The MAREI May 2022 Newsletter

2 0 2 2 M A Y

MAREI

MID-AMERICA ASSOCIATION OF REAL ESTATE INVESTORS

NETWORKING OFFERING A WEALTH OF OPPORTUNITY TO CONNECT

EDUCATION FROM MEETINGS & WORKSHOPS TO ONLINE RESOURCES

DISCOUNTS FROM LOCAL AND NATIONAL VENDORS TO SAVE YOU MONEY

FREE

14- DAY TRIAL CHOOSE BUILDIUM TODAY SO YOU CAN SCALE YOUR TOMORROW!

ACCOUNTING

LEASING WWW.MAREI.ORG/BUILDIUM

BUSINESS OPERATIONS

CUSTOMER SERVICE MAREI IS AN AFFILIATE PARTNER

what's coming up 10

May 10th MAREI Meeting, Evening, Live & In-Person in Overland Park Anthony Chara is back for a 2nd Visit. Find out how to get out of the rate race faster through apartments and commercial properties.

Doors open at 6:00 for Networking, Presentations Start at 7:00

21

May 21st MAREI One Day Workshop Live & In-Person in Overland Park Apartment Investing with Anthony Chara. How to find the best deals, crunch the numbers, fund the deal, and find partners. FREE copy of Anthony's Quick Analyzer Software for those who register early.

Doors open at 8:30 am for Networking, Event 9 to 5 pm - Lunch Included Cash Bar and Munchies 5 to 7

14

June 15th MAREI Meeting, Evening, Live & In-Person in Overland Park MAREI meets once a month on the 2nd Tuesday of every month to network and learn more about a topic related to the real estate business.

Doors open at 6:00 for Networking, Presentations Start at 7:00

See MAREI.org/Calendar for these and other member sponsored events.

MAREI Staff Chapter

Executive Director

Kim Tucker: Kim@MAREI.org - 913-815-0111

Newsletter

Staff: Newsletter@MAREI.org - 913-815-0111

PartnerCast

Idea for a Partner Cast or Meeting - email Kim

Legal

Julie Anderson-Clark: Julie@MOKSLaw.com Rick Davis: Rick@RickDavisLegal.com

Membership in National REIA provides our members with

Mission Statement

Community Advocacy Education Discounts at the National Level

Legal Disclaimer

Mid-America Association of Real Estate Investors is a trade association dedicated to promoting ethical real estate investing and to protect and promote the best interest of our membership through educational and networking opportunities as well as community, legislative and public relations.

MAREI does not exist to renter and does not give legal, tax, economic or investment advice and disclaims all liability for the actions or inactions taken or not as a result of communications from or to its members, directors, contractors and volunteers. Each individual should consult his/her own counsel, accountant and other advisors as to legal, tax, economic, investment and related matters concerting their business.

NationalREIA.org NationalREIAU.com REI2Day.com

Award of Excellence

Content Disclaimer The views and opinions expressed by authors of articles contributed to this newsletter do not necessarily reflect those of the association, the director, or the staff.

Advertise in the Newsletter Rate Schedule This newsletter is posted on MAEI.org, shared via email to over 5,000 contacts, and shared on Social Media to over 11,000 contacts. All active in the real estate investing industry.

MAREI is the recipient of National REIA's 2017 Award of Excellence and Multiple Year Winner of Awards of Merit.

Size full page 1/2 page 1/4 page Biz Card

Non-Member $350 $285 $180 $150

Member $300 $235 $130 $ 75

Business Member $225 $175 $100 $ 55

Color ad on glossy inside cover is an $100 above posted rates. A 10% discount is given on ads pre-paid for 6-12 months. Any changes to a prepaid ad will incur a minimum charge of $50. The deadline to submit ad copy is the 1st Friday of each month for the following month's publication.

All ads must be prepaid. Contact to verify ad format can be accepted.

PDF or JPG preferred. There is an additional charge of $50 to build your ad for you. Opportunities exist for advertising on MAREI.org. Email kim@MAREI.org or call 913-815-0111

IS IT A DEAL - MY TWO RATIOS

By Anthony Chara

Cash on Cash Return or CCR One of the key elements I use when determining whether or not I want to purchase an apartment complex is the Cash On Cash Return or CCR. What is CCR and how do we calculate it?

I’m glad you asked.

CCR is the annual Cash Flow we receive from our property divided by the cash we had to take out of pocket to buy the property.

Cash Flow / Cash Out Of Pocket = CCR The Cash-Out Of Pocket or COOP is generally our down-payment plus our closing costs. This is not money we borrow from another source, but actual cash needed to complete the transaction.

