There’s much more to ‘leverage’ than just financial leverage. To be successful in real estate investing, it’s critical to leverage your network, the knowledge of others around you, and your time. Once you’ve cracked the code on how to rely on others and create win-win situations, your performance will improve dramatically. Quincy Long tells us more in this FlipNerd.com Expert Interview show. Don’t miss it!
Mike: Hey it’s Mike Hambright with the all-new FlipNerd.com. Welcome back for another exciting expert interview where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
If you haven’t checked out the all-new FlipNerd.com yet, we have the most robust and powerful platform in existence for real estate investors. Please go check out FlipNerd.com. Today I’m joined by Quincy Long. He’s the president of Quest IRA. Quincy’s been a licensed Texas real estate attorney for 25 years, specializing in real estate. He’s very knowledgeable in the space of self-directing. In fact, he’s one of the most sought after speakers in the nation. But today he’s here with us on FlipNerd.com.
We’re going to discuss leverage. I’m not talking about just financial leverage, which is probably the first thing that came to your mind when I said that. We’re going to discuss leverage in the context of a number of areas, of course money, but also your time, talent, and your network. Those are all areas you can leverage. Quincy is going to share a lot more with us today on that. Before we get started, let’s take a moment to recognize our featured sponsors.
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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
Mike: Quincy, how are you my friend?
Quincy: I’m great, thank you for having me Mike.
Mike: Yeah, so happy to have you here today. For those that don’t know you very well or maybe those that don’t know you well enough, why don’t you take a few minutes and just give us your background and tell us a little bit more about what you do?
Quincy: I am H. Quincy Long, and as you’ve mentioned, I am an attorney. Hopefully you won’t hold that against me. Sometimes it gets in the way of things, doesn’t it? I started Quest IRA, Inc. about 13 years ago. We’ve been at this for quite a while. I also have some other businesses. I practice law just slightly and I have a tax business as well. I’m just a busy kind of person, but mostly I am the president and founder of Quest IRA.
Mike: Maybe you can take a minute and tell us how you found your way into that niche?
Mike: A lot of people that I know that work in the self directed IRA space are very passionate about what they do. In many ways everybody who is in that kind of industry has to be an educator because you’ve got to make people aware of what it is that you offer. It’s an uphill battle when the traditional financial market doesn’t know who you are and tells their clients that you can’t do those things.
Quincy: It is. The way I got into this of course would not surprise you. I actually had a self directed IRA. I thought back in early 2000, “Dang, this is fun. There is a lot of good things you could do with self directed IRA.” But there wasn’t any network out there when I started this business. It would be a lot more fun if we had a network, so we actually started networking together and passed out some flyers at the Realty Investment Club of Houston. We started meeting once a month with the idea that we would build our own team, our own network where we could do deals with each other and educate each other. We did that for quite a while. During that process, we would come up with all the cockamamie scams that I hear about every day now, right?
Quincy: Me being the lawyer, what would I do? I would be the one that would try to chase down, “Could we do that or couldn’t we do that?” I got to know my administrator, the head of my administrator real well. One day I was having a bad day. I was running a title company at the time. It was always the title company’s fault. You probably know that.
I was on the phone with my administrator. He said, “Oh yeah, we’re thinking about opening affiliate offices throughout the country.” I said, “Sign me up. I’m bored with what I’m doing.” Well, I didn’t really know that was my interview, but long story short, that’s where we came from. The background of me being with people every month and networking with them, educating them, was then passed on through my business model at Quest IRA.
Mike: Okay, great. Again, thanks for being here with us today. It’s interesting, we were talking ahead of time about what to talk about. We have had some other self directed IRA folks on before. I think it’s one of those areas that you can’t really talk about too much because there are so many people that just aren’t taking advantage of all the benefits.
Quincy: That’s true.
Mike: We got on this topic of leverage and how a lot of times people automatically assume you’re talking about financial leverage. But there’s so much more that you can leverage in, in this industry. I’m excited to talk about that today. Do you want to give us an overview maybe? Tell us what you’re going to tell us and then we’ll dive into talking about it.
Quincy: Sure, as you said, there’s financial leverage and we’ll have some discussion about that. What I find when I talk about leverage like I did on our cruise that we did recently, I talked about it in terms of not just financial leverage but also leveraging time, leveraging talent. The most important one is leveraging your network.
Mike: Why don’t we talk with the most obvious one that comes to mind.
Quincy: Most common.
Mike: The money side, the financial side. Tell us what you mean by leveraging the financial side of the business.
