Hello. Hello my friends. Welcome to another episode of Ask Marco on the Passive Real Estate Investing show. I am glad you’re here and I do want to make a quick apology for being late on releasing this episode, which is supposed to be out last week. But I was actually in Florida in Fort Lauderdale at a major event that my partners and I were putting on called Aspire. And it’s, we refer to the whole event as the Aspire Tour because every month we’re in a different major city around the United States on Thursday in Fort Lauderdale we had 1500 people there. Last month in Dallas we had 2000 people in the room. So these were major events and we have some great speakers there to educate and talk about personal growth and money and investing and money movement and so many different things related to wealth and financial freedom, as well as personal growth and personal development.
So we call it Aspire. It’s the Aspire tour and, and the website, if you wanna just check it out, it’s aspiretour.com. Now, I will tell you that there is a new website that is being launched sometimes soon. I know it’s in the works and it’s in beta, so it’ll probably be released here in the next week or two hopefully. But I was in Fort Lauderdale and it was just crazy. It felt like a mini apocalypse. My flight was canceled, literally coming in to the airport. We ended up circling around the Fort Lauderdale airport for a while before they finally said, we’re not reopening the airport, we’re gonna send you to Tampa. And so the plane turned around, started heading to Tampa, never made it to Tampa. Ended up landing in Sarasota. When my flight landed, I pulled out my smartphone, went to Expedia, booked a car rental from Sarasota to Fort Lauderdale.
My intention was to drive it one way and drop it off at the Fort Lauderdale Airport when the event was all said and done. So I ended up driving there and drove into some torrential rain. It was unbelievable. I was told that they had one third of their entire annual rainfall happen in one day. And from what I’ve read, I’ve heard different stories, but from what I’ve read, they measured 26 inches of rain at the airport within a 24 hour period. And the majority of that rain, the 26 inches, came down within a 12 hour period. It was setting a record. Previous record for the rainfall in Fort Lauderdale was back in 1979, and that was less than 15 inches, which is still a tremendous amount of rain for a 24 hour period. So when I got to the city, there were cars, quote unquote, floating in the water.
There were pools of water everywhere. Cars were stalled in the middle of the road. People were literally driving on the wrong side of the road, purposely, of course, to get around what they couldn’t drive through on the right side of the road. Power was out in different places. It was nighttime, it was raining hard, it was hard to see lots of people walking on the sides of the road and the meridian of the road. It was just crazy. It just felt like a mini apocalypse. It was funny and scary all at the same time. And then I finally got to my hotel. The power was out. It was a nice Hilton on the water, no power, no hot water. Checked in at midnight, finally got to bed at one. Had to use my smartphone for lighting to light my way around the room cuz I couldn’t see anything.
There was no electricity, no lights, but it was crazy. After all of that, I was pleasantly surprised and amazed that all 1500 paid ticket holders showed up to our Aspire event the following morning at the Fort Lauderdale Convention Center. It was unbelievable. And it just goes to show that people who have a certain mindset, you know, for success, personal development, growth, even entrepreneurship, and just a business like mind that are aspiring, there’s that word again, but aspiring to be something bigger and greater than themselves, or just to grow into somebody that they want to become. It just shows you that nothing will stop you, you’ll just do whatever you need to do, whatever it takes to become that successful person. So I guess a shout out to all those people that made it. Our next event is in Denver, so if you want to attend that, you know, please come on by and you can find all the cities and dates that are updated weekly on the sspiretour.com website.
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Anyway, enough about that. I just wanted to tell you what was going on and the experience that I had last week and why this episode is running a little late. Before I jump into the first question here, we’ve got some great questions cover. Just wanna remind you, if you are listening to this and you haven’t subscribed or if you’re a new listener, welcome to the show. Remember to subscribe. It only takes a few seconds and that way you don’t miss out on a weekly episode. All right, let’s move on to the first question here. So the first question is from, I hope I pronounce your name properly, RI Madi. They write in and say, hi Marco, hope you are doing well. And thank you for making incredible content accessible to all of us. As a California resident with out-of-state properties, it is not financially viable to have one LLC per property.
