When to Sell | HTH024 | 578

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Finding a Good Turnkey Market

You should hold your houses! However, there are times and circumstances when selling them is beneficial and if you want to know where and how to do it, stay with us. You will learn why we sold some of our properties, why you should diversify your portfolio, and how real estate hedges against inflation.

What You Will Learn About When to Sell | HTH024:

  • Why we sold some houses
  • The strategy for raising capital to buy more properties
  • How the buying criteria have changed over time
  • Why you should diversify your portfolio
  • How you can increase your ROI by selling
  • How real estate hedges against inflation
  • The value of education and experience

Whenever you’re ready, here are a few ways we can help:

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If you’d like to work directly with me on your business… go to REIAce.com, share a little about your business and what you’d like to work on, and I’ll get you all the details!

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  • Grab my book, Epic Freedom ($1) 
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  • Join our Badass Investor Program and be a Case Study 
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Transcript:

Speaker 1: This is Theriault Media.

Don’t wait for appreciation to buy real estate. Buy for cash flow and wait. In other words …

Hold that house.

Your hosts Matt Andrews and Matt Theriault.

Matt Theriault: Hey there. Flipping houses can make you rich. Holding them will make you wealthy. This is The Hold That House Show. I am Matt Theriault and over there is Mr. Matt Andrews.

Matt Andrews: Yeah, baby.

Matt Theriault: And before we begin, we’ve got a free gift you. A free gift just for you. Go to holdthathouse.com and download The 4-Hour Work Month, The 10 Commandments to Managing Property Managers. That’s the key ingredient, Matt, to financial independence through real estate that they’re not telling you about. Property management. Is that the most boring subject you can possibly think of?

Matt Andrews: Yeah, it’s boring. And it’s excruciating. If you do it yourself, it’s terrible.

Matt Theriault: Right?

Matt Andrews: I did that for a while.

Matt Theriault: I know it, I know it.

Matt Andrews: It was a 400 hour work week.

Matt Theriault: 400 hours, right? So that’s why we call it The 4-Hour Work Month because that’s the key ingredient to making that happen and making that be a reality and there’s no real embellishment there, either. And you can get that for free at holdthathouse.com. Holdthathouse.com.

Matt Theriault: All right, Matty. Here we are, week number four of our summer tour through Tampa Bay, Florida.

Matt Andrews: That’s right. That’s right. It’s still hot out there.

Matt Theriault: It’s still hot out there.

Matt Andrews: Beautiful, though.

Matt Theriault: Lot of great advantages and nice benefits and perks to living in Florida. But there’s one element that keeps me in California.

Matt Andrews: June, July, and August, just stay away from this state. I’m telling you right now, I spent most of my life here. Stay away from it. But you’re going to be hard-pressed to find any more beautiful weather in December, January, and February. Everybody wants to be here then. So yeah, you know, have a summer home elsewhere, spend the rest of the time here.

Matt Theriault: For sure. How many months of the year do you have to live in a place to declare that as your residence? Is it 51% of the time?

Matt Andrews: I think it is?

Matt Theriault: Is that enough?

Matt Andrews: Yeah, I think it is.

Matt Theriault: That’d qualify for Florida’s tax-

Matt Andrews: That what south Florida is.

Matt Theriault: Right?

Matt Andrews: Yeah.

Matt Theriault: That would be good.

Matt Andrews: That’s what the entire city of Sarasota is.

Matt Theriault: Is it?

Matt Andrews: People living there 51% of the time, yeah. Absolutely. Buying yachts with the money they save on one year of taxes and stuff.

Matt Theriault: For sure. Yeah, if you live in California, that savings would amount to about a yacht.

Matt Andrews: Huge.

Matt Theriault: A yacht a year. I love it. What are we going to talk about today? Well, this is the Hold That House show. But when do you actually sell? Do you hold it forever? My quick answer is yes.

Matt Andrews: If you want to, sure.

Matt Theriault: Yes.

Matt Andrews: Absolutely. I mean, the benefits, like we say every single podcast, you build wealth by holding it, right? And so the longer you hold it makes sense. The more you build and the longer you hold, the more you come into the benefits of things like appreciation, even though we always say that’s not what you buy it for, that’s just icing on top. But that’s how the wealth is created, with that long term hold. So yeah, I’m with you. Let’s hold them forever.

