Navigating Historically High Inflation Combined with Low Interest Rates

Let's discuss what's happening with the cost of goods and how you can navigate historically high inflation with low-interest rates. 

We recently held a Royal Investing Group Mentorship with Ron Galloway, an expert financial researcher with 35 years of experience to answer the inflation question. Galloway has been featured in The New York Times, CNN, CNBC, and The Wall Street Journal. 

Please keep reading to learn more about inflation, how it's measured, and the potential impact on low rates in your real estate investments.

What Is Inflation?

According to expert financial researcher Ron Galloway, inflation is "simply an increase in the money supply." In the past year, nations increased their money supply up to four times, says Galloway, which led to historically high inflation. 

The rate currently reduces your money's value and drives up prices. 

When you shop, do you notice that things cost a little more each time you go back?  

For example, last year your shopping cart cost $300. An identical shopping cart might cost you $320 or more this year. At its most basic, that's inflation.  

Contributing Factors

Galloway explains that the economy is not as strong as it is reported because of:

Each of these factors contributes to the inflation situation we are experiencing. 

How Is Inflation Measured?

We measure inflation by measuring the cost of many items over a specified period. The Bureau of Economic Analysis and the Bureau of Labor Statistics measures goods and services costs, categorizes the expenses, and creates different price indexes. 

Price Indexes

Price indexes are lists of prices. There are different price indexes; one measures households and their consumption of personal goods and services. Another price index measures commercial companies and their raw materials consumption and needs for machinery. 

Measuring Inflation

To measure inflation, we look at the level of a price index. If the price index level is higher than over a year ago, we know that prices are higher on average, and there is inflation. 

Galloway argues that inflation numbers provided by government statistics agencies do not adequately account for essential goods like food and fuel. Necessary commodities like food and energy cannot negate an increase in prices and other goods that aren't essential, like electronics. 

That means that real inflation for essential goods may be even higher than the reported rate of 7.5%.  

What Is the Impact of Low-Interest Rates on Banks?

The impact of low-interest rates is that banks are less willing to loan money. Banks have increasingly heightened their standards and investigated and thoroughly vetted potential borrowers. All in all, interest rates are low, but there hasn't been a corresponding increase in loans. 

Galloway explains that real interest rates are "the rate of interest minus inflation." Accordingly, the combination of low-interest rates and rising inflation disincentivizes banks from loaning money. 

As a result of that unprofitable combination, top institutions would instead use their cash for trading derivatives between each other. Galloway notes if one of those significant banks defaults on their derivative, we'd have a repeat of the 2008 recession. 

Expand your portfolio, diversify your assets, and hedge against inflation. To do that, you might consider investing in Carbon Credits

What Is the Impact on People Who Hold Assets?

Inflation eats up your cash, but people in debt and assets benefit from it. If you hold assets, like real estate, during an inflationary period, those assets increase in value. 

Now might be a good time for you to invest in real estate. 

Indeed, prices are up, but so is demand. So far, there are no obvious indicators that the housing market will slow down. In addition, as Galloway mentioned, real estate, a tangible asset that appreciates, is a good investment during inflationary periods. 

If you are ready to take the next step to secure your financial freedom, check out: 

Key Takeaways

Never in history have we had interest rates this low and inflation rate so high. As a result, you need to protect yourself and your assets. Here are the key takeaways from today's discussion: 

During this period, it is an excellent time to be a real estate asset owner. If you want to learn more about market trends or other real estate investment topics, register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

1031 Exchange Update for 2022

Are you fed up with paying taxes on your hard-earned real estate profit? Are excessive taxes preventing you from securing your financial freedom as a real estate investor? If so, you should read further to learn more about the 1031 Exchange update for 2022.

As a savvy real estate investor, you can use this little-known tax break to increase your wealth. Once you've mastered the 1031 Exchange, you'll see an increase in your purchasing power as you keep your money working for you and not filling the federal government's coffers.

What Is A 1031 Exchange? 

First, you have to know what we mean when talking about a 1031 Exchange. In general, a 1031 Exchange is a tax provision that lets you sell an investment property, take those gains from the property, and reinvest those gains into another property without paying taxes. 

When you sell real estate and earn gains, you have to pay tax. Appreciated property means more tax when you sell. The flip side of that is true too. If your property depreciates, you are subject to depreciation recapture taxes when you sell. Those taxes apply to you whether you claimed the depreciation deductions on your taxable income or not. 

