July 2022 KREIA Newsletter by KREIA .com

Providing Education, Resources & Networking Since 1978 Kentucky’s premier investment club for landlords, rehabbers and wholesalers Meeting the 4th Thursday of every month (except November & December) KREIA.COM • facebook.com/groups/kreiaky • twitter.com/reiaky

Monthly Newsletter for KREIA Members

Vol 7-22 July 2022 President’s Letter

Main Meeting: How to be a time- 3 wealthy investor, with Mark Dolfini Welcome, New Members!

Mike Butler: ‘How many rentals do you need to retire early?’

Eric Shadowens: CPA discusses 8 vacation homes, STRs & taxes National REIA News Briefs

Government Affairs Links

Nina Musgrave: Numbers from GLAR show market is shifting

John Mays: ‘I GOT ROBBED!’

KREIA Photos

L.O.T.S. Recap: Connor family rehabs to hold for Section 8

Investor Origins: Jacob Hunter

KREIA Election Results

Calendar of Events

Dear KREIA Members and Friends, First, I’d like to congratulate the Board Members who were elected at last month’s meeting. I’d also like to thank those who ran but weren’t elected. KREIA is an active organization, and it is inspiring to see so many people willing to volunteer their time and talents to help us grow. To that end, I’ll shamelessly mention that you don’t have to be a Board Member to serve. Erik Hitzelberger We need people to handle technology issues, to help at the door, to be ambassadors for KREIA and to do whatever it is that your talents allow you to do for the benefit of KREIA. If you have the desire, please reach out. Second, I want to remind everyone that our successes often lie just on the other side of our fears. When we allow ourselves to make excuses rather than face into tough situations, we deny ourselves the ability to grow and to be the people we are supposed to be. Consequently, we also reduce the impact we will have on those around us. There are reasons to be cautious with our investments right now. Inflation, volatility, and market uncertainty come to mind immediately. None rise to the level of an excuse to throw in the proverbial towel. Do not let your fears keep you from pursuing your dreams. In fact, this is the time when good investors are needed most. Buyers, sellers and residents will also face challenges they have not had to deal with in quite some time. You have the ability to step up and solve those problems. Ultimately, this is how and why we get paid.

“You can have everything you want in life if you will just help enough people get what they want.”

Knowledge is often the antidote to fear. Understanding the what and the why behind the current events, as well – Zig Ziglar as the possible outcomes, reduces the circumstances to something manageable. If you find yourself stuck, figure out what piece of knowledge you need to get restarted. Is it deeper understanding of a strategy? Is it a broad sense of Continued on Page 28

Copyright MMXXII Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Your KREIA Leaders

President Erik Hitzelberger

Vice President Stacey Duvall

Advertise With KREIA

Secretary Jordan Pohn

Treasurer Mike Treasurer-Elect Grinnan CPA Wally Kallbreier

Board of Directors

Put your message in front of the most active rehabbers, landlords and wholesalers in the state! KREIA offers five membership levels for businesses. Go to KREIA.com and join at one of these annual advertising levels to get your ad in every issue of KREIA’s newsletter and be invited to make ad pitches at meetings:

Business Card Membership . . . . . . . . $199 Includes your business-card-sized ad. Admission at monthly meetings is $20. Premium Levels: These four advertising levels include your ½-page ad in each issue.

Rue McFarland

George Foree

Frank Miller

Greg Nalley

Hampton Scurlock

Rob Bergeron

Christopher Jaquith

Alexis Fentress

Ian Hooper

Mary Conrad

John Mays

Karen McKnight

Michelle Rawn Parliamentarian

Chris McCarty Past President

Lauren Willoughby Media Manager

Get involved with KREIA. You can help with the monthly meetings, L.O.T.S. program, this newsletter, Saturday workshops, Government Affairs roundups, marketing, the KREIA website & more. Work alongside active investors! Ask for someone to direct you at the checkin desk at the main meetings.

KREIA's newsletter is published monthly and serves to educate you and to remind you of upcoming monthly meetings. About KREIA: The Kentuckiana Real Estate Investors Association is a nonprofit organization focused on education, networking and resources for today’s investor. Whether you are just starting out in real estate investing or are working on your hundredth deal, KREIA can help you learn more, earn more, and have more fun doing it. Group discounts are available. Contact us at support@KREIA.com if you: Want to advertise on KREIA.com • Need help • Have a question

Bronze Membership . . . . . . . . . . . . . $499 Includes free admission to monthly meetings for one person. Silver Membership . . . . . . . . . . . . . . $699 Includes free admission to monthly meetings for two people. Gold Membership . . . . . . . . . . . . . . . $999 Includes free admission to monthly meetings for two people and gives you a skirted table in the vendors area. Platinum Membership . . . . . . . . Reserved Includes extra promotion. There can be only one advertiser at this level. Our current Platinum Sponsor, FlippinLoan.com, holds exclusive renewal rights until 2023. Questions? Catch up with KREIA Sponsor/ Advertiser Chair Dennis Erhard at the meetings. Or email support@KREIA.com.

Join KREIA Joining KREIA is easy: Go to KREIA.com and click the "JOIN" option on the menu. Tell all your investing friends. The cost to join as an individual member is $125 per year, with a door fee of $20 at our monthly meetings (which covers the buffet meal and rent on the hall). Click JOIN at KREIA.com to find out about all the benefits of membership for both individuals and businesses. Too many to list here!

