Richard

Choosing between a HELOC vs. home equity loan is a big decision. HELOCs have variable interest rates and home equity loans have fixed rates, but that’s not the only difference.

Check out how they compare to see which makes the most sense for your real estate business.

What Is a HELOC?

A HELOC or home equity line of credit is a second lien on your property. It’s separate from any first mortgage liens you have on it.

A HELOC works much like a credit card. You receive a credit line that you can access as you need. There isn’t a limit to how much you can withdraw, up to the credit line’s limit. HELOCs have a draw period and a repayment period.

Draw period

The draw period determines how long you can withdraw funds using a linked debit card or by writing checks. You can make interest payments or repay the borrowed principal, plus interest, during this time.

If you repay what you borrowed, you can draw funds from the credit line again until the draw period ends.

The repayment period

The repayment period begins when the draw period ends. During the repayment period, you make principal and interest payments monthly.

HELOCs have a variable interest rate, so you won’t know your payment amount from month to month as it depends on how the market performs.

What Is a Home Equity Loan

A home equity loan is also a second mortgage on the property. However, unlike a HELOC, you receive the funds in one lump sum instead of a credit line. You can use the funds however you want, even creating your own credit line by putting the funds in a savings or money market account to draw from as needed.

Fixed interest rate

Home equity loans have a fixed interest rate, unlike HELOCs. So you know from the time you sign the loan documents what interest rate you’re paying. It never changes, and neither do your monthly payments. You pay the same amount each month.

When monthly payments start

You start making monthly payments, usually on the first of the month following the loan closing. For example, if you close on May 15, your first payment will likely be due June 1. Sometimes, there may be a longer delay, and your first payment would be July 1. It depends on the lender.

Similarities and Differences Between HELOCs and Home Equity Loans

When comparing a HELOC and a home equity loan, consider the similarities and differences to determine which works best.

Similarities between home equity loan vs. home equity line of credit

There are many similarities between a home equity loan and a home equity line of credit, including the following.

• They are both second mortgages: Both are secured loans requiring collateral. The property is the collateral for both home equity loans. If you miss too many payments, you put the property at risk of foreclosure.
• Make monthly payments: You are obligated to make monthly payments to both loans unless you didn’t draw money from the HELOC. The monthly payments will differ, but if you borrow money, you must repay it.
• Potential for a fixed interest rate: Home equity loans automatically have fixed monthly payments, but some lenders allow borrowers to lock a rate on a portion of their HELOC. If you choose this option, you may freeze that part of the loan proceeds, meaning you can’t reaccess them, but you get predictability in the loan payment.
• You’ll incur closing costs: Most mortgage loans typically have closing costs. They won’t be as high as when you closed on the first mortgage, but there are closing costs you will pay.

Differences between home equity loan vs. home equity line of credit

Just as there are similarities, there are also many differences when comparing home equity loans and HELOCs, including the following:

• Interest rates aren’t the same: Home equity loans typically have a fixed interest rate, and HELOCs have a variable interest rate. As discussed above, there are circumstances where you might have a fixed monthly payment on a part of your credit line, but then you freeze it.
• Receiving funds: Home equity loans pay out funds at the closing on an investment property or after the three-day right of recission on an owner-occupied property. You can use them or save the funds in your own account, whatever you choose. Home equity lines of credit provide access to a credit line where you can draw money as needed or request a lump sum at the closing if you need cash immediately.
• Monthly payments: The home equity loan monthly payment is fixed. The interest rate never changes, and neither does your payment. Home equity lines of credit payments depend on how much money you withdrew and whether you’re making interest-only payments or paying back some of the principal during the draw period.

An example comparing the difference between a home equity loan and a line of credit

Here’s a quick example of how the payments would differ for a home equity loan vs. a line of credit.

• Loan amount: $25,000
• HELOC rate: 11.9%
• Home equity loan rate: 9.75%

A HELOC with a 30-year term (10-year draw and 20-year repayment) will have a payment of $253 per month, but that could change based on the variable interest rates.

A home equity loan for the same loan amount with a 30-year term will have a monthly payment of $214.79.

This comparison assumes you’d withdraw the entire loan principal at the closing. If you don’t use the whole credit line, your payment will be lower on the HELOC, but it can change monthly based on market rates.

Pros and Cons of HELOCs

When using home equity, a home equity line of credit has pros and cons. Here’s what to consider.

Pros

• You only pay interest on the money you withdraw. So you could have a $10,000 HELOC, but if you only have a $1,000 outstanding balance, you’d only pay interest on the $1,000.
• You can make interest-only payments. Some borrowers see this as a benefit, especially if they’re experiencing a financial situation they didn’t anticipate, such as tenants that destroyed the house or a natural disaster that requires expensive work to repair.
• You may get a fixed rate for a short period. Some lenders offer a fixed interest rate for an introductory period, much like credit card companies do to get you to take the loan. You may also be able to convert a portion of the loan balance to a fixed-rate loan if you no longer need to use it.
• You may be eligible for lower interest rates. Most credit lines secured by a property have much lower interest rates than personal loans or credit cards.

Cons

• You risk losing your home. If you miss too many payments, the lender could start foreclosure proceedings on the property.
• You could easily overspend. Having a credit line available is the equivalent of creating credit card debt. Knowing you can use the funds whenever you want can be dangerous if you aren’t financially responsible.
• You’ll have unpredictable payments. The variable interest rate makes it hard to predict your payments and budget. If the payment increases your operating expenses too much, it could decrease your profits.
• The full loan becomes due when you sell the property. If you decide to utilize your exit strategy and sell the property, the proceeds must go to the primary mortgage and second loan lender before you receive any funds.

Pros and Cons of Home Equity Loans

Home equity loans also have pros and cons. Understanding the good and bad can help determine if a home equity loan suits you.

Pros

• You’ll have fixed payments. The fixed interest rate means fixed payments for the loan term. You never have to worry about the payment changing and ruining your budget.
• You can use the funds for anything. Most lenders don’t ask why you need the funds; if they do, it usually doesn’t affect your loan approval.
• You may get better terms than other loan options. If you compare a home equity loan to credit cards or personal loans, you’ll see that you may get better terms because you receive the funds as one lump sum.

Cons

• You must make principal and interest payments immediately. Unlike HELOCs, you must make full monthly payments immediately and for the duration of the loan.
• Home equity loans often have higher closing costs. HELOCs usually cost less to close than home equity loans, which means you must have more money at closing.

How To Get a HELOC or Home Equity Loan

Fortunately, securing a home equity loan or HELOC is pretty straightforward. Once you decide which is right for your financial needs, get quotes from two to three lenders.

How to apply

Most lenders have an online application process. You’ll complete a loan application stating how much you need to borrow, how much equity you have in your home, and information about your income, assets, and home’s market value.

Qualifying for home equity loans and HELOCs

Understanding how to qualify for home equity loans and HELOCs is important. Fortunately, the guidelines are simpler than a first mortgage.

• Decent credit scores: Each lender requires different credit scores, but on average, you’ll likely need a 680+ to get the best rates and terms.
• Average debt-to-income ratio: Many lenders require a 45% or lower DTI. This means the new home equity loan or line of credit payment plus any other consumer loan payments you have don’t exceed more than 45% of your monthly income.
• Enough equity in your home: Whether you want to borrow money from your primary residence or a rental property you own, you’ll need enough equity to borrow from and leave at least 20% untouched. Many lenders will lend up to 80% to 85% of the appraised value.

Provide documentation and get a home appraisal

After applying for a home equity loan or line of credit, you must provide the lender with the necessary documentation, including:

• Pay stubs and W-2s to prove your income
• Tax returns if you’re self-employed or are using your rental income to qualify
• Bank statements to prove you have reserves
• Employer information to validate your employment
• Pay the appraisal fees to have an appraiser evaluate your home’s market value

The appraiser will compare your home to other recently sold homes, using their property values to determine the market value of the property you’re trying to borrow a home equity loan or line of credit.

Close the loan

After final approval, you close the loan and pay closing costs, as you did with your first mortgage. You’ll sign documents stating you understand your monthly payment and the obligation you’re accepting.

If you borrow a home equity loan, you’ll receive the funds at the table on any non-primary residences, and if it’s an equity line of credit, you’ll receive instructions on how to access your funds.

HELOC vs. Home Equity Loan: Which Is Best for You?

The difference between choosing a HELOC or a home equity loan is personal preference.

Choose a home equity loan if you want fixed monthly payments and need funds for one-time use. For example, if you’re paying for an emergency, medical bill, or a dream vacation, you don’t need access to the funds again. Take advantage of the fixed interest charges to pay the loan in full.

However, an equity line is better if you need a revolving loan to access the loan proceeds continually or need interest-only payments during the draw period. Just be sure you can manage the line of credit without spending needlessly. It’s also best to pay more than just the monthly interest charges.

