REI Voice Magazine April-June 2013 by San Jose Real Estate Investors Association

ER NN WI f t h e a l o ion d r t N a Awarint A P I R E B est t ion f o ru b l i c a P

SOUND OPINION—WISE DECISIONS: VOICE OF THE PROFITABLE REAL ESTATE INVESTOR

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TABLE OF CONTENTS FE AT U R E D

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In Intimate Detail: Fannie Mae R E I Vo i c e p u b l i s h e r G e r a l d i n e B a r r y interviews Douglas G . Duncan, Senior Vice President and Chief Economist , about Fan nie M ae, t he loan ma rket and what t he future holds for investors .

Dallas / Ft. Worth is Leading the Nation in Economic Recovery W h e n i n v e s t o r a n d t u r n k e y p r o v i d e r To m W i l s o n d e c i d e d t o i n v e s t i n Te x a s , i t w a s n ’ t appreciation for barbeque. It was in the numbers.

Don’t Get Caught Up in Catching Up E x p e r i e n c e d r e a l e s t a t e i nve s t o r, L o r i G r ey m o n t , c a u t i o n s t h a t b u y i n g i n ex p e n s i ve p r o p e r t y i n a m a r ke t w i t h g o o d r e n t r a t i o s doesn’ t guarantee a good return.

Five Reasons to Look Beyond the Horizon J e b T. H e n l e y, E q u i t y Tr a n s i t i o n s , a r g u e s that sometimes the best investment is where your dollars go fur ther— of ten that means out of state.

Building the World’s Most Livable Big City K i m Wa l e s h , D i r e c t o r o f E co n o m i c Development and Chief St rategist for t h e C i t y o f S a n J o s e , s p e a k s f r a n k l y w i t h Geraldine Barry about why she is an unabashed supporter of the heart of Silicon Va l l e y.

Marketing for Business When Aliens are in Your House Social Media expert Aaron Norris discu sses Facebook ’s new pu sh , Ar tificial Intelligence (AI) and , depending on your perspective, living in a privacy-free or media - enhanced world.

B AS ICS

What’s driving the hottest U.S. markets’ success? Clear Capital’s Alex Villacourta looks at today ’s leading markets and gives you the metrics to make choices .

Mid-South Magic Continues M e m p h i s , Te n n e s s e e s i t s i n t h e c e n t e r o f the Mid -South and continues to provide opportunities for real estate investors where many cities around the country find i t h a r d t o c o m p e t e . C h r i s C l o t h i e r e x p l a i n s w h y.

Getting Started in Real Estate Investing M i k e Wo l f d i s p e l s t h e m y t h s o f r e a l e s t a t e investing and provides an excellent primer for anyone beginning in or looking for a new perspective on real estate investing .

20 Calendar 21 Investor Res ources

Words to Thrive 22 By: Tuigim, Ger April - June 2013 REI VOICE

REI Voice™ Magazine A publication of SJREI Association™

P UB L I S HE R ’ S N OT E

Publisher Geraldine Barry | 408-264-3198 Geraldine@SJREI.org

WELCOME It’s a new day for real estate investors: the tide has turned, and the market is rebounding, yet there is still time to participate even for the most conservative among us. Where does one begin? Risk tolerance is unique to each individual as are financial goals, and both have to be considered. Once you decipher your goals, explore this edition which is full of tips, strategies, and data to assist you as you develop your plan.

Geraldine Barry Publisher, President of SJREI Association

Keeping in mind that real estate does revert to the mean over time—it does not typically appreciate or decline indefinitely— after several years of decline, finally, the turn-around is happening. Markets such as Phoenix, that have enjoyed double digit appreciation in the last year, are roaring back. A turnaround was inevitable at some point for Phoenix. That market and many others had deteriorated so significantly from the peak that it became a great value proposition. Read Clear Capital’s Alex Villacorta’s savvy analysis on markets nationally. Also featured are individual, experienced investors discussing the Mid-South and Dallas markets to whet your appetite. Doug Duncan, Chief Economist for Fannie Mae, gave us plenty of food for thought in his candid, optimistic, and charming interview. Fannie Mae enjoyed record breaking earnings last year and with pragmatic, intelligent people

like Doug at the helm it’s easy to understand why. Kim Walesh, Chief Strategist for the City of San Jose, shares her keen insights and passion for her job developing strategies for the 10th largest city in the U.S. The population projections for San Jose are spectacular and Kim, shares how, where, and why the city is the place to be in terms of opportunity, innovation and growth. Now is the time to consider your strategy, or refine it, and secure the gains that are there for the taking. Remember slow and steady wins the race. Strategy, education, and timely information are paramount. SJREI Association and REI Voice Magazine strives to provide you with both.

Editor-in-Chief Susan Hare | 408-391-8068 Susan@REIVoice.com

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Art Director Kevin Bell kbell@Western-Web.net

Printer Western Web Western-Web.net

SJREI Association is a member of NREIA®

REI Voice™ is a publication of SJREI Association™ www.SJREI.org Reproduction or use of any editorial or graphic is prohibited. To request reprints or reprint rights, contact Info@REIVoice.com. REI Voice Magazine c/o SJREI Association 4309 Sayoko Circle San Jose, CA 95136 www.REIVoice.com SJREI Association and REI Voice Magazine make no representations or warranties regarding the content, accuracy, or validity of the advertisements or of the articles contained herein. All persons should exercise due diligence and consult with legal and tax professionals before making any investment decisions.