Example: Let’s say we want to purchase a $500,000 property and we need a 20% down payment. That’s $100,000. Plus, we need to pay for our closing costs which include things like Title Insurance, Inspections, Recordation Fees, Commissions, etc. I’m going to overestimate these at 5% of the purchase price or $25,000. Using these two figures, our total Cash Out Of Pocket (COOP) needed to close would be $125,000 ($100,000 + $25,000).

MAREI.org | Page 5

Cash Flow is the second figure we need to determine our CCR. Let’s say our projected CF is $12,000.

Using our CCR formula, CCR=CF/COOP CCR = $12,000 / $125,000 CCR = 9.6% This formula tells me whether or not it makes sense for me to purchase this complex.

If my goal is to earn at least an 8% reuirm on my money, then I buy the property. If my goal is 10%, I could go either way as 9.6% is awfully close to 10%.

However, if my goal is to make a return higher than 10%, then I would need to take a different approach: Fi n d a n o t h e r p r o p e r t y t o i n v e s t i n , Make an offer with a lower Purchase Price (if I offer less and my ratio percentage of Down-payment to Purchase Price stays the same, then my Cash Out Of Pocket goes down, thereby increasing my CCR) Take a closer look at the income and expenses for this property to see if I missed something that may make the returns higher than I estimated so far.

Talk the Seller into carrying back some portion of the Purchase Price which will also lower my COOP, again, resulting in a higher CCR. If my minimum isn’t met at that point, I’ll move on and find another property. There are plenty of them available. You’ll need to determine what your threshold is for CCR before proceeding and looking at properties to purchase.

One last comment on the CCR topic, don’t make the mistake of trying to force the numbers or seeing something that’s not there. Either the numbers work or they don’t. In other words, if the property is currently at 12% vacancy, but the market average is only 6% and you change the vacancy to 6% in your

calculations, because you want to see how that affects the returns, which it will, because you now have a higher NOI resulting in higher Cash Flow, resulting in a higher CCR, that’s great, but you can’t just change the number on your spreadsheet and, POOF, you magically have a 6% vacancy rate.

There’s a reason this property is at the vacancy rate it’s at. It could be due to poor management, poor maintenance, bad marketing or several other factors.

Even if you’re 100% sure of the fix, that’s still no guarantee that your vacancy will drop to the 6% level.

My recommendation; buy the property if you’re happy where the numbers are today, not because you ‘think’ you can reach the numbers you want tomorrow. If you can lower vacancy, increase rents and/or lower expenses later down the road, then that’s just icing on the cake!

You and your investors will be tickled pink (whatever that means!), because now you’ll be making a far greater return above your projections. If you force the numbers, you could end up buying a property that will never perform the way you expected and be very unhappy.

Return on Investment Let’s look at a sample property and the potential returns. This particular property is operating smoothly. Assume we purchased it for straight cash flow/return with no major work or large rent increases coming soon. It’s a 12 unit building and we purchase it for $500,000 with the intent to hold it for 8 years.

Notice I said 8 years as opposed to 8 minutes, 8 hours, 8 days, 8 weeks or 8 months. Most good wealth-building strategies are long-term strategies. Not the ‘get rich quick' kind, but the ‘get rich

MAREI.org | Page 6

deliberately and stay there’ kind.

In order to purchase this property, we need to invest $125,000. $100,000 for our 20% down-payment (this will vary depending on the market, your experience, type of property and how eager lenders are to loan on this type of property in that market, therefore, your down-payment may be different) and $25,000 for estimated closing costs including, but not limited to; Title Insurance, Commissions, Loan Origination Fees, Escrow Fees, Closing Services Fees, Shipping Fees, Doc Prep Fees, Recordation Fees, Just Because We Can Fees (I love these the most!), you get the idea.

Over a long period of time, apartments around the country will appreciate approximately 5% per year. Sure, they have their ups and downs too just like SFH’s, but over a long period of time, they average around 5%.

Single Family Homes or SFHs on the other hand, whose market is much more volatile in my opinion, appreciate at an average rate of 6%. Keep in mind, that both of these figures are nationwide.

Each local market may appreciate at a different rate.

If we hold onto our $500K property for 8 years and just maintain it as status quo, our property should appreciate to approximately $738,700. That gives us a gain of $238,700. Over this same 8-year period, we’ve also put $96,000 of cash flow in our pockets and paid down the mortgage by roughly $40,000.

All in all, we have an upside of $374,700.

Not bad for buying a property and collecting rent!

Divide this gain by our 8-year holding period and that comes out to $46,800 per year. Anybody need an extra $46,800 per year?

Instead of just looking at the money we put into our pockets each year, we need to see how well our initial investment of $125,000 worked for us.

In order to figure this out, I suggest you take the projected annual return of $46,800 and divide it by our investment of $125,000 ($46,800/$125,000). What we end up with is an average annual return of 37.4%. Not bad at all. Better than making 1%, if you’re lucky, letting the money sit in your bank account!