HELOC vs. Home Equity Loan FAQs

What is the difference between a HELOC and a home equity loan?

A HELOC is a line of credit you can draw on like a credit card. You can use up to the maximum amount of the line of credit and pay interest only during the draw period if you choose. If you repay the borrowed amount, you can reuse the funds.

A home equity loan is a fixed-rate second mortgage. You receive the loan proceeds once at the closing and can use them however you want. Your payments never change on a home equity loan, and you don’t have access to reuse the funds.

Is there a downside to having a HELOC?

The largest disadvantage of a HELOC is the variable interest rate. You can’t predict your monthly payments. They can increase or decrease monthly, and you’re expected to keep up with your debts.

Is a HELOC a good or bad idea?

A HELOC can be a good idea when you need continual access to funds. For example, if you’re making home improvements, you may not know the full cost or what you’ll run into during the work. Having access to a credit line can make it easier.

Can you pay off a HELOC early?

Yes! You can pay your HELOC in full at any time. This is a good way to minimize interest charges and save money.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Ward Fitzgerald, EQT Exeter CEO, joins ‘Closing Bell Overtime’ to discuss the Industrial sector, comments from Amazon CEO Andy Jassy, and real estate supply and demand.

Business grants are an excellent way for startups and small businesses to secure much-needed funding. They are offered by governments and private organizations, but securing the capital is challenging. Application processes are complex; some funders set strict terms and conditions around how the money can be used, and the time and effort to apply for them can be demanding.

Jeroo Doodhmal founded her U.K.-based children’s shoe business, Pip & Henry, in 2020. Driven by a passion for the environment, the shoes are responsibly produced and made from sustainable materials such as organic cotton, pineapple leaf fiber and recycled rubber.

Like many entrepreneurs, she completely self-funded the startup. However, in the last couple of years, alongside business loans and equity funding, she has secured more than £350,000 in grant funding from organizations such as Innovate UK, eBay Circular Fashion Fund, John Lewis Circular Future Fund, and LSE Generate. Here she shares her secrets of success in the grant funding stakes.

Alison Coleman: What’s the best way to track which business grants are available?

Jeroo Doodhmal: Several grants are available to small businesses, each with different criteria related to a specific business problem, sector or location, as well as the size or maturity of the company. You have to do the legwork yourself, for example, connecting with individuals who work at funding agencies on LinkedIn and subscribing to newsletters from industry bodies and grant writing consultancies to get notifications about the larger grants from bodies such as Innovate UK. Setting up Google Alerts for relevant topics keeps you updated in real-time. Where possible, it’s also worth checking out the directories of current and upcoming grants from funding organizations.

Coleman: What was your first grant funding success, who was it from, and what did you use it for?

Doodhmal: Early in our startup journey, we won a few small grants, between £5,000 and £10,000, from MSDUK and LSE Generate. While I was bootstrapping the business, this helped to fund the development and design of our product range and the manufacture of our first few prototypes to test and soft launch with consumers.

Some grants offer a wide range for you to choose from, for example, between £150,000 and £500,000. It’s tempting to go high, but be realistic about your needs, given your business’s stage and plans. You will be asked to provide detailed forecasts and breakdowns of how you plan to use the funds and what milestones you hope to achieve each quarter. Prepare accordingly. Be authentic to yourself and your startup goals.

Coleman: Last year, you won the John Lewis Circular Future Fund award, which granted you £250,000 in grant funding. How challenging was that process, and what did you use the money for?

Doodhmal: It was a fairly lengthy process. I had to submit a written proposal outlining what I wanted the funding for, including video explainers. Shortlisted candidates were asked to provide further information, including detailed budget forecasts, timelines, risk mitigation plans etc. Finally, we were invited into the John Lewis offices to present in front of a panel of experts, some from within John Lewis and others working in the field of sustainability. From there, the winners were selected.

We are designing shoes that can disassemble more cleanly and grow with a child’s foot. This reduces the frequency with which kids’ shoes need to be sized up and allows for true end-of-life circularity. This grant helped kick-start that R&D journey, enabling us to work with specialist labs, designers, materials specialists and manufacturers to develop these much-needed solutions, something that startups of our size couldn’t fund themselves.

Coleman: How much funding have you had in total, and how much impact has it had on your business – what has it enabled you to do?

Doodhmal: We’ve won almost £400,000 in grant funding, and around 90% of it has been invested in our R&D work. While we’re still a distance away from releasing the outputs of this, we’ve made significant progress and feel confident of creating a genuinely game-changing solution for the children’s footwear market that will have a lasting impact on reducing the amount of waste generated by the footwear industry.

Coleman: What have been the most significant lessons learned in becoming successful at securing grant funding?

Doodhmal: Since winning the John Lewis Circular Future Fund, we’ve won several other significant grant awards, including from Innovate UK, eBay Circular Fashion Innovators Fund etc., and there are four essential learnings:

• Winning grant funding is not easy. We were one of four winners of the John Lewis grant out of around 250 applicants. The odds are often significantly lower with some of the popular Innovate UK grants. But don’t give up! I made three unsuccessful applications to Innovate UK before I was successful on my fourth, so listen to the feedback that you get, iterate your answers and apply again. In other words, keep learning.
• Set aside a reasonable amount of time to write your application. Each fund will emphasize different nuances of your business, i.e., commercials, your R&D journey, ethos and mission. Read through the goals and criteria carefully and directly answer questions around these, always providing data and stats to back up your assertions and claims. And never ‘copy and paste’ answers between different application forms. Be clear about your and your team’s experience and achievements. Leverage social proof; what other awards have you won? What do your customers or industry experts say about your business? If there is an option to submit a video, do it.
• You might be tempted to get a grant writer to help with some of the bigger awards. While they’re great for advising on formats and requirements, which can be helpful, if you’re new to grant writing, take the time to write the application yourself. No one can explain your business or convey your passion better than you.

Coleman: Seeking grant funding is challenging. What’s your advice to other founders just starting on their business journey?

Doodhmal: Applying for grant funding can sometimes feel like a dark art. It’s hard to discover what’s out there, read through the eligibility criteria, and then go through the laborious process of applying with low odds of success. Because the day-to-day running of your business can be so all-consuming, it is easy to be put off from investigating the space. I would advise identifying the niche where funding will impact your business most and focusing on finding and applying for the awards most relevant to those goals.

If you’re planning on buying or selling an investment property, having a handle on market conditions is critical. Can you expect a bidding war? Do you need to pay in all cash to win? What concessions might you need to make for buyers?

There’s no way to answer all these questions with certainty, but a new survey from Opendoor does offer some insights.

Here’s what to keep in mind as you prepare for buying or selling a property in the current market.

Buyers are Prepared to be Competitive

The vast majority of buyers expect to see a bidding war when they go to purchase a home. Millennials and Gen Z, in particular, see bidding wars in their future at rates of 76% and 73%, respectively. Baby Boomers are the least likely to expect big competition when buying a home.

Still, that doesn’t mean you can price your property extravagantly. Nearly 70% of buyers say homes are currently unreasonably priced, and 72% say affordability is their biggest concern when buying a house. So much so that a whopping 73% of buyers intend to bid below asking price. Intent to under-bid is highest with Baby Boomers and Gen Xers. 

“Baby Boomer buyers are hunting for deals,” wrote Amita Amora, Opendoor’s vice president of investments. “Some 80% say they intend to make an offer on a home at or below the asking price, and only 14% are willing to make an offer above.”

Speed and Certainty Matters Most to Sellers

If you’re buying a property, offering speed and certainty to the seller can give you the upper hand. Nearly nine in 10 sellers say the certainty of an offer not falling through is “extremely” important to them, and another 58% say cash offers are important. 

“With many buyers facing financing challenges and searching for a better deal, the rate of contract cancellations has increased significantly,” Amora wrote. “Today, 18% of home sales fall through—the second-highest percentage since 2014.”

About three in four sellers are looking to sell their home as quickly as possible, so getting preapproved for your mortgage, having your documentation ready, and being quick with inspections and repair requests can help (cash offers can help even more, though). 

Finally, be choosy about any demands in negotiation. Sellers are most willing to negotiate on their closing date and asking price, and 42% are willing to cover inspection fees. They’re not as amenable to paying for home warranties, helping with closing costs, or offering repair credits. 

A Disconnect

Buyers and sellers aren’t exactly aligned in today’s market, and that can make it challenging on both sides of the transaction. If you’re on the selling side, be reasonable about your list price and be willing to negotiate. Don’t expect tons of over-asking bids, and with older buyers, be prepared to play hardball. Baby Boomers aren’t nearly as likely to expect a bidding war or bid over asking price.

If you’re in the market to buy a new property, make sure your offers are as clean as possible. Have your ducks in a row financially (or come with a cash offer), and be careful what you ask for in negotiations. Some concessions are more likely than others.