Matt Theriault: Let’s hold it. The show’s over.

Matt Andrews: All right, thank you, guys.

Matt Theriault: No, the reason … Any buy and hold investors, you know, I went through my do-over and was in the music business for 15 years. The digital download came and just turned that whole industry upside down. Age 34, I was bagging groceries and I had to re-create my wealth. And I said this time I’m going to do it so it sticks. And I’m going to go out and learn from people that have been there and done it and made it stick.

And if you go to any of the real estate investing clubs, and you just kind of look around the room for the old salty dog in the room, maybe it’s even the speaker that night that you need to talk to. And when you ask them, if you were to do this all over again, what would you have done differently? I mean, you will always get some variation of I wish I would have bought more and sold less. Every single one of them.

And these are like the, you know, this is the silver hair people or the no hair people.

Matt Andrews: Right. No hair people, sure, sure. No, wait. That’s us.

Matt Theriault: That’s us.

Matt Andrews: But you’re right, though. And when you said the old salty dog, I got the picture in my mind of three or four different clubs I’ve been to and I know the guy at each one of those clubs. And I know who you’re talking about. I think people do too. Yeah, it’s the guys who wish they had never sold anything.

And I think back. I’ve been flipping properties and investing in properties for almost 16 years now, and I wish I wouldn’t have sold anything either. Now, the reason I did have to sell was because I needed to keep selling to keep buying. And I needed to keep doing it because I didn’t understand what I understand now about leverage.

Matt Theriault: Right.

Matt Andrews: And about bringing in partners or about, you know, just leveraging people or money or whatever. I just didn’t know that back in the day. Had I known that, had I known about owner finance strategies and just different things like that, I probably wouldn’t have sold anything. You know, and all these properties I bought for 30, they’re all worth 150 now and stuff like that, you know? I mean, yeah, I’d like to have every one of those for sure.

So how do you that and how do you make sure you’re not missing those opportunities?

Matt Theriault: Right, and that’s a good point. I mean, you and I both emphasize on the hold strategy, but we’ve both sold properties. We’ve both sold a lot of properties.

Speaker 1: We’ll be back in 30 seconds, right after this.

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Matt Theriault: What is the reason that we sold, then? This was actually, that just made me think of it. Some guy thought he was being really tricky and sent me a Facebook message on one of the Facebook pages that I have and he says, “If buy and hold is the name of the game, why do you sell turnkey?” I was like, you think you’re so smart. Like, you just think you’ve got me in the corner.

Matt Andrews: You got me. Oh, man. Dissolve the business.

Matt Theriault: Why do you sell properties, then? That’s a great question, though. And some people might be, well, yeah, Matt. Explain that one. Tell me why. So there are reasons to sell.

Matt Andrews: Sure.

Matt Theriault: Okay, so let’s talk about the reasons. You already mentioned one. Ignorance. You didn’t know any better. So that might be a reason to sell. But let’s talk about if you do have the knowledge and you are being strategic about that to continue your holding strategy. And one of the reasons that I sell is it raises capital for me to buy more property.

Matt Andrews: There it is.

Matt Theriault: That’s a biggie.

Matt Andrews: Yeah, you have to determine the highest and best use of your funds or equity or whatever it is. And if you can parlay that into something bigger and better that does more, why not keep doing that, right?

Matt Theriault: And you know, Matt, you and I, we’ve done this. You’ve probably done this about twice as long as I have. But we’ve both gotten very good at finding deals. Finding a good deal is not that big of a deal for us.

Matt Andrews: Yeah, you’re better at finding them in more different places because you’re in so many different markets, you know? I’m in a few. You’re in a bunch.

Matt Theriault: Right? Right? But we can find those deals. And they might not be deals that we necessarily want to hold on to or it doesn’t fit the profile of our portfolio.

Matt Andrews: Sure.

Matt Theriault: It doesn’t mean they’re bad properties.

Matt Andrews: No.