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In Intimate Detail: FANNIE MAE

An Interview with Douglas G. Duncan, Senior Vice President and Chief Economist, Fannie Mae by Geraldine Barry

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GB: A few months back, there were numerous news reports suggesting that Fannie Mae was in deep trouble. What steps were taken to strengthen Fannie Mae and what is the outlook now? Duncan: Fannie Mae is in its 5th year of conservatorship. The company has made great progress as seen by our results. We reported over $17 billion in net income for 2012. This is the largest annual net income in the company’s history, and a great result for taxpayers. More than half of the company’s employees joined since we entered conservatorship to help support the housing recovery and make housing better for the future; the other half stayed with the company through crisis and uncertainty for the same reasons. Much of the management team is new since conservatorship as well. The staff at today’s Fannie Mae are well aware of the need for change and are “All In” for leading the company through that change into the future such as is decided by the Administration and Congress. The company has made great strides. We have improved outdated infrastructure, updated and implemented advanced risk controls, improved policies and procedures, and reduced costs. GB: After a period of excess, we saw the number of new home loans stall almost to a grinding halt making property acquisition and sales difficult. What’s the current status of the loan market? Duncan: The housing market is in recovery but still in transition to “Normal”. This is our thematic background for the housing market in 2013. There are a lot of questions about what normal will be in the aftermath of the financial crisis. We are making monthly comments on different aspects of the market. For example, we believe that a normal level of housing production annually (single-family, multifamily, and manufactured housing) will be around 1.76 million units for the second half of the decade, but expect there to be only about a million units

produced in 2013 – so you can see that we are a long way from normal for that market indicator. There is no question that underwriting standards are tighter than during the bubble years, but the results of the easier standards speak for themselves in the damage that was done. That said, there is currently commentary on whether standards have tightened too much. That begs the question – compared to what? Mortgage funding is very much available but it is more difficult to qualify. Consumers actually understand that and have been improving their risk and credit profiles. We saw the market produce about $1.9 trillion in mortgages in 2012 and expect that reduced refinancing and slightly higher rates in 2013 will generate about $1.6 trillion this year. GB: Real estate investors often find barriers to getting loans on investment properties, despite having good credit and a credible track record of repayment. What initiatives, if any, are under way to ease this situation? If there are no initiatives to assist real estate investors gain access to loans, why not? Duncan: Fannie Mae makes loans to investors although lots of investors have been deploying cash instead of borrowing money. Under the guidance of FHFA there have been a couple of initiatives to make bulk property sales to investors over the past year and this year you will likely see activity in the area of credit risk transfer in ventures with investors. As for individual investors we are making such loans and will continue to do so though there are limits in the number of loans an individual investor can acquire. We continue to assess the risks in that space to evaluate any program changes under our mandate to protect the taxpayer from losses while assisting in getting the housing market back to normal. GB: Do you think the Fed maintaining low interest rates could cause another recession when that intervention stops, and inflation kicks in? Duncan: The current posture of monetary policy does raise risks of imbal-

ances across markets, but the Federal Reserve is very clear on their intent not to remove the monetary ease currently in place until certain levels of employment and inflation are reached. They have also been explicit in their intent to put a floor under house prices and to allow households to improve their financial position by refinancing their existing mortgages. We do not foresee a recession in the next couple of years. We do see the potential for rising interest rates and inflationary risks over time. GB: What are your thoughts on the national economy today, as opposed to two years ago when we last spoke? Duncan: The economy is not near a recession as it was a couple of years ago. However, we do not see the economy operating at near its full potential either. The failure to address either the current fiscal imbalances or the longer term insolvency of entitlements creates a drag on economic activity. The number of people still out of work or underemployed is still far above long term norms. In addition, the number of persons who have moved to disability benefits is also unprecedented. The housing sector is now contributing to economic growth where it was not two years ago. That is a positive but housing is still far from normal. In fact, some of the unusual aspects of the supply side of the market are contributing to the significant increase recently in house prices. GB: What are the hottest current real estate markets in the country? Duncan: Some of the markets seeing the most rapid improvement are those that saw the most significant declines during and in the aftermath of the crisis. Phoenix is often cited due to the percentage increase in price, but of course it also saw a huge decline in price so the percentage increase comes from a low base. For a sustainable improvement, the most important factor is local employment. If a market is seeing job recovery then eventually housing will benefit and this will tend to be in states and localities with low and stable tax environments as is dem-

onstrated in the most recent decennial census data. GB: As a Washington outsider navigating the political arena and your job turning Fannie Mae around are high pressure. What is most challenging and rewarding about your job? Do you feel that you are making progress? Do you miss the private sector? Duncan: First, thank you for calling me a Washington outsider…now I won’t have to do any explaining to my mother! Second, I am working at Fannie, as are many others, for the day that whatever market structure is devised by the Congress and White House I can participate through some aspect of the private sector, which absorbs some of the value we are building at Fannie. One of the challenges of any larger institution is bureaucracy. Fannie Mae has some of that but is working on controlling it. Of course, some is required to contain operational risks. One fear is that the longer the conservatorship continues the more likely the firm is to attract the type of workers who think about risk in the way that government agencies do rather than private firms do, i.e., preventing or avoiding risk as opposed to seeking opportunity, rather than managing risk while pursuing opportunity. That is an important difference in environment. The rewarding aspects of the job are numerous. I work with a lot of motivated people who are bright and hard working. I get to talk to a lot of people in the industry who appreciate what we are doing. It is rewarding to be in the middle of the storm so to speak and to contribute in some small way to finding a way back to normal. I like people and they reward me by liking me back. GB: What do you read on a daily basis to keep on top of news, the economy, etc.? Resources that you find useful in terms of business and the economy? Duncan: Hmmm…well, I am probably a bit out of the norm in this area but I read as much as time allows (I don’t watch television much). I read the Wall Street Journal daily for busi-

ness news, Fannie has a news clipping service so I scan that, I read a local newspaper in Cape Coral Florida where I live so I can see what is happening in the local business environment, there are a half a dozen other economists whose commentary I read when available, I read Forbes magazine, I review all the major league baseball box scores, people send me lots of articles for my thoughts, I read the Sunday New York Times, I don’t really read blogs (though a Chief Economist for a very large international financial firm recently chewed me out for not writing one), and I read books. GB: What was the last book that you read? Why did you like or not? Duncan: Currently on the night stand are the books 1491, 1492, and 1493, which are different books about the world before, during, and after the discovery of America. I recently reread The Professor and the Madman about the creation of the Oxford English Dictionary. I read a book by the captain of a ship taken/ captured by Somalian pirates and a book by Joshua Slocum who was the first sailing solo circumnavigator of the globe. My reading habits tend to have 3 or 4 books underway simultaneously and are typically designed to stretch my thinking in some way. I like history and biography and for escape read Tom Clancy or maybe a mystery. Someone gave me a book written by a fellow who has been making his living cleaning up abandoned homes in Florida during the housing crisis . I found it difficult to fin ish as he portrayed the wreckage in peoples’ lives through the rem nants he found in the homes. It is tragic in a lot of ways. I would not call it enjoyable reading. GB: What is your favorite app? Why? Duncan: I don’t have a favorite app. I have made a step in that I now own an iPad, but I wouldn’t label myself an advanced user. I still read books made of paper … part of reading is tactile to me.