Use the ‘VIP Method’ and Get Your Time Back Mark Dolfini says he used it to cut his 60+ hour work week to under 10 hours Everyone knows the BRRRR Method can be an effective tool for building a portfolio. But have you heard about the “VIP Method”? It picks up where the BRRRR Method leaves off as it focuses on building a business as well as a life. A life that is not a slave to the business, a life that is not defined by income generation. Is your personal life suffering because you’re feeling stuck in your business? Mark Dolfini, aka “The Landlord Coach,” is going to show us how the VIP Method took his work week from 60+ hours to under 10 when he headlines KREIA’s July 28 main meeting. Here are the key points of what you’ll learn at July’s main meeting, which focuses on “Creating a Time-Wealthy Advantage” to take control of your business and your life: • Use The VIP Method (Vision-Infrastructure-Process) to create a business that delivers your ideal Life (no matter what business you’re in) • Learn the 4 Critical Functions of ANY business. Stop trying to do EVERYTHING and do the things that are most suited to YOUR skill set • Learn how to attract people to your business with marketing that speaks directly to them, no matter what your product or service • Identify the Self-Sabotaging Behaviors that hold you back from success such as: Procrastinating, Hiding, Rescuing others, Starting Things and Not Finishing Things, or Chasing too many Rabbits • Plus some really cool giveaways during the presentation!

Meet Mark Dolfini Mark Dolfini is a veteran of the U.S. Marines and the author of three books. Most notably, The Judge: A Landlord’s Tale, which released in the summer of 2018 and his much-anticipated 3rd book, The Time-Wealthy Investor 2.0, which was released in January 2019. The Time-Wealthy Investor 2.0 teaches the exclusive VIP Method of how to create a real estate business focused on Life-Output. It became #1 Amazon Bestseller in March of 2019. Mark performs one-to-one coaching for his clients in addition to a Mastermind to help foster community and accountability for small and medium-sized business owners who often feel stuck in operations. Although Mark operates under the Landlord Coach brand, many business owners have found Mark’s approach

Illustration by Nina Musgrave

to coaching using the VIP Method and his extensive background in accounting and commercial lending translates well across all industries. From buy-and-hold investors to roofers, gym owners and CFOs, his clients span many industries and have benefited greatly from his knowledge and coaching using the VIP Method. Mark spends his free time pistol shooting and kayaking and lives in Lafayette, Indiana, where he and his wife, Jennifer, are raising their two sons, Leland and Logan, with baby Liliana due in October.

July 28th’s Meeting Agenda 5 p.m. - Doors open at Woodhaven 5:30 p.m. - Early Meeting with insurance expert Mike Fleitz 6 p.m. – Member Orientation with Jordan Pohn 6:15 p.m. - The buffet line opens! Also, at the mic, there will be announcements, property pitches and sponsor pitches 7 p.m. – “Landlord Coach” Mark Dolfini takes the mic

Remember Your Lanyard! If you’ve been to an “in-person” KREIA main meeting lately, you’ve probably picked up one or more color-coded lanyards that identify what kind of investor you are. Please remember to bring your lanyards with you to our main meetings! Color Key: Blue = Buy-and-Hold Investor; Orange = Flipper; Yellow = Real Estate Agent; Red = Wholesaler; Green = New Member; Purple = KREIA Sponsor; Black = Board Member.

5:30 p.m. Early Meeting: Mike Fleitz Get an overview of flood insurance – requirements and guidelines – with Mike Fleitz. Mike is the technical liaison between FEMA and MSD for flood insurance-related issues. He runs his own agency.

Welcome, New KREIA Members! Ned Bass David Blandford Brandon Bogard Brian Bouser John Brinkworth Cassidy Case Don Chavis Amy Connor Andy Conroy Josh Cornett Dylan Dean

Damini Dutta David Espinosa Taylor Etheridge Patrick Everson Tamika Flippins William Hardin Courtney Herrington Lily Huber Nick Jackson Sopheria Kenton Todd Kornack

Carol Margolis Jessica McFall Tim Morrison Ryan Seay Sheila Smith Meaghan Thompson Nikita Tillman Cashmon Usher Chris Wernz Debra Wright

KREIA’s New Member Orientation Jordan Pohn will give a short presentation of the benefits of joining KREIA at every regular monthly main meeting. We offer many educational and cost-saving opportunities! Join him in the small conference room at 6 p.m. Online Presentation: You can view a recent session with Jordan and Stacey Duvall by visiting the Intro to KREIA page at kreia.com (About/Intro to KREIA on the menu). On the Member Benefits page (Join/Member Benefits), you’ll learn how to secure your discounts and bonuses.

‘How Many Rentals Do You Need to Retire Early?’ By Mike Butler Have you asked yourself this question? Do you really know your answer? Do You know how to get the answer to this question? Back when I had my full-time job as a Louisville Police Detective, I began my real estate investing career. Believe it or not, my goal back then was to buy three little 2-bedroom houses on my old paper route (comfort zone and fear of other areas) from 8th grade to pay for my PhD – Private High School Diploma. I was the oldest of 7 kids, and this paper route was passed down to my siblings so they could pay for their PhD. Three of these small two-bedroom houses “paid for” would double my police pension when I became eligible to retire. If you’re reading this article, you are already light years ahead of me when I got started. Pat yourself on the back for making education a cornerstone of your real estate investing career. 3 Simple Steps to Determine How Many Rentals You Will Need to Retire Early: 1. Answer this question: “How Much Money in Your Pocket Monthly Would Make You a Happy Camper?” “Happy Camper” means you can wake up every morning and do what you want to do in life. Pursue your passions. You have enough money direct-deposited into your bank account to cover all of your cost-of-living expenses, your vacations, and things YOU want to do in life. After having traveled all over the world speaking, teaching and training, I’ve found the Number 1 answer to this question, and it might shock you. It has been the same answer for over 20 years! In 2001, the Number 1 answer was $10,000 monthly in your pocket would make you a happy camper. Two years ago at the Single Family Summit at the Graceland Hotel in Memphis, Tenn., a 12-year investor asked me to autograph a copy of my book he’d purchased. I asked him the question. Guess what his Happy Camper number was in 2020? Yup, you guessed it … $10,000. This tells me a lot about you and most investors. You have no desire to compete with Donald Trump or create a kingdom with your own ZIP Codes. Most investors simply want their real estate to produce enough income so they can sky-rocket their quality of life. Would you rather have $10k monthly and Do What You Want, or would you rather have $50k every month and not have time to fart? So, let’s assume $10,000 is your Happy Camper Number.