Either way, the federal government will try to extract their pound of flesh from your gains. 

The beauty of the 1031 Exchange provision is that you get to defer the taxes on your gains. That means as a real estate investor you pay no taxes when you sell your property and exchange it for a new real estate investment. If you follow the rules, you may be able to defer the taxes indefinitely as you reinvest into bigger or better properties. 

If you want to learn more about the finer details of the 1031 Exchange, we recommend that you read Understanding 1031 Exchanges And Asset Protection Entities

What Is The 1031 Exchange Update? 

When President Biden won the election, one of his campaign promises was to eliminate the 1031 Exchange because of the perception that it gave an unfair advantage to the ultra-wealthy. 

The Biden administration had planned on either eliminating the 1031 Exchange program or modifying it somehow. One of the planned changes was the complete overhaul of the 1031 Exchange program, but that plan hasn't come to fruition. 

The other plan included a $500,000 limit on the amount of money exchanged per year. That plan has also failed to earn widespread support.

One of the reasons the government failed to eliminate the 1031 Exchange program is that it is not in their best interest to kill it. Here's why. 

If the government were to limit the 1031 Exchange successfully, it would mean less tax revenue in the long run. In the short term, the government would enjoy the taxes from the sale of the property.

However, a limit or drastic change to the 1031 Exchange would probably chill the real estate industry. That means that more people will hold onto property to avoid taxes. When people hold

onto their properties, all the ancillary sources of tax revenue dry up. 

That means the contractors, cleaners, attorneys, real estate agents, and title companies do not participate in those deals. When you eliminate those people from transactions, you eliminate the taxes they would have paid. On balance, the federal government earns less in tax by removing or reducing the effectiveness of the 1031 Exchange benefit. 

Fewer taxes and political gridlock have prevented any significant changes from the tax code yet. However, as a competent real estate investor, you should prepare for changes, just in case. That means you should look into all tools available to you right now and take advantage of them. 

You might wonder if the 1031 Exchange is the right investment strategy for you. Answer that question by checking out Is a 1031 Investment Strategy Right For Me? 

Key Takeaways

The 1031 Exchange update doesn't take away from the fact that it still might be the right vehicle for you to avoid paying capital gains taxes. Right now, there is talk in Washington D.C. about making policy changes, but nothing has emerged from those discussions yet. 

That's not to say that nothing will happen, but a lack of support and institutional gridlock are keeping policy changes at bay. As an intelligent real estate investor, you should plan, but don't worry too much about things out of your control. 

The best thing to do right now is to use all your tools. That means finding out which real estate investment strategy is suitable for your particular and unique circumstances. 

Do you have a plan for your financial freedom? If not, let us show you how to secure your financial independence and build generational wealth to pass on to your family. 

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Certificate of Good Standing

Also known as a certificate of existence or a certificate of authorization, a Certificate of Good Standing is a vital document for any business. Without one, you’re going to have a tough time.

There’s a framework of regulations aimed at ensuring companies meet certain minimum standards before transacting business. For the most part, business owners and real estate investors agree on the need for a system that helps distinguish legitimate enterprises from unknown entities.

Essentially, the Certificate of Good Standing means you’re legally cleared to do business in your state.

What is meant by Good Standing?
A Certificate of Good Standing—also known as a Certificate of Existence or a Certificate of Authorization— shows that your business has paid its taxes, has fully complied with various regulations in the state where your entity was formed, and has filed an annual report.

This vital document is essential to just about any business because it means you’re legally cleared to do business in your state. Keep in mind, laws vary from state to state regarding the types of businesses that must register. If you’re unsure about your specific situation, check with your state’s business filing agency.

When would I need a Certificate of Good Standing?
There are many specific occasions where you will need to produce a Certificate of Good Standing. These can include if you choose to expand your business into another state (or even country), or if you are bringing a new investor or partner on board.

Obtaining it in advance will help you avoid last-minute scrambles, since you may also be asked to provide a copy when setting up contracts with suppliers, bidding on government contracts, and registering to do business in another state.

Who would require a Certificate of Good Standing?
Having a Certificate of Good Standing is necessary when opening a business checking account, applying for a loan, raising capital, or raising funds from investors. Many more lenders will require them if you need to apply for any type of financing.