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DALLAS / FT. WORTH IS LEADING THE NATION IN ECONOMIC RECOVERY By Tom Wilson

Tom Wilson is a thirty five year real estate veteran who has executed over $100M and 1,800 units of real estate investments. After thirty years of managing some of Silicon Valley’s pioneering technology companies, Mr. Wilson put his business and management experience toward fulltime investing. One of his companies, Wilson Investment Properties, offers high quality, highcash flow, fully rehabbed and leased properties to other investors.

I don’t recommend being a real estate investor, unless that is, you have a well-defined strategy, quantitative goals and are dedicated to go by the numbers and not by unsupported advice or emotions. My engineering training and 30 years of experience managing high tech profit centers in Silicon Valley taught me how to analyze for the best return on investment in any market. Today, the principles of analysis remain the same. Anyone can do it, however, one needs to be very disciplined and educated about the submarkets and products, or ride the coattails of someone who is. The primary parameters for selecting the best investment markets are: • Rent to purchase price ratio • Employment growth and business climate • Population growth and inward migration • Location • Cost of living • Rental market • Current and projected market conditions • Housing affordability

Now that speculative investing for fast profit has gone the way of the last supermodel, the wise investor is focused on cash-flowing assets and safe harbors. Are there markets that have weathered the downturn well, are superior in many of the parameters above, and have had much calmer waters during these past few tumulus years? Indeed there are. Consider the strengths of Dallas / Ft. Worth compared to other U.S. markets: • Business and financial capital of the South • The highest rent per invested dollar for a major economic center, and therefore, the highest cash flow • One of the lowest risk and safest harbors for real estate • Lowest decline housing price from peak of any U.S. metro • Fourth largest and one of the fastest growing MSAs (Metropolitan Statistical Areas), projected to double in population to 12 million by 2030

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• Broad-based economy that has had double the employment rate growth during the past decade • No. 1 ranked business climate • No state income tax • Leading MSA for corporate headquarter relocations and expansions • Second leading MSA for Fortune 500 corporate revenue • Most affordable housing of top 20 cities • Central location attracts companies desiring time zone and distribution competitive advantages • DFW airport is the third busiest in the world • One of lowest cost of living major MSA’s, yet above average household income • Highest millionaire growth rate • Strong rental market (95% occupancy Q4 2011 for single family homes) • Very business and landlord friendly

Yes, the national recession affected even DFW, but not significantly compared to other MSAs. In fact, DFW home prices dropped the least of any metro in the U.S. Dallas and Houston are the fastest recovering and growing employment regions in the country. During the last two decades the appreciation average has been about 5% per year in DFW. With a 5 to 1 leverage with 80% loans

investors got a 25% return on their down payments in addition to the high cash flow. In this economy I prefer to invest in homes over commercial and multifamily products because homes have more liquidity, are generally lower risk, appreciate faster, and allow one to build a personal “mutual fund” by buying in various neighborhoods to distribute risk rather than putting all investment dollars in one address. Even in a good region, one must be very careful in selecting the right product, neighborhood and professional service and management team. Make sure you rely on resources that have a lot of investment experience in that region. If I’ve learned anything in investing, it is that variations in performance from the median can vary tremendously in any submarket, and only experienced professionals can help you minimize that risk. Most economists predict that inflation is just around the corner and real estate is one of the best hedges. I believe that the wise will not wait and see, but act to grasp the best opportunities of our lifetime before they are gone. You can’t do better than in Dallas / Ft. Worth. Contact Tom Wilson at 408-867-1867 tomkwilson@earthlink.net

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2013 Housing Market Hot Spots What’s driving the hottest U.S. markets’ success? By Alex Villacourta Strength In Numbers: Foreclosures drive affordability; Confidence drives demand. More than a year into recovery, Clear Capital is pleased to report the national housing market through March 2013 saw yearly price gains of 6.5%. Beneath the surface, individual metros continue to perform at varying levels, driven by two distinct types of recoveries. The first main driver of actively recovering markets is the principle of First In, First Out (FIFO). Housing markets that were severely hard hit during the recessionary years have

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made strong rebounds over the last year, driven in large part by record affordability levels. FIFO highlights the importance REOs play in the recovery and a market’s path toward improved fundamentals. The second major driver of recovering markets is strength in unique market characteristics fueling demand. These markets have quickly returned to appreciating home prices given renewed homebuyer confidence following the recovery’s confirmation. Today’s Leading Markets

The FIFO recovery has characterized some of the strongest markets across the country. These markets

generally experienced more than 60.0% in total price declines, notably more than total national declines of 40.6%, and were some of the first markets to start to collapse. Even more substantial price declines were seen in their low price tier and distressed sectors. Following brief periods of price stability, the lower priced sectors saw substantial appreciation, leading the entire market into recovery. The Phoenix metro market is a model example of a FIFO recovery. Total declines of 63% for the market would have left a home purchased for $200,000 in 2006 worth just $74,000 in 2009.

As Phoenix home prices fell, foreclosures skyrocketed and REO (bank owned) sales followed suit. REO saturation, or the percent of REO sales relative to all sales, hit a record high of 63% by May 2009. Like much of the country, Phoenix had become entangled in a cycle of falling prices, which led to rising REO saturation, which led to more falling prices. Following price stabilization in 2011, severe price declines offered buyers enticing discounts and plenty of distressed inventory, creating an attractive buyer’s market. The low tier sector, or homes priced in the 25th percentile, made a sharp turnaround and led Phoenix into recovery. The first