You may have noticed that I didn’t include depreciation in my calculations above. Good catch! I didn’t utilize depreciation because, after we sell the property in 8 years, we’d have to ‘recapture’ some or all of the depreciation anyway so I didn’t want to muddy the waters for this quick lesson.

Here’s the last thing I’d like to point out for this week’s topic and that is; how much money did we need to invest in order to purchase this property?

Correct, $125,000.

How often did we get our $46,800? In theory, every year, but a large chunk of that came when we sold the property to give us our average annual return of $46,800.

Therefore, the projected return of 37.4% should be realized EVERY YEAR on average, not just once. That means this property paid us a return of $37.4% each year for 8 years.

Try getting that from a bank!

I can talk about this stuff all day and will be doing so at my all-day workshop here in Overland Park on May 21st at MAREI.

But wait, there’s more.

Remember, this lesson is about ROI.

MAREI.org | Page 7

Apartment 101 Series As a bonus for reading the MAREI Newsletter, we would like to share with you a special Apartment 101 Series from Anthony Chara, MAREI's guest speaker and trainer for the month of May. This is a series of articles, shared via the MAREI Blog that covers the basics of Investing in Apartments.

We highly recommend reading through the articles prior to attending Anthony's One Day Workshop on May 21st.

Go to www.MAREI.org/Apartments101

Apartments Compared to Single-Family Net Operating Income Vacancy Other Income Commercial Expenses Cap Rate Cash on Cash Return Return on Investment Debt Service Coverage Ratio Operating Ratio Residential Utility Bill Back Systems Rental Surveys Seller Carry Backs Building Classifications Finding Deals

MAREI.org | Page 8

DeMayo Enterprises LLC Wholesale Cabinets and More

Luxury Kitchens Made Affordable DeMayoEnterprises.net MEMBER

Mark Yanda Office: (816) 673-1546 Mark's Cell: (913) 980-4260 Web: DeMayoEnterprises.net

From Anthony Chara Seasoned Real Estate Investor Managing Member of Apartment Mentors and founder of Success Classes.

Turning to Apartments full time in 2004, he's owned, partnered, and / or syndicated over 2000 apartments around the country.

DO YOU HAVE A SUCCESS MINDSET? I don’t care how many boot camps or workshops you’ve attended or how many Home Study Courses you’ve purchased, or your highest level of education, if you don’t have the right mindset, you are probably just wasting your time and money!

I want to share with you some information from a book I’ve read several times that has seriously influenced my life. It was written over 100 years ago, but it’s still one of the most recommended books in the Self Improvement and Business Development genres. What do you think if says about the quality of this book considering it’s been on recommended reading lists for over 100 years? Do you think there might be some valuable lessons in it? How would you like to write a book one day that lasts for over 100 years as a best seller? Just ask any RE Investor which top 5 books they

recommend you read as you begin or expand your RE Investing career and I guarantee it will be in 95% of the lists. The author was commissioned by a multi-millionaire (multibillionaire in today’s dollars) to venture out into the world and interview the 500 wealthiest people at the time. They wanted to find out how all of these wealthy people became wealthy. Did they inherit their money? Were they born with some wealth gene? Were they all in the same type of business? What made these people tick? Why were they wealthy when most everyone else was not?

Over the next 20 years, the author traveled the world and interviewed the 500 wealthiest people to answer these questions and he made some startling observations that I’d like to share with you. First off, if you haven’t guessed by now, the author is Napoleon Hill and the

book is “Think and Grow Rich”. Over this 20-year span, Mr. Hill noted in the book that all 500 of these people shared 19 traits in common. He also noticed that none of these people were born with any of these traits, but they all learned how to master them. Of these 19 traits, I’d like to share with you what I believe to be the top 5.

In no particular order are; Burning Desire, Specialized Knowledge, Decisive in Nature, Goal Oriented, and Masterminding.

Burning Desire: This first trait is very powerful.

Mr. Hill realized that it didn’t matter what obstacles got in the way of these wealthy people.

Nothing would stop them. Every one of them had a Burning Desire to succeed. No matter what happened they would find a way over, around, under or through any obstacle that threatened their success. This burning desire fueled their need to succeed.

I met a woman a few years ago that had a tremendous burning desire. She had just been fired from Denny’s. Come on! Really? How bad of an employee do you have to be to get fired from Denny’s? Anyway, she found herself living in her car for three weeks before a person she knew realized her plight and offered her a room in her home until she could get back on her feet. As if living in her car wasn’t bad enough, the worst part was that she was living in her car with her young daughter! Her burning desire took hold shortly thereafter and she started to invest in Real Estate using none of her own money. She is now a multimillionaire!! Her burning desire: to never have her little girl live in a car ever again!!! She found a way to succeed and didn’t let anything stop her. Not even the fact that she had no money. In hindsight, getting fired from Denny’s was probably the best thing that ever happened to her.