As Amora wrote, “The good news is that both prospective sellers (76%) and buyers (80%) indicate a willingness to make concessions to expedite their process.”

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

It is not just about creating wealth. It’s also about keeping more of it. And to keep more of it, you need to control it.

Unfortunately, you won’t control the wealth or keep more of it if you relinquish control of the venture to the venture capitalists (VCs).

There are 3 kinds of entrepreneurship. The first centers around the starting and building of a successful small to mid-sized business. The other two revolve around the concept of unicorn-entrepreneurship, which involves building billion-dollar ventures, creating immense wealth, controlling the wealth you create, and keeping more of it.

Unicorn-Starters represent the initial breed of unicorn-entrepreneurs who conceive ideas, develop a “minimum viable” product or service and prove the “business model” with angel capital. However, they often get VC before Leadership Aha, i.e., before the entrepreneur has proven leadership skills. Alarmingly, statistics suggest that VCs have replaced the entrepreneur with a professional CEO in about 20% to as many as 85% of VC-funded ventures depending on the number of rounds of VC funding. And this list of ousted CEOs includes Steve Jobs and Travis Kalanick. Consequently, the entrepreneurs lose control of the venture, and their ownership stake becomes diluted by the VCs and the newly hired executives.

Unicorn-Builders comprise the second category of unicorn-entrepreneurs who embark on the journey of starting a venture and building a unicorn. They skillfully navigate through the various stages of the venture, relentlessly working towards its growth and dominance. What differentiates them is their strategic approach of delaying or even avoiding VC involvement. By doing so, these Unicorn-Entrepreneurs retain their position as CEOs, enabling them to maintain control over both the venture and the wealth they create. They reduce dilution to the VCs by delaying VC and by avoiding professional CEOs. Notable examples of billion-dollar entrepreneurs who have successfully employed this method range from the likes of Sam Walton (Walmart) to Brian Chesky (Airbnb)

Why do Unicorn-Builders delay or avoid VC?

Contrary to the “common wisdom,” VC is not essential for launching unicorns or building unicorns. The relentless hype surrounding the VC industry, including its supposed “unicorns,” and perceived successes, has fostered a misconception that wealth creation without VC is near impossible. It is crucial to challenge this notion and recognize that alternative paths exist for entrepreneurs to achieve wealth and billion-dollar status, unshackled from the constraints and dependencies of traditional VC funding.

Among 85 Billion-Dollar Entrepreneurs, 94% were Unicorn-Builders. These entrepreneurs strategically opted to delay (18%) or completely avoid VC (76%) involvement in order to keep control of the venture and of the wealth created. This striking statistic serves as a crucial reminder that relinquishing control to VCs reduces your likelihood of becoming a Unicorn-Builder and of seizing the full potential of entrepreneurial success.

Just as crucial is VC timing. An analysis of 22 unicorn-entrepreneurs shows the crucial role of VC timing in wealth retention. Those who delayed VC retained a substantial 16% of the wealth created while those who secured early VC but were subsequently replaced as CEO held a mere 7%. Remarkably the VC avoiders emerged as frontrunners, retaining an impressive 52% of the wealth created. These findings underscore the paramount importance of delaying or even avoiding VC to keep a larger share of the wealth created from your venture. How to do it is the pivotal question.

In addition, about 80% of VC-funded ventures fail. This highlights another significant downside to relinquishing control to VCs.

MY TAKE: To maximize the value derived from your venture, you need to create wealth and control it. The fact that about 80% of VC-funded ventures fail suggests that VCs focus on growth or bust. If this approach does not align with your goals, consider getting to Leadership Aha before seeking VC, a path followed by 18% of billion-dollar entrepreneurs – if your growth strategy is capital-intensive. Or avoid VC, as was done by 76% of billion-dollar entrepreneurs, if you want to decide what you want to do with your venture and keep more of the wealth created. VC has a high cost. Consider reducing it.

QuoraWhat percent of VC-backed companies founder CEOs get removed from the CEO position by their board of investors?

David:
This is the BiggerPockets Podcast Show 788.

Henry:
Outside of those first two houses, how much of your own money have you had to spend acquiring any of the rest of those assets?

Lamon:
Now, besides my own personal land that I just purchased to build my dream home, I haven’t put a down payment down since I’ve been on this journey.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with Henry Washington interviewing one of Henry’s friends, Lamon Woods. Look, this is a show that I can already predict is going to be one of our more popular shows. It’s going to be spread all over the place. So you are in for a treat. Lamon’s story is simply fascinating. It’s also heartwarming. He’s got a ton of information he shares that other people can follow and he did it all in a market that a lot of people would’ve never even considered investing in. Henry, what are the parts of the show that you think that investors will get the most value from?

Henry:
Oh, man. I think there’s two key parts that investors should pay attention to. One more practical and one more mindset. I think the practical is Lamon explaining how he uses what he calls or what’s called cross collateralization to build his portfolio. So he’s essentially figured out a way to work with lenders and buy properties by leveraging other assets he has and not having to bring his own money to the table. And this is … For some people, this may be something that they heard of before, but a lot of people have never really thought to talk to their banks about cross collateralization or how they could leverage assets they have in order to purchase more assets.
And so that strategy is fantastic. I think you’re going to learn a ton about how to do that. The more mindset is I love how Lamon talks about how he went and spoke to his bank about seasoning periods because I think that hangs up a lot of investors when they talk about using a strategy that involves a lot of leverage. People get scared about seasoning periods, they think it holds them back. But Lamon did something that I think a lot of investors need to do more of because he didn’t just take something at face value. He went and he met with his lender to talk about these things. So I think please, please listen to those tidbits and those bits of information because it could really help you grow your portfolio.

David:
Especially in today’s market, right? It’s not as simple as decide to invest, save up money, pick your market, go buy a property, make money. Now, there’s a lot of people trying to do the same thing. You have to be able to see angles that other people don’t see. So today’s episode is fitting for the current market. Now, before we bring in Lamon, today’s quick tip is simple. Remember that money is a store of energy and it comes in different forms. Equity is also a store of energy. Lamon shares a strategy of borrowing money to buy properties without using it on the property that he is buying. We call this cross collateralization. We will learn more about this in today’s show, but you will think of strategies like this and other ones when you understand that you have energy or wealth stored in many different investment vehicles, not just the cash sitting in your wallet right now.
All right, let’s bring in Lamon. All right, Lamon, let’s dive into what your portfolio looks like right now. This is very impressive. Currently, you have 107 properties with $70,000 a month in rent roll. You’ve got two employees, plus you and your wife, Alicia, an in-house property manager, and an office manager. Side note, that’s actually a pretty effective way to structure two employees. I’m like, “Wow, that sounds really good.” And you’re crushing it in real estate. I understand you and Henry know each other, is that right?

Lamon:
Yes, sir, yes sir. Yeah, I know Henry. This is second time actually Henry’s gave me a great platform to speak on. He invited me down to Arkansas, me and my wife and my little boys, and we went down there and it was a blessing to know Henry because he invited me. But it was a blessing I got to bring some of my really good friends with me and, still to this day, they talk about that weekend because we don’t get those type of weekends being at home, being in a smaller market. So it’s like limited pool of investors and stuff. So it’s good to be able to do something, but also being able to bring them with me, that what made me happy as well. And then getting the opportunity to be on this podcast or show that I started listening to in like 2014 a little bit. But then 2015, I really turned it up and really started listening, man. So I appreciate Henry for that and good to meet you and appreciate you as well.

David:
Thanks, man. Henry does have that effect on people. I frequently find myself waking up in a hotel room today fondly remembering the last time I saw Henry just brings … It’s like knowing a human hug is what that is. Strong, masculine, warm, encouraging, everything that you need. So glad to know you guys know each other. Now, before we get too much into your story, I want to ask, how would you summarize your current real estate strategy?

Lamon:
Right now, it’s rebranding a lot of things I did in the past. So I call it survival mode. I was working a job making $26,874 and 33 cents and I had a wife and three kids and I was just hustling. So now, my strategy had changed. I used to buy a lot of properties in a rental HUD, Section 8. We do a lot of Section 8and a lot of lease purchase and stuff. So now I just bought my own clothes and own some properties more and I just bought a property last week that it rents for $1,400 a month. So for me, that’s a step up in a direction. So right now, it changed when I’m buying properties with a higher ARV and more margins in the rental spread for far as the rent rates and stuff like that.

Henry:
So you’re saying when you first got started, a lot of the properties you were buying were probably more inexpensive and then they didn’t have high margins, so you were getting low entry prices but then renting them and getting a little bit of cash flow and so now you’re focusing on higher value properties that can make you a higher spread?