market segment to get hit was the first market segment to recover. Through March 2013, Phoenix has seen overall home prices grow by 26.8% and REO saturation subside to 17.5%. Even so, the market has more ground to cover. The same home purchased for $200,000 in 2006 would be worth roughly $104,000 today. The Las Vegas, Sacramento and Atlanta MSAs are now experiencing similar FIFO recoveries. Las Vegas experienced 20.9% price growth over the last year, but remains 60.1% off peak values. Similarly, in Sacramento prices climbed 17.8% over the year, yet remain 51.5% below peak levels. Atlanta also saw notable appreciation over the last year of 16.5% and continues to battle back against steep declines of 45.2%, relative to peak values. Meanwhile, San Jose, Seattle and San Francisco have achieved noteworthy growth over the last year, driven by unique market characteristics such as land constraints and hot job markets. San Jose managed to see prices expand by 20.4% over the last year. This, in a market with a median home price

of $609,000, is impressive and clearly shows buyers are not dissuaded by expensive and increasing home values. Seattle’s yearly gains of 19.0% have been supported, in part, by a strong job market. Seattle’s demand is largely driven by fair market transactions, with a relatively low rate of REO saturation at 12.6%. San Francisco, with prices up 18.9% over the last year, can attribute some of its growth to desirable and constrained land supply. Even though San Francisco home prices are down 39.6% from their peak, median home prices remain relatively high, at $437,000. Comparatively, the national median home price is $176,000. Forecasting Tomorrow’s Hot Spots

Over the final three quarters of 2013, without exception the top five projected markets should experience subdued rates of price growth. Sacramento, a market that hasn’t yet dominated headlines, is expected to outperform all major metros across the country. After a year of 17.8% growth, Sacramento should finish 2013

with an additional 8.4% in growth. Las Vegas and Seattle have the second and third highest forecasts, respectively, for the remainder of 2013. Las Vegas should see another 8.1% price growth, likely bringing the total for 2013 well into the double digit range. Seattle’s forecast shows another 6.9% in price gains, certainly strong growth in a market with relatively high price points. Overall, the current sharp rise in prices should moderate over the next three quarters. From a high level perspective, national prices are expected to tack on only 1.7% through the remainder of 2013, which would bring 2013’s total price growth to 2.6%, after seeing 4.9% total growth in 2012. While this doesn’t support a quick fix to our housing situation, this is great news for the sustainability of the recovery. The collapse following the price run up between 2000 and 2006 highlighted the value of slow and steady progress, and projected gains are coming back in line with the more historical rates of growth. Contact Alex Villacorta at info@clearcapital.com

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Dr. Alexander “Alex” Villacorta is Director of Research and Analytics, Data Division, for Clear Capital®. Alex is responsible for the research and development of our innovative tools and methodologies for analyzing vast amounts of real estate data and providing commentary and analysis on the condition of nationwide markets. He is a published author and has been featured on CNBC, National Public Radio, Bloomberg Businessweek and in many other national media as an expert in real estate trends. For more information, please visit www.clearcapital.com.

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MID-SOUTH MAGIC CONTINUES By Chris Clothier

Chris Clothier is a self-made entrepreneur who has worked with other members of the Clothier family to build MemphisInvest. com, the largest real estate investment firm in the Mid-South and the largest, private property seller in West Tennessee. Along with his family, Chris is passionate about assisting real estate investors and real estate investment companies and actively supports others in their goal of building longterm sustainable wealth through real estate.

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With the thawing of the real estate market coinciding with the arrival of spring in many parts of the country, the gloomy headlines that have dominated the real estate coverage over the past three to four years seem to finally be giving way to a more positive tone. The more positive headlines and articles have many would-be investors wondering if the time to buy real estate may have passed. In some markets, the time to buy real estate locally may have never existed for beginning investors. However, there are several markets around the country where real estate remains ripe for picking up excellent investment properties. Memphis, Tennessee sits in the center of the Mid-South and continues to provide opportunities for real estate investors where many cities around the country find it hard to compete. One of the most important factors that has led to Memphis’ continued strength as an investment market has very little to do with real estate and quite a bit to do with the city’s leadership. Three years into the term of new mayor A.C. Wharton, Jr., Memphis continues to attract new employers, new capital for infrastructure improvement and a commitment from top planning and development minds as well as local civic leaders to provide leadership, funding and guidance. This is why Memphis continues to be highlighted as a city where new civic programs are being launched and new federal funds are being granted to expand on programs that are working. The Brookings Institute announced a partnership including the city and county governments as well as executives from FedEx to plan a long-term transition for the city to develop additional industries and the talent needed

for those industries in Memphis. The city has long been the ‘Distribution Hub’ of America but has the fastest growing bio-medical center in the U.S. and a quickly expanding medical treatment and research hospital network. A Vibrant City is a Great Investment City

These growing business sectors as well as an excellent parks system, one of the nation’s best zoos, a huge music industry, an NBA team and a vibrant tourism industry are all factors that have led Memphis to be named to several “Top City” lists in the country. They are also key reasons that Memphis continues to be a great place for real estate investment dollars. As spring arrived, inventories of available properties have been falling and days on market for available houses has begun to shrink. The retail market is picking up, especially in the higher price points and many sellers are finding that their properties are attracting multiple offers. These are great signs for the real estate market. As for the investment real estate market, investors continue to find a low price point with the average price below $100,000 and the average rent exceeding 1% of purchase price. Realtytrac recently ranked the Top 20 Cities in the U.S. for single-family investment and Memphis was ranked as #1. Realtytrac noted that the ability for an investor to enter the market inexpensively and earn a consistent rate of return made it a better city for investment than any other city in the U.S. It is true, the Mid-South is a great place to live...and real estate investors are finding it a great place to invest! Contact Chris Clothier at 877-773-9998 chris@memphisinvest.com

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Building the World’s Most Livable Big City the Kim Walesh Interview By Geraldine Barry

Geraldine Barry Publisher, President of SJREI Association

use public transportation. This is in line with other major cities and San Jose is committed to creating these well planned urban villages, all interconnected by transit.

Kim Walesh grew up in Wisconsin and always knew she wanted to build better communities. After receiving a master’s degree in public policy from Harvard University, where she was a Kennedy Fellow, she spent 14 years as an economic consultant before settling down as the Director of Economic Development and Chief Strategist for the City of San Jose in 2003. Walesh’s office guides the City’s economic strategy, provides assistance for business success, helps connect employers with trained workers, and provides art and cultural resources to the community.