Quincy: Let’s talk about the traditional debt financed piece of property scenario, it is one scenario, right?
Quincy: That would be the traditional route when an IRA can actually borrow money. Most people don’t know that, but an IRA can borrow money subject to two conditions. The first condition would be that the loan has to be a non-recourse loan. That is to say that the lender has to agree that if something goes wrong, the only thing they can do is take the property. They can’t go after the rest of the assets and of IRA. They cannot go after the individual who owns the IRA, because there’s no permitted personal guarantee. Some people think, “That’s awful dumb. Why would I do something like that, it would subject my IRA to taxation?” But actually it can work out very well.
Let me give you a couple of examples. This is again, just the traditional classic leverage. We’ll talk about other forms in a minute. I have a partnership deal that I just entered into today, as a matter of fact. That partnership is going to purchase and build a strip shopping center in a hot area of Houston, or just north of Houston. That project is going to be 75% leverage. What that means is 75% of my profits from that project are going to be subject to taxation. The 25% that my plan put in tax-free is going to be without any taxation at all. Why would I do that? Because the project is expected to return a yield of about 40% in two years. Why would I do that?
It’s real simple because I’m a results driven kind of guy. I look at the after tax potential return after my IRA pays the tax. By the way, let’s be clear about that. It’s not me that pays the tax, it’s my IRA that pays the tax. If the return is good or better than I can get elsewhere, then I’m going to do that. That’s the classic version of a debt finance deal.
Mike: What would happen in the instance you did a deal like that through a self directed Roth IRA?
Quincy: Same thing, because the taxation is of the IRA. When people say, “What about the Roth?” That is tax-free distributions when they’re qualified. This has nothing to do with distribution, this is due to the fact that normally an IRA is a tax-free trust in the circumstances where there’s debt leverage on the property, then it becomes taxable to the extent of the debt leveraging.
Mike: I see, okay. But the bottom line with the financial leverage part is whether you’re using your own money or whether you’re borrowing money. Most real estate investors that are doing any volume of any significance are probably using other people’s money, whether it’s banks or private lenders, hard money, or whatever it might be. There’s a lot of different ways where you can leverage what you have, and borrow other people’s money to make deals happen.
Quincy: There are ways to get around it too, which we’ll talk about here as we progress through the topic.
Mike: Let’s go into talking about time. Leveraging your time.
Quincy: I think this really a fascinating thing. Let me say up front that when I talk about leverage, normally there’s more than one lever at work. Leverage is simply applying a small amount of force to have a large effect on the other end, if you know what I’m trying to say. Typically in a really good and creative real estate deal there are multiple levers being used. Money is one of them, but then time is another one. Let me give you a perfect example of the leverage of both of these elements of time and money. Money doesn’t always have to mean you borrow the money. Money can mean that you use somebody else’s money to help facilitate a deal.
I’ll tell you about a deal that my daughter did in her Roth IRA. There was a transaction where an investor needed the money to buy a house and he was going to immediately flip that house to a homeowner with long term 15 year financing. He needed some money to facilitate that transaction because he didn’t have any money to facilitate the transaction or he didn’t want to use this money. What he did is he picked up the phone and he says, “Quincy, do you know anybody that would like a 7.75%, $31,000 loan on a property that would appraise for $60,000, which had amortized over 103 payments, or roughly eight and a half years, something like that. My math is not very good in the morning.
Mike: That’s okay.
Quincy: But it would amortize quickly, in other words, over eight and a half years. I said, “I might have somebody do that.” He said, “If you could find me a person who would do that, then I’ll sell you half of the second portion of the payments for 500 bucks.” Here’s what happened. I then picked up the phone and I said, within a few minutes, “I found somebody who thought 7.75% on a 50% loan to value deal where I was having the back end of the payments, was a pretty safe bet.” Because it’s not likely that I’m going to let the last half of the payments go get foreclosed on because my position would be subordinate to the other position. You see what I’m saying?
Mike: You mean that first part of the deal, what they’re representing is a first lien? There was a second lien associated with it as well?
Quincy: It was a wrap. The wrap was a $44,000 wrap, and I don’t know if your listeners get that. But basically the wrap around the $44,000 incorporated the $31,000 first. At the first payment day, there was a wrap equity of $13,000. But of course, the $31,000 first is amortizing a lot quicker than the $44,000 wrap. That creates a spread every month. It gets bigger and bigger.
Mike: Okay, I got you. In terms of leveraging time, any other examples you have to share on how you can leverage people’s time?