2. For education and training purposes only, let’s use Mayberry as the town where you invest. a. Each single-family rental house rents for $1,000. b. Subtract 35% for property taxes, insurance, and repairs c. Subtract 10% if you hire a property management company. d. Total is 45%, but let’s just round it up to 50% to be safe. e. Each single-family rental PAID FOR will put $500 in your pocket every month. 3. Now take your $10,000 Happy Camper Number and divide by $500 – and you just need 20 single-family rentals to direct-deposit $10,000 into your bank account every month. a. But Mike, what about vacancies? This is why I love single-family rentals. Great residents stay an average of 8 years with my Landlording on AutoPilot system. In fact, many of my single-family rentals I purchased back in the early 1990s still have the same residents in them today! b. If you buy multi-family and apartments, you must factor in a vacancy rate. The pros and cons of owning single-family vs. multi-family are too numerous to list here. Single-families ROCK. c. Short-Term Rentals have outrageous rates of return. You must keep in touch with what is going on nationwide. Trends. Did you know San Diego and Atlanta are outlawing short-term rentals? They are allowing you to do short-term rentals on your personal residence, but not on properties you do not live in. SOLUTION: make sure when you buy one of these that it can support itself as a straightrent single-family rental. Great lesson learned here, but you do NOT want to wait 20 or 30 years to get your 20 nice rentals paid for. Too much to list here, but go online to mikebutler.com/blueprint and grab my 30-minute video “BLUEPRINT – How To Get 20 Nice Rentals Paid For and Do It Safely in 3 to 5 years… even with your job!” Our real estate market is always changing, sometimes in good cycles and sometimes in bad cycles; but sharp investors have learned how to switch gears quickly to identify new opportunities when the changes begin, and many have it figured out before the trends even start. In one of my first local REIA meetings, I met a successful veteran old-timer named James Blair. James was whining Continued on Page 28

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A Tax Discussion on Vacation Homes and STRs Make sure you’re getting the best tax benefits and not creating red flags By Eric Shadowens The last few years have shown increased popularity in the purchase and rental of vacation homes. Without proper planning, a taxpayer may not realize the different types of tax implications this may bring. This article is meant to help explain different nuances of tax laws related to vacation homes and short-term rentals (STRs). Now that we can put Covid further behind us each day, many taxpayers have been getting out away from home and travelling again. Popular places to travel would include homes near an ocean as well as maybe a cabin in the woods near a lake. If you’re reading this Live the dream – but document it properly. (123rf.com stock photo) article, you may be someone who has decided to purchase a second home or looking to purchase and rent one of The TCJA put a cap on the amount of state and local taxes these homes while adding to your portfolio of properties. a taxpayer may use as an itemized deduction. Therefore, if But what happens to your expenses if you are looking to your state and local taxes exceed $10,000, you’re still only visit this property more than 14 days a year? If you earn able to deduct up to $10,000. Adding that amount to the rental income on these properties, do you have to pay amount of mortgage interest and charitable contributions income tax? Maybe you think purchasing a property and will generally get you the total amount of eligible itemized grouping it with your long-term rentals will finally help you deductions. A married couple filing a joint return is allowed a meet the real estate professional exception requirements standard deduction of about $26,000, so if your itemized and free up passive losses to offset your nonpassive income? deductions do not exceed $26,000, you are unable to itemize The following is an outline of topics you will want to on your return. consider as you go along with your vacation homes/STR purchases to make sure you’re getting the best tax benefits Rent Your Vacation Home 14 Days or Less as well as not creating red flags on your tax returns: There has been an increase in lake activity over the last few years, and we’ll often comment on how we sometimes Vacation Home should’ve stayed home during a holiday such as July 4th My wife and I purchased a home at Nolin Lake about 10 because of all the craziness happening on the lake and in our years ago. We like to go there most weekends and take our neighborhood. Half-jokingly I’ll tell my wife we should just vacations there too. It’s peaceful sitting out on the screened- rent out our cabin for a few holidays a year. The beauty of in porch on a nice, rainy day. We also like to get out in our this would be we could do it for 14 days or less a year and cove and float on a hot summer day. There are likely bevnot have to pay income tax on the rent income. That would erages involved on a lot of these days spent at the vacation be a nice bit of income earned for choosing to stay home on home. We’ll have company visit on occasion, and it is always a few holidays. fun to share our place with others. Spending our time here Keep in mind that there would be no income tax on the helps us to recharge after a hectic week at work. rent income, but there are transient taxes that would need When it comes to the tax side of this vacation home, to be paid. Generally, there are local and state transient we’re limited on what we get to deduct. Our home is taxes. For example, Jefferson County has an 8.5% transient considered a second personal residence, and we can take a tax and Kentucky has a 1% transient tax. The tax is calculated deduction of property taxes along with mortgage interest on the gross receipts collected. while reporting them as an itemized deduction on our The deductible expenses are the same as they are for a personal return. That’s assuming we can itemize on our vacation home. Therefore, we may get to deduct property return. Due to the Tax Cut and Jobs Act (TCJA) beginning in taxes and mortgage interest if we are able to itemize. Any 2018, most taxpayers can no longer itemize on their returns other expenses would not be deductible. because their itemized deductions do not exceed the Continued on Page 36 standard deduction. Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