I received device instead to have one rental property in a land trust for separation of liability and privacy. And all the land trusts be owned by an LLC for liability protection. Do you know if this is a better method and if it works as intended? And then he goes on to say, moreover, land trust transfers don’t call for a lender due on sale clause either. So that is a, is good as well, trying to interpret this here, would like confirmation that this is a good solution for the intention of privacy and asset protection. Okay, very good question. I haven’t had a land trust question come up in a long, long time. So first and foremost, as you all know, I I say this somewhat regularly. I am am not an attorney, so I’m just giving you my knowledge and my experience. But this is a pretty straightforward question.
First and foremost, well, let, let me just say this. You probably got some misinformation here or you misinterpreted it because this is not correct advice from my knowledge and my understanding. You see, land trusts are not asset protection vehicles. No matter what anybody tells you. A land trust, which is just a trust holding title to a piece of property, any type of property, is not a form of asset protection. Yes, it does provide anonymity. So there is the privacy part of that. It also has some other benefits that come along that, let’s just say this, it is a benefit, but it’s not necessarily a benefit that you would ever realize. So let’s put it this way, a land trust allows you to transfer title of a property into a trust providing anonymity. It’s the privacy piece does not provide asset protection like an LLC does or a irrevocable trust would.
And that’s a whole other conversation for another day. In fact, I, I’ll probably bring someone on to discuss irrevocable land trust at some point here. But a land trust just allows you to do two main things. One, provide anonymity in the form of privacy. The other thing it does is it allows you to transfer title on property that has mortgage financing without alarming or triggering what’s called the due on sale clause. Now, the due on sale clause is there for lenders to accelerate a loan and basically demand full payment of the principle if they want to. And it has to be triggered in certain different ways. For example, if you stop making mortgage payments and it goes into default after a certain number of days, they can accelerate the loan and basically say, well, you’ve breached your contract. All the principles now do in full.
But in the past long ago, what would happen is people will transfer title to their property for asset protection purposes and or anonymity purposes, and lenders could and sometimes would accelerate the loan. And this was kind of an unfair thing. So back in October of 1982, there was an act passed called the Garn St. Germaine Depository Institution’s Act. We referred to it as the Garn St. Germaine Act for short. It’s just much easier to talk about that. But that act was initiated under the Reagan administration and it had huge support. It was passed 272 to 91 in the house. And what it allowed you to do is avoid the due on sale clause when you were transferring title for the purposes of setting up your estate or setting up your personal financial affairs. And so this was a great thing because a lender could now not exercise its option on that due on sale clause upon a transfer of that real estate or that asset into a trust of your choosing, like a land trust.
So it was, it was great because it just gives you the freedom and flexibility to do your state planning and provide anonymity for your assets without the fear of lenders calling their loan due. So it was, it was a big deal and, and still exists to this day. And a lot of people who choose to use land trust as just yet another layer to the onion of asset protection and anonymity can incorporate. So let’s get back to your question here. So now you can use a land trust, but it doesn’t provide asset protection. What it does is it provides that anonymity. And now you can take that land trust and have your LLC own the land trust that owns the property. So that’s the extra layer to the onion that I’m talking about. But at the end of the day, you still given probably some bad advice because on the one hand, you don’t necessarily need one LLC per property, although some people who go to the extreme maybe overboard do that.
But at the end of the day, you want your properties held in one or more LLCs in the same state that you own the property. And how many properties you put in an LLC is really just a function of how much your risk tolerance is and how much equity you have in those properties that you want to hold in the LLC. Obviously, the more equity you have in a property or a set of properties, the more exposure you may potentially have in a lawsuit or a judgment. And so you wanna limit that to whatever degree in each llc. So that way if there is a a lawsuit, there is a judgment against you and there is a collection, there’s little to go after and little is a relative term. And I say that in air quotes. So the extreme situation is you put one property per LLC in the state that you own the property, and that LLC typically is owned by another LLC, which is a holding company, a holding LLC, it’s not even an operations company, it’s just a holding entity.