GB: Manufacturing is not something that comes to mind when one thinks of San Jose, yet it’s important, right? Walesh: Absolutely. Manufacturing in San Jose has been leading national growth for the past 18 months. The vacancy rates around manufacturing are nearing 5% . R&D and manufacturing are espe cially tight and new developments are occurring daily. San Jose is viewed as an attractive market for companies of all types as a best value place to grow business and make investments.

“In a nutshell,” she said, “my vision is to build the world’s most livable big city.” That may seem like a tall order, but not for this high achiever. GB: In your tenure in the Office of Economic Development, what would you say are your top achievements? Walesh: The Samsung headquarters in San Jose. It was also rewarding to be a part of the first direct international flight from San Jose airport to Tokyo, Japan. Bringing the Earthquakes soccer stadium to San Jose also ranks high on my “best of” list, as does the Prospect SV center for Clean Technology and Innovation. GB: Why is it an exciting time to live and work in San Jose, the heart Silicon Valley, and the 10th largest city in the U.S? Walesh: San Jose is ambitious, future oriented, growing rapidly and is a signature player in the Bay Area. San Jose is the driving force behind forward thinking movements—these movements result in tangible change such as our Green Vision, which has given us the distinction as the #1 City for Clean Tech. The instigator of smart policies, San Jose’s Envision 2040 growth plan is shaping best practices in California, and the nation, by developing urban communities that make sense. San Jose’s Downtown core makes the

Kim Walesh

City exciting with its hip vibe, perceptive business mix, and draw of young professionals to its entertainment, cultural and dining venues. GB: Population projections for San Jose are to increase by 40% by 2030. Why? Walesh: San Jose is the largest city in the Bay area. Big cities keep growing if planned well. SJ has strong job growth and is a very livable city; this attracts highly skilled professionals. In fact, it attracts internationally skilled immigrants and has an innate acceptance of diversity. It is the most internationally diverse city on the planet. More than 50% of its population is college-educated people that were born in another country. The next closest city is Miami at 40%; San Francisco is at 32%. San Jose is planning to accommodate this growth by delivering what the population wants— innovation districts, which are areas promoting greener and healthier lifestyles. As a City, we are focused on developing communities where people can walk to services, ride bikes and

GB: What is fueling that growth? Walesh: San Jose is centered around high tech, advanced manufacturing, and clean technology. What’s fueling the growth is the ability for companies to innovate. Here, businesses have the advantage of collaborating with other nearby providers to seamlessly develop new products and services. This helps propel growth and substantiate long-term success. GB: What are the area’s real estate hot spots? Walesh: San Jose has defined hot spots for commercial real estate. They are North San Jose, the International Business Park, Downtown, and Edenvale where leasing activity has gained marketable momentum. GB: What is your favorite thing about San Jose? Walesh: It’s difficult to pinpoint one favorite thing for me about San Jose. If I had to choose, I’d say it’s the promise of the future. San Jose is the new frontier, a place to write your story, a place to make a difference, a place to find niche. In San Jose, almost anything is possible.

April - June 2013 REI VOICE

ADV I C E

Don’t Get Caught Up in Catching Up By Lori Greymont

Lori Greymont is CEO of Summit Assets Group. She offers educational presentations around the U.S., trains and mentors people new to purchasing distressed assets and coaches on creative financing techniques. Her company sells Investment properties.

One of the most important decisions a real estate investor can make is choosing in which real estate market to purchase investment properties. All too often I see investors focus on short-term high cash flow without considering the longterm outlook or high risk factors. Just because you can buy an inexpensive property in a market with good rent ratios doesn’t guarantee high cash flow. Many investors purchase in areas such as Detroit, Cleveland, Chicago, Buffalo, and Pittsburgh with the expectation that the cash will be rolling in each month. Unfortunately the reality can be vastly different. Having done over 1,400 property transactions, I have personal experience investing in each and every one of these cities and a few battle scars to prove it! Here is just one example of a scenario that can be devastating to a real estate investor’s cash flow. In many of these cities a Certificate of Occupancy (read: tax) is required. A COO is where a city or county official inspects your property and hands you a list of repairs that must be completed before they return. Usually there is a fee for each inspection, plus there is a fee for the COO. Unfortunately, these officials are not business people and the improvements requested can outweigh the cost of the property. I had one house in Chicago built in the early 1900’s that was called out for a full “green” initiative requiring new windows, doors, and insulation in the walls and ceiling. By the time I was done with the quotes, it would have cost me over $40,000 just to complete the requests. Ouch! This was certainly not practical for an invest-

14 REI VOICE April - June 2013

ment property so the house was sold to a homeowner who didn’t mind making that kind of an investment for their primary residence. I know that many people have lost substantial wealth in the down-turn and feel like they need to “catch up.” In turn, they are taking risks by buying into areas that claim to have unusually high cash flow on paper. The truth is that, year after year, a solid cash flow market will yield 6-12% cash on cash returns. Any claim of a higher return is suspect. (Most such claims do not take into account vacancy, repairs, regulation and taxes.) Bottom line, when you invest to “catch up,” invest in the markets that will be strong in 5-10 years from now and where the monthly cash flow allows you to keep the property.

One of my favorite sayings is “You won’t lose money in real estate as long as you aren’t forced to sell.” So, as long as the monthly cash flow covers the cost of holding the property (and a little more!) and you are in the right market with the right type of home, you are in the right spot to grow your wealth and catch up. Taking the time to research and make smart decisions before you purchase can save you from costly and stressful situations after you purchase. For more information on real estate market selection, download a free copy of my new checklist, “The 7 Essential Criteria” available on the Summit Assets Group website. Contact Lori Greymont at 888-298-0652 lori@summitassetsgroup.com

TER S I G RE AY! D O T

June 22

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Essentials of Turnkeys, Flipping, Multi-Fams, and More...

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How to Evaluate a Deal

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Cash Flow Analysis

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Financing with Cash, Loans, & IRAs

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Pros and Cons of LLCs, Corporations, & Partnerships

$139 SJREI Members $199 Non-Members

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Tax Implications of Investing

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Effective Property Management

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Exit Strategies

Sat. June 22 8:30 AM to 4:30 PM Cupertino Inn

Jumpstart2013june22.eventbrite.com

For more information, call

408-264-3198

April - June 2013 REI VOICE

5REASONS

ADV I C E

TO LOOK BEYOND THE HORIZON Jeb Henley is a Real Estate Broker and investor with over 35 years experience with both residential and commercial properties. Mr. Henley has been investing, selling and exchanging real estate since 1975 in both California and across the United States. As a broker, Mr. Henley works with strategic partners and affiliates to locate solid real estate values for his investor clients.