National REIA News Roundup National REIA, of which KREIA is a chapter, reports on issues affecting real estate investors and also links to stories of interest from other organizations. Here is a sampling of recent news and resources that Brad Beckett, NREIA’s Director of Education & Outreach, has compiled. For more news, visit RealEstateInvestingToday.com

Mobile Home Prices Increased 50% During Pandemic A recent report from Breitbart says the average national price for manufactured homes rose nearly 50% over the course of the pandemic, from $82,900 to $123,200. Read the full story at Breitbart: bit.ly/k2207mobile

Americans Choose Real Estate as Best Black Knight: Housing is the Least Investment 9 Years in a Row Affordable since the Mid-1980s?? Gallup is reporting that more Americans prefer real estate over other long-term investment vehicles for growing wealth. The numbers show that 45% prefer real estate (up 4 points from 2021), 24% prefer the stock market, 15% prefer gold, 9% prefer CDs/bank accounts, and 4% prefer bonds. Read the full report at Gallup: bit.ly/k2207gallup

Housing Starts Drop to Lowest Level Since April 2020 The U.S. government is reporting that privately‐ owned housing starts in May were at a seasonally adjusted annual rate of 1,549,000, which is 14.4% lower than April’s revised number and 3.5% lower than one year ago. Read the Census PDF: bit.ly/k2207starts

Black Knight’s Mortgage Monitor Report for May 2022 says home prices rose 1.5% from April, which they say is nearly twice the historical average for the month of May. However, they say with 30-year mortgage rates hovering close to 6% and home prices up nearly 11% since the start of 2022, home affordability is at its worst point. Read more: bit.ly/k2207knight

Medical Debt Is Being Removed from Credit Reports Numerous media outlets have reported that as of July 1st, the three major credit bureaus are removing paid-off medical debt from individual credit reports. “And any new medical bills that patients rack up and don’t pay right away won’t show up on their credit reports for a year.” Read more: bit.ly/k2207credit

1031 Exchanges: 5 RequireRising Building Material & Freight Prices Push Construction Costs Higher ments for IDing a Replacement Property The NAHB’s Eye on Housing says the prices of goods used in residential construction increased 19.4%, year-over-year. Read more at NAHB: bit.ly/k2207costs

Redfin Says Homebuyer Migration is at an All-Time High A new report from Redfin says a record number of homebuyers are relocating, many in search of affordability as prices and mortgage rates soar. Read the full report: bit.ly/k2207migration

Demand for Construction Appears to be Outpacing Availability of Workers & Materials While nearly every state added construction jobs during the past twelve months, that momentum slowed considerably in May with only 22 states adding jobs. Read Association of GC report: bit.ly/k2207contractors

Accruit outlines five things investors must keep in mind when deferring taxes through a 1031 like-kind exchange. View the infographic: bit.ly/k2207exchange Continued on Page 12

GOVERNMENT AFFAIRS LINKS State Government Roundup Kentucky Realtors Legislative Updates. Read weekly updates on bills in play in Frankfort at the Kentucky Realtors’ site: bit.ly/KYR_LEGU

•

Local Government Roundup Louisville Metro Government: Get a summary of local affairs (and state) by the Greater Louisville Association of Realtors (GLAR): bit.ly/LRGAU KREIA’s Government Affairs Board Chair: Rue McFarland

Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

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Pay Attention: The Market Is Changing Numbers from our GLAR MLS show ways the retail market is shifting By Nina Musgrave, KREIA Volunteer Across the country, sellers are lowering their list prices. Some markets have seen almost 50% of current listings with price reductions. Inventory on the MLS is increasing, with 30% more homes on the market than last

year, overall in the United States. In Phoenix, the number of listings has nearly tripled since this time last year. I’m hearing more stories of deals falling through and appraisals coming in lower than expected. The retail market is shifting, but where and how? It’s vital to stay current. I took a look at some local market data. This is what I found:

JEFFERSON COUNTY, KY MARKET UPDATE JUNE 2022

Single-Family

June

Year to Date

Key Metrics

2021

2022

% Change

New Listings

1,492

1,404

-5.9%

6,916

6,602

-4.50%

Pending Sales

1,134

845

-25.5%

6,084

5,357

-11.90%

Closed Sales

1,164

1,015

-12.8%

5,592

5,131

-8.20%

-5.6%

-7.10%

Median Sales Price

$244,500

$265,000

8.4%

$225,000

$248,000

10.20%

Average Sales Price

$295,767

$311,818

5.4%

$269,992

$292,821

8.50%

Percent List Price Received

101.10%

101.20%

0.1%

99.80%

100.40%

0.60%

Inventory of Homes for Sale

961

1,213

26.2%

Months Supply of Inventory

1.3

30.0%

CDOM

Thru 6-2021

Thru 6-2022

% Change

*Data current as of July 10, 2022, and provided by the Greater Louisville Association of Realtors

National REIA News Briefs Continued from Page 10

Existing Home Sales Down 3.4% in May ’22

Home Appreciation vs. Inflation Since the 1970s

The National Association of Realtors is reporting that existing home sales were down 3.4% in May to a seasonallyadjusted annual rate of 5.41 million (down 8.6% year over year). Total housing inventory at the end of May was 1,160,000 units, down 4.1% from one year ago. Read more: bit.ly/k2207existing

Keeping Current Matters says that rising inflation puts a pinch on the wallet and makes you reevaluate any big purchases you may have planned. They point out that potential homebuyers are probably wondering if they should continue down that path or if it makes more sense to wait. While the answer depends on the particular situation, they have illustrated how homeownership can actually combat the rising costs of inflation. Read more: bit.ly/k2207current

Zumper’s National Rent Report for June ’22 Zumper recently released its latest monthly National Rent Report showing that the median national rent for 1-bedroom apartments in June 2022 was $1,421 and the median twobedroom rent was $1,707. Read more: bit.ly/k2207zumper Continued on Page 28

‘I GOT ROBBED!’