Obtaining it in advance will help you avoid last-minute scrambles, since you may also be asked to provide a copy when setting up contracts with suppliers, bidding on government contracts, and registering to do business in another state.

AN OUNCE OF PREVENTION IS WORTH A POUND OF CURE

Regardless of your situation, it’s just sound business practice to have a copy of your Certificate of Good Standing for your own records. You’ll probably need it to operate anyway, and you’ll want to be able to produce it easily. Royal Legal Solutions can help you meet the requirements for and obtain your Certificate today.

WHY USE ROYAL LEGAL SOLUTIONS FOR A REAL ESTATE INVESTMENT ASSET PROTECTION?

We have experience in setting up the proper asset protection and making it easy for an investor to use. Our system simplifies management structure as much as possible, and we also use common sense to ensure your needs are met. For example, just one tip we give our clients is that you don’t need multiple bank accounts as long as you have accurate accounting records. For taxation, they should stay exactly how they are now while being reported on a Schedule E of your personal return (if you’re an individual/married partners) or a partnership return (if unmarried partners).

How Do I Get A Loan Against My Land Deed? 

Land has always held value in the United States, and if you have a clear deed to real estate property, you may be able to use it as collateral for a loan.

In this article, we'll examine the steps a borrower needs to take to obtain loans against a land deed.

There can be a lot of paperwork involved in land ownership. Your first step is to make sure your paperwork is in order and the property deed is in your name. You can find out through the County Recorder's office in the county where the property is located. Land deeds are a matter of public record, so anyone who wants this information can obtain it. 

A recorded deed provides notice to subsequent purchasers, lenders, and the general public about a parcel of real property. It also protects the owner of record in the event multiple parties claim ownership of the same land.  

When a property transfers from one owner to another, you must update the official documents. A failure to accurately record the required documents can invalidate the transfer.

After you've confirmed that your name is on the deed, your next step is to find a lender that will loan against a land deed. Land loans can be hard to find. Some lenders do not accept land as collateral at all, and others only consider land that is worth a certain amount. Most lenders will not loan on land that belongs to more than one person.

If you have bad credit, you'll have a tough time securing a land loan. When your credit is not a factor, your loan eligibility will depend on the type of property you own and its location. If you own prime land that is zoned for commercial use in a busy urban area, your loan has a good chance of being approved. If it's located right off the interstate, your chances are even better. 

loans against land deedHowever, if you own a few rural acres miles away from a city center, finding a lender may be challenging. The bank is looking at the land's profitability, meaning how easily it can be converted into cash if you default on your loan. In the case of rural property, you may have better luck with a small local bank than a larger institution. A local banker may better understand the value of your land. 

Once you have identified a lender and the lender has confirmed that the land is valuable enough to serve as collateral for your loan amount, you will be able to complete the loan process with the following steps:

If these steps are completed to the lender's satisfaction, the lender will then discuss the terms of the loan they are willing to offer. When you and the lender have agreed to the terms and the loan is issued, the lender will record a lien on your land title. 

Can I obtain a loan on vacant land? 

Lenders typically see vacant land as a riskier investment than land that is already in use. Buildings can be sold or rented out, while it can take a long time for vacant land to produce any cash flow. Once again, you may have better luck with a local bank than with a large one.

If you seek to use the vacant land as collateral for a loan to fund a construction project on the property, that's a different story. The lender will examine the financial strength of your project, and, if it likes what it finds out, it will disburse funds as you meet your construction milestones. 

Interested in learning more? Check out our article, Basics of Land Investing.

What about a loan against a land trust?

If you're seeking a loan against the assets of a land trust—called a land trust mortgage—you'll need to check the trust deed to make sure that the trust has the power to borrow money. 

Then, you'll need to ask the trustee to sign the mortgage or note. 

If the property is already in a land trust, and you want to borrow against the beneficial interest, then the lender will need to serve what is called a "Notice of Collateral Assignment" on your trustee. Your trustee will then need to write an "Acknowledgment of the Assignment" in response. Afterward, the trustee will not be able to transfer the title of any property held in the trust without the lender's written consent.

What happens if you default on a land loan?

Just as with any loan, you must pay back a land loan according to the terms of your loan contract. If you default on the loan, the lender can take possession of the land and sell it to pay for the amount you owe.