And then you own that LLC or you have a trust, like a living revocable trust or sometimes irrevocable trust own that LLC. Now I, I know this sounds like a lot and for some people this is clear as day and for other people this is like something that is causing your eyes to glaze over, but that’s why you have attorneys like asset protection attorneys that can help you with all this stuff. So how many LLCs you have is based on the amount of equity that you hold in your properties and your risk tolerance. It doesn’t have to be one LLC per property. Many investors don’t do it that way. They’ll have two or more properties per llc. And again, land trusts are not a form of asset protection. They are a form of anonymity for the privacy, but that separation of liability and privacy is typically in the hands of the LLC and maybe with an A land trust.
So I’ll just end the answer to your question there because I’ve pretty much covered it. But again, if, if you were to talk to an attorney or another professional about this, they will be able to clarify this and help you put it together a little better than you know, the way I just laid it out. All right, my next question is from, I believe it’s granite is how you pronounce it. They say, hi Marco, love your show and listen to your episodes often, I’m sure you’ve been asked this before, but if I own a multi-family home, currently fully rent it and want to transfer the property into an LLC for asset protection reasons, will the mortgage company not like that penalize me or ask for the loan in full? Also, what is the best type of structure for this? Just keep it in an LLC or create a holding company as well.
All right, so coincidentally I just threw these questions together not even realizing that they were more or less the same type of question. So my answer to this question or my answer to the previous question, more or less answers this question as well. So again, you know, bottom line is if you hold your properties in an LLC for asset protection purposes, and if it’s set up properly, hopefully you’re working with an asset protection attorney unless you really know how to do this yourself and it’s not that complicated. But if you don’t know what you’re doing, have a professional help you, especially in the beginning. But once you have all that set up, then you should be good to go. Now the reality is this, most lenders and I I would argue that almost all lenders would never accelerate the loan with that due on sale clause.
If you’re making regular monthly payments, it’s bad business for them to foreclose on a property cuz it’s time consuming, it’s expensive, they’re not generating any income, it just doesn’t make sense at all in any way, shape or form from a business perspective. So if you’re not in default on the loan, odds are very, very high that you will never trigger the duan sale clause in a mortgage by transferring title to an LLC that you are the principle of you or you or your spouse is just not worth it for the lender. So if you do it right and you don’t miss a payment, you’ll be fine. So that’s it for that. I mean, it’s really what I just talked about in the previous question. Next question from Barry. He goes, Hey Marco, I am an avid listener to your podcast and have purchased a rental property in southwest Florida working with a Nora counselor based on your recommendation.
Okay, I didn’t know I made a recommendation, but yes that’s great. Congratulations. I’m now considering buying refurbished refurbs or just refurbished properties in Kansas City, Memphis and Little Rock, Arkansas. I get offers by mail from the providers in these markets. My question is, how do you evaluate a neighborhood for investment when you can’t go see for yourself? What factors do you consider? Is there a source of information to help with this many thanks in advance? Okay, very good question. So I will say this, that of course you can go and visit these markets and tour these neighborhoods, whether by yourself or with other professionals that we put you in touch, touch with. So it’s not that you can’t go, you can unless you just don’t have the time. The reality is, is that a very, very small percentage of investors or buyers actually travel out of state or to another market and go and visit potential properties and tour neighborhoods and and educate themselves locally as in boots on the ground.
It’s good to do that, but it’s not necessary. And I know that the majority of investors that we work with and even other investors that we don’t work with that I know don’t typically go, you know, and fly out or, or drive out and visit the market. But you can do a lot of research and do diligence online in addition to conversations, talking to the people who you’re gonna be working with, such as the builders and property providers that we work with, as well as the property managers that are working in those areas and are familiar with the local market. Those are the really the two main team players that you’re working with. You could also talk to inspectors as well, but those are really the top three. Now, without going too deep into an answer here, I will tell you that there are four previous episodes that I’ve done that will give you more information than you need to evaluate neighborhoods as far as what to look for, what factors I consider and, you know, just help you along the way and we’ll put those in the show notes.
But I’ll tell you what they are right here. So early, early on, this goes back to I believe around July, August of 2015. It’s when I first launched the show. So it’s Episode 7. Did an episode that was about 15, 20 minutes, maybe 20 minutes in length called Choosing the Right Neighborhood. So go back to Episode 7, then I did another Episode 35, Make Better Decisions using Neighborhood Information. And this was an interview I did with Dr. Andrew, trying to remember his last name. It just slips my mind here it was episode 35, Dr. Andrew S. Schiller. Yeah, that’s, that’s right. So Dr. Andrew S. Schiller and I had multiple conversations about how to shape his online tool at the time called Neighborhood Scout, and that’s found at neighborhoodscout.com. And he was asking me what information is needed and what information should be provided and how it should be displayed to help real estate investors make better decisions.
