those communities and opportunity zones. Opportunity funds are the way to do that. Castelli pointed out one important aspect of opportunity funds for investors to keep in mind: Because of the requirements to have an opportunity fund… You have to substantially improve these assets, which means doubling the property’s basis. Essentially, it’s the building’s basis, but just think about it, I guess for this purpose, as the purchase price. You have to add as much as the purchase price basically in capital improvements, so it’s substantial. Or you have to develop the property from the ground up and you have to hold it for 10 years.

RENTAL TAX SPECIFICS

Rental property owners are open to a variety of benefits, which I’ve listed below. You’ll notice that several are the same as for other real estate investments. Also, as with all properties, if you sell within a year of buying, you’ll be taxed at your income rate. If you hold on to a property for a year or more, as is usually the case for rental properties, you’ll deal with capital gains tax, which is a lower rate. Your overall tax deductions can depend on what type of investment business you have (sole proprietorship, partnership, or corporate entity). And, as always, do your research to make

sure you’re up-to-date on all the latest tax laws, as these can, and do, change.

Rental property tax benefits:

• home office, office supplies, computer software • mileage • travel • meals (50%, as long as you’re having a business meeting while eating) • mortgage, unsecured loan, and credit card interest • loan origination fees or points (they’re considered kinds of interest) • utilities, trash, and recycling

• property taxes • licensing fees • occupancy taxes

• insurance, including liability, hazard, fire, sewer backup, flood, and loss of income (talk to a tax professional if you have an umbrella liability policy or a landlord liability policy) • maintenance, repairs, improvements, and cleaning • advertising • commissions to real estate agents or property managers who find tenants and renew leases (this is considered part of marketing, not property management) • property management fees, salaries, and benefits (if you manage yourself and your business is an LLC or corporation, you may be able to be employed and have your salary be deductible) • homeowners’ association fees (HOAs), as well as whatever HOA requires, such as specific “For Rent” signs

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108 Page 109 Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 Page 121 Page 122 Page 123 Page 124 Page 125 Page 126 Page 127 Page 128 Page 129 Page 130 Page 131 Page 132 Page 133 Page 134 Page 135 Page 136 Page 137 Page 138 Page 139 Page 140 Page 141 Page 142 Page 143 Page 144 Page 145 Page 146 Page 147 Page 148 Page 149 Page 150 Page 151 Page 152 Page 153 Page 154 Page 155 Page 156 Page 157 Page 158 Page 159 Page 160 Page 161 Page 162 Page 163 Page 164 Page 165 Page 166 Page 167 Page 168 Page 169 Page 170 Page 171 Page 172 Page 173 Page 174 Page 175 Page 176 Page 177 Page 178 Page 179 Page 180 Page 181 Page 182 Page 183 Page 184 Page 185 Page 186 Page 187 Page 188 Page 189 Page 190 Page 191 Page 192 Page 193 Page 194 Page 195 Page 196 Page 197 Page 198 Page 199 Page 200