💸 The misunderstood REI tool you should be using

Happy Thanksgiving, Best Ever Community! Hope your day is as stuffed with joy as your plate is with poultry and pie. 🥧

In today’s newsletter, HELOCs flaunt their versatility, anonymity avoids a death sentence (for now), and one self-storage investor reveals how he boosted NOI by 46% in 18 months.

This week’s newsletter is brought to you by Rentec Direct, the property management software that offers an all-in-one platform for accounting, marketing, tenant screening, rent collection, and much more. Learn more about Rentec Direct here.

Onward!

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TOP HEADLINES

🚨 Texas Faces Multifamily Market Crisis: The once-booming Texas multifamily real estate market is now experiencing growing distress signals, largely due to overdevelopment, falling prices, and financial challenges for developers and investors. CRE Daily explains.

🏃 Blackstone Takes the Lead: Blackstone is currently the front-runner in the race to secure the $17 billion portfolio of commercial property loans from the FDIC’s sale of Signature Bank debt.

💥 Ready to Pop?: Gary Shilling, the renowned economist famous for predicting the 2008 housing crash, believes there’s a CRE bubble that’s just about ready to burst.

🏦 Housing Limits Lifted: The Federal Housing Finance Agency plans to exempt workforce housing loans from lending limits on Fannie Mae and Freddie Mac in 2024, with both entities facing a $10B reduction in multifamily lending caps for other properties.

💵 Office Landlords Face Loan Crunch: Only one-third of securitized office mortgages that expired in the first nine months of 2023 were paid off by the end of Q3, indicating a broader freeze in the office lending market.

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THE MISUNDERSTOOD TOOL YOU SHOULD BE USING

Forget everything you’ve heard (or haven’t heard) about Home Equity Lines of Credit (HELOCs). Charlie Hardage of H&K Investment Group used HELOCs to build his portfolio and pay down his primary residence, and now he’s on a mission to help demystify this game-changing tool and reveal just how much power it holds for investors when wielded properly.

🤔 What’s a HELOC? A HELOC operates similarly to a credit card. It provides a revolving line of credit that homeowners can borrow from as needed, up to a predetermined limit. This makes it a flexible financing option, allowing borrowers to access funds as required.

🏠 Using Equity: To qualify for a HELOC, homeowners need to have equity in their property. Equity is calculated by subtracting the outstanding mortgage balance from the current market value of the home. For example, a homeowner with a property valued at $100,000 and an outstanding mortgage of $70,000 would have $30,000 in equity.

🔒 Secured vs. Unsecured: Unlike credit cards, a HELOC is a secured loan. This means that the loan is backed by the value of the borrower's property. If the borrower fails to repay the HELOC, the lender has the right to place a lien on the property, potentially leading to foreclosure if the debt isn’t settled. HELOCs also typically have lower interest rates compared to unsecured loans like credit cards. 

🧠 Thinking Strategically: Hardage discovered that HELOCs can be strategically employed beyond traditional uses — for example, using HELOC funds to invest in a syndication rather than simply paying down debt. 

“Now I'm getting that spread, that arbitrage between the syndication,” he says. “Annualized returns were, let's just say 15% to 25%. And at the time I was paying 4% — now 8% — on a HELOC. That's a massive spread between not using my money, using the bank's money, using a lender's money, and investing that into real estate.”

🤸 Maintaining Flexibility: Hardage used his HELOC to invest in multiple syndications and ultimately accelerate his path to financial freedom. The ability to use the HELOC repeatedly, paying it down and then accessing the funds again, provides a level of financial flexibility for strategic investment.

💬 “We've actually taken our HELOC, and we put money down on our house so we can pay that off early,” Hardage explains. “We refinanced the HELOC to grow the credit limit and then we were able to invest in multiple syndications — first two as a limited partner, and the next few as an active partner.”

👉 Listen to the full episode for more on harnessing the power of HELOCs.

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Sign up for a free trial today! Plans start at just $45 a month, and you’ll receive 20% off your first year just for being a Best Ever reader.  