On the other hand, when you repay your land loan's full amount, the bank will cancel the lien on your deed. At this point, the lender has no further claim to the land.

How To Invest In Real Estate With No Money

So you've caught the real estate bug, and you're ready to start investing! But then you check your bank account and ... Oh yeahhh ... You're broke. This doesn't mean you can't get in the game — it just means you need to think a little more creatively. Here are a few tips on how to invest in real estate with no money.

Option #1 — Find A Partner

Finding a partner with deep pockets to fund your ventures is one of the best ways to get started in real estate investing when your own pockets are too shallow. Of course, to find someone willing to bankroll your real estate mogul aspirations, you better bring something to the table as well. 

In addition to moolah, the recipe for a successful real estate investment includes a variety of ingredients, such as:

Take inventory of your talents and resources to figure out what you can bring to a partnership. Then find someone who has the cash for real estate investing but lacks an essential quality that you can offer. Forming a partnership can get you into the game without investing any of your own money.

How To Invest In Real Estate With No Money Empty PocketsOption #2 — Start An LLC

An alternative to partnerships is forming a Limited Liability Company (LLC). On top of the asset protection benefits of buying an investment property with an LLC, starting a new LLC can also be a source of funding for the property: You can use the capital that equity owners invest in the new LLC to purchase real estate. 

Option #3 — Borrow From Hard Money Lenders

If you're interested in flipping a house instead of making a long-term investment, hard money lenders can get you the funds you need to get started. Instead of going to a bank (or if the banks have already rejected you), you can pursue financing from hard money lenders. These lenders are typically corporations established specifically to issue hard money loans or wealthy folks looking to get wealthier.

Hard money loans have:

Sounds great, right? Yes, hard money is pricey. But, if you have found the perfect flip and you can still make a profit after paying their fees, hard money lenders are sometimes the best way to get the money you need to make the deal. 

Option #4 — Buy A Seller-Financed Property

If you're struggling to secure a loan from a traditional lender, seller financing is a great option to explore. With seller financing, the property's current owner sells you the real estate, and you make payments directly to them. You'll sign a promissory note, which is basically a formal IOU, and they'll hold a mortgage to the property. 

Some real estate investors and other property owners who don't need all the money for the property upfront use seller financing to make a little extra cash off selling their properties. They benefit from the interest you pay them, and you can cut the third-party lender entirely out of the process. Seller financing can allow you to snag a property you couldn't qualify to buy through a traditional loan.

Option #5 — Put Your Retirement Savings To Work

Many people don't know that real estate investing with your 401(k) or IRA is even an option. While a traditional retirement account is generally limited to common investments such as stocks, bonds, and mutual funds, a self-directed 401(k) or IRA allows you to invest directly in real estate. 

With a self-directed retirement account, you can use your savings to purchase real estate. Your account will be listed as the property's owner, and you can start making money off the investment.

Option #6 — Crowdfund

Real estate crowdfunding is a relatively recent development. While the idea is just starting to catch on, crowdfunding is already attracting attention from serious investors. The popularity of real estate crowdfunding promises to grow as time goes on.

Crowdfunding can be an exceptional opportunity for people with limited resources to pool their money to invest in real estate. If you can't raise capital through a traditional method, you can crowdfund using social media, real estate crowdfunding platform, or other online sources to purchase real estate. 

Option #7 — Combine Methods

No rule says you have to pick just one of these options. If you want, you can build your own little Frankenstein-monster of an investment funding strategy. For example, you could start an LLC to purchase a seller-financed property. Or you could flip a property with a partner but secure some of the financing from a hard money lender. Or you could invent your own strategy that isn't mentioned in this article!

If you think creatively and focus on your goals, the sky is the limit when it comes to your investment options. Knowing how to build a real estate empire means keeping your eyes open and being ready to open the door when opportunity knocks. That said, as with all investments, make sure you do your due diligence before jumping into anything. 

 

Real Estate Crowdfunding: A Smart Choice for Investors?

Crowdfunding, the use of small amounts of capital from a large number of individuals, has become a popular way of financing everything from personal emergencies to new business ventures.

Through social networks and websites such as Kickstarter and GoFundMe, crowdfunding allows investors to select from hundreds of causes and projects, sometimes investing as little as $10. The global amount raised by crowdfunding is $34 billion (according to fundraising platform Fundly) and experts predict that global total will nearly triple by 2025.