Lamon:
Yeah. So right now, I’m in a long term. So when I first wanted to quit my job and got in real estate, it was cash flow. I was chasing the cash flow, I was chasing as much cash flow I could as possible. But now I’ve gotten in a decent financial situation and stuff like that, that now I pull back and I can strategize more and I can breathe a little bit. So now I refocus my energy in buying different assets more for the longer term holes. And some of the properties I bought in 2017, ’18 I first started, I’ve been selling off here. So my door count changes. So I might be at 115, then I might sell three or four of the ones that I bought for cash flow. And on those properties, I’m typically making 20,000 a door when I sell for difference between what the market is appraising. What they’re appraising for now are way higher than when I bought them. And now I owe like 20,000, 18,000, 15,000 on them to the bank and I’m selling them for 35,000, 40,000 or so. And I’m able to make a spread and I’m taking it and just buying better assets.

David:
So I was curious, when you’re looking at your portfolio and you said, “I’m going to sell these ones, I’m going to use that money to buy others,” how are you making the decision that these are the ones I should sell, these are the ones I should keep, and then what you should go buy?

Lamon:
Oh, basically, I create a spreadsheet and I’m emailing the bank, getting release numbers on certain loan numbers and I’m looking at, “Okay, I got a property over there in this couple mile radius and it’ll appraise for that.” My friends will tell me, “Hey…” Because they are still buying, I call it the rental HUD. They are really trying to scale and grow where I was a couple years ago. So they are still buying properties and they’ll tell me, “Hey, this property appraised for this.” Then I go look at my address and see I owe this, which is significantly less than what their property is. So then I just sell. And basically, the ones, when I got to get in the truck and go over there that I hate going to, it’s just time to dump them. I don’t like going to them no more. So it’s time to get rid of them.

Henry:
I love that. And it resonates with me right now because there’s levels to investing. When you’re starting out, you’re trying to get in the game and you’re trying to do it in the best way possible. Buying something that you know is going to give you a return. And sometimes we will take on a project maybe in a neighborhood we don’t love, but it’s going to give us the numbers we want. Or maybe it’s a class of property that isn’t your favorite, but it’s going to provide you the return you’re looking for. But as you start to grow and scale your business and your portfolio, your time is also more valuable than it was before you started. And your peace of mind is more valuable. And so when something starts to give you a headache, man, I totally agree with you. We have a duplex right now.
It was a pain in the butt to rent. And then once we had the tenants in it, some of the tenants don’t love the neighborhood. And so we have high turnover and one of our tenants just gave us notice that they were leaving. And my first thought was, “Sell it. Get it out of here. I don’t even care.” I know I can make some money on it. It’s a phenomenal duplex. It’s a rare duplex. It’s a three, two, two car garage, you don’t have too many of those. And I’m like, “Get it out of here.” I know it’s a great asset, but I just would much rather not have to deal with the headache. My wife, on the other hand, is all about the holds and so she’s not letting me sell it. But if it were purely up to me, that sucker would be gone. So I get it.
But what I like about you, Lamon, is you hustle for everything that you have and you got started. And, again, I tell people like this isn’t a journey where you get to know all the steps before you start. You have to take a risk and get started and then learn as you go. And your story’s the epitome of that. And I think people just really need to know and hear your story because it’s so inspirational. So can you talk to us a little bit about, before you got into real estate, what caused you to find real estate and then how that led to you doing your first deal?

Lamon:
Oh, man. I was heavily influenced by music. I’m a big fan of JC [inaudible 00:09:28] guys and they talk about being a CEO and stuff like that. So I was listening to that and then I realized I was working a job that I just hated. I hated waking up in the morning having to go to that place. I had no desire, or no push, or nothing like that. But I knew I had to pay the bills and I had to take care of the family. So I had to do what I got to do. I was working at the Coca-Cola plant and I was merchandising just going in stores and stocking the Coca-Cola, the Red Bull, and different things like that. And I just hated it. And I was making an $868 paycheck every two weeks. And we were standing in the rental HUD.
Our rent was 550. I was making less than 30 grand a year. My wife was making less than 30 grand a year. And that’s all we was able to afford. And my wife had an idea one day and she was like, “Hey, we should buy this property. We doing the work on it.” We rarely call the landlord, the property management company, and report repairs and stuff we’ll do on myself. And I was like … When you stay in a place, a less desirable area, your goal is not to buy the house and live there. So when she came to me with that idea, I was like, “Man, no, I don’t know what you talking about. I’m not trying to do that.” And she was just saying, “We don’t got to pay rent no more and different things like that. We now ready to put some of my own money in it and stuff.”
So it started to make sense and I went and talked to my dad about it, talked to my mom about it, and I was still nervous, but my wife actually ended up going to pay the rent at the property management Section 21, the property management company. And she just asked the property manager and he was like, “Yeah, my investor do want to sell.” And they gave her a price. The price was 15,000 and they was like, “You can get $15,000 cash and you can buy it.” So what ended up happening was we ended up purchasing the property. For some year, we’ve never got no income tax like that in our life ever again, but we got enough money between my tax return, her tax return, and a couple dollars that we had saved up, we was able to purchase that property outright. And like I said, the goal wasn’t to get into real estate, it was just so that we didn’t have to pay rent anymore. And when we purchased that property, the journey started from there.

Henry:
I love that. Our journeys are similar because my wife is the reason I’m in real estate as well. When I bought my first house, I didn’t have any money to do it. I had to borrow the money from my wife’s 401(k). And so her support is the reason that we are where we are. And so I love hearing your story. I also love that every time you tell the story to the pennies, how much money you were making, that’s how you know you were ready to get out when you remember to the pennies what you were making a year.

Lamon:
Yeah.

Henry:
So how did you get from owning the house that you’re living in, even though you weren’t quite sure you wanted to do that, to then buying real estate as a cash flowing asset?

Lamon:
Oh, so we stayed in that property for another year. Then my wife came home from work with another idea. We started to have kids and we was growing up, I was like 24, going to turn 25. So my wife was like, “We need to move in a more desirable area,” because the crime rate was really high in that area and different things like that there. So we moved into … We got a FHA loan. We went through … We moved in another property. And throughout that process, my wife, she’s a little older than me, so she has always been tapped into credit. I always thought I had bad credit because I just never used, I had a cash truck and everything else, it was just cash from working and stuff like that when we could afford to purchase it. And she put me on the credit game.
So the realtor was like, “Well, your credit’s not bad. You need to build a credit profile.” So I had to go through the process. My wife put me as an authorized user on her credit card and she had been using credit card for years. So my credit started to increase and we got approved for the FHA loan and we moved into a more desirable neighborhood. And so the goal was to take the rent from that property and pay for the property where we was residing in a more desirable area. And what happened was we got the house fixed up and we rented it out and I got a $400 deposit and a $600 rent check. And I was like, “Man, I got a thousand dollars,” and I didn’t know what I was doing. I got a lease from my uncle Doug and I was like, “I got a thousand dollars by telling some people don’t tear up my property, sign right here,” and I gave them the keys.
So I got in the truck with that thousand dollars and I was like, “Man, I got an $868 paycheck a week.” I had to bust my butt for and work 40 hours a week. And I was just like, “I took three minutes to do this,” and I’m working 40 hours a week for that. So I just had this idea and I was so excited and I called my wife and I was like, “Man, I just got the money almost a thousand dollars.” I got in the truck and I was just excited and it went from there. So when I grew up, though, borrowing money was like death. You was told don’t borrow money, don’t go to the banks. If you got a car or something, pay it off, because when I was growing up, I just heard people talk about how they wanted to pay stuff off.
You would hear your grandma or different people, I can’t wait until their last payment on this or their last payment on this. So my mind was trained not to borrow OPM, not to go to the bank. And we bought their first property cash. So our goal was to save up. So we learned a thing about compound interest. So we bought that property cash, but with that 550, we were paying the rent. Me and my wife would still pay that to the bank. So it was accumulating. We were … Because our finances were set up to still pay that. So we were still paying it to the bank and it was saving over time, but we owned the property and stuff like that. And then we got into the new property and I rented that one out and I was like, “Okay, well, I’m going to try to buy one house a year.”
So I was going to try to buy one house a year in cash, like we did, I don’t take the income tax. And I got on YouTube, BiggerPockets, and stuff and I heard about wholesaling and I was like, “Man, what if I could try to do that and I could try to take the money we are saving and the money we was saving and accumulating for over a year and take the wholesale profits and turn that into buying one house a year?” But the thing happened was … And I call this guy my real estate guardian angel because this guy changed my life. I got a property on a contract one time from calling some Facebook ad, calling some for rent signs. And one day I was leaving, I also got a second job in between the time to save up more money because my goal was really to buy another property outright cash.
And I called this we buy housing sign and this young guy named Scooter Howell answered the phone and I was like, “You buy housing?” He was like, “Yeah.” And I looked at the phone because I was like, “This young dude, he don’t buy no houses or nothing like that there,” because he sounded like around my age but actually he was like, “Okay, I’ll meet you there in 30 minutes.” So I didn’t think nothing of it. I didn’t think he’ll come. I went to the property, I text the seller and said, “Hey, I’m going to go show the property to an investor.” And she got it set up to where the property was unlocked at 2:00 by the time I got off work and I went over there and what ended up happening me and this guy, this guy didn’t buy the property because it wasn’t in his buy box, but me and this guy sit out there and talk for three hours and he told me in the three hours span about leverage OPM, he told me about his banker, the phone number, the email. At the time, he had like 77 properties and he was like 33 and he had been an entrepreneur for the last few years.
And I was like, “Man.” So everything that that guy told me, standing out there in front of that property for three hours, I took home and researched like crazy. I bought every book. I went on YouTube and they was talking about leverage OPM, equity. And I just really went to college of real estate. And I always say that I went to YouTube University, I don’t got no student loan debt. I just researched everything that that guy told me in that span of time. And then it went on from there.