Specialized Knowledge: Another thing Mr. Hill learned from his interviews was that none of these wealthy people knew everything. But what they did know was where to get the knowledge/support they needed to be successful.

In the book, Mr. Hill describes a situation in which Henry Ford was put on trial because some of the investors in Ford Motor Company thought Mr. Ford was incompetent and they were trying to

remove him as the CEO of the company. The plaintiffs’ attorney asked Mr. Ford to explain a few things, and I’m paraphrasing here, “Do you know how a transmission works? Do you know how a combustion engine works? Do you know the financial status of Ford Motor Company?” To which Mr. Ford replied, “No”. The attorney then seized the opportunity and stated to the court, “See, he is incompetent. How can someone in his position not know these answers?”

Then, it was Mr. Ford’s turn to reply. Mr. Ford stated matter of factly, “In my office on my desk is a box. And on that box are many buttons. You see, I don’t need to personally know all of the answers. I just need to know which button to push. If you want to know how a transmission works, I just push a button and a team of engineers will come in and teach you everything you want to know about transmissions. If you want to know how a combustion engine works, I just push a different button and another team of engineers will come in and teach you everything you want to know about engines. If you want to know the financial status of Ford Motor Company, I push yet another button and a team of accountants will come into my office and show you all the books and figures, and answer any questions you have regarding the financial wellbeing of Ford Motor Company!!” Mr. Ford won his case! As you can see, Mr. Ford didn’t need to have the Specialized Knowledge himself, he just needed to know where to find it when he needed it.

Decisive in Nature: The next item I want to share with you is being Decisive in Nature. What Mr. Hill observed with regards to this topic is that the wealthiest people in the world have an ‘I’ll take it’ attitude. In other words, if they think something sounds like a good opportunity, they ‘take it’, subject to working out the details. What does this mean? Let’s look at this from a RE perspective. If you hear of a deal, let’s say a 50-unit apartment building that’s on the market for what appears to be 1/2 price, wealthy people ‘take it’. What does that mean? They put in an offer and get it under contract to tie it up. Then, they work out the details! Details such as; confirming that the information they have been presented is true and accurate, and/or how they are going to finance

the deal. They do their Due Diligence later, not before they ‘take it’. i.e. put it under contract.

Furthermore, what Mr. Hill noticed about non-wealthy people is that they seemed to have the exact opposite philosophy. In other words, non-wealthy people say, “If I can work out the details (do all of the due diligence and find the financing first), then I’ll take it”. The only problem with this philosophy is that if it really is a good deal, you’ll never get it because some wealthy person just snatched it up ahead of you!

Goal Oriented: Mr. Hill also noted that every one of the world’s wealthiest people had a written road map detailing where they were going, how they would get there, and when. By having their goals written out and reading them at least twice a day, they were extremely likely to reach their goals faster than they originally projected. Not only did they have their goals planned for the year, but many had them written out for 5 to 10 to even 20 years!

Another thing I personally recommend is not only reading your goals twice a day but reading them out loud ‘with joyful passion’ at least twice a day. What does this mean? When you read them, read them while you’re smiling and acting as if you’ve already achieved your goal. I’m a big believer in the ‘You get what you think about' philosophy. If you think about how happy reaching your goals will make you, then you will be happier as you endeavor to complete your goals and you will draw more happiness and more people to you that are aligned with your goals which in turn will help you reach your goals sooner and happier along the way!

Masterminding: The last item I want to share with you today from Think and Grow Rich is that of Masterminding. Until you read TAGR, you might have thought every one of the individuals listed in the book was born wealthy, which they were not.

They didn’t become overnight successes. It took them many years to reach their level of wealth.

During this process many of the wealthiest people of that time spent hours with each other. Even though they weren’t in the same businesses or trying to reach the same goals and objectives, this process of Masterminding allowed them to share ideas. Can you imagine what happens when millionaires/billionaires sit around and talk about money or business? Can you hear their Net Worth growing?

One of my mentors told me that my net worth was directly proportional to my Network. He explained that I needed to hang out with and be influenced by people who have a net worth greater than my own.

The more time I spent with these people, the more my net worth would grow. Who are you spending your time with? Is their net worth greater than yours? If not, you may need to find some new ‘friends’ to spend time with so you can mastermind your way to success!

MAREI Membership Has its Benefits You will find a digital copy of the book Think & Grow Rich in the MAREI Member Library. You can connect with like minded people and people with the specialized knowledge you need. And we make a really good group to Master Mind with.

Won't you join us?