By Jeb T. Henley For Sale signs are popping up like poppies, with Sold signs quickly following. Real estate is finally turning around; however, not everyone can afford to invest in the Bay Area due to the high prices and high demand. Many times, the properties for sale just don’t pencil out for cash flow. What to do when your pocket is deep but not as deep as a California gold mine? Purchase real estate where your dollars go further—often that means out of state. Here are five considerations when buying property over the horizon. 1. CASH FLOW – YOUR RETURN ON INVESTMENT

Always consider cash flow. No matter where you buy, a good deal isn’t a good deal if the money flowing out of your pocket is greater than the money flowing in. Do the math. Remember to factor in travel to visit the property once in a while. Travel is a legitimate and usually deductible business expense, but it is an expense. 2. POPULATION GROWTH IN THE AREA

Population growth means more potential renters for your investment property. According to Forbes magazine, Houston and Phoenix are two of America’s fastest growing cities. We call these cities “investment grade.” GE Capital does not think Boise, Idaho is investment grade; so, why would you? When Hewlett-Packard built printers in Boise it grew. Now, it is foundering. Modesto, Stockton and Merced—will those cities ever grow? I suggest avoiding small cities, especially cities with one job source such Boise or Merced—which leads us to diversified job growth… 3. DIVERSIVIED JOB GROWTH

Diversification is the key. For example, Houston is known for the oil industry, but after the oil bust in the 1980’s, Houston di-

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versified. Now, many Fortune 500 companies make it their headquarters. Lots of jobs mean more stable rents with employed tenants. As always, jobless tenants mean no rent for you, the landlord. Look for an area with job growth and steady employment. 4. MORE OPPORTUNITY

Another reason to purchase property a plane flight away: more opportunity. There are simply too many investors chasing too few properties in the Bay Area. Looking beyond your backyard means that there is a larger pool of inventory to choose from at various price ranges. Don’t let a $700 minimum buy-in in Silicon Valley keep you from acquiring portfolio of income producing properties. 5. LESS RISK

Lower purchase prices can mean less risk. Here is a basic scenario: If you purchase one Bay Area property for $1M and then it is vacant for any period of time, you have expenses (including hefty property tax) and no income. Compare with this $1M scenario: Purchase 10 properties at $100,000 a piece elsewhere, and have one vacancy. You still have nine other paying tenants that help you cover that risk. All investors should do their own research, including visiting the locations where they are considering making an investment. To get you started, here are my top five picks of cities with great investment opportunities: Houston, TX Dallas, TX Phoenix, AZ San Antonio, TX Austin, TX Contact Jeb Henley at 831-419-4200 jebhenley@gmail.com

B AS I C S

GETTING STARTED IN REAL ESTATE INVESTING Mike Wolf specializes in investing in U.S. real estate. He teaches others how to invest in markets such as Phoenix, Las Vegas and Atlanta. For more information, please visit mikewolfmastery.com.

Editor’s Note: Rather than cut Mr. Wolf’s excellent primer on investing to fit this space, we have published the first half of his article here. For the complete article, please visit REIVoice.com.

By Mike Wolf Maybe you’ve seen a late night infomercial that enticed you with the allure of the “easy money” that real estate investing provides. Perhaps you’ve watched a promoter live on stage telling you how easy it is to get rich quick through real estate investing. Or maybe you had the opposite experience — you have a friend or relative who repeatedly tells you that you are crazy to invest in real estate. They tell you that the market is going down the tubes and you are going to lose all your money. Which of these people is right and which one is lying to you? Personally I believe that the truth lies somewhere in the middle. As a real estate investor for over 20 years, I can tell you that, while real estate is not a golden ticket to becoming a millionaire overnight, it can be a very rewarding and lucrative career. It does take some time and patience but with the right strategies you can get there faster than you think. I’d like to dispel some of the common myths and misconceptions regarding investing in real estate and hopefully help you to get started in this fascinating industry with the right mindset, framework, and goals. Myth 1. Real estate is a great way to get rich quick. Wouldn’t life be great if you just did one real estate deal and you could retire? While this isn’t impossible, your chances are about as good as winning the lottery. It’s important to keep in mind that invest-

ing in real estate is a long-term game. In many ways it’s not unlike a game of chess. The most successful chess players will strategically plan out their next two, three, or four moves in advance. They won’t make a move that might benefit them in the short term, at the expense of losing the game within a few moves. Similarly, purchasing real estate shouldn’t be transactional in nature. What I mean by this is that you don’t want to buy one home now that will prevent you from expanding your real estate portfolio in the future. The purchase of a property should not be a random event. Instead, it should be a well thought out and strategic play that will get you closer to your goal. Unfortunately, there are many promoters out there that want to sell you their information products and they know that a product called “Get Rich Slowly with Real Estate Investing” would not be a big seller. Be smart and remember that your investments and your real estate career are for the long term. Also remember that if something sounds too good to be true it probably is. Myth 2. I need lots of money to get started in real estate. While it would be helpful to have millions of dollars in your bank account when you start your real estate career, it is certainly not the norm for most people. Here’s the good news – there are opportunities to get started with little or no money. Firstly, although most real estate transactions typically require some cash, nobody

says it has to be your cash. One of my favorite things about real estate is the ability to create win-win situations. Let’s look at an example: Let’s say you have a friend who has some money sitting in his bank account but knows very little about real estate investing. You, being the savvy investor that you are, find an opportunity to make some money flipping a home. After careful research you determine that you should be able to conservatively make $40,000 after all expenses. Unfortunately, all your money is tied up at the moment and you are sad that you have to let this opportunity pass you by. Letting go of this opportunity would create a lose-lose scenario. Instead you decide to tell your friend about this property. You agree to do all the work, he puts up all the money and then when you sell the property you will split the profits 50/50. Both of you will earn $20k on an opportunity that would have otherwise been lost. This is known as a JV (joint venture) and I personally am a big fan of them. With a joint venture two or more parties join forces to do a transaction that quite often could not be done by either of those parties alone. In most cases each person provides something that the other party doesn’t have. Continued online at REIVoice.com/Magazine/mikewolf Contact Mike Wolf at mikewolfmastery@gmail.com

April - June 2013 REI VOICE

EQUITY TRANSITIONS

CALL JEB!