Recovering emotionally from break-ins and theft on your rehabs By John Mays Contractor: There was a break-in at your house on Whitman Lane. Me: Oh, my what, What, WHAT!! You joking right? My house got what? They broke my brand-new window, smashed up my brand-new door. These crooked folks done broke in my house. They robbing me for what, they ain’t even get nothing. You can’t trust anybody these days. I bet it was a neighbor. Matter fact, seen him smoking a cigarette looking at me funny the other day, or one of them broke subs you hired. Call the police, then call the insurance, then call the ambulance, ’cause there’s gonna be some problems when I get down there! I bet it was one of the ol’ stinking crooked contractors. I’m going to find out who did this. I thought I could trust ’em, can’t trust anybody in this game. You know what – I’m tired of this mess, I’m tired of all ya’ll, this is the third time!!! I QUIT!!! Contractor: [Click….]

(123rf.com stock photo)

• Did I blame it on the neighbors, contractors, community, or the population, or is there something I did or didn’t do that lead to this? • Did I really do everything in my power to secure the property? • What system can I add to my rehab routine to be more safe and secure in the future?

Well, if you’ve ever had a break-in or theft in one of your rehabs, you know the emotional roller coaster that this can be. It’s time for us to take back our sanity. Now, of course we need to secure our properties, put up cameras and signs, add security systems, and even board up windows and doors, 5 Quick Tips to Consider and just generally make things unappealing to break into. 1. Forgive yourself for the things you did or didn’t do. But no matter how protected and unappealing we believe 2. Believe what your team tells you and free yourself we make the properties, sometimes people still find a reason from the whodunnit mystery. and a way to break-in. 3. Watch who and where you point the finger. BUT … the good news is just because our property is 4. Build in contingency for theft or loss into your initial broken into doesn’t mean we have to be broken in the profit expectations and timeline expectations, so you process. Let’s take a moment to review a few questions and have a buffer. reflections that will help bring us back to a place of psycho5. Remember: your team and your family are watching logical safety. how you react in the tough movements; your words, attitudes and actions will be returned to you by the • Remember: You didn’t get robbed – your business got ones you love. It’s our choice if those are positive or robbed. Every business has been robbed (still not negative. good, but very true nonetheless). • What is the dollar amount of my lost property and “Character cannot be developed in ease and quiet. Only time? Is that amount worth my character and through experience of trial and suffering can the soul be emotional stability? strengthened, ambition inspired, and success achieved.” • You are not Magnum P.I., Shaft or Inspector Gadget … – Helen Keller Let the professionals do their job. ● • How much money per hour are you going to pay John Mays is an investor and current KREIA board member. yourself for analyzing footprints, interviewing John and his wife Joy are passionately in love with each other neighbors and dusting for fingerprints? and unapologetically obsessed with Real Estate investing. • How much time are you willing to invest in being salty They enjoy supporting and coaching other couples on their and resentful? journeys to build generational wealth while putting love and • Is this an emotional decision or a technical issue? family first. Copyright MMXXI Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

5236 Dixie Hwy Copyright MMXXII Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

KREIA

Photos

Visit KREIA’s Public Facebook Page and Private Group to catch up with investor friends and their photos! ???: ???

Above Left: Our summer Game Nights are kidfriendly! (Photo by Karen McKnight) Above Middle: Wanna discuss investing while getting your steps in? Join Eric George’s hiking club. Above Right: Rob Bergeron at July’s Lunch & Learn. At Right: Justin Reid and Jonathan Klunk, shortterm rental property managers with Key Source Properties, headlined our June 23rd main meeting.

Alexis Fentress: KREIA’s Roving Correspondent KREIA board member Alexis Fentress had a busy June representing our organization at both the National REIA MidYear Leadership Conference (at left), held in Minneapolis, and at the REIA Mastermind Group (RMG) gettogether, held in a huge Airbnb in Asheville (photos below), which was led by Cincinnati investor Vena Jones-Cox. Alexis came back with lots of fresh ideas and tips – hit her up for some! (These photos courtesy of Alexis.)

California Neighborhood Rehab House: A Closer Look Amy and Rich Connor rehab to hold for Section 8 tenants By Lauren Willoughby How do you get $1,680 in monthly rent from a house you bought off the MLS for $70,000? If you’re Amy and Rich Connor, you raise the roof. That’s the plan in turning this 3-bedroom, 1-bath house into a 5-bedroom house and then placing a tenant who has a Section 8 voucher. And even though they’re still mid-rehab, Amy and Rich have already found an eager prospective tenant, who has a voucher in hand. Rich, who gave the presentaBlue is the signature color or the Connors’ rehab houses. The plan for this one at 2219 W. Oak tion at our June 28th L.O.T.S. event, is to turn it from a 3-bedroom/1-bath house to a 5-bedroom/1-bath home. said they like houses in the Parklands and Park DuValle neighborhoods. They like houses with L.O.T.S. event. And Amy and Rich have a similar division when it comes to their cyber-security business – Amy is the porches. And they especially like houses with attics – attics detail person and Rich is the numbers and operations guy. they can transform into legal bedrooms. Rich said they got interested in Section 8 when they saw During the presentation, Rich that there were lots of people on the waiting list. “We said they’re behind because “we wanted to see if we could provide some good housing for were not prepared to scale.” people.” In 2020 they bought one For Amy and Rich, investing is a family affair. “She is the rental house, and in 2021 they brains behind all of this,” Rich said. “She finds the properties. bought another (using credit She finds the diamonds in the rough …. I handle operations.” cards, a blast-from-the-past And they include their young children in the family strategy still working today) – business too – they brought their son and daughter to this but in 2022, they’ve bought three so far, partnering up for joint ventures. And it turns out their contrac- “Folks rehabbing houses, tor wasn’t ready to scale either. making them livable, and bringing good people to the But Rich, the operations guy, neighborhood is what we was tackling that and optimistic need. Thank you all for your the house would soon be ready. work.” – Ky. State Rep Thank you for inviting us into Keturah Herron, District 42, your project, guys. Cool model! who dropped in on L.O.T.S.