David:
All right, so we all know that moment when we caught the bug, that’s when you caught the bug and it’s like the matrix man. You get pulled out of it and you’re like, “Now that I’ve seen it, I can’t unsee it.” And your brain switches into, what do I have to do to do more of this? Henry talked about his. Lamon, you talked about yours. When we’re trying to teach people to get into real estate investing, it’s almost a race to get to that point where you’re like, “Oh my gosh, that, I want to do it all the time.” So what was your second deal? What lessons did you learn on that one?

Lamon:
Second deal, it was a cash deal. I had some money saved up and stuff like that. And the following year … Because I owned that property, the first property outright, but I never went to the bank the guy told me to do because I still had the fear of borrowing money. So we saved up money and we bought that property cash. And what my dad … I usually typically get my dad the walker property with me because he been doing construction and his knowledge for over 30 years. But I just bought that property because the price was so cheap and I bought it. And then when I went and got my dad, it was like, man, he walked in and he was silent. So I was scared. I was like, “Man, I had messed up,” and stuff like that. So what ended up happening was that property needed to be rewired, it just needed so much work, foundation issues.
And I bought it really, really cheap and I didn’t have the funds because I was trying to do everything cash to really get that property off and running. So I bought that property for six grand and I sold it to a guy for 5,000. But what that did was that property taught me what type of properties I wanted to buy moving forward. So that property was like I got an education from buying that property. So I lost a thousand dollars but I got out a situation that would’ve been a money pit because I didn’t have the means to get the property up and running.

Henry:
Yeah, man. That’s a fantastic lesson. I’m glad you shared that because I think that’s a lesson that we all learn as real estate investors. Every single one of us learns at some point what we don’t want to buy. And usually it comes because we bought something that we didn’t like. I had the same thing that happened on a property. It was actually a 12 unit in my portfolio. The numbers were phenomenal. On paper, his was a fantastic asset and it made me jump in and buy it. But I learned a lot about the tenant class I wanted to support. It made me learn a lot about what repairs I do and don’t want to do and all of those things I wouldn’t have … I could have watched a video and learned that, but it wouldn’t have sat with me. So you lost a thousand bucks, but really you paid a thousand dollars for an education that’s probably saved you way more than that going forward.

David:
Yeah, that’s an extra important point to highlight in today’s market because there’s this pattern whereas real estate gets tougher and tougher to buy, people start breaking their own rules. You start investing in neighborhoods you normally wouldn’t invest in. You get into asset classes you normally wouldn’t go into. You start taking on challenges and convincing yourself it’s okay. But there’s a reason that that asset looked so good on paper. They were selling it at the price that they were because someone else had learned that lesson before you went in. And then I’m guessing you sold it, Henry.

Henry:
Yes, I sold it and it was the best day of my life.

David:
There you go. And now someone else is on a podcast somewhere talk about this property that they bought and how it’s like ruining their life. It’s like a haunted house, literally. And when you’re in situations like now where markets are really hard, it’s very tempting to take the pressure off by getting into those really difficult locations. And it’s not to say you can’t do it, but like you said, Henry, that wasn’t the type of repairs you wanted to make. That wasn’t the tenant base that you wanted to manage.
There is a personality out there who will do very well, very savvy, connects with those people, understands what they’re looking for, how to make it work, but it’s just not for everyone. It’s definitely not passive income where you’re just going to set it and forget it, what you’re trying to scale. So beware of the gurus of the people that are out there selling things that are using that method. Like, okay, come by in this market, you can get a cash-on-cash return of 65%. There’s always a sucker out there who’s going to take it, but there’s a reason somebody’s selling. That’s a good question to always ask is why is someone selling this if the numbers are that great?
Lamon, have you had to have a couple experiences like that yourself where you got into something and realized like, “Oh, man, I wish I never would’ve bought this?”

Lamon:
I’m having that later on because when I first started out that I was just hustling, I was hustling, trying to rack up as many houses to support me being at the job and stuff like that. But as you come full circle now, I feel like I’m more of a real estate investor than a businessman versus what I was when I started five years ago. It was just all about the grind, all about the hustle, doing all the repairs ourself, and my wife spent every weekend doing our own property management. It was just … So I could say since that deal I bought a few years back where I sold it and lost a grand, but I got out of probably was going to be a money pit. Now that I come back full circle years later, I got a better understanding of real estate and a better foundation behind me. I think about some of that stuff now, though. But I don’t think I’ll be to where I’m at today and have the capital and have the resources I have today if I didn’t buy some of that stuff five years ago to get me in a position that I am in today.

David:
Yeah, it served its purpose. And I’m sure the run of inflation that we had, real estate prices rising, that definitely helped when you get a property that you want to get out of. Much easier to get out of it if it’s gone up in value than when it’s staying the same when you’re stuck in that quicksand. So I understand you have somewhat of an interesting financing strategy that you’re using to continue stacking portfolios. Can you tell us a little bit about how you’re using cross collateralization to pledge equity for future properties off ones you already have?

Lamon:
Yeah, I realized that. So after I bought that property and I sold it, I finally went to the bank and met Mr. Jeremy Howell, guy has become a great friend, a banker and a mentor to me. And what Scooter told me about when I talked to him and he was like, “Hey, we can get that house that you own outright appraised,” and appraisal came back and I was able to borrow some money from, what it’s worth, basically what I paid for it. And I took that. And so Scooter called me again one day and he found a three-unit package deal that was outside his buy box he had no interest in. So I got it under contract, I sent it over to the bank and stuff and I got approved. I got an email one day while I was working, said I was approved for the loan.
So I was waiting on them to say something about the down payment and stuff, but they emailed me a closing date and I was telling my wife, “Well, they ain’t said nothing about” … Because I was listening to BiggerPockets and these different podcasts and they was talking about the money you need to put down at 15%. So they never said nothing about the down payment. So when I went to closing, we closed on the three properties and then I actually learned, okay, I was like, “I wonder what I did to get the financing for these three properties.” Then I realized I had collateral from that property that I owned that I bought outright. So a light bulb went off and I just like, “Well, if I can do it once, I can do it again.” And I just been doing it for years where I buy a property for significantly less where they’ll get appraised for from the 80% LTV and I have some equity in there and they could roll over and cover the down payment for the next purchase.
So I’ve been able to buy this real estate. So I used that strategy, cross collateral, and I got lines of credit where I buy cash, renovated with the cash and the line of credit. Then I refinanced after the seasoning period. So I’ve been able to get into these properties with none of my own capital. So I look at it like an infinitive return. Even when I bought doors I probably shouldn’t have bought, it really didn’t cost me anything to sweat equity. To me, it didn’t cost me anything because I just pledged equity from one property to the next one and it’s like an infinitive return because that’s $800, $700 more in cash flow that I didn’t have. So I just looked at it like that right there. So that’s the way that I finance.

Henry:
I love that strategy, obviously, because I’m a big fan of leveraging small local banks to help you invest in real estate and this is typically a strategy that some small local banks will allow you to do. Now, not every small local bank is cool with it, but a lot of them are. So correct me if I’m wrong, what their bank is essentially saying is either you already have a house, either that you have a loan with us on and it’s worth way more than what your loan is, or you have a house that you own outright and you’re allowing us to essentially put a second mortgage on it to cover what would be your down payment. And then that way, you don’t have to come out of pocket for that down payment. And then when you go buy the new asset, they do an appraisal on that new asset and they understand that the new asset you’re buying, you’re also buying it for less than what it’s worth.
And so because you’re buying a great deal and you have equity in other properties that you either have with that bank or are willing to pledge equity on a paid off property with that bank that they’re cool with letting you leverage that because you’re essentially giving them access to your properties. And what the bank is essentially saying is, “Hey, we think you’re buying great deals, that’s great for us because we’ll collect your interest payments, but if in the event you don’t make your payments and we have to foreclose, then we would get the property you’re buying and we’d get the property that you’ve pledged equity on, which we both know are good deals. And so there’s very little risk to us as the lender and it helps you grow and scale your portfolio.” I hope I summed that up right.