Quincy: There’s a whole lot of ways you can do that. This example has an element of leveraging time.
Mike: Having money, yeah.
Quincy: I’m using somebody else’s money, correct?
Quincy: What time leverage am I using? I’m allowing the equity spread by having the payments made covered by the second will cover the first. They were equal payments of this 414, 16 a month for 180 months. What is a payment screen worth in your IRA that doesn’t start for eight and a half years? Not much, right? Objectively. What I’m using is the element of time because over time in a [inaudible 00:14:48] wrap around transaction, the wrap equity is spreading as the underlying loan gets paid down faster than the wrap around note. That’s an element of time. Over time I’m using the wrap equity to grow and grow and grow.
Mike: Great, also just in terms of leveraging time even outside of the investment world obviously, a lot of real estate investors are using virtual assistants and other things to leverage your time.
Mike: I’m a big believer and have a whole team of virtual assistants that help us throughout our different businesses. I think it’s one of the interesting things about real estate investors. I mentor and coach a lot of people. We talk about stuff often, but I think we often talk about taking real estate investing from a hobby to a business. You can only do that if you can become a master at leveraging your time, because that’s the scarcest resource you have.
Quincy: Absolutely. When you’re lazy like I am, you usually have to find levers, to take the time. For example, one of my latest deals that just got paid off is, I invested four years ago. In fact, it’s not too far from you, in a project in two intersections of two freeways in Melissa, Texas. Are you familiar with where that is?
Mike: Sure, yeah.
Quincy: We paid $500,000 cash for the property, and four years later sold it for $2.46 million.
Quincy: That’s a pretty good deal, wouldn’t you agree with that?
Mike: Absolutely, yeah.
Quincy: There was no money leverage at all. That was all cash. You’re saying, “What are you talking about, Quincy? Why are you discussing this in a context of leverage?” I spent a sum total of about five hours on that whole project. What was I leveraging? I was leveraging the talent of the people that were putting the project together, but I was leveraging their time.
I let them have some profit, and I was very glad that they profited. In exchange I got a great return for almost no effort on my part at all, other than being an able real estate investor who could evaluate a deal. When you talk about leveraging time, I’m leveraging somebody else’s time and talent to achieve a good result, then I could be more lazy.
Mike: To be fair in that, from what you just explained there, they leveraged your talent too because I’m sure if nothing else, brought a lot of confidence to the deal, to be able to evaluate a deal, I assume.
Quincy: Absolutely, that’s another example where you see multiple levers being pulled at the same time. I was leveraging their talent and their time, but they were leveraging my money to get the deal because of course the investors paid for the whole project. Then they just received their benefit from leveraging our money. Multiple levers are always being pulled at any one time on any one deal.
Mike: We’re just telling people to be clear here, that leveraging doesn’t mean taking advantage of somebody because they’re in that leveraged deal, they’re getting something from you in return as well.
Quincy: Which I’m very excited to provide for them.
Quincy: It’s a team spirit.
Mike: Absolutely, in terms of talent maybe talk a little bit more about how you leverage talent and what are some typical ways that if you’re leveraging somebody’s talent, I would just talk about this example that they may be leveraging you. What the other person might get out it.
Quincy: Leveraging talent is just a matter of finding the people with the talent that are able to put the deals together and leveraging each other. In one deal that I talked about earlier where the guy was able to find a property that he could buy cheap enough, and was able at the same time to match up the person who would pay for that property over a long period of time at a rate that was less than the rental value of the property. He had the talent and the network to pull together two elements, how to buy and how to sell, and to do that at the same time takes a lot of talent. You would agree with me?
Quincy: I’m leveraging his talent to put together a creative real estate deal for my daughter’s IRA. Because without those elements, I don’t have time, I have a J-O-B. I don’t like to say those dirty three letter words, but I have a J-O-B, right? I don’t have the time to go out there and create these kind of creative deals. He doesn’t have the desire or the time to spend time having a J-O-B.
He wants to go create the deals and not use any of his own money, and create an income stream for himself later. My leverage was his talent, and the time element that we talked about before, his leverage was my money. Which really wasn’t my money, was it? It was money from somebody else in my network. But still, I brought the money to the table. We’re leveraging each other in that deal. It’s just a beautiful example of leverage.
Mike: If you think of a marriage, there are things that both sides bring to the table. It has to be mutually beneficial.
