the POWDER KEG Risk Factor in Rental Property Investing | Episode 121 - a podcast by Bryan Ellis - SelfDirected.org
from 2015-08-25T13:45:07
There’s a heinous risk that lurks with every single rental property investment. One false move with this powder keg, and your portfolio can go BOOM. I’m Bryan Ellis… I’ll tell you what it is, and how to mitigate it RIGHT NOW in Episode #121
---------
Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you! If you’re looking for advice that’s adequate for nearly any investor… strategy that any John or Jane Doe can use… opportunities for the masses… well then, this AIN’T your show. I’m here to bring great clarity and expose exceptional opportunities to the affluent self-directed investor… and to you alone. If that’s you, let’s get started, shall we?
So, yesterday was a crazy day on Wall Street, huh? The Dow was down well over 1,000 points to start the day, then it rallied back almost as much, only to close the day down a net of nearly 600 points. Absolute insanity is what it is.
And you know what? All indications are that today will be a huge UP-day. Not for fundamental reasons, but for reactionary ones. And before I get to the focus of today’s show – which is one mega-risk that exists with rental property as an asset class – I’d like for you to ponder this, my friends:
Core Value #1 of wise self-directed investors is this: We RESPECT our own capital. That capital came as a result of your own time, energy and effort… or maybe it found its way to you through the blood, sweat and tears of someone who cares about you. Either way, that capital deserves to be RESPECTED.
Is it really showing respect for your capital to have it exposed to the incredible risk that is Wall Street? Is it showing respect for your capital to expose it to a risk that is absolute, ferocious, and wholly outside of your control? Think hard, my friends. Think hard.
So, on to today’s discussion about rental risk – and how to mitigate it. Just a quick note: This week I’m hosting a GREAT training… I’ll be teaching you about 3 different geographic markets that MAKE THE GRADE as excellent rental property locales. But even within those markets, not every single property gets the SDI seal of approval as SIMPLE, SAFE and STRONG. But I’ll tell you EXACTLY how to find those properties and what makes them such great opportunities. In fact, I’ll have several samples currently available to share with you. More about this training at the end of this show, but if you’d like to go ahead and register now, you can do so by texting the word INVITATION to 33444 or by visiting SDIRadio.com/invitation.
Folks, I think that buying and holding rental property can be a great way to build a sustainable base of wealth for your portfolio. I really do. Look – on the training I mentioned to you just a moment ago, which happens later this week, I’m going to introduce you to some great off-market properties that, in my humble but entirely accurate opinion, represent really, really solid investment opportunities.
But I’m also a realist. And there’s a risk that exists with rental property ownership that, frankly, is terrifying… and that most companies who market “turnkey” rental properties are careful to avoid discussing with you.
What’s that risk? Lawsuits. And more specifically, the astounding cost of those lawsuits.
Really, if you think about it, lawsuits go with the territory of real estate. Even in the normal course of business, you’ll occasionally have a tenant who doesn’t turn out quite right, and will have to evict the tenant. In most states, eviction involves a legal proceeding of some sort, and sometimes even a court appearance. Sure, it’s likely your property manager who handles that for you, but the point remains: Lawsuits really are part and parcel to the rental property business.
I won’t spend any real time talking about mitigation of legal risks involved in eviction, other than to say that 99% of the battle there is proper documentation. Documentation of things like: The terms of your lease, move in/move out inspections, handling of security deposits, maintenance responsibiliteis, etc. Again, this stuff is the job of your property manager, so you shouldn’t have to think much about it. But you should, at the very least, determine before hiring a property manager what their success rate is when filing evictions. It should be very close to 100%. If it’s not, either the property manager isn’t documenting the important things well, or the regulatory environment is unfavorable to landlords. You can always replace your property manager. But you can’t easily change the law… so buy carefully to begin with.
But far more ominous than eviction lawsuits are what I’d call real lawsuits… the kind where somebody on your property trips over a stump, falls down, hits their head on a stump and dies or is seriously injured from the impact. Or more likely, the kind of lawsuit that results when you’re in a minor fender-bender, but the other party decides to sue you for all you’re worth… which includes your rental property.
Folks, the thing about lawsuits is this: They can be CATASTROPHIC, even if you win them. Here’s an example from my own life: I once took on a business partner, and it was a poor decision. Very poor decision. Great learning experience – taught me the horrible effects of insufficient due diligence – but still a very poor decision. What I failed to discover in time was that this guy was actually a convicted felon AND was very, very fond of suing people. And ultimately, he sued me – as he’d done with so many of his past business associates. Now, here’s the thing: I won. Won convincingly. In fact, he sued twice, and both times, we got his case dismissed before trial. It’s hard to win more convincingly than that. But do you know what? It still cost me about $80,000 to win. Not good! That’s the cost of a rental property by itself.
What’s the solution? Well, there’s good news and there’s bad news. The Bad news: There’s absolutely no way to absolutely eliminate the threat of lawsuits. You can – and should, after confirming with your own lawyers – use language in your contracts that sets strict limits on liability and firm guidelines for how disputes will be resolved, but that only goes so far. If you’re involved in a fender bender with a litigious counter party, there won’t be any prior agreement between the two of you determining how to settle the conflict. It’ll just be a matter for the legal system.
So what’s the good news? It’s possible to make yourself a very, very unattractive target for that kind of lawsuit. How? I’ll bet you think it has something to do with putting your properties into LLC’s or corporations or something. Sure, that’s one way to go… and maybe it’s the right call for you. But there are other, easier ways to practically be very, very wealthy while being legally very, very poor.
One great approach is to legally SHIFT the equity in your properties so that, in effect, nobody even knows that equity exists. If you appear to own a lot of property, but you have no – or even negative – equity in them, you become very unappealing as a lawsuit target. There are a number of ways to do this, and the right way to do it for YOU is not a cookie-cutter answer. In fact, one way of doing it that’s perfect for me might actually cause YOU even more legal trouble. That’s why, by the way, every client in my SDI Core 100 group – the small group of investors with whom I work most closely – is required to have a pre-purchase consultation with the asset protection attorney that is my SECRET WEAPON for avoiding legal trouble. We actually pay for this consultation for our members… it’s that important that it happen. You see, you’ve got to get this stuff right from day 1, and in fact, I won’t even work with clients who refuse to be proactive about protecting themselves from legal risks. Because, you know what? It’s really pretty easy to get it right… when you think about it in advance. And that’s part of what I FORCE my clients to do before I allow them to purchase any of the great deals we offer from time to time.
So what about you? If you’d like to learn about 3 GREAT markets for rental property in America… along with an introduction to several specific off-market rental properties that fully embody the criteria of SIMPLE, SAFE and STRONG – and maybe even learn how you can have a solid dose of legal protection built into your rental property investments from day 1 – then join me for our special webinar this week. To get your invitation, text the word INVITATION to 33444 or visit SDIRadio.com/invitation. Respectfully, I recommend you move quickly on this.
My friends: Invest wisely today… and live well forever!
Hosted on Acast. See acast.com/privacy for more information.
Further episodes of Self Directed Investor Talk: Alternative Asset Investing through Self-Directed IRA's & Solo 401k's
Further podcasts by Bryan Ellis - SelfDirected.org
Website of Bryan Ellis - SelfDirected.org