Lamon:
Yes, sir. Yes, sir. That’s basically how I go and I roll a closing cost, the appraisal fees, processing fees all into the loan and I go to closing and me and my wife just sign and we got new doors and we collecting cash flow after the renovations and we just move on.

David:
That’s something I’ve been discussing more often as we’ve seen how much money’s been created, the way it’s met inflation, just changing how we understand money. In the pillars book that I’m writing, I talk about how money is really a storage of energy. So you go and you put in 40 hours a week at your job, they paid you an $835 and 33 cents or whatever it was of energy. And so you traded one form of energy for another and then you can use that to go buy things from somebody else and then they use that energy to go do what they want to go do. Well, there’s more than one form that that energy can be stored in, right? Equity is just the name we use for energy when it’s kept inside of real estate. And when you understand that, Lamon, you intuitively got it, I got all this energy stored in real estate, it’s similar to energy stored in a bank account.
Now, it’s not exactly the same because you can’t go buy something with shares of equity. You can’t go to 7-Eleven and buy a Big Gulp and say, “I’ll give you one 4000th percentage of this property equity”. You have to convert it into dollars first. But when you understand that concept, it doesn’t blow your mind to think about going to a bank and saying, “I want to get a loan to buy a property, but I don’t want the loan on the property I’m buying. I want the loan on a property that I already have.” What does the bank care? And so I love that you’re sharing this. I love this strategy and how you’re describing you get an infinite return. You could pull that off for the rest of your days as long as you continue to manage this living breathing entity that we call a portfolio. Henry, what are you thinking?

Henry:
What I do want to say on that is because a lot of people are listening to this and if they are savers or they are … Because there’s two camps typically with real estate. There’s like you need to save the down payment and you need to put your money in the deal because you don’t want to overleverage. And then there’s people that are like, “Yes, I want to use other people’s money to grow my portfolio.” No real estate strategy comes without risk. And what I like that you are saying about what you do, because before we talked about how you’re financing these deals with cross collateralization, you talked about what you’re doing with your portfolio and it’s that you are always taking a look at your portfolio and figuring out, where can I sell a property, gain some money. And then you’re not just putting that in your pocket but you’re paying off other loans.
So you’re deleveraging as you’re leveraging. So you’re keeping your risk tolerance where you’re comfortable at. And I think that’s something that people need to pay attention to. He’s not just saying, “I just take out all the money I can and rack up all this debt.” He’s very strategically looking at his portfolio and figuring out, how to keep my risk and my leverage at a percentage that I’m comfortable with. And I think the other thing that people should think about is he also limits his risk by buying phenomenal deals. He’s not saying he’s going out here and paying retail value for every property that he buys and just buying it because he knows he can buy it with other people’s money. He’s being very strategic about the properties you buy. And so I think buying good deals helps you hedge your risk. And I think always taking a look at that portfolio and figuring out how to continue to pay off those notes so that you keep your risk tolerance where you’re comfortable with is important.
And I think the other thing people are probably thinking is, what about seasoning periods, right? That’s the question everybody always asks when you talk about leverage. So what about seasoning periods? Have you run into anything with seasoning periods or how do you handle that with your portfolio?

Lamon:
I want to say this, piggyback on you what you just said. So sometime when I do 85% loaner value, I’m typically 80, but when I do, I have to have that capital working for me because interest rates are skyrocketing pretty high. So if I pull out 85, the max loaner value, I’m paying one to two houses off at all times and I can double back and get a line of credit against old houses. And if I don’t use that line of credit, I got no payments. And with rent increases and stuff like that, that’s just cash flow that goes into my pocket on a free and clear asset now.
And when I want to do a bigger deal or something like that, I can go back and re-leverage that asset to get into something else. So that’s how I do it. And with seasoning periods, like I said earlier when we was offline, when I pulled out a big refi last year and I paid a bunch of personal debt off and a bunch of personal stuff off and paid my personal residence off, I got a six figure line of credit and I added it with the line of credits I had on some more houses and I just totaled it up. And I went and talked to my title company, I said, “Hey, if I get a property on a contract, could you get it closed and quick?” And they was like, “Yeah, 72 hours we can get it closed.”
I did have a seasoning period with my lender, but I went and talked to them and said, “Hey, this is going to be my strategy moving forward and I’m actually closing on four refis tomorrow. And this is fast as this ever went. This process took, I’d say, less than 30 days or right inside of 30 days and stuff like that. So I talked to them about the seasoning period because this would be my new strategy and they work with me on it. So I’m able to get it moving. The fastest … If I can get it renovated and get a tenant in it and I can show pledge and leases and et cetera, et cetera, and stuff like that, I can move forward with getting appraisal out and starting a refinance process.

Henry:
I love that answer. And here’s why I love that answer is because I think people in general, but real estate investors, we always make decisions for other people based on what we think they’re going to say or do. And so people may hear there’s a seasoning period or people may hear, “I can’t do this because of my credit score,” but they didn’t actually go ask anybody. They didn’t actually go do the research. They didn’t actually hear from somebody that they couldn’t do that. And so, yes, what you said was, “Yeah, my loan had a seasoning period, but I went and I spoke to my lender and I sat down and I explained my strategy and what I’m trying to accomplish,” and then you were able to get around it. I think most people, most investors, wouldn’t even think to do that. They’d just go, “Man, I got this loan, it’s got a seasoning period, so I can’t do anything until the period’s up.” Man. So I love that you didn’t just take that answer and decide it was going to define how you’re investing. You did the opposite.

Lamon:
And I was afraid to do that because my best friend, Jeremy, he was like, “Man, you just need to go talk to him about it.” And he gave me the confidence and I was afraid because it was typically a 30 to 90-day seasoning period. But I was just like interest rates skyrocketing, I need to be a cash buyer so I can continue to get deals. I got employees, I got an office, I got bills, I got to keep the deal flow and keep it going. So I got outside my comfort zone and went and talked to him about it and stuff. But I was hesitant at first, but I just got out my own way and had the conversation because I knew I had to keep the deals, the pipeline. I had to keep it going to support the people that work with me and different things like that.

David:
How important is it to know your market? Okay, you’re working in a very niche market. What do people have a hard time understanding when you’re talking about your market to investors that don’t live there?

Lamon:
Man, the purchase price. You can buy a property in my market for 25,000, put 10,000 to 15,000, in it’s worth, 70,000. In this market, it’ll rent out for seven … Right now, the rent has increased so you can get $700, $800 plus a month. So when you talk to people that’s in different markets and stuff like that, just because I said the price is this much for this particular property, that don’t mean it’s a hole in the wall. I live in a area where the average income is 19,000 and some change for people to try to support they family and some people make it work. They got cars, they got $150,000 houses and stuff like that in middle-class area. So that’s the hard part and stuff like that. And even when I’m talking to new investors that I get the chance to mentor in the area, I always say, “Man, your house is worth more to you than it is to the appraisal.”
You need to know your market. I know you went in here and put a good labor of love in the property, but you probably have overimproved this thing and you’ve paid too much forward. So I always try to get them to understand the ratios of where you need to buy and what your rehab need to be and different things like that. And I take them to some of my properties. So properties that I got that rents for less than 800 bucks, I use indoor, outdoor carpet. I go in and use a Formica countertop. I use the Glacier Bay $30, $50 faucet. I got a different type of rehab with those properties. Then the properties I get $800 plus for, we do the 12-by-12 ceramic tiles on the floors in the washroom areas. We do the vinyl planks, we do the ceramic tile on the countertops and different things like that.
So it’s different ways that I rehab properties based on the return that I will get and stuff like that. So I just try to tell people when they get in the market, it’s a smaller market. So sometime when I’m talking, yeah, our rental rates are less, our property value is less and stuff like that. But if you understand the market, you can still make it work for you. I’ve been at the job for four years. I was recently able to retire my wife and she been out the job for a year. So I’ve been putting it together and making it work. So just by knowing the market and knowing what I should pay for a property, what I shouldn’t pay for a property and et cetera.

David:
Yeah, that could be a big problem, especially for out-of-state investors. When they see the spreadsheet, the spreadsheet doesn’t tell the whole story, tells a piece of a story and then they go, “My market’s expensive, I’m going to go buy over there because price rent ratios are better. They have 1% real deals.” And then they got to do a rehab and they get a bid from a contractor that says 35,000. And they go, “That’s like one bathroom in my market.” What a steal. And then they spend way too much on the property and it takes about 17 years before they get enough equity to pay for that rehab that they went too big on. It’s very easy to make these mistakes.
Henry, have you seen the same thing in your markets since you guys are both in niche markets?