So he kind of modified and morph the tool over a period of time with my help and input. I’m not a principal or an investor in Neighborhood Scout, in fact it was a hundred percent his baby. And then he ultimately got bought out by I think, CoreLogic, you know, a huge data aggregator. So today it’s owned by different company, but great tool, still a great tool to this day. It has a lot of information about neighborhoods and demographics and crime rates and all that good stuff. But then I brought ’em back on in Episode 75 for another follow up episode, and it was titled Understanding Neighborhood Trends and Forecasting Property Values some of which are much, much of which is covered in his tool online@neighborhoodscout.com. I don’t have anything to do with them. I do use their tool from time to time.
There’s other tools online that you could use. Many of them are free. The information, a lot of information is free online today, but that was Episode 75. And then last but not least, Episode 288, something a little bit more recent, it was an Ask Marco episode and someone wrote in asking about choosing the right neighborhood, and I did an episode on that, specifically on that one question. So if you go back to those episodes, you can basically get more than what you need to answer this question in a nutshell. Just to touch upon it briefly on this episode, what I look for in neighborhoods are good demographics and stability. I like to focus on what I call bread and butter communities. I rate those on a scale, if you will as a b or b plus, which means that they are, you know, blue collar, they’re middle income to lower middle income neighborhoods.
They’re nice, they’re places that you would certainly enjoy driving through, walking in and living in. They are mostly blue collar. There is some white collar, it’s kind of a blend, but they’re neighborhoods that are usually, not always, but depends on the market, close to the median home price of that market overall. Sometimes they’re below the median home price, and that’s okay. I don’t want to be too far off, like too high or too low around that median price. The larger the market too, the more you’re gonna see a swing in what you find in different neighborhoods relative to the price in that market, whether it be the average or the median home price. I also like to see things like Starbucks, target, you know, even a Macy’s if you will, nearby. It doesn’t have to be literally in that neighborhood, but just within, you know, a five to 10 minute drive.
So I, I like to see things that show that there is consumer spending and consumer demand. I don’t necessarily like neighborhoods that are filled with vendors and merchants such as bail bonds dollar stores, dollar like the Dollar Tree or 99 cents stores. There’s nothing wrong with that. It’s just that when you start to see that type of merchant and a lot of it and something similar to that in neighborhoods, you know, that you’re typically drifting into your, your B minus C plus and even C category neighborhoods. It’s just a lower income type of tenant and a slightly different demographic. And again, there’s nothing wrong with that. Those, those can generate good cash on cash returns, but it’s just not the type of areas I want to be in. I’m okay with lower cash flows and a lower cash on cash return in lieu of more desirable, and that’s the operative word, more desirable neighborhoods that typically or often will provide stronger appreciation potential as markets tend to appreciate and move up in terms of price.
Those neighborhoods like what I call B plus, even a minus neighborhoods tend to perform better. There’s more retail buyers, there’s faster sales, more comparable sales, more comps as they call them, and they just tend to perform much better. So some of this is anecdotal, some of it, or a lot of it actually is just, you know, the numbers in the neighborhood and, and what you see. So this is a whole topic in and of itself, but again, those four episodes, number 7, 35, 75, and 288 will also be helpful for you. I hope I covered your question thoroughly enough, if not, you know, let me know or email me and I’ll see if I, you know, can answer anything when more specifically. All right, maybe I’ll take one more question here. I’ve lined up a few others that I didn’t realize were I’m gonna take more time than I was allotting.
I usually try to keep these to 30 minutes. My next question here is from Suji, I believe Suji says, hi Marco. I used to visit your website and listened to you six years ago, <laugh>, that’s a while ago. Since then, I bought two rentals in Austin, Texas, and they have been cash flowing. Well, I’m looking to increase my portfolio, but buying in Austin does not have cash flow at all with even with 25% down and high property taxes. Then you came to my mind and here I am writing to you, what services do you provide for investing out of Texas? So I assume you live in Austin, and how does all the process work? Is there any phone number that I can call to talk to you? Well, okay, yes, of course there’s a phone number. You could reach out to us and you can, you know, contact somebody if you can get them on the phone.