You’ve seen the effectiveness of crowdfunding; maybe you’ve already participated in a few projects for a favorite charity or someone’s hospital expenses. You also may have participated in a friend’s crowdfunding project for a start-up.

But what about crowdfunded real estate? Is it a smart choice for you as an investor?

crowdfunding real estate

Meet your future business partners ...

How Does REI Crowdfunding Work?

Before 2012, real estate investing was primarily the exclusive domain of career pros with plenty of capital. However, legislative changes that year allowed the option of crowdfunded real estate investing.

The process works the same way as other crowdfunding projects. Investors pool their money to fund a project or a company in the expectation of future profit. Some people even raise enough money to cover the purchase of a home through crowdfunded mortgages.

Real Estate Crowdfunding Returns: Two Ways To Earn

Crowdfunded real estate investments offer two primary ways investors can see returns -- income and equity appreciation. Most deals offer some income potential, but it is not guaranteed, and it can take several years for an investment property to generate much of an income stream.

Most crowdfunding projects list terms of a profitable exit through equity appreciation. When you browse through different real estate projects, you’ll notice that most list a target holding period ranging from three to 10 years. After this holding period, the property will be sold, and investors will receive a share of the proceeds.

Here are some other terms you need to know as you determine if real estate crowdfunding is right for you.

Crowdfunding Terms For Investors

Target internal rate of return (IRR): This metric spreads your cash flow and equity return over the course of the holding period on an annualized basis. If you know your investment's yearly cash flow and the lump-sum distribution you'll receive at the end, you can use an online calculator to figure out your investment's IRR.

Equity multiple: This metric tells you the expected return of an investment over the entire holding period.

Average cash yield: Sponsors of these projects often list a target average cash yield over the holding period. If you seek a minimum level of income from this investment, you’ll need to look carefully at the annual amount the sponsor plans to distribute.

Next, let’s examine the pros and cons of real estate crowdfunding.

Advantages of Real Estate Crowdfunding

  1. Affordability. Investors can gain access to the real estate market with small amounts of money. The entry price can be as low as $500 and is usually around $5,000.
  2. Convenience. The crowdfunding platform you use does most of the legwork for you. You can study the research, make comparisons, and then make an informed decision. You are a passive investor with no responsibility for managing the property.
  3. Transparency. Since real estate crowdfunding is done via online platforms, you have unlimited access to information regarding assets and potential risks.
  4. Predictability. Crowdfunded properties are not publicly traded, so unlike stocks, currencies and commodities, their prices cannot fluctuate along with the market.
  5. Flexibility. Real estate crowdfunding allows you to diversify your portfolio with different types of assets, spreading out your wealth and creating a financial safety net.

Disadvantages of Real Estate Crowdfunding 

  1. Low Liquidity. If you seek regular income from dividends, crowdfunding may not be the best choice for you. You’ll find it nearly impossible to cash out on this illiquid investment, and, as we have discussed, you may encounter lengthy holding periods.
  2. Insecurity. Plans to renovate and resell a commercial property may not go as planned, limiting your potential returns. The risk of investment default is higher for crowdfunding compared with other forms of real estate investment funding.
  3. Fees. The platform you choose may charge annual fees ranging from 1 percent to 2.5 percent (or even higher) of your managed assets. Also, be sure to read the fine print for hidden construction or management fees.
  4. Lack of control. When you invest in real estate via crowdfunding, you are not an owner of the property and therefore have no say in how the property is managed. If you like to be hands-on with property decisions, real estate crowdfunding is not for you.

The pandemic and the resulting economic turmoil have severely tested real estate crowdfunding platforms. In a recent article for Forbes, Adam Kaufman of the Arbor Crowd crowdfunding platform, writes that the real estate crowdfunding industry is at an inflection point.

“If platforms want to continue to share in the upside of the global real estate crowdfunding market, which in 2019 was projected to reach $9 billion by 2021, we must prioritize the end-user over all else,” Kaufman writes.

So, is crowdfunded real estate investing right for you? After carefully weighing the pros and cons, your answer comes down to your investable assets, your investment timetable, your risk tolerance and your portfolio diversification preferences. Do your homework, research the top real estate crowdfunding sites and develop a strategy that works for your financial future.