Henry:
Yeah. In my market, the price points are higher obviously than where Lamon’s market is, but the values are the same. And I want to make sure that’s what people understand, that the principles, I should say are the same. I think people probably hear your price points and go, “Well, this doesn’t relate to me because I can’t buy a house for $20,000 or $30,000.” And I promise you it absolutely relates to you because it doesn’t matter what the price points are. He’s still not going out there and paying retail value for a house. He’s going out there and figuring out, how do I get these houses at a discount? And then how do I leverage the equity that I just got on day one to build and grow my portfolio? And those fundamentals apply no matter what your price point is in your market. And so I want to make sure that people think less about the dollar sign he’s talking about and more about how he’s doing this because these fundamentals work across any market.
They work in my market. I do the exact same thing in my market. You asked about how that applies here. I am in the same way. We are consistently looking for how can I walk into equity on day one and then how can I leverage that equity or equity I have in another property to help me build my portfolio. And then just like Lamon, we take a look at our portfolio and we think about, “All right, what do we have? How can I monetize this and de-risk to a point where we’re comfortable? Or how can I take what I have and then move into a larger asset?” Because part of this, too, is lifestyle. I may sell a property because I want to go buy something that has more doors under one roof, which means less maintenance than if I have 10 doors with their own roofs individually. And that helps with lifestyle, that helps with the time we have to spend on that deal or the time somebody has to spend at that property. And so a lot of it, too, isn’t just about the money. It’s about, how do I get my portfolio to a place that allows me to have the lifestyle that I want?

David:
What would it be like to have a movement that had people quit telling you how many doors they have at every meetup and they started saying how many roofs they have? That’s the real flex, right?

Henry:
Right.

David:
How many roofs do you have? Two. Maybe they have 700 doors, but we all want to have those access, not death by paper cut I have and too many different. So at some point, I’m sure, Lamon, as you continue to grow, you’re building equity. Do you have a plan in place for how you plan on transitioning into selling some of these and maybe 1031-ing into larger assets where the management is a little bit easier?

Lamon:
Yeah, yeah, because I understand with these properties, I have a system in place that I got to make it work. I have in-house guys and family members that work in house. I have an in-house property manager so that’s paid by the hour. So that cuts down on my property management overhead and my day-to-day task and stuff like that. And just looking at the properties and saying, “Knowing when it’s time to exit.” So one day, my plan is to pay something down significantly, which I have already had for me to be 35 years old, debt free personally. And I got these properties that I got really low loan values on that I can refinance. Like I did earlier, pull out a big water cash and leverage that into a mobile home park or apartment building. Or I can just sell them off, look at how much I owe and know, “Okay, I’m going to make $20,000 to $25,000 a door when I sell these 10 properties at a time. Sell 10 here, come back later to sell 10 here and stuff like that. So it’ll work itself out and stuff like that. So, yeah, I do have goals of being able to do that one day, but right now, it’s just keeping it going, keeping it steady and stuff.

David:
Yeah. I mean, you have the option to do that when you want to do it. And that’s what matters is that you are not in a position where you have to do things that you don’t want to do or you’re making decisions you don’t feel good about out of desperation. You’re in the driver’s seat. What you have works. If you decide you want something different, you can pursue that. If you don’t, you have to. You can decide based on the age of your kids, the needs of the family. I mean, that’s what’s so great about real estate is when you’re working that corporate job, you do what the company needs you to do. It does not matter what your relationship status is, what your kids happen to need. You serve at the hand of the king. And when you get into being an entrepreneur and owning these assets, and to a degree, you still have to answer to people there.
When a tenant has something break, you have to figure that out. You have to look at the books and make sure things are going well, but you have much more control over when you throw yourself in, go into acquisition mode, ramp things up. When you sit back and analyze what you got and just trim the herd, make it go easier, it is a much, much easier way to live life. And it’s cool seeing that you’ve crested that hill. So let’s revisit your portfolio here. You have 107 units. I mean, that alone is a pretty cool thing to be able to say. $70,000 a month in rents. Congratulations on what you’ve been able to do so far. This is a great story. You said your wife was able to retire. What’s next for you guys? And what is why?

Lamon:
What’s next? That was a really big goal of mine. That’s why we made the scene to pay off some debt and do some things, move some money around. And that was just a goal that I was chasing and stuff like that. So for us right now, we’re just brainstorming. I made a lot of mistakes. Like I said, I bought a lot of properties that my temperament at this age in life can’t handle and stuff like that. So it haven’t all been peaches and cream.

David:
That’s a very nice and professional way of communicating. Henry and I know exactly what you’re saying. My temperament at this stage in life is not conducive to these types of problems that elicit from a portfolio of such.

Lamon:
Yeah. So I just … Once we did that, now we got time. We in the office every day, we got time to brainstorm and just, I can’t say, do it the wrong way because it led me to this point, but I could say do it a better way and having more knowledge and wisdom, and experience under my belt. So the next step of the journey is just getting out, want to go bigger. We trying to streamline everything. We got out for years. We was doing our own repairs, so my output cost was significantly low and I was able to save up some and stuff like that. We did our own management and stuff like that. But when we realized, hey, we wanted the business instead of another job and just being around Henry, Todd, Dre, and some other guys, I picked up there was systems.
And in the beginning, it was like I quit a job, start another job, but it was for myself. So I appreciated it. But at the end of the day, I wanted to streamline things. So that’s what we were working on and stuff like that. And trying to set ourself up to go bigger, invest in bigger assets. Yeah, the cash flow might be lower, but this property we’re buying today is a 20-year hole, a 30-year hole. We see ourself holding this way longer than some of the ones that we picked up in the beginning and stuff like that. So that’s where we going. Just trying to streamline everything. For years, it was like a family-owned business. So now we got subs that we work with. We got people we contract, work out to, because the amount of properties, it would change because now I’m buying some, then I’m selling some. So the portfolio balances out and stuff like that there. So just going through those changes that you learned five years in it. I grew and evolved and just thinking and seeing things different at this point in my life.

Henry:
I love seeing your growth, man. I’ve enjoyed getting to know you over the past few years. I want to ask you a question I’ve asked you before, but it’s been probably, man, a year and a half, maybe two years since I’ve asked you, but I think it’s pretty cool. So outside of those first two houses that you paid cash for, once you really started growing and scaling your portfolio, how much of your own money have you had to spend acquiring any of the rest of those assets?

Lamon:
Man, I haven’t put a down pay … None. I just, like I say, been buying cash and burnout. And I’ve been leveraging equity. Actually, it was weird, last week, me and my wife closed on our dream land to build our dream home. We believe in delayed gratification. So as we was scaling up our income, we didn’t scale up our lifestyle income, we didn’t scale up. So we … And I had to put a down payment down on the land. And it was weird because I’m used to going to closing without doing it. So when I read the HUD statement, it said to borrow cash, however … Yeah. And I was like, “Man, this is weird for me,” and stuff like that.” So none, man. I just figured out a way to … I just look at it. Some do have risk involved, but I just look at it as instead of having debt equity and that’s sitting, I’m just going to leverage it to buy cash flow because my goal from day one was to make as much cash flow a month as possible and stuff. Besides my own personal land that I just purchased to build my dream home, I haven’t put a down payment down since I’ve been on this journey.

David:
Well, Lamon, we appreciate you sharing your story, especially some of the creative elements of what you’re doing. You combined hustle with creativity, with ambition, with delayed gratification, all these great ingredients. And the end result was a portfolio everybody would love to have and a future that looks even better than where you are right now. So thanks for being here. Henry, thanks for finding Lamon or getting him on our show. This has been awesome. Do you have any last words you want to share with our audience, Lamon?

Lamon:
Oh, man, you asked me earlier my wife. Just my family. Always I’m saying to my kids and to me is always I wanted to figure out a way to upgrade the living because I knew making 800 and some bucks every two weeks wasn’t going to get it and stuff like that. So just trying to reach for the stars and give them the life that they deserve. And it’s hard work, man. I’d have been under houses on top of rules, putting flooring down, sacrifice weekends with my friends, came in town, couldn’t watch football, I’m a big fan, and it was just hard work, buying houses and then just jumping out the plane and figuring out how to fly later on. So I just say, man, assess where you at in life and just go for it. Some people going to agree to disagree and that’s okay, but at the end of the day, you know you’re playing, you know what you’re trying to accomplish in life and you know what you’re trying to do.
It always ain’t going to be pretty. It always ain’t going to be pretty, but if it worked for you, keep it rocking and keep it rolling. So for me, just stand down, man, and just figuring it out. And that’s just exactly what I did and it landed me upon where I’m at today. So if I can do it, no college, making less than combined household between me and my wife, we’re less than 30 grand for each of us to where we at today. If I can do it, I just feel like anybody can do it because nothing was handed out, nothing was given. It was all just hard work and determination and sacrifices.

David:
If people want to reach out and find out more about you, where can they get you?