We’re often on the phone already, so you’ll leave a voicemail, of course, you can just fill out the contact form on our website and that will be easier because then Kathy or my team will reach out to you. As far as your question here, how does the process work? Well, it’s simple. First of all, let me comment on Austin. Austin has had a huge run. It’s been a very, very strong market. And if you bought years ago, you’ve done probably very, very well. Austin has appreciated 196%, so almost 200% over the last 10 years, which gives you approximately an annual average home price appreciation of about 11.5% per year. Again, this is an average. So that put us, that puts Austin in the top 10% nationally for real estate appreciation. It’s crazy. It’s been a, a very strong growth market and there’s many reasons for that.
Obviously population is a key driver. Of course, jobs are always in front of that. The jobs bring more people in, but companies like Google and Tesla moved, you know, their operations to Austin, even the software giant Oracle has relocated its headquarters there. So there’s a lot going on in Austin, a lot of growth. There are jobs, a lot of people are moving there even as far as California there’s, there’s people moving there from all over the place. So, you know, we understand why Austin has seen such tremendous growth. Now it has leveled off and we expect this year to be pretty flat in Austin as a whole. Just generalizing here, of course, you know, different areas and neighborhoods are gonna perform differently as always, and this is true for every market, especially the larger markets. But yeah, I mean, it’s, it’s not necessarily the right time to be investing or buying in Austin because prices probably will adjust over the next, you know, two to three years.
It’s definitely taking a breather. I’m not saying it’s going to depreciate, but that is a good probability. But if you are looking to invest and you wanna put your money to work and, and have it work the hardest for you, then you have to be market agnostic. You can’t be married to Austin just because you’re in Texas or you live in Austin. You have to find markets that make more sense, that provide you good cash on cash returns or cap rates on the front end and give you that appreciation potential on the back end. And if that ship has sailed at least temporarily for Austin, then you need to consider other markets because that’s just how things work. Like I said, it’s not about should you buy, it’s, it’s more about, you know, where do you buy? So in other words, it’s not about when it’s about where, and your dilemma is, you need to find the where.
So to answer your second question or other question about the process, it’s pretty simple. Just at a very high level, just contact my team. You’ll be assigned an investment counselor and they’ll be able to answer all your questions about the process markets available, inventory where it makes sense, where it doesn’t make sense. You can talk about your property investing goals and, and we can help lay out a roadmap to show you, you know, what you should be buying, how much inventory you would need, and what markets and all that stuff. So I have a very, very talented and sharp team. They’re all real estate investors and we’re here to basically help you map that out. But we can help you from A through Z soup to nuts, everything from the properties, the financing, the property management inspections, title companies, asset protection attorneys, tax advisors, you name it.
There’s nothing we can’t provide you through our resources and our network. Think of our company as the hub of a wheel. And everything that you would need as an investor will be one of the spokes on that hub of the wheel. So Suji, I hope that helps. If you want to go deeper, you know, contact me and my team and we can certainly help you out with all of that. All right, so let me take one more here. Question from Mike. Mike says, thanks for your podcasts that covers selected markets and the personal stories of investors. I recently listened to episode number four 20 and 2 99. Can you also offer specific examples of deals that have worked out for investors and also cover markets that may not be as investor friendly as Colorado? Oh, I assume you live in Colorado also. Do you think the market will go down in six to 12 months, even with the lack of inventory?
Well, I guess it depends on what you’re referring to as the market. Are you talking about Colorado market, which is basically a state, but are you talking about Denver, you know, that’s a more specific market, but still a big market? Or are you just talking about the housing market in general as an, an average of everything going on in the us? So you see this type of question is, is a good question, but, but it’s not specific or granular enough to really answer in the, the best way possible. So when you’re talking to my team, of course, you know, we can share, you know, all kinds of stories about investors. Real estate is a very forgiving asset class. And when you’re investing in the right markets and the right neighborhoods, odds are very, very high. And I’m gonna say it’s like 98% of the time you’re gonna do well over the course of years.