Jeb T. Henley Equity Growth Specialist 35 Years Experience Equity Transitions Inc.

831-419-4200

JebHenley@gmail.com Los Gatos Ca. Investment Broker #00608973

18 REI VOICE April - June 2013

FE AT U R E

MARKETING FOR BUSINESS When Aliens are in Your House By Aaron Norris Last issue I complained about Realtors ruining Facebook by abusing the privilege of connecting online. While much of my complaining was in jest, it turns out; I’m not the only one experiencing what I call “Facebook Fatigue.” More about that later, but first let’s see how Facebook is planning to recapture your attention. In April 2013, Facebook Home is set to debut on the new HTC Android phone. Facebook Home isn’t Facebook’s entry into the mobile phone arena (yet). The software doesn’t replace the Android operating system but instead sits between the operating system and the apps installed on the phone. When Facebook Home is turned on, it essentially will bring your friends and family to the forefront and make people the focus instead of all those nifty apps you’ve downloaded (and never use). I used the word “aliens” hoping the thought of little green guys with huge black eyes eerily peaking around the corner of your bedroom would get your attention. In actuality, I really wanted to share with you information about the field of artificial intelligence. Artificial intelligence (AI) is a term used to describe the broad computer science field dedicated to the research and development of intelligent machines and software. While some in the field focus on robots that can learn to emote, others are focused on developing software that can learn, reason, plan and educate based on inputs.

What does artificial intelligence and Facebook Home have in common? Have you ever wondered why an old high school friend you connected with on Facebook last year never shows up in your feed anymore? Come to think of it, your annoying cousin doesn’t either, and you didn’t even block him! What’s happening? Facebook no longer trusts who you “friend.” Turns out Facebook is packed with artificial intelligence aimed at helping you clean up your bad friending habits and poor excuse for family members to deliver fresh, thoughtful, and relevant content. The goal? To get you to show up, contribute to, and stay on the platform as long as possible. Doing so allows the platform to deliver ADVERTISING! Facebook takes your location, age, gender, and information on things you like and share to deliver ultra-targeted ads and content in your news feed. Long gone are the days of counting media impressions. Marketers now want to be able to measure clicks, and more importantly, conversions. These advertising platforms continue to get more valuable as they get users to share information and as their algorithms grow more sophisticated. Facebook, Google, Twitter, Amazon, Linkedin, Pinterest, and any many others know full well you have a choice when it comes to time committed to online platforms. They will constantly fight the creepy factor by making these sites more and more useful in your daily life so you’re willing to participate.

Fight Fatigue

Facebook Home is in part a response to the reality of “Facebook Fatigue” mentioned earlier. Pew Research released a study in February detailing the comings and goings of users on Facebook. While 67% of American adults use the site, 61% of those that took the Facebook survey said they’ve taken a voluntary break of several weeks or more. The main reasons cited for the their voluntary vacation include being too busy, lack of interest in the site, lack of compelling content, excessive “drama” on the site, and the concern that they were spending too much time on the site. Time to get Smarter!

Are you one of those Realtors or investors that get online during the weekend and friend every person you can possibly find (regardless if you know them or not)? Are you tagging people inappropriately in pictures and videos? Is having 5,000 “friends” on Facebook one of your top goals in 2013? Incorrectly playing the marketing game online might do your brand harm in the long run and you might not even know what happened until it’s too late. Next issue we’ll focus on ways to align your online marketing strategy with that of these social media titans to make sure you stay relevant and keep your brand in front of your fans. Contact Aaron Norris at 951-780-5856

Aaron Norris is Vice President of the Norris Group where he is responsible for business development and production of TNG’s award winning radio show, events, and educational seminars. Mr. Norris is also principal at Palisoul, Norris, + Conroy, a marketing and strategy team based in Southern California and hosts the marketing and business podcast, The Cocktail Party Statement.

April - June 2013 REI VOICE

CAL E NDAR Fort Worth

Dallas

JUNE

MAY

WHO YOU GONNA CALL? Need a house inspection, repairs, or property management? Need help from a legal, accounting, banking, or marketing professional who understands real estate investments? Ready to purchase investment property or performing notes? Make our advertisers and resources on page 21 your ﬁrst call. 20 REI VOICE April - June 2013

AUG.

JULY

SOUND OPINION—WISE DECISIONS: VOICE OF THE PROFITABLE REAL ESTATE INVESTOR

SOUTH BAY MEETING & SJREI’s 11th ANNIVERSARY WINE RECEPTION at Domain Hotel in Sunnyvale

MID-PENINSULA MEETING at Crowne Plaza in Foster City

SOUTH BAY MEETING at Domain Hotel in Sunnyvale

MID-PENINSULA MEETING at Crowne Plaza in Foster City

JUMPSTART at Cupertino Inn in Cupertino

SOUTH BAY MEETING at Domain Hotel in Sunnyvale

MID-PENINSULA MEETING at Crowne Plaza in Foster City

SOUTH BAY MEETING at Domain Hotel in Sunnyvale

MID-PENINSULA MEETING at Crowne Plaza in Foster City

For More Information or to Register for Any of these Events, Visit: www.SJREI.org

Investor Reso urces ATTORNEYS

IRA

Jeffrey B. Hare, APC 408-279-3555 jeff@jeffreyhare.com www.jeffreyhare.com

Accuplan Benefits Services Lamarr Baxter 916-708-0235 lamarrbaxter@accuplan.net www.accuplan.net

HOME IMPROVEMENT HD Supply Remodel and Repair Nangvorlee Vang 408-330-0934 Nangvorlee.Vang@hdsupply.com www.hdsrr.com

INSURANCE Brighton Financial/Farmers Insurance Vernon Williams 408-931-6582 vwilliams@farmersagent.com www.farmersagent.com/ vwilliams