Lamon:
I’m on Instagram, 1800_hustler. So I feel like my Instagram name is my lifestyle. I’ve been wanting to be a hustler since I was a kid, so I do some posting on there and I’m always on the weekend DMing people back and stuff like that. So that’s the only social network that I kind of be on. So if somebody had any question, I’m always up for answering or taking a phone call and just trying to figure out how I can help somebody. When I met a guy, Scooter, I met him years back and he helped me, so I just look at it like paying it forward.

David:
Henry, how about you?

Henry:
You can find me on Instagram. @thehenrywashington on Instagram or you can go to www.henrywashington.com.

David:
There you go. And I am davidgreene24.com. You want to check out my website or go follow me @davidgreene24 on Instagram, Facebook, Twitter, wherever it is that you like to follow people. This has been great. Appreciate you, Lamon. We’re going to have to have you on again in the future to see how things have grown, but thank you, guys. Go please do follow Lamon and Henry both if you want to learn more about real estate investing. These are great resources to learn. This is David Greene for Henry, everybody’s favorite Washington signing off.

It’s perfectly human to have “off” days—those when you can’t help but feel distracted by every little thought or feeling that enters your mind, or when smaller, less important tasks suddenly seem necessary to complete immediately. It can be difficult to get into a state of deep focus or even to find a normal amount of motivation on days like these, which means your productivity and ability to get things done can drastically decrease.

Business leaders are no strangers to these kinds of off days, but thankfully the leaders of Young Entrepreneur Council have found a few solutions to recommend. Below, they each discuss one method they use to find their motivation for work even when they’re feeling distracted and how you can implement each tip to regain your own motivation.

1. Complete The Smallest Task You Can Do

I focus on the smallest task I can do at the moment. I find that when I finish a tiny task, it gives me a surge of motivation and interest that I can then use as momentum to keep going. Often, we get overwhelmed and distracted because a project or job seems too much to handle. Doing something small can make such projects seem easier to manage and lead you to completing them more easily. – Blair Williams, MemberPress

2. Dress The Part

When you’re stressed or distracted or just far from the put-together person you’d like to be, clothes and accessories can make a big difference. Wear your favorite outfit! Making an effort to dress up can make you feel organized and like you’re in control of your life. Plus, when you look the part you dream to be, it just gets you in the mood to hustle harder. – Candice Georgiadis, Digital Day

3. Get In Some Physical Activity

Engaging in physical activity can help boost motivation and productivity. Swimming, biking or running can help increase energy levels, improve mood and reduce stress. It is important to prioritize self-care in order to maintain a healthy work-life balance and increase motivation when you’re having an off day or are simply distracted by other thoughts or tasks. – Eddie Lou, CodaPet

4. Practice Mindfulness And Meditation

I practice meditation and mindfulness during my off days by focusing on my breath to quiet my thoughts and regain clarity. I’ve found that meditation goes a long way in alleviating distractions and enhancing concentration by subconsciously organizing your thoughts and eliminating unnecessary stress. This mental reset allows me to refocus on my work with renewed motivation and mental clarity. – Vikas Agrawal, Infobrandz

5. Listen To Music

We all get distracted at some point or another. When that happens to me, I try to relax by listening to music. Music can help your brain release dopamine, which is popularly known as the “happy hormone.” It helps you reduce stress and boosts your focus. Any tired feelings I have disappear when I listen to music, so I can regain my focus and boost my productivity. – Thomas Griffin, OptinMonster

6. Reward Yourself For Tasks Completed

When I’m distracted by my thoughts or other tasks, setting rewards for myself keeps me motivated. To focus on the task at hand, I give myself a treat once I’ve finished pending work. These rewards generally include activities like watching my favorite movie, going out with my best friend for a cup of coffee, dining at a fancy restaurant and so on, but you can choose what works best for you. – Stephanie Wells, Formidable Forms

7. Set A Strict Deadline

If there’s something I need to do and I’m not feeling very motivated, I find it’s helpful to set a strict timeline for doing it. If it’s a series of tasks, I create a list with deadlines for each item. It doesn’t matter if you write it down on a pad of paper or use an app. When you have a deadline, even if it’s self-imposed, you’re more inclined to work at it even if you don’t feel like it. – Kalin Kassabov, ProTexting

8. Take A Moment For Gratitude

When I’m feeling off, I tap into the power of gratitude. I take a moment to reflect on all the things I’m grateful for, both personally and professionally. It works wonders because it shifts my mindset from negativity to positivity. It reminds me of the opportunities I have, the progress I’ve made and the impact I can create. It reignites my motivation to tackle work with renewed energy. – Adam Preiser, WPCrafter

9. Read Inspiring Books Or Quotes

When I’m feeling unmotivated or distracted by other thoughts or tasks, one thing I do to find my motivation for work is to read inspiring books or search for motivational quotes online. This works well for me because these written words have a way of reigniting my passion, reminding me of the amazing journeys others have taken and giving me a sense of purpose. – Sujay Pawar, CartFlows

10. Take A Well-Deserved Nap

Sometimes I just need to take a power nap. Napping has been proven to refocus and unleash the brain’s natural energy, and it helps me finish the day strong. I like to nap between 20 to 40 minutes—any longer is too much. It’s an easy and natural way for me to boost my mood and energy without taking caffeine. Many CEOs don’t like taking breaks, but a nap is a perfect way to get motivated. – Shu Saito, SpiroPure

Buying a home hasn’t been easy for the past few years. Besides increasing interest rates, a decrease in purchasing power, and a housing shortage, cash buyers have also put a squeeze on some would-be buyers.  

Nearly a third of U.S. home purchases were made with cash in April, a nine-year high, according to data from Redfin that looked at the 40 biggest metropolitan areas in the U.S. That’s in line with data from February, which saw cash purchases reach 33.5% and continuing a trend that started during the pandemic.

The share of homes being bought with cash is at levels not seen since 2014, when the housing market rebounded from the Great Recession. But the housing market today looks very different. So what’s driving this drive of cash buyers?

Rising Interest Rates

The main reason cash buyers are making up a bigger portion of real estate is that mortgage rates have increased thanks to rising inflation.

While rates slid down slightly in June, they remain elevated compared to the same time last year. The 30-year weekly average at the end of June was 6.67%, near a 15-year high. That’s made borrowing costs more expensive and sidelined many buyers who need a mortgage.

Buyers have two choices: pay with cash and avoid monthly payments or take out a loan with high interest rates. Buyers who can’t pay in cash have to either drop out of the market or pay the higher rates, Redfin Senior Economist Sheharyar Bokhari explained.

“That discrepancy is the reason the all-cash share is near a decade high even though all-cash purchases have dropped: Affluent buyers have the choice to pay cash instead of dropping out of the market,” he said.

The rise in rates has even made home buying slightly less attractive for all-cash buyers, as they can instead invest in assets that are more attractive when interest rates rise, like bonds. In fact, home sales were down 41% from a year earlier, compared to a decline of 35% for all-cash sales.

Lack of Inventory

Another reason that cash buyers are king in the housing market these days is because of competition. While it’s not as big of a trend, in some metropolitan areas, the lack of available housing means all-cash buyers are pricing out homebuyers who need a mortgage.

And while high rates have pushed out many buyers, it’s also caused a lot of would-be sellers to not sell. In other words, there’s still a supply issue.

According to data from the National Association of Realtors, housing inventory was down 6.1% in May compared to the prior year and remains at roughly half the level it was before the pandemic.

Ways to Come Up With Cash

With more demand than houses available and rising interest rates, cash buyers are at an advantage. If you can buy a home outright, you’re not only more likely to win a bidding war, but you, of course, save money in the long run.

But paying for real estate with hard cash isn’t accessible to everyone. Thankfully, there are ways to find cash, namely through a self-directed individual retirement account (SDIRA) or through a Home Equity Line of Credit (HELOC).

Self-directed IRA

While it’s more common to hold financial assets like stocks and bonds in an individual retirement account, it is possible to hold real estate. However, to do so, you need to have a self-directed IRA.

Some people prefer an SDIRA to other types of IRAs because it gives you more freedom to decide what to invest in and helps you save on taxes.

With a self-directed IRA, you cannot buy property outright, but the IRA itself does as a separate entity. Because of that, you can only purchase property for investment purposes. You and your family cannot live there or use it as a vacation home. You also have to have a large enough account to cover the whole transaction.

HELOC

To purchase property using a HELOC, you need to already own a home. With a HELOC, you can get a revolving line of credit that is secured by your home and can be used for large purchases.

While a HELOC is a different type of loan, it’s about the same as a mortgage. However, because you’ll need to put your home up as collateral, it’s important to make sure that the loan or investment is worth the risk. If not, you could end up losing both properties.

Conclusion

While not everyone might have the means to put cash up for a house, that doesn’t mean investing in real estate is completely off the table. With a little bit of research, you can find a way to expand your real estate portfolio in a way that makes sense for you and your finances.  

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.