Hello, my friends and welcome to another episode of Ask Marco where I answer your investing related questions.
Today’s question comes from Phil and today’s episode, I titled Ready but Slightly Hesitant to Invest. Phil says, Hey, Marco, love your podcast. My primary goal is to invest in real estate to earn passive income. Just finished reading Rich dad, Poor dad, great book by the way. I feel like I’m ready to go. But taking action is the hardest part. My wife and I live in San Diego. We own one rental property worth about $550,000 we only owe 250,000 excuse me, 215,000 on this property. So my plan is to do a cash-out refinance and potentially sell within two years to avoid capital gains tax. We moved this past year in 2019 I hope to start an LLC, a limited liability company this month, and obtain the cash to start investing. I would like to use Norada as a turnkey property provider if the resources and properties you offer are as advertised. I’d love to invest between a $100 to $150,000 using Norada. Generally speaking, I’m slightly hesitant to fully trust anyone who’s trying to sell me something. No offense, any advice for me with my plan? Anything you’d say to someone like me who was on the verge of picking up the phone to call Norada. I’m a huge fan of yours. Thanks for your time – Phil.
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Phil, thank you for the email and thanks for your trust and thanks for being a podcast listener. I’m glad you’re a fan. Um, that’s very flattering. So here’s a number of comments and thoughts for you. So first of all, action is the hardest part. You know, you mentioned that it’s taking action. It is, it is for a lot of people, especially for something new and something that is as big of an investment or purchase as rental property. So my suggestion, at least this is what I do for myself and I know it works for a lot of people, is there’s that old saying, how do you eat an elephant?One bite at a time.
Just take whatever that project or task is however large, and just break it down into smaller and smaller and smaller pieces. I call them bite-sized pieces. Something that is ridiculously easy to take action on because that tiny little step builds some confidence and momentum. And then once you have that momentum, even if it’s literally just taking a pad of paper and a pen and just jotting some stuff down, but just taking that baby step if you will, helps to build a little bit of forward momentum. And that’s what you need because that will allow you to take that next tiny little baby step. And I know it sounds ridiculously simple and oversimplified. But trust me, starting is the hardest part is that step even of journey of a thousand steps starts with that first step. So if you take that first little step, it will help.
Secondly is related to that is to take small steps. Don’t try to jump or leap. You know, you can’t run before you walk and you can’t walk until you crawl and you can’t crawl until you start making these little, you know, motions to start moving forward at least in the right direction. So next is build a team. Now you can do this on your own. You could do the vetting and due diligence on your own, but one way or another you’re going to have to build a team. You’re not going to do this by yourself or solo. So you have to understand that you’re going to need to rely on people and build the trust with the people that you are going to be working with. So when you feel comfortable and you’ve been building trust with the right team, what’s going to happen is you’re going to have the team that’s going to help you succeed.
Now, whether that’s us or us and a combination of other people or just other people all together, you need to build that team so we can be a starting point for you. We already have all the resources and the people that you would need. They’re already vetted and many of them, in fact, most of them we’ve worked with for years. So why reinvent the wheel? And I’m just saying it’s on the table. Last but not least regarding action being the hardest part, you continue to educate yourself and learn. I mean it’s great that you read Rich Dad, Poor Dad. It is a great starting point. It’s a foundational book. Just continue to build on top of that. You know, I like to say that as you learn, you build competence and as you build that competence that leads to confidence. So you know there’s truth in the saying that the more you learn, the more you earn.
Well. The reason for that is because as you learn, you build competence and that competence is what is going to allow you to become successful and have the confidence that goes along with it. So these things go hand in hand. All right, now comment about your San Diego rental property that’s worth a whopping $550,000 if that is truly classified as a rental property, meaning that you live elsewhere and where you live is your principle residence, then this property from a tax perspective is classified as a rental and you should be able to sell it any time using a 1031 exchange, which means that you can sell it and move the equity or pull equity out without a capital gain. Tax impact. Again, check with your tax advisor, a tax strategist. We can help refer people to you. We’ve probably got a list of five people that we refer and work with, but just given the limited information you’ve provided me, it doesn’t sound like you’d be paying capital gains tax on that property if it’s not your principal residence and there are ways to do that.