LEVEL UP WITH APARTMENT BUILDINGS 21 MAY 2022 ONE DAY ONLY The differences between Apartments and Single-Family Why Apartments are Better Learn the "Lingo" so you can talk Apartments with the Experts Key Ratios to Master so you can tell a Good Deal from the Not So Good Run the Numbers on Real Complexes (Bring Your Own Deals)

AN ANTHONY CHARA WORKSHOP Anthony Chara is the Nation's Leading Expert Trainer in Multi-Family Income Properties.

Early Bird Bonus: Register by the end of the day Wednesday, May 11th to save $20 off the regular price, get lunch, and to get your own copy of the training workbook and a copy of Anthony's Deal Analyzer Software.

Early Price:

Members $49, Non-Members $69 Add a family member or business partner for $20

REGISTER AT THE MAREI MEETING

913-815-0111

www.MAREI.org

TRENDING IN SMALL BALANCE IRA'S John Bowens National Educator and Manager of Retail Sales at Equity Trust Company. Visit TrustETC.com for more information

Investing through Master Lease Agreements

Many real estate investors know they can use their retirement accounts – known as self-directed accounts – to invest in real estate. But some wonder what to do if they don’t have enough in their accounts to purchase a property. There’s a strategy growing in popularity that can help even small-dollar IRA investors profit from real estate.

Master leasing consists of renting a property from a landlord that no longer wants to deal with the tenants, management, and tasks that go along with managing rental properties. Many times, they prefer just to collect a monthly check for the rental income and have someone else handle the day-to-day activities. A landlord will enter into a master lease agreement with an investor, who then subleases that property to a tenant.

The concept of master leasing has been around for many years, but you'll learn from this example how an Equity Trust IRA investor has created one of the first blueprints for master leasing with a self-directed retirement plan. Although this property is in Ohio, this strategy is working across the country.

Keep in mind: with an IRA, particularly a Roth IRA, which this investor is utilizing, you can create tax-free profits. As long as you follow all the rules, when you withdraw the money from the Roth IRA, it's tax-free.

Master lease agreement in a Roth IRA: An example A client used her Roth IRA to enter into a master lease agreement with an exhausted landlord who no longer wanted to deal with midnight telephone calls, vacancies, leases, background checks, and everything else that goes into managing a rental property. But this individual does not want to sell the property – at least, not just yet.

The property has an appraised value of $125,000 to $130,000. Even if the landlord wanted to sell, the IRA investor didn't have the capital to buy the property and manage it as a rental. But as you'll see, her small balance was enough for a master lease agreement.

Through a master lease agreement, the investor negotiated with the landlord to rent this property for $1,000 a month with a $1,000 security deposit – all paid for out of her Roth IRA. Under the master lease agreement, the investor agreed to: Pay for all the furnishings to furnish the house Pay for any expense under $100 Take all phone calls from the tenant Oversee the property The landlord is going to operate as usual, minus the headaches and phone calls.

Instead of a piece of property, the asset owned by the investor’s self-directed Roth IRA is a master lease agreement. The master lease agreement reads: “Equity Trust Company Custodian FBO (for the benefit of) [client's name or account number] IRA.” Both the IRA account holder and the landlord sign the agreement.

Expenses and tax-free profits for the investor The investor pays a $1,000 security deposit from her Roth IRA made payable to the landlord, plus $1,000 a month in rent. The landlord will receive the same rental income that they were getting before this master lease arrangement: $12,000 a year. That brings the IRA investment total to $13,000.

The investor also paid $5,000 to fully furnish the property. From there, she spent $4,800 for miscellaneous expenses in year one.

Remember: under the master lease agreement, the IRA holder is responsible for any expense under $100; for expenses over $100, she’ll contact the landlord and come to an agreement or work with contractors to resolve any issues.

When an IRA owns an asset (in this case, the lease agreement), the IRA has to pay for any repairs. The IRA account holder making the investment can't personally pay for those expenses – they are paid from the IRA. The investor pays the landlord the $1,000 in rent, and then she rents it for $2,600-2,800, netting $1,600-1,800 per month. She’s renting the property for a minimum of 30 days, and tenants generally stay for three to six months. She is able to attract back-to-back tenants.

You might wonder, “who's going to rent a property for three to six months?” With today's housing market, people are having trouble finding housing when they move from out of state. They’re looking for shortterm housing for a minimum of one month, sometimes upwards of a year.

Tenants usually want a fully furnished house. Some renters took a short-term job position in a particular market, so they're not planning on staying there forever and don't want to move all their belongings. They want a fully furnished unit that they can just move in, bring some of their stuff, and then leave when they want to leave. And they're taking good care of the property.

The landlord is happy because they're getting their monthly check. They're oftentimes aging or exhausted landlords. And as the investor with the IRA, I'm happy because I'm able to provide a great service to the property owner.

The landlord is happy because they're getting their monthly check. They're oftentimes aging or exhausted landlords. The investor with the IRA, is happy because he's able to provide a great service to the property owner.