Matt Theriault: Not by any means. But because of the way that we can find deals, we can still sell that for a profit to somebody else, which is still a deal to them. Because they do something else during the day. You know, they got their own business going on. They got their own family stuff going on. They got their career going on, whatever it may be. So that’s one reason we sell, to raise capital.

Matt Andrews: Every investor’s criteria is different. What they need is different. The kind of properties that I primarily bought to buy and hold early on when I started my real estate investing business is not the kind of properties I buy now, you know? Now, they still generate good cash flow for people that are buying those properties, but I bought a lot of real low-income properties in certain areas of Tampa because they were easy to get and people didn’t know how to manage them. And I hated managing them, but I knew how to do it, you know?

Now, eventually, I figured out hey, this is not the best use of my time. I feel like I’m hitting my head up against the wall every time I do this and so I started getting into a slighter higher grade of properties and kind of found my sweet spot. So for me, it wasn’t even so much hey, I’m buying these to make a lot more. The cash flow was really good on those properties, but the headaches that came with them were detracting from other areas of my business.

So sometimes like you said, and like we talked about, it’s about finding the highest and best use of those funds, of that money, of that equity, and then putting it into something else. Sometimes it’s the highest and best use of your time, too. You know, if you’re making really, really good money at something but you hate it and it’s pulling and draining your energy? There’s a value lost there and it’s hard to tabulate that loss, right? Well, if it’s money, we look at our bank account, okay, it was this much. But we can’t tabulate the loss of productivity that we lose when we’re doing the wrong thing.

So for me, I had to get out of those properties into something else. You know, those properties still exist and I guarantee somebody probably owns them pretty well and is making pretty good cash flow on it. They might not like managing them either, but they’re doing okay because they’re good. You know, they’re good properties. So many times it’s about, you know, what’s right for the investor because we all have different goals. You know, those weren’t right for me anymore.

Matt Theriault: Right.

Matt Andrews: So, yeah, that’s a big piece of it.

Matt Theriault: So I would say number one is to raise capital. Number two, which you pretty much covered, is to eliminate headaches. Get rid of the problem properties.

Matt Andrews: Absolutely.

Matt Theriault: And I’ve certainly had those where I was like I regretted buying this property. And sometimes, I mean we both have the knowledge and experience to turn a property around.

Matt Andrews: Sure.

Matt Theriault: But now we get to a point where we’re so invested in that property it doesn’t make sense to put any more dollars there, throwing the good money after the bad, right?

Matt Andrews: Exactly.

Matt Theriault: So go ahead and cut your losses and pass those losses onto someone else and let them give it a go.

Matt Andrews: Absolutely.

Matt Theriault: It’s done all the time and I see it happen all the time. So get rid of headaches. Another reason to sell that I’ve sold in the past is to diversify my portfolio more. Whether that’s into a different property type or into a different market.

Matt Andrews: Absolutely.

Matt Theriault: I love real estate but if you own everything in the lower ninth ward in Louisiana, you’re subject to certain types of risks.

Matt Andrews: Yeah. You’re dealing with insurance a lot.

Matt Theriault: Right? If everything’s in Oklahoma, you’re subject to certain types of risks. Or if you’re in an area that’s dependent on one industry, like a Detroit, you’re subject to certain types of risks. I guess that’s kind of gone now, but that’s a vulnerability that market had. I remember back in the, I think it was the late ’80s in southern California in the Long Beach, Lakewood area. You know, it was very much aerospace-centric. And when the aerospace started really downsizing, that just crashed the whole area. So those are reasons to diversify.

Matt Andrews: Yeah, I had friends that were heavily invested around the automotive industry in Michigan. And you know, we still don’t know what’s going on in Detroit and those kinds of areas. If all you have are rental properties in that area, you took a giant hit. Yeah. And I saw that there and saw that in other places. So for the same reason as you, I diversified. I thought, hey, I’m in Florida pretty much in a certain area of Florida here. It’s been a good market. I think it’s going to keep being a good market.

But I started really seeing the necessity a few years ago to move into west Michigan. Not Detroit, but west Michigan and Ohio and Indiana and some of these other states that I’m investing in now. And more recently like Memphis and a couple of markets in Alabama. You know, diversifying. And some of those will do really, really well and some of those might flat line. And every once in a while, something bad might happen in one of those markets. But I’m in six markets.