Amy and Rich Connor moved to Louisville from New Jersey two years ago and began investing. They have a portfolio of 5 houses now but plan to have 24 more within few years.

THE NUMBERS Purchase: $70,000 Est. Rehab Cost: $30,000 Est. Total Investment: $101,100 Est. Monthly Rental Income: $1,680 Est. Monthly Expenses: $425.33 Expected Cash-on-Cash ROI: 14.89%

Find the video from this L.O.T.S. event available soon on our Videos page. Take a tour of the house with Karen McKnight!

Why do we call it “L.O.T.S.”? Because we Learn On The Site!

Copyright MMXX Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Do You Want Your Business Card to Appear Here? Join KREIA as a Business Card Advertiser for only $199/year and see your ad in a year's worth of KREIA newsletter issues! Copyright MMXXII Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

Mike Butler: ‘How Many Rentals Do You Need’? Continued from Page 6

National REIA News Briefs Continued from Page 12

that it was harder and harder for him to find deals because of all of the new investors who were jumping into our local real estate market. He reminded me of Albert Einstein’s definition of insanity… doing the same thing over and over and expecting different results. Don’t allow yourself to jump on this negative attitude bandwagon. Negative attitudes attract negative people. Positive, optimistic attitudes attract positive, can-do, failureis-not-an-option kinds of people. Now is time to get ready and learn how you can make some adjustments on how you can Continue to Find and Buy Great Deals in Any Market! To Your Continued $uccess,

Airbnb Makes Ban on All Parties & Events in Listings Permanent

P.S. Sign Up for Your FREE Investor Training Every Tuesday at 12 noon: MikeButler.com/PowerLunch Also, catch Mike’s real estate investing podcast: www.5hrRealEstateWeek.com Mike Butler is a KREIA Past President, a recipient of the Ed Melton Award, a property manager, a high-volume landlord, a principal in Tenant Finder Service, a retired Louisville undercover police detective, and the author of the bestselling real estate book “Landlording on Autopilot,” now available in its 2nd edition. Erik Hitzelberger: President’s Letter Continued from Page 1

the economy? Something else? Once you identify it, figure out who has the answer and go get it. I’ll wager someone in KREIA has the answer to your question and is very willing to share with you. Now is not the moment to step back. It is your time to get educated, to step through your fears, and to see what abundance lies on the other side. To that end, KREIA is very pleased to host Mark Dolfini, aka “the Landlord Coach,” this month. Mark is going to show us the systems he used to get unstuck in his busi-ness. He’ll educate us on the proper ways to run an investing company so that we can enjoy the fruits of our labor rather than be overwhelmed by them. For anyone who has ever or will ever own a rental property, this is a must-attend meeting. I hope to see you there. To your investing success and to an abundant life! Erik Hitzelberger KREIA President

In late June, short-term rental platform Airbnb announced that they were making their temporary ban on all parties and events permanent. Airbnb says the policy, implemented in August 2020, has proved effective and they are officially codifying the ban as official policy. “This new and long-term policy was enacted to help encourage and support community safety.” Read more: bit.ly/k2207airbnb

Fed’s Supersized Rate Hike On a recent episode of the podcast “Real Estate News for Investors,” Kathy Fettke discusses the Fed’s biggest rate hike in three decades, mortgage rate sticker shock, and the home equity bonanza. Listen here: spoti.fi/3yZEP7Q

Government Regulation Accounts for Over 40% of Multifamily Development Costs Recent data from a NAHB and NMHC report says regulation imposed by all levels of government accounts for an average of 40.6% of multifamily development costs. The data, based on a survey of developers across the nation, also examined regulations and other factors that can impact whether development even occurs. View the full-size infographic: bit.ly/k2207regulation

Flipping Spikes Nationwide While Profits Drop to 13-Year Low According to the latest U.S. Home Flipping Report from ATTOM, 114,706 single-family houses and condominiums were flipped in Q1, 2022. That figure represents 9.6% of all home sales in Q1 or one in 10 transactions – the highest level since at least 2000. In addition, ATTOM says that as home sales by investors spiked, typical raw profits on those deals remained below where they were one year ago, with profit margins dipping to their lowest point since 2009 Among all flips nationwide, the gross profit on typical transactions stood at $67,000 in the first quarter of 2022. Read more: bit.ly/k2207flipping

Investor Origin Story

Jacob Hunter When I first started real estate, people laughed at me. People thought I was crazy. My family didn’t believe in me besides my dad… They all told me I needed to work at Ford for 30 years and get free insurance and benefits. People called me stupid and looked at me crazy when I told them I was picking real estate over Ford when I had never done a deal before. Fast forward almost 3 years and I’ve done over 200 real estate deals and have accumulated 17 rental units in the past year and have over 12 fix-and-flips projects going at once… this has not been easy at all, but it sure was worth it. I’m not knocking anybody working a 9-to-5 to feed your family, but realize it is a rat race and you have to have an exit strategy. It’s crazy to me people I used to hang around didn’t have any real goals or dreams… fast forward and I have amazing friends like @talasrealestate who motivate me and hold me accountable to grow and be the best person I can. Go out there and chase your dreams. Will you fail at some point? Hell yeah you will but pick yourself up and keep going. You don’t fail until you give up. Jacob Hunter posted this on Facebook and allowed us to republish it here.