The IRA Investor is also providing a great service to the tenant because it's a fully furnished unit. The landlord's happy because the value of the property it's improved and it's being really taken care of.

In this example, the investment is in a Roth IRA, so the profit is tax-free. In year one, the client in this example made a gross rent of $31,200.

Future potential of this master lease agreement Keep in mind, year one is a bit more capital-intensive because of the furnishings that cost $5,000. If we look at year two financials, they returned $15,200 into the Roth IRA tax-free.

In the first year, the entire investment was paid back.

They made $8,400 in profit on top of that. In year two, the profit projection is $15,200. Now, you can do the math for years three, four, etc.

Again, the IRA just takes control of the real estate – it doesn’t own the property. What if they bought a second, third or fourth investment? Now, they have multiple assets generating multiple streams of tax-free profits. This is how investors start growing a smaller IRA in a meaningful way.

Last but not least, the master lease agreement includes a right of first refusal, which gives the investor the ability to buy that property at a future date. Some folks, instead of negotiating on a master lease agreement, might use a lease option or some other creative financing strategy that they work out with the landlord.

It’s important that you speak to your real estate attorney so they can properly draft the master lease agreement or whatever other types of agreements or contracts you choose.

Special self-directed IRA offer for National REIA members only Equity Trust Company, a leading self-directed account custodian, is a national sponsor for the National Real Estate Investor Association (NREIA) and is offering NREIA members and its affiliated chapter members a special introductory self-directed account offer.

NREIA members can open an Equity Trust account for a discounted rate of $99 and receive bonuses worth $720 or more: National REIA GOLD Level membership (includes priority processing and an experienced client service team dedicated to members) for one year Digital download of #1 ranked book on Amazon - Self-Directed IRAs: Building Retirement Wealth Through Alternative Investing More exclusive wealth-building education Visit www.trustetc.com/nationalreia or call 844-732-9404 to learn more Case studies provided are for illustrative and educational purposes only. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Quotes and information included in the case studies and testimonials were provided by the investors and included with permission.

Equity Trust Company does not independently verify all information provided by third parties.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.

Co-Insurace Penalty

What Is It & How to Avoid.

In the past 18 months, the most frequently asked question to our underwriting and account executive teams is, “What is the replacement cost value of a home we are purchasing in Mayberry, USA?” A question that has nothing to do with re-sale or market value and everything to do with the Co-Insurance Penalty Clause found in the majority of the property insurance forms that cover these investment opportunities.

A Co-Insurance Penalty is a penalty assessed by a carrier for underinsuring the replacement cost of a property. Most policies require that a property be insured for at least 80% of the replacement cost of the damaged item. In determining the amount of insurance required to equal EIGHTY PERCENT (80%) of the full replacement cost of the property at each location insured, do not include the value of land or excavations, foundations, supports, underground pipes, flue, drains, and wiring which are below the surface of the ground.

The penalty assessed will vary from carrier to carrier. One carrier may simply pay the claim at actual cash value instead of replacement cost.

Other carriers may have a formula which will dictate what is paid out depending on the how underinsured the property is and the amount of damage the property sustained. An example of a formulated calculation is to the right:

Coinsurance Calculation Example Insured Property Information: Replacement Cost Value (RCV): $500,000 Coinsurance (Amount of Insurance) Required: 80% (of RCV) Deductible: $1,000 Amount of Loss: $50,000 Inadequate Limits of Coverage Amount of Insurance Carried - “Did” $350,000 Amount of Insurance Required (RCV x Coinsurance) – “Should” • ($500,000 x 80%) $400,000 Coinsurance Penalty Calculation Factors 1. Did / Should ($350,000 / $400,000) 2. Loss Amount 3. Deductible

0.875 $50,000 $ 1,000

Coinsurance Penalty Calculation: (1. x 2.) – 3.

(0.875 x $50,000) - $1,000 = $42,750 Amount of Coinsurance Penalty (ignoring deductible) $6,250 Loss Amount – Payment Amount (before deductible) $50,000 - $6,250 = $43,750.

he carrier may also elect to pay the greater of the actual cash value of the damages or the proportion of the settlement as computed above.

Co-insurance is checked for on each claim. The adjuster will run a report to determine the replacement cost of the damaged property less the items which the policy dictates be deleted from the valuation. This report is then checked against the total insured value of the property to be sure that the report valuation is within 80% of the total insured value of the property.

Don’t be caught off-guard by a coinsurance penalty. Make sure your properties are insured up to 80% of their replacement cost

to the state it was in previously without a significant amount of additional funds from the insured.

Don’t be caught off-guard by a co-insurance penalty. Make sure your properties are insured up to 80% of their replacement cost.