Matt Theriault: Right.

Matt Andrews: You know, and you’re in what?

Matt Theriault: 10 now.

Matt Andrews: 10 markets. Yeah, so diversifying. We probably should have an entire episode on that at some point and how do you diversify and how do you choose how to do that by price or by market, and kind of what are the delineations there? But that’s huge and that’s definitely been huge in my business for sure.

Matt Theriault: For sheezy.

Matt Andrews: For sheezy.

Matt Theriault: For sheezy.

Matt Andrews: Love it.

Matt Theriault: The other reason I would sell a property and this is probably the number … Let’s see, number one? Maybe between raising capital and this one is I’m constantly looking in my portfolio and monitoring the return on investment, the return on equity. And if I can get a certain amount of appreciation in property and I can go ahead and sell that for a good profit and I can go and buy two more to increase my return on investment, I will do that. That’s one strategy I look at very closely all the time.

Or if I come across a really hot property and I don’t have the cash disposable or liquid at that time to acquire it, I’ll go ahead and sell my lowest performing property to pick up this next one. You know, I don’t think I have anything less than a 20% cash on cash return. But it didn’t start that way like nine percent was a great return for me when I got started.

Matt Andrews: Sure. Great for most people.

Matt Theriault: Right?

Matt Andrews: Yeah, absolutely. Very happy with that.

Matt Theriault: And just over time, I’ve just kind of slowly leapfrogged my lowest one up into the higher one, the higher one, the higher one, and so that’s another reason to sell.

Matt Andrews: I think you make a great point there. And you know, everybody who’s listening right now and all of us, me and Matt and all of you guys, we’re all about building wealth. That’s why we’re here, right? And so building wealth, as Matt just kind of explained, you know, you kind of just tweak things and make it a little bit better, make it a little bit better. You learn more, you put your time to better use. You learn more, you put your money to better use. And you slowly enhance that portfolio. That’s really part of the fun part, I think.

You know, once you own properties, once you have good passive income coming in, then you get to, like you just said, kind of look at that on a monthly basis and kind of look at it like an architect, you know? And it gets to be fun like you know what? This market over here with these 20 properties is doing this and I see that, and that’s cool. This one over here is not doing that. Well, that’s interesting. You know, you can decide well, maybe I should sell a couple of those and put it over here. And you start to kind of play, you know, you start to kind of engineer your portfolio and slowly make it better and better. And you can only do that if you’re a long term holding property, right? So I love that piece about it.

And when you have one or two properties, you don’t quite get it yet, you know, because you can’t really do a ton with one or two properties. Once you start to build that portfolio and a real wealth engine, then it’s about engineering that the right way and little tweaks here and there and subtle improvements. And then ten years later, you’ve gone from nine percent to … You don’t think you don’t have one under 20% now.

Matt Theriault: Right.

Matt Andrews: Guys, that’s … I know sometimes property management and holding properties is boring but going from nine to 20%, that’s sexy. I’m just going to go ahead and say it. That’s straight-up sexy.

Matt Theriault: And when you get those seller finance deals and those returns are infinite returns, those are a whole lot of fun.

Matt Andrews: Exactly. Exactly. And you didn’t know that 10 years ago either, did you?

Matt Theriault: I did not. No, I did not.

Matt Andrews: We’re all in the process, guys, of just learning and adding to our business and every new podcast you listen to, every new person you meet, everybody you learn from, every investor you work with opens a new door to learning something you didn’t know. And that all comes together to help you build wealth. I’m always learning, Matt’s always learning, you’re always learning, and we’re always getting better and better and better. The one thing we don’t want to do is stop learning, stop growing, right? That would be the kiss of death to have your portfolio flatline or decrease because of mismanagement or whatever because you’re not growing and changing and making it better all the time. So that’s huge.

Matt Theriault: I would say the last one, just to maybe expound on that last one a little bit. When to sell. I always look to increase or bolster or strengthen my own portfolio.

Matt Andrews: Sure. When that makes sense.

Matt Theriault: Multiple it or increase the ROI. Also, I guess the other thing to sell or why you wouldn’t want to sell is what are you going to do with your money anyway once you do sell it?