You can get pretty creative with real estate. It’s not just the 1031 exchange that you could use in order to tap the equity that dead dormant or idle equity in that property to redeploy into building a real estate portfolio. So you can create that wealth through the equity growth over time. And in parallel with that, you can increase that passive income by growing that portfolio. And ultimately what you’re going to find is you’re going to grow that over time just because you’re managing it properly and you have a strategy in place. And again, we can help you with that.
Uh, next comment is the LLC. You said, I hope to start an LLC. Well, let’s put it this way. If you’re working with an attorney, you can have an LLC along with all the documentation done and ready and 100% available. And within days, it actually literally takes less than five minutes to set up an LLC. In most States, it can be done online if you know what you’re doing. Now, I’m not suggesting you’d just do the self-serve method because I set up multiple LLCs. It takes me all of five minutes to set one up. That’s not including the documents, like the operating agreement. I have templates for that. But if you know what you’re doing, great. If you don’t know what you’re doing, you might want to use an attorney and that could cost you anywhere from 400 to $700 to depending on what you’re having done and who’s doing it for you. But an LLC really doesn’t take much of your time to get it set up. And then once it’s set up, you can, uh, open up a bank account at any bank. Just bring your documentation with you and um, you’re good to go.
To your later point here, you said you’re slightly hesitant to fully trust anyone who’s trying to sell something. Well, at the end of the day, everybody out there that is running a business is selling a product or service. You know, we have a service available and we’re not trying to force or push anybody into any direction that they don’t want to take. So really it’s not a push. It’s a pull. You come to us when you’re ready and you’ve got the right mindset and you know some foundational education that you’re getting from the books you’re eating and our podcast and whatever else, but we’re going to walk with you. We’re not going to drag you. So there is no offense taken here. The facts are the facts. We present the information as we get it. We believe it to be true, but at the end of the day, we’re all gonna verify it. It’s like Ronald Reagan said long ago, trust but verify.
We take the same approach. We assume that the data and information we get from our builders and property providers is accurate and most of the time it is. I wouldn’t say 100% of the time, but what we’re going to do is we’re going to verify those numbers, the price, the rental income, we’re going to help verify the property taxes. The insurance is pretty easy to calculate if there’s an HOA homeowners association. Most of the time there isn’t, but we would know and you know that number is, everything’s documented. That’s the thing. It’s, it’s pretty easy to verify a lot of the stuff and there are a lot of websites that you can verify all kinds of information from the tax rolls to neighborhood and demographic information to locations, et cetera. Everything is pretty much available and whatever is not readily available at the time can be acquired through the title and escrow process that you would be going through with the title company because everything has to be checked and validated and documented. Otherwise, title insurance would not be issued on that property anyway. So there are a lot of checks and balances along the way and you know when you talk to us, we can get certainly get into a lot of detail about this, what we call the purchase process. It’s literally a two-page checklist that we have that we can provide you. Most people don’t ask for it, but we have it available if you want and you can just check the boxes as you go.
And last but not least, take a baby step and speak to an investment counselor. There’s no obligation, there’s no cost. It’s just a time commitment. Whether you want to spend 10 minutes, 30 minutes or 60 minutes with my team, we’re just going to simply explain the process, answer your questions and help point you in the right direction. Then the ball’s in your court.
There’s no obligation, there’s no pressure. It is what it is. At the end of the day, we just want to see you take action, which is where you started with this and start doing something to build and improve your financial situation, not just for you but your family and your heirs. So we just want to help you and at the end of the day, you can use us or not. It doesn’t matter to me. I’m not going to lose sleep over it, but I know we can help you. I would love to help you. My team would love to help you. So just take that baby step, fill out the form on our website, get in touch with one of my investment counselors, have that initial conversation, understand the process, get some comfort and just go from there. I think you’ll find it actually pretty enlightening and if nothing else, you just get an education out of it.
All right, Phil, I appreciate the question, the trust. I’m glad you’re a fan. Glad you liked the podcast and thank you for listening, so I’ll wrap it up there. If you have any questions about investing finance real estate that you would like me to answer or at least try to answer on the show, I get a lot of questions and I seem to be running out of time here. Just go to passive real estate investing.com click the ask Marco button, submit your question and if you haven’t already, of course, remember to subscribe to this show. We want to help as many people as we possibly can. That’s it for today, so thank you for listening. I will see you on the next episode.
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