Quincy: Yes, that is the best and most fun real estate investing you will ever have, is if you can create win-win situations or as I like to say, win-win-win or more situations, best of best. Think about who won in this case. Did my daughter’s Roth IRA win? Absolutely. She’s going to get a great return, admittedly starting eight and a half years from now, but still she didn’t pay much for that income stream.
Investor won, how did he win? He got a down payment on the property and created an income stream for himself without any money out of his pocket at all, just leveraging his own talent. The person that bought the house, they also won. How? Because they can now live in a house that they own for less than they could rent that house. Everybody wins. If you can do that, that’s the kind of deals you should do every day as often as possible.
Mike: Yes, that’s fantastic. That’s what takes it from a hobby to a business. It’s using these tools we’re talking about here to make it sustainable, something that you can do over and over again.
Quincy: Right, exactly.
Mike: I think a lot of real estate investors get hung up on, they’re so transaction oriented that they can’t repeat what they’ve just done. They have to start from scratch every time.
Quincy: Yes, that’s not much fun at all.
Mike: No. Let’s talk some more about the network side, Quincy. Give us some examples of people leveraging your network and you leveraging other’s networks.
Quincy: Well, I got to tell you the truth. You’ve heard it said. I’m not inventing anything new when I say that your network is your net worth. That’s just true. I would say to any person who is new to investing, the most important element of successful real estate investing is not actually money at all. It’s a little bit talent and it’s a lot network. I used to criticize my friend Barney Zick. He’s been deceased for some time. Did you know Barney?
Mike: No, I don’t.
Quincy: He was a master speaker and a really great guy. He died way too young. I used to criticize him because he would give all these examples of how he could just pick up the phone and get somebody to send $100,000 to the title company and get a deal done. I always thought, “You know, the average Joe just cannot do that, Barney. You need to be getting more realistic, what I perceive to be realistic examples.”
Guess what? That’s exactly what I can do now, because over the years I have worked, and worked, and worked at building my network so that when I got the call from the investor out at Jackson, Mississippi, I can pick up the phone and 10 minutes later, I had the $31,000 necessary for my daughter to do a deal in which she’ll get an income stream starting eight and a half years from now. It’s all about your network. If you’ve got enough talent and network, you don’t need any money at all.
Mike: Maybe you can give some advice on people, how they should go about building their network?
Quincy: First of all, you’ve got to be very up front and open about what you do. You cannot be shy and develop a network. You know what I’m trying to say, right?
Quincy: I love the people that go to networking meetings with loud shirts on. I saw one guy with a little clip thing. He had “I loan money” whatever it was. I didn’t even know what it was. The first element of building a good network is not being shy. Another element of building a good network is to have your elevator speech ready at any moment. You know what I mean by elevator speech, correct?
Quincy: Encapsulate what you can do in a minute or less. That’s critical. Always, always, always have business cards. I am so shocked that people say, “I’m a real estate investor.” Really? Do you have your card? “I don’t have any right now.” They give me their business card from their J-O-B. No, no, no. Always carry them in your pocket. They’re the cheapest form of advertising.
Mike: Or they tear off a corner of a notebook paper and say, “I don’t have a business card but here, have this.”
Quincy: You can’t do that to succeed at building a network. Another element that I would say is go to where the investors are. Go to where they are, go to your real estate clubs. Yeah, you’re going to a bunch of [inaudible 00:25:51] at the real estate club, because other people are trying to build their network or don’t even understand they need a network. But go where the talent is.
You’re going to find 80% of the people do nothing at all. Seek out the 20%. Also, one element that I would say, I’m very passionate about is, leave town. What I mean by that, if you go to some of the events, which I wish I had known when I was a lot younger, if you go to some events where they have a good education, there’s education in the room and there’s education out of the room. That’s where you build your network.
If there’s a cruise of real estate investors, go on a cruise. For example, I’m going to go in October to Las Vegas where there’s a gathering of three or four experts that are going to present their materials. There are people in Atlanta, there are people in Florida. My position is that if you go to one of those events and think about the people that are serious enough to take time out of their life to get on an airplane and go to a different place and spend a few days and the money to do that, those are the more serious people than the local network that you can plug into. Which is also important. Does that make sense?
Mike: Yeah, I think it’s interesting in terms of REIA clubs. We’re a huge supporter of REIA clubs and events and things like that because there’s so much there. I think where people maybe are disappointed is that their expectations aren’t set properly. Like you said, if you go to a real estate investing event, and if you say, “I’m going to go there and I’m going to do a deal tonight” you might be disappointed.