Matt Andrews: Right.

Matt Theriault: Right? So I would say the last reason to sell is just if a better opportunity comes along. Something. But better.

Matt Andrews: Right. One that’s going to keep moving.

Matt Theriault: Be sure that it’s still going to move you forward and it’s going to preserve your wealth. Experiencing a giant uptake if you time the market right and you’ve to pull a hundred thousand bucks or half a million dollars out and you’re really excited because you feel like you just totally scored and you pull that out, what are you going to do with it?

Matt Andrews: Right.

Matt Theriault: Please do not put it in the bank.

Matt Andrews: Yeah. Don’t put it under your mattress.

Matt Theriault: Please do not put it under the mattress. Please don’t bury it in the backyard. Please do not put it in the stock market or mutual fund. Don’t do that. Just the way that inflation works and the way that our dollar is moving-

Matt Andrews: It will disappear.

Matt Theriault: It will disappear.

Matt Andrews: Yeah, you won’t even know what happened to it.

Matt Theriault: You will still have your half a million dollars, but it won’t buy you anything.

Matt Andrews: Yeah.

Matt Theriault: So you got to stay ahead of inflation at the very least, and one of the great things … And we don’t talk about that much about the real estate is that it’s a hedge against inflation.

Matt Andrews: Right.

Matt Theriault: The value of real estate and inflation rate are neck in neck. Over history, they go back and forth, but they are neck in neck. If you can hedge against inflation and you get that nine percent cash on cash return, that’s true nine percent. And nine percent in your savings account is not a true nine percent. You’ve got a three and a half, four and a half percent inflation that takes half of it away from you.

Matt Andrews: Right.

Matt Theriault: So keep that in mind. Look for a better opportunity. If you can put that money to work for you better, easier, harder, stronger, faster, quicker, then go for that. That would be another reason to consider selling.

Matt Andrews: And how do you learn that stuff and how do you know that stuff? By listening to podcasts like Hold This House.

Matt Theriault: That’s right.

Matt Andrews: That’s exactly why you educate yourself, so you know what those opportunities are because there’s always a better opportunity out there. The question is, do you know where it is or what it is or how to access it, right? I mean, there always something better that you can do with your money. You’re constantly looking at new markets. You’re constantly looking at different types of properties. Why are you doing that? You’ve got something that’s working really, really well already, Matt. So why are you doing that? Because you know that there’s something else better out there, right?

Matt Theriault: Right.

Matt Andrews: There always is. And the only separation between us and that is the knowledge, that knowing the doors there.

Matt Theriault: The experience.

Matt Andrews: The experience. The people that can open that door for us. That’s what it’s all about and that’s what we want to be for you guys. So, you know, we want to open doors just like people are opening doors for us. So keep giving us feedback. You know, you guys have had great feedback on the podcast, so keep giving us that feedback and we’re going to keep giving you the info.

Matt Theriault: Love it. You just brought something up. You know, four weeks ago when I flew out here to hang out with you for the next three months, I was listening to one of the episodes because we had someone doing post-production on the actual podcast. I was like let me check, let me just do a little quality control check because I never really listen to these after we record them. And I found myself listening to three in a row on the plane. I was like, oh my God. If I had this information when we first started. And you know what else is surprising? We probably did have that information. Someone probably did share that with us.

Matt Andrews: Maybe.

Matt Theriault: But because we didn’t have the experience, we didn’t recognize it for what it was.

Matt Andrews: No, and I think we even said it in one of those early podcasts, we didn’t know what we didn’t know, right?

Matt Theriault: Right.

Matt Andrews: You don’t.

Matt Theriault: You don’t.

Matt Andrews: No, absolutely.

Matt Theriault: Wow, this is … And it’s free.

Matt Andrews: I know. Absolutely.

Matt Theriault: Again, being a professional podcaster, there’s nothing really professional about it.

Matt Andrews: You can take that to the bank. Well, no, actually you can’t.

Matt Theriault: You cannot take that. All right. We’ll see you next week. That’s it for today. Flipping houses can make you rich. Holding them will make you wealthy. We will be back. Until then, remember, don’t wait to buy real estate. Buy real estate and wait.

Speaker 1: Hold That House.

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