The Entrust Group Bill St. John 510-587-0950 x247 bstjohn@theentrustgroup.com www.theentrustgroup.com IRA Services Trust Company Michael McNair 650-593-2221 www.iraservices.com

MORTGAGE BROKERS Michael Ryan Mortgage Broker and Banker DRE License # 01090891 NMLS # 295351 408-986-1798 mike@michael-ryan.com

PRIVATE FINANCING

REAL ESTATE INVESTMENTS

Private Lender Michael Emens 408-580-6366 michael@PrivateLender.Pro www.PrivateLender.Pro

Equity Transitions Jeb T. Henley DRE License # 00608973 831-419-4200 jebhenley@gmail.com www.equitytransitions.com

REAL ESTATE AGENTS Alain Pinel Realtors Sheryl Martinez DRE License # 01310103 408-209-7674 sheryl@sherylmartinez.com http://about.me/sherylmartinez Keller Williams Realty Silicon Valley Anna Maria Valenzuela DRE License # 01362978 408-832-7727 amv@annamariavalenzuela.com http://about.me/annamariav

Jason Hartman Platinum Properties Investor Network 714-820-4200 jason@jasonhartman.com www.jasonhartman.com Memphis Invest Chris Clothier 877-773-9998 info@memphisinvest.com www.memphisinvest.com

The Norris Group Bruce Norris DRE License # 01219911 951-780-5856 info@thenorrisgroup.com www.thenorrisgroup.com Wilson Investment Properties Tom Wilson 408-867-1867 tomkwilson@earthlink.net www.tomwilsonproperties.com

SHORT SALES Nick of Time Results Team Natalie Knowlton Matt Cassell 831-402-5107 natalie@calssp.com mattcossell@gmail.com www.nickoftimeresultsteam.com

Summit Assets Group Lori Greymont 888-298-0652 lori@summitassetsgroup.com www.summitassetsgroup.com

OTHER SERVICES WELLNESS 100% Chiropractic Dr. Josh Ben 408-340-5055 www.100percentchiropractic.com MARKETING/INTERNET Susan Hare Marketing Susan Hare 408-391-8068 susan@susanharemarketing.com www.susanharemarketing.com TENANT SCREENING The Rod Group Josaf Rodriguez PI # 26229 831-241-0122 spec.investigations@gmail.com www.therodgroup.com

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bnmiles@milesbarryfurniture.com www.MilesBarryFurniture.com April - June 2013 REI VOICE

Tuigim,* Ger REAL ESTATE ON THE RISE

arren Buffet is buying real estate brokerages at a fast clip - when the Omaha mogul acts we should all take note. As we speak, we are emerging from one of the worst real estate cycles in decades. According to Jeb Kolko, Trulia’s Chief Economist: “The housing recovery is a long, slow road. As of February, the market is just beyond its halfway point at 53% back to ‘normal.’ There’s still a ways to go, particularly for construction to get back up to typical levels and for the remaining foreclosures to work through the long judicial process that many states have. But all measures of the housing market are improving.” So what does this mean? A full recovery has not taken place yet so there is an opportunity on the horizon. In the U.S., wealth is accumulated primarily in real estate

by Geraldine Barry and in business. So how can we as regular individuals participate in the real estate market to secure, or at least fuel, our retirement? Buying one or two properties could shore up that retirement plan, and help bring us one step closer to financial security. Serious investors understand the dynamics of the particular geographic market they are investing in. Each Metropolitan Statistical Area (MSA) has its own unique attributes and drawbacks, and they can vary significantly from one another. Smart investors understand their MSA and can answer all the following questions about it: What is driving the market? Is it being fueled by speculators? Does it represent an opportunity? Why? Are the market fundamentals strong? Market fundamentals include job growth, foreclosure rates, occupancy rates, inventory levels, and the availability of financing

to mention a few. What direction are these metrics headed? The smart investor knows when to enter and exit a given market, and when to be contrarian. By that I mean doing the opposite of the majority of people in the market place. When people are buying indiscriminately into an overheated market, the savvy investor exits the market. When fear permeates, that is the time to buy in. This takes courage and strength to execute. Many investors got side-swiped in the last cycle when prices dropped dramatically and the banking crisis compounded the declines. Some investors who were knowledgeable, but decided to ride out the storm paid the price. Market timing is a key element of success. Staying on top of the market conditions driving your investment is critical. Effective real estate investors are routinely flexible. They rein-

vent their strategy as the market vacillates and changes, eliminating opportunities and creating new ones. Being responsive to change is part of the game, and can mean the difference between making and losing money. If one is simply a homeowner, and not a real estate investor, understanding market influencers is relevant for you too. When one is considering buying or selling, understanding the timing aspect will ensure that one is aware of the market dynamics, and at a minimum allow, one to make an educated decision to buy or sell. In upcoming columns, we will discuss real estate cycles, and I will share lessons learned from this past cycle, which was longer and deeper than many of us anticipated. Why analyze it? It provides a roadmap, and useful information to incorporate into our war chest of knowledge going forward!

Tuigim (pronounced tigg-im) is the traditional Gaelic answer to the question, “An dtuigeann tú?” (Do you understand me?)” Tuigim means “I understand,” “I got it,” “I follow,” “I’m with you…,” and is the answer Geraldine Barry, native of the Emerald Isle, most loves to hear.

Geraldine Barry is founder and president of SJREI Association, the premier educational and networking association for real estate investors in the Bay area. Under Geraldine’s leadership SJREI has grown from a half-dozen investors to a vibrant two chapter organization with over 400 investors attending monthly meetings. SJREI won the Award for Excellence from the National REIA (Real Estate Investors Association) in several categories in 2010. As an avid investor herself, Geraldine has interviewed multiple real estate pros, many of whom have been guests of SJREI. In addition to leading SJREI, Geraldine is a regular guest on the nationally broadcasted NTDTV, publisher of the award winning publication REI Voice Magazine, and producer of the much acclaimed annual Real Estate Investment Expo Silicon Valley. As a serial entrepreneur, Geraldine is also a principal in Miles/Barry Contract Furniture serving corporations in the Silicon Valley. Additionally, she coaches real estate investors through her program “7 Weeks to a Profitable You.”. Geraldine resides in Silicon Valley, and is the proud mother of Colin & Claire, her two children.

22 REI VOICE April - June 2013