But if you start laying seeds or farming, getting to know people that could come back around, more importantly than anything I tell a number of people this. I want to show you right here actually. I have a stack of business cards sitting on my desk right here. I’ll show everybody that. Literally this is a stack with 30 business cards in a pile that are sitting right in front of my keyboard that I look at every day. But that’s the first time I’ve actually touched that pile in several weeks. Shame on me.
My point in this is that, it’s easy to go to events and get business cards. The hard part is building that network over time, maintain and building relationships with those people because putting it in your pocket or wrapping it a rubber band around that and throwing into my drawer is never going to help me. It’s never going to help any of those people.
Quincy: Right, at Quest IRA we go to a lot of events. We collect those business cards, but then we have a follow-up system that’s pretty developed. Of course, we’re a fairly big business at this point, but still, we’re doing the networking just like you are, your listeners are. They’re building the network and we have our systems where we call people and say, “Hey, it was great to meet you at such and such event. If we can do anything to help you.” It’s all about networking and exposing yourself. That didn’t sound right, did it?
Mike: It depends on what kind of events you’re going to. I think what we’re saying here is a lot of equate networking to the act of going to somewhere where there is a network. I would argue networking is the act of starting those relationships and then building them over time.
Quincy: Nursing them.
Mike: Yeah, I know you’re saying the same thing. I think the other thing about some of the big events you’re talking about, whether it’s big expo type events or other events. It’s the same thing. In my experience, when I go to those events I don’t look for it to transform my life, like every single aspect of it is going to just blow me away. I look for one or two nuggets that I find somewhere, or the one or two relationships that I build in the hallway or somewhere, that makes it all worth it. I think it comes down to your expectations of what you want to get out of those things. Maybe being really clear when you go to an event like that of here’s what I’m going to get out of this, and have a plan of action for when you get there.
Quincy: Absolutely, it’s a great way to build your business. I have done deals with people that I’ve been seeing at several different events. I’ll go to the events. I’ve been going a lot to note events for example. I’ve now gotten to know a number of people that go to those events. Now I’m comfortable with them and I would feel comfortable doing a deal with them.
Mike: Right, Quincy do you want to maybe take a minute. We’re running towards the end of our time here. Maybe just take a couple minutes and just share a summary of the importance of leverage and how do you use these tools? I’d like to take a minute and learn a little bit more about your company as well.
Quincy: I think we said a lot in the last few minutes here, but basically how do use the tools? I wanted to mention, when we say leverage and using other people’s money, it’s not only using it in terms of borrowing. You can also be a co-investor with them. That’s another element we really didn’t get into. Co-investing, using other people’s money where you bring the deal to the table and the talent to the table. They are the co-investor as opposed to the lender, a joint venture if you would, another element of the money. It’s all about mixing the different levers together. I think that’s the key element. It’s mixing the different levers together.
If you think about our examples, we’re pulling in sometimes three or four of those different levers at the same time. Thinking, what’s the problem that I have? What’s the solution? That’s what it’s all about, analyzing the problem and creating a solution. Using other people’s time, talent, money, or network to help you achieve that.
Mike: Absolutely, absolutely. Fantastic. Can you tell us if folks want to learn more? We didn’t really talk a whole lot about self-directed IRAs today and Quest IRA really at all. But you want to take just a minute and tell us what you do and how folks would get a hold of you if they want to learn more?
Quincy: Yes, I’m sorry. I get all excited about the topic.
Mike: No, that’s okay.
Quincy: I guess I allowed ourselves to get a little bit off, but it’s all related to what I do.
Quincy: Of course Quest IRA, Inc. is a premier provider of self-directed IRA services, one of the up and coming companies in the country. We do service people all over the country. We provide a lot of those networking functions. We have offices in Dallas, Houston, Austin, and Michigan. We attend all kinds of networking events and put on a lot of networking events. As far as where you can find out more about us, of course we have our website at www.questira.com. That’s Q-U-E-S-T ira.com. I like to answer questions, so I have www.irawebadvisor.com where you can submit a question and read my blog. That’s basically my blog.
Quincy: That’s another interesting place.
Mike: Okay, fantastic. We’ll add links for those down below the video here on the page. Mr. Long, thank so much for your time today. I appreciate you talking to us about leverage. It’s such an important thing and it’s something you have to do in this business. It’s not about taking advantage of anyone. It’s about finding ways to create win-win situations that you can use over and over again.
Mike: Fantastic. Thanks so much for joining us today. I appreciate you my friend.
Quincy: Thank you sir.
Mike: Have a good day.
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