👉 Learn more about Rentec Direct here.

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FROM NIC MCGRUE

The Corporate Transparency Act (CTA), a component of the National Defense Authorization Act for Fiscal Year 2021, was enacted on January 1, 2021, and becomes effective on January 1, 2024. The CTA aims to promote transparency in the corporate sector and to combat illicit activities.

Under the CTA, specific business entities, known as reporting companies, are mandated to adhere to key requirements. These include:

• Disclosing essential Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN)

• Revealing information about the individuals responsible for creating or registering them in the United States

• Promptly reporting any changes to previously submitted information

The disclosed BOI is securely maintained in a nonpublic database by FinCEN, assisting law enforcement efforts against money laundering, tax fraud, terrorist financing, and anonymous shell and front companies.

But how could the CTA impact you and your business?

Many investors and operators in the real estate industry conduct at least some form of their business through limited liability companies and limited partnerships. Under the CTA, an LLC and an LP would both likely be considered reporting companies. That means that if you own any LLC entities or Limited Partnership entities, those entities will fall under the CTA unless they also meet exemptions. Thus, as a real estate investor/operator, it is likely that some or all of your businesses will need to make the proper filings and ensure compliance with the CTA.

As a real estate investor/operator:

1. Know which of your entities are considered reporting companies under the CTA.

2. Understand who all of the beneficial owners are and the disclosure information required.

3. Timely file your required disclosures with the Financial Crimes Enforcement Network.

👉 Read the full article for more on the future of entity anonymity. 

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46% NOI BOOST IN JUST 18 MONTHS

Tom Dunkel increased NOI by 46% and created $1.8 million worth of value on this self-storage property in 18 months. Here's how he did it. 👇

🏢 Property Details: 402 Class C self-storage units purchased in North Carolina in January of 2021.

💸 Finances: Purchase price was $3 million with $1,025,000 in capital raised. Five-year fixed-rate loan at 3.95%, 10-year term, 75% LTV loan from a local credit union.

💼 Business Plan: Upgraded the management software, fixed gates, removed abandoned vehicles, replaced the management team, cleaned up delinquencies, and added tenant insurance. Increased rents by 21%.

🍾 Results: Sold in July of 2022 for $4,795,000 and increased NOI 46% in 18 months. Investors realized a 39% annualized return. 

If you have a deal you'd like us to feature, share it with us!

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BUILD YOUR NETWORK FOR SUCCESS

At the 2024 Best Ever Conference — happening April 9–12 in Salt Lake City — 1,200+ passive investors, operators, and syndicators will gather to network, share ideas, make deals, and party. 

As an investor, it’s a unique opportunity for you to: 

🤝 Build your network! The #1 reason people come to BEC is to build relationships! Countless partnerships and companies are formed every single year. We’re all there to help each other succeed. 

💵 Get better economics on deals. You’ll get access to an exclusive digital database of all the opportunities available from all of our Verivest Pitch Slam contestants, our 80+ sponsors, and any attending operators.

💬 Meet (and vet) the people behind the deals face-to-face. Schedule one-on-one meetings or stop by sponsor booths to have open, productive conversations to discover if your goals and values align.

📰 Keep your finger on the pulse of new and emerging opportunities and learn how to protect yourself from bad deals and downright fraud. Whether you’re looking to passively invest, expand into new asset classes, or take on a GP role, there will be a variety of sessions aimed to give you the information you need to succeed.

👉 Act now to unlock our lowest rate of the year + 15% off. That’s up to $700 in savings. >> Register by November 30 with coupon code BESTEVER24.

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FREE DOCUMENT DOWNLOAD

💸 The 8-Step Process for Selling Your Apartment Community

You’ve acquired a new asset, completed your value-add business plan, and have been distributing higher than projected returns to your satisfied investors for the past few months. Think your investors are satisfied now? Well, they’re going to be ecstatic when they receive that massive distribution upon sale! So, when and how do you sell your apartment community? 

👉 Download now!

🙏 Thanks for reading!

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Have a Best Ever day!

—Joe Fairless