And how do you that with materials and labor cost skyrocketing in many areas of the country? We strongly suggest you ask a trusted General Contractor in the area of where you are purchasing homes to give you his latest estimate. We also suggest you regularly check in with them and document those estimates in your insurance or loan file in case you need that information when speaking with a claim adjustor at a later date.

For more information, please visit www.nreia.arcanainsurancehub.c om. And, as always, we hope this information was beneficial to you.

Please review your current policies with your insurance agent to get their professional advice on this important clause and any other terms or wording you are not familiar with.

Arcana offers members of National REIA multiple insurance products specifically designed for Investors and their tenants.

Features include no underwriting or inspections, 24/7 desktop & smartphone certificate delivery system, outstanding claims management service, and a very knowledgeable & courteous staff to handle your insurance needs.

Local & National

Updates Stay Informed As real estate professionals, much of what we see in the news will affect our businesses and our bottom line. It is important to stay informed and take action where appropriate.

- Shawnee Kansas - Co Living Monday, April 25th, the Shawnee County City Council voted to ban Co-Living in residential areas. Defined to be 4 or more unrelated people living together, basically, people coming together under one roof for a common goal: saving money, aging together gracefully, starting a business, collaborating on a project. Whatever it is, if you want roommates, you can't have more than 2 that are not related to you in Shawnee.

- Overland Park Kansas - Net Migration StorageCafe.com took a look at net migration in 2021 over 2020, comparing migration in to migration out to come up with a net. Out of all cities, Overland Park ranked 12th with the most people coming

from Olathe with in the state and Kansas City Missouri from out of state. We see these numbers being a bit different from other cities where people are moving to bigger cities for more affordable rent. In this case we think they are moving more due to newer larger apartments and because Overland Park ranks on several of the "best places to live" surveys, many are moving because of the amenities and services offered within the city.

- Class Action Against Realtors A Kansas City federal judge granted class certification at the end of April in a case naming the National Association of REALTORS® (NAR), Realogy, Berkshire Hathaway HomeServices of America, RE/MAX, and Keller Williams as defendants.

First filed in 2019, the case will now move forward as a class action lawsuit allowing home sellers across Missouri, Kansas and

Illinois to join as plaintiffs. This lawsuit alleges that NAR, “created and implemented anticompetitive rules which require home sellers to pay commission to the broker representing the home buyer.”

NAR is reporting that on May 3rd, a similar case, the "Leeder" case was dismissed.

- Banning Investors from Buying The Wall Street Journal is reporting that "Small groups of neighborhood volunteers are blocking companies from buying singlefamily homes, rewriting homeownership rulebooks to thwart investor purchases of suburban housing." The small groups in this particular article is referring to Home Owner Associations, but there have been several news clips about cities and counties discussing the same.

- Building Workers Wages on the Rise The National Association of Home Builders is reporting that Compared to a year ago, average hourly earnings for residential building workers continue to rise, as the construction labor market remains tight. .

According to the Bureau of Labor Statistics (BLS) report, average hourly earnings (AHE) for residential building workers were $28.66 in February 2022, increasing 6% from $27.01 a year ago.

Between December 2019 and December 2021, residential building workers’ average hourly earnings increased about 12%.

- National Association of Home Builders More than 10,000 NAHB members from all 50 states, the District of Columbia, and Puerto Rico sent a letter to President Biden on April 27 calling on the White House to take immediate action as the growing housing affordability crisis is pushing the

housing market to an inflection point that threatens to derail the current housing and economic expansion.

The letter called for several steps to be taken: Suspend Lumber Tariffs on Canadian Lumber Shipments Ban Lumber from Russia and Support Responsible Pass the Ocean Shipping Reform Act to ease shipping bottlenecks Promote and fund Job training programs to prepare individuals for careers in building Pursue immigration policies to help fill labor gaps while protecting the borders.

M A R E I

Build Your Team with MAREI's Business Directory Get to know our partners SEE INTERVIEWS WEEKLY ON

