"How to Use Investing Systems to Succeed in Any Market"
Real Estate Investing Expert
Episode 30: "Bad Beats"
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On today’s episode of The Real Estate Nerds Podcast, our host and real estate attorney Scott Smith interviews Jon Iannotti. The two investors discuss strategy at length, offering listeners some of the insider secrets of consistently and successfully making money in real estate. Jon also shares a personal story of how he weathered the market crash and has since developed systems that secure good deals. Tune in now to hear the full conversation.
Lessons Learned From Jon Iannotti’s Market Crash Survival
Scott welcomes Jon to The Real Estate Nerds Podcast and invites him to set the scene for their conversation.
[1:00] Jon has over 3,000 deals under his belt, mostly with his wife. Of those deals, he has never used his own money or credit. He has experience with notes, wholesaling, fix-and-flip, and more methods. He made his first investment in 1978, and ultimately went into real estate full time in 2001.
[3:15] Jon currently lives in Southwest Florida and actively invests there as well. His area was one of the hardest-hit during the recession: “We had to adapt almost overnight…We went into our deals with 13 exit strategies, and within ten days every exit strategy was gone.”
[4:10] Jon now regards this difficult period as a life lesson: “We either win or we learn. We don’t lose.” He also comments about some of the difficult realities he learned about short sales.
[5:00] As the market recovered, Jon developed a system with his wife called Agreeable Contract Terms (ACT). He credits the ACT system with helping him secure 14 deals in a week as the market became more favorable to sellers. He offers advice based on his experience with the crash: “Don’t count on appreciation.”
[5:25] He describes his short-sale recovery method, and the dream team he assembled to make his strategy work.
[7:00] The two investors discuss market trends and whether the next recession is around the bend. Scott shares some tips about guaranteeing cashflow and “recession-proofing” as an investor. Jon agrees a market correction is impending, but believes there may be opportunities for investors to take over low-interest mortgages.
Making Money Out of Thin Air: The REACT System and Funding Real Estate Deals
The two investors shift focus to Jon’s recovery following the crash, the development of his REACT system. They also dive into some of the details of exactly how Jon gets his deals done, and of course, where his money comes from.
[8:45] Jon describes the birth of the Reverse Engineered Agreeable Contract Terms, or REACT system. He also shares some of his approaches to handling cash buyers vs. those with loans, as well as some of the finer points of handling sellers. In general, he positions himself as the principle in the deal and allows another buyer to fund the deal.
[11:00] “We like to make money out of thin air,” Jon tells Scott. He explains his method for doing so with a concrete example of the REACT system in action. Essentially, Jon does the legwork of brokering deals and negotiating between two parties and ultimately profiting from both.
[14:00] Scott points out that Jon’s ability to source information is a major value of his business. Jon is always on the lookout for deals to get involved in more directly, but if the numbers don’t meet his criteria, he simply collects his fees and moves forward.
[15:00] Jon turns his attention to a particular deal involving a $200,000 house. The seller wanted $400,000 for it and would not budge, despite the house not being that valuable. Jon discovered a way to make this motivation work, exploiting the fact that the seller was not concerned with interest. Jon located a buyer who wouldn’t pay the full $400,000, but agreed to pay market rent and put $7,000 down. Since the seller owned the home free and clear, he eventually agreed to take $1,900/month and the savings of the tenant paying utilities and insurance. Essentially, Jon got this particular seller as close to his original desire as the market allowed.
[19:00] Scott asks about the risks of Jon’s work, particularly regarding time. Jon describes some of the costs and areas where he can outsource to most effectively leverage time. He spends most of his time on the funding end currently, rather than hunting for motivated sellers simply because that’s what makes sense in today’s market. Naturally, his strategy does adapt over time.
[22:00] Scott asks how Jon manages his private funding network, REACT Deal Flow. This is Jon’s system for managing contacts and marketing. He has over 4,500 investors in this network and has automated many of the features that market to these funders. Jon boils down his strategy simply: “Always go for the funding first, then go for the property.”
The Takeaway: Approach Funding First and The Deal Will Follow
Scott and Jon wrap up their conversation with a recap of Jon’s methods and major advice for investors. Jon also offers listeners some free resources for developing their own systems.
[25:00] Scott solicits Jon’s advice for those getting started in investing. Scott also asks what distinguishes Jon’s role from that of an agent. The critical difference is that Jon does not make commission off of deals, but serves as a principle and secures agreements rather than simply providing listings.
[27:00] Scott points out that this conversation has inspired him to re-think the common approach of deal-hunting before securing funding. Jon points out that this counterintuitive approach was inspired by Warren Buffett’s tendency not to follow the crowd.
[29:30] As the show concludes, Jon offers listeners of The Real Estate Nerds Podcast a free copy of one of his three Amazon #1 best-selling books.
Connect with Jon Iannotti
Connect with Jon easily by following him on social media. He is @JonIonnotti on Twitter and is also active on LinkedIn. If you’re interested learning more about the REACT system, visit BuyReactNow.com. There are no monthly fees, but members may speak with Jon directly on a monthly call. He also runs an annual four-day workshop focused on content alone.
Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.
For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook.
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About Jon Iannotti
Jon & Stephanie Iannotti have been business leaders since 2000. With over 30 years combined experience in real estate investing, teaching, and mentoring and over 3000 creative deals under their belts, they are considered one of the best in the industry. Jon & Stephanie have put together their team of professionals who have collectively done over 8000 deals. They have also come up with some amazing, cutting-edge ways to structure deals. They have done many deals with their student partners using these state of the art techniques, which they also teach across the country and internationally. They are the creators of ACT (Agreeable Contract Terms). This program and has totally changed many investors’ lives with the teachings and techniques. In 2012, responding to even more changes in the real estate market, the Iannottis came up with another system called REACT (Reverse Engineered Assignment of Contract Terms). REACT is now taking the real estate investing world by storm, alongside their most recent program CATS (Complete Agreeable Terms System).
Jon and Stephanie have trained with and worked with some of the biggest names in real estate investing, including Ron LeGrand, Robin Thompson, Lee Phillips, Al Aiello, Ted Thomas, Lou Brown, and many others. Not only have they mentored hundreds of their own students, they have also mentored hundreds of Ron Legrand’s real estate students.
The Iannottis are also Amazon #1 Best-Selling Authors of The New Masters of Real Estate: Getting Deals Done in the New Economy. 12 of the 18 contributing authors of that book were mentored or coached by them personally. They are also #1 Best-Selling Authors of Business Leaders Success. They are highly sought-after national speakers who have mentored over 400 students across the globe over the past few 10 years. Owning their own businesses have given them the freedom to live where they want to live, and do what they want to do when they want to do it.
When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.
What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500. Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.
How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.
Tax Benefits of Indexed Universal Life Insurance (IUL) Plans
There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.
Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options
Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.