@reiaky

Jacob checks out a property. Copyright MMXXII Kentuckiana Real Estate Investors Association • P.O. Box 91225 • Louisville, KY• 40291 www.KREIA.com DISCLAIMER: KREIA does NOT pre-qualify, evaluate, endorse, guarantee or warranty any particular deal, service, company, or person. The Kentuckiana Real Estate Investors Association recommends you perform your own due diligence & seek appropriate legal, accounting, or other professional advice before making any investment. KREIA is a Member of National Real Estate Investors Association.

W2 earnings to calculate tax liability. Generally, rental real estate creates paper losses in the early stages of renting, which would help to reduce the W2 earnings while also reducing tax liability. Short-Term Rentals But Congress enacted legislation known as the 1986 Tax But my wife and I have also kicked around an idea of adding a small home to one of the lots on our property at the Reform Act that seriously limited rental activity for tax purlake and potentially renting it out as an STR. We would have poses. A taxpayer could no longer offset nonpassive income such as W2 earnings with rental activity because rental to decide on which type of STR we’ll have. There are two activity was deemed a passive activity. Losses from a passive types of STRs for tax purposes. rental activity could only offset passive income, and any The first would be the type of STR that offers substantial services such as concierge services, provides cleaning during remaining losses would be carried forward to future years. That was a huge issue for true real estate investors your guests’ stay, offers tours, provides food, amenities, and subscription services. The other type of STR we may consider because they were forced to pay a higher tax liability just because their industry had a passive tag added to it. It took 7 is one that does not offer substantial services. years of lobbying Congress to get them to update the law, You’re asking, what is the difference? If you offer substantial services, you’re considered to have and in 1993 the REP exception was introduced. A business active business income, and the activity must be reported on owner with rental activity could meet the REP exception if they spent more than 750 hours and 50% of the Schedule C of your personal return. The their time in a real estate activity. They also income will be subject to ordinary income “One potential red had to materially participate in their rental tax, and you’ll also be responsible for paying flag to watch out for activities. self-employment tax. If you created an LLC is whether you have There are 7 different ways a REP may and had multiple members, you would be a property manager materially participate in rental activity. The 3 taxed as a partnership but still be subject to overseeing your general ways most often spoken of is that ordinary and self-employment taxes. STRs. If you do, REPs spend more than 500 hours in their You may meet with your tax advisor and then it will be rental activity, or they spend 100 hours and discuss the benefits of electing to be taxed rather difficult to more than any other person in their rental as an S-Corp if your net income consistently materially activity, or they account for substantially all ranges above $60,000, as it could help participate in your the time being performed in the rental reduce your taxes. STRs.” activity. What if you don’t offer substantial Meeting the REP exception and materially services? Your activity then should be participating in the rental activity allows taxpayers to use reported on the Schedule E of your personal return. It all sounds simple. You have a short-term rental that is reported losses from their rental activity to offset with nonpassive income such as W2 earnings. on Schedule E along with other properties you hold as longThis is a lot of technical information for an article. It’s term rentals. You’re feeling great about it now because you fall just below the number of hours needed to qualify for the necessary to be included because, unfortunately, many taxpayers do not have this deep of a conversation with their Real Estate Professional (REP) exception. tax advisor. They may only give their tax advisor the yearly So, would the hours you spend in your STR property get financial info from their rental activity, and the tax advisor included with your long-term properties? adds it to the tax return without fully understanding how the You may be surprised to hear that they do not. If the average stay of your guests at your STR is 7 days or less, your rental activity functions. This article is meant to help you have better conversations with your tax advisor by knowing STR isn’t considered a rental activity for the purposes of the types of questions to ask them to make sure you’re qualifying for the REP exception. Therefore, you must only taking advantage of tax planning. materially participate in your STR for any net loss to help Sorry for getting away from the juice of this article, which offset your nonpassive income. is an explanation of how vacation homes and STRs operate So that was a lot being said in the last few paragraphs. for tax purposes. This last part of the article here is where Let’s pause a moment to introduce passive activity and why you’ll find the most important explanations. that matters for your tax liability. Eric Shadowens: Tax Discussion on Vacation Homes & STRs Continued from Page 8

Passive Activity

Potential STR Traps

Prior to 1986 a taxpayer could have a normal, full-time W2 job such as a doctor or lawyer and invest in real estate with the losses from his real estate being combined with his

Let’s think back a few paragraphs ago where I mentioned how you may or may not provide substantial services to your Continued on Page 38