M A R E I . O R G / B U S I N E S S - D I R E C T O R Y

THE MAREI PARTNERCAST

Accounting

Contractor

MAREI.ORG/PARTNERCAST

Coleman Accounting Service

Bright House Exteriors

Arcana Insurance

Bob Coleman

Pressure Washing

Insurance for Investors

ColemanAcctg.com

Dave Randalls

NREIA.ArcanaInsurance HUB.com

913-787-0308

BrightHouseExteriors.com

877.744.3660

816-2980566 Attorney

Rauber Insurance Agency Hearth Masters

Farmers Insurance

Anderson & Associates

Fireplace / Masonry

LoveIsOurPolicy.com

Julie Anderson & Jamie Walker

Gene Padgitt

(816) 436-1016

MOKSLaw.com

ChimKC.com

816-931-2207

816-461-3665

IRA - Self Directed

Olson Foundation Repair

CNB Custody

Attorney Rick Davis

Foundations

Jenny Heiman

KCRealEstateLaw.com

Luke Olson

www.CNBCustody.com

913-303-RICK

OlsonFoundationRepair.com/

800-680-0340

See site for Free Forms

(913) 592.3300 Building Supplier

Equity Trust Company Farha Roofing

TrustETC.com/NationalREIA

DeMayo Enterprises

Richard Wiles

FREE Training

Wholesale Cabinets

FarhaRoofing.com

844-732-9404

Mark Yanda

(816) 808-6345 Quest Trust Company

www.DeMayoEnterprises.net 913-980-4260

Home Buyer

Kurt Power QuestTrustCompany.com

Earthwise of KC

OfferPad

Windows & Doors

Christina Erickson-Hoffman

James White

Offerpad.com/Agents

EarthwiseKC.com

816-061-1100

281-492-3434 x 3644 Lending Crossroads Investment Lending

913-777-4862 Insurance Home Depot

Hard Money Britton Asbell

2% Rebate for Members

Agema Insurance

KCLend.com

20% off Paint

Fred Dickinson

913-295-8083

www.HomeDeopt.com

www.AgemaIns.com 913-543-8116

2 0 |

Finish Line Funding

Marketing

Short Term Funding

B U S I N E S S

D I R E C T O R Y

PMI Destination Properties

Ryan Kernicky

Bruce Belanger

InvestorCarrot

www.PMIDestination.com

FinishLineFunds.com

Websites

913-583-1515

913-346-8090

Online Marketing www.MAREI.org/InvestorCarrot

Realtor

Mortgage Banker

PropStream

Crown Realty

Beth Langston

Build Marketing Lists

Rich Melton

FlatBranchHomeLoans.com

& Research properties

RichMelton.CrownRealty.com

816-479-5841 x 1148

www.MAREI.org/PropStream

913-215-9004

Ground Floor USA

REIBlackbook

Screening

Crowd Sourced Short Term Loans

Investor Marketing Platform

Todd Russell

Websites, CRM, Automation

Rent Perfect

www.GroundFloor.us

FREE Trial

Tenant Screening Plus

Todd.Russell@GroundFloor.us

MAREI.org/REIBBFREE

www.RentPerfect.com

Flat Branch Home Loans

316.320.6109

877-922-2547 REIPro

Newieco

Investor Marketing Platform

Private Money

Lists : Direct Mail : CRM

Jeff Newhard

www.MyREIPro.com/NREIA

(816) 721-9869

Discount Code 66209PRO

Discounts www.MAREI.org/RP Signs Fastsigns Overland Park

Brad Miller Merchants Mortgage

Office Supply

Mushy Money

www. FastSigns.com/ 20-Overland-Park-KS

Susan Aubin

Office Depot / Office Max

MerchantsMtg.com

www.OfficeDepot.com

913-522-2650

Discount Link & Card in

913-649-3600 Title Company

Member Discounts North Oak Investments

Hard Money

Accurate Title Company Property Manager

TJ Nigro

AccurateTitleCo.com

NorthOakInvestment.com

Home Rental Services

816-616-3157

Paul Branton

Worcester Financial

Dave Green 913-338-0100

www.Home4Rent.com

Rick Davis Title

913-627-9543

Rick Davis

Sarah Barrett

RickDavisTitle.com

WorcesterInvestments.com

M & M Property Pros

816-514-3729

Michael & Michele Belman www.MMPropertyPros.com 816-490-6745

(913) 374-7254

FREE

8 Hour Seminar

CRIME FREE TOPICS Introduction (Police) Screening Renters (Attorney) Leases (Attorney) Evictions (Attorney) Drug Identification (Police) Crime Prevention (Police) Role of Police on your Property

Dates May 18th September 14th November 16th

KCCrimeFree.com

Mid-America Crime Free Inc. is a 501c3 charitable organization that provides free seminars to owners of rental properties on a regular basis to reduce crime and develop safer neighborhoods.

Training police officers and property owners.

Sponsors

EXPAND YOUR

BUSINESS WITH MAREI

5

PROFESSIONAL housing provider

Key Investing Areas

CERTIFICATION

for members to share knowledge Rental : Rehab : Wholesale : Notes : Creative

40,000 professionals

National REIA

$750 Average Member

S A V I N G S

658 MAREI Members

4 member benefits designed to promote

$500 Average Home Depot Rebate $100 Average Saving Office Depot $100 Saving on 5 Training Events $50 Savings on Other Benefits People / Networking Priceless Deal Connections Priceless

community

N E T W O R K I N G A D V O C A C Y

:

E D U C A T I O N : C H A R I T Y

75+ local and national service providers

many with discounts

JOIN TODAY membership

$99 Annually marei.org