You know, we don’t look at this in terms of weeks or months. It’s always looked at in terms of what is the performance of that real estate investment over the course of years. And so, you know, there are literally hundreds of examples of quote unquote deals that have worked out. It’s pretty rare that something doesn’t work out, and that’s usually for some very, very, very strange and odd reason. The only one that comes to mind that’s a negative is, and this actually has happened to me too, is that an investor has purchased a property and there was an issue with the sewer line. That may or may not be the city’s responsibility, just depends on where it sits on the property line. But if a sewer line, which is extremely rare, happens to break or burst, then that is a, you know, a, a costly repair that takes a while.
How often does that happen? It’s extremely rare, but it has happened to me in the past and I believe there was some insurance coverage for that, but it just took me offline as far as a rental property for a number of months. But that’s kind of a worst case scenario. For the most part, things are pretty smooth and, and actually it’s, it’s an enjoyable process and especially when you are working with an investment counselor who’s figuratively holding your hand through the process, then you know, if it’s a learning experience, it’s educational. And then once you’ve closed on one or two properties, you’ll realize, okay, this process is not complicated and, you know, let’s just keep doing it. Let’s keep building our, our portfolio. Now as far as markets go, Colorado, you know, a lot of the Colorado markets are expensive, in fact, very much overpriced in many locations.
So you definitely have to be market agnostic as I was talking about with this other investor that wrote in with a question. So what’s interesting, you know, not to be, be or sound political, but a lot of these higher priced markets or metro areas fall, not all of them, but a lot of them fall in what I call blue states. It’s just, you know, call it coincidence, call it whatever you want, but it just happens to be that way. And if you pull out a map of the country, and I think we have some articles on our website that show this, you can see where property values are either very high or over extended. But as far as Colorado and some of the markets within Colorado, like Denver, you know, there, there’s a bit of a flattening in the price curve. You know, it’s definitely a breather.
These markets have appreciated a little bit too much, too fast for, for a long period of time, and now they just need to take a breather or maybe adjust to come back down to where it becomes more affordable because income doesn’t necessarily rise as fast as property values. In fact, it usually doesn’t rise as much or as fast. So one thing I’m thinking about doing in the very near future is doing an episode as a market update. I’ve already done that earlier this year, a couple months ago, and people loved it. So I’m thinking of doing another kind of housing market update that we’ll talk more about this. But, you know, just a quick answer to your question about where the market will go in the next six to 12 months. Most markets around the country are taking a breather. Some of those markets have certainly depreciated.
It just depends on how overpriced they were and how fast they appreciated over the last two to four years. But even with the lack of inventory, that’s actually been beneficial for markets in terms of price adjustments. If there was a lot of inventory, you’d see a different impact on housing market pricing, it would come down faster and more. But because there is a lack of inventory and there’s still buyer consumer demand out there for housing, it’s really keeping prices in check. In other words, it’s putting upward pressure on those prices so they’re not depreciating as much or as fast as they would if there was a lot more inventory. So strong demand and lack of supply is just simple economics 1 0 1. It keeps pushing the prices up or holding them in check. But yes, I guess long story short here is I would consider looking out of state if you live in Colorado and look at your options and you’ll realize that there are markets out there that provides you a better opportunity and a better yield or cash on cash return if if you’re in the market looking for something and you know, down the road, and this could be years down the road, but down the road there may be, you know, opportunities to come back into the Colorado markets because they will prevent themselves as being, you know, ripe and ready for investment purposes.
Again, as a side note, I I will mention in, in future episodes a tool that we’re working on and hopefully we will be able to release here in the next month or so that will show you market momentum and market trends in markets all around the country, down to even the zip code level. It’s something that is in beta right now, and I hope to be able to announce it and release it to you in the near future. All right, well that is it for today. I’m gonna wrap it up here because I’ve been going for who knows how long, about 37 minutes. I’ll leave these other few questions for another episode, but that is it for today. Thank you for the questions. If you have any questions about investing or real estate or finance answer just a personal question, go to passiverealestateinvesting.com and click on the Ask Marco button. I’d be happy to answer those whether directly via email or on the show. Again, remember to subscribe, share the show with your friends and family. Thank you for listening
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