Eric Shadowens: Tax Discussion on Vacation Homes & STRs Continued from Page 36 STR. I believe now is a good time to also throw in the importance of personal use of the STR. How many of you intend to use your STR personally during the year? For example, say you purchased a nice 6/3 home with an ocean view in Destin. Are you just going to rent it out and never decide to spend time there yourself? Keep in mind you may use your STR personally the greater of 14 days or 10% of the total rented days during the year. I’ve had conversations with clients and prospects and will generally hear them say they’ve been told days they spend at the STR working and fixing it up don’t count in the calculation above. That is true. But rubbing Windex on a window and spraying Scrubbing Bubbles in the tub doesn’t necessarily add up to working on and fixing up your STR. You’ll need to document the time you spend on working days, and your working time should account for most of the day. Also, try to avoid posting all your pictures on social media of you enjoying your time at your STR. It’s easy for an IRS agent to review your online profile and add up the days you are presumed to be at your STR. If the days are significant, it will only make the agent want to dig deeper and potentially find that you spent more than the allowable time there. Now let’s talk about your material participation in the STR and how it doesn’t help your qualification for the REP exception. There is an actual court case where the taxpayer had long-term rental holdings as well as STR properties. He took the position on his return that he met the REP exception by grouping the time he spent in his STR activity with his long-term rental activity. The problem was that the IRS and tax court found that once his STR activity was removed from the calculation, he didn’t have enough hours to meet the REP exception. This is important to know because you don’t want to have a correction on your filed return that results in additional taxes plus penalties and interest. This could also be helpful to you, though. It’s helpful because if you materially participate in your STRs, you don’t need to meet the REP exception to offset potential rental losses from your STR with your nonpassive income. The conditions to materially participate are somewhat easier than the full-blown REP qualification. The one potential red flag to watch out for here is whether you have a property manager overseeing your STRs. If you do, then it will be rather difficult to materially participate in your STRs. Generally, the property manager will take care of bookings, do the cleaning once your guests have gone, schedule repairs and carry out other typical rental activities a landlord would do. If so, then you would have a tough time working 500 hours on your own. You wouldn’t have substantially all the time spent in the STR.

Also, you might spend 100 hours on the STR, but it wouldn’t likely be more than others, such as the property manager. Your investing time, such as keeping the accounting books of your STR, wouldn’t count in this situation because you are using a property manager.

You Have the Burden of Proof There is a whole lot of information to process in this article. I included all the information because I believe it’s important for you as a real estate investor to understand how detailed real estate tax accounting can be. If you aren’t having these conversations with your tax advisor, you could wind up staring at an unplanned tax liability somewhere down the road after the IRS has made an adjustment on your return. It’s important to realize that you as the taxpayer have the burden of proof when the IRS makes a change to your return. If you are unable to make an argument explaining why the change is incorrect, you’re stuck with the change. So please consider what you have read and schedule time to discuss with your tax advisor. I’m done here now. I’m off to find one of those beverages mentioned earlier! Eric Shadowens is a Certified Public Accountant and Senior Tax Manager with DMLO CPAs (Deming Malone Livesay + Ostroff, dmlo.com). You can reach him by calling (502) 3262319 or emailing him at eshadowens@dmlo.com. You can also connect with him on social media: Facebook: facebook.com/eric.shadowens Twitter: @ericshad76cpa LinkedIn: linkedin.com/in/ericshadowens BiggerPockets: Biggerpockets.com/users/EricShadCPA

2022 KREIA Election Results KREIA’s 2022 Election was held last month at our June meeting, and here is the Election Committee’s report:

Officers President: Erik Hitzelberger Vice President: Christopher Jaquith Secretary: Jordan Pohn Treasurer: Mike Grinnan Treasurer-Elect: Wally Kallbreier Immediate Past President: Chris McCarty

Board Members Rob Bergeron Duna Bolotte Dennis Erhard Alexis Fentress George Foree Ian Hooper

John Mays Rue McFarland Karen McKnight Frank Miller Greg Nalley Hampton Scurlock

Presorted First Class Mail U.S. Postage Paid Louisville, Ky Permit No.1402

PO Box 91225 Louisville, KY 40291 Return Service Requested

THE Local Resource for Landlords, Rehabbers & Wholesalers Meeting the 4th Thursday of every month (except November & December) at Woodhaven Country Club, 7200 Woodhaven Road, Louisville, KY 40291 KREIA.COM • twitter.com/reiaky • instagram.com/reiaky • youtube.com/reiaky facebook.com/reiaky (public) • facebook.com/groups/kreiaky (private)

UPCOMING EVENTS

‘Landlord Coach’ Mark Dolfini Shows Us How to Be ‘Time-Wealthy’ Is your personal life suffering because you’re feeling stuck in your business? Longtime investor Mark Dolfini is going to show us how his VIP Method took his work week from 60+ hours to under 10 when he headlines July’s main meeting. July 28th, 5:30 p.m. - 9 p.m. ► 5:30 p.m. Early Meeting: FEMA-MSD liaison Mike Fleitz on flood insurance ❖ Aug. 2nd – Noon - 1 p.m. L.O.T.S. event. KREIA members are invited to take a tour of investor Mary Conrad’s latest rehab project in the Beechmont neighborhood off Taylor Boulevard. KREIA’s Platinum Sponsor, FlippinLoan.com, is bringing 50 free lunches for KREIA members.

❖ Aug. 10th – Noon - 1:30 p.m. Lunch & Learn. Duna Bolotte hosts Frank and Tommi Miller, of Believe Investment Group, at this educational event. The topic: “Diversify Your Income with Short-Term Rentals.” Members only. ❖ Aug. 11th – 5 p.m. - 7 p.m. KREIA Happy Hour. Networking at Woodhaven. Everyone is invited. Bring a friend! Make a friend! Maybe even do some deals. ❖ Aug. 16th – Noon - 1 p.m. Tool Tip Tuesday With Tamara West. Investor/broker demonstrates investor resources online on this members-only Zoom call. ❖ Aug. 18th – KREIA Family-Friendly Game Night. Join us at Martin’s Bar-B-Que for a competitive, educational game of CASHFLOW. Bring the kids! This summer we’re setting up the kids’ board as well as the regular CASHFLOW 101 boards.

Main Meeting Preview August 25th: 1031 Exchanges with expert panel

We’re Back at Woodhaven, Baby! PRE-Register Now at KREIA.com