Real Estate Journal
Fresh Flooring Trends to Improve Investment Properties 3. Are You Fast Enough? Is Credit Really Important to a Rental Transaction? 4. Five Tips for Real Estate Syndication 6. NREIA Legislative Update 7. Blissfully Ignorant 8. Effects of the Tax Bill on IRAs and Other Accounts 11. Unleashing These Strategies for Rising Interest Rates
Circulated To Over 40,000 Real Estate Investors Nationwide
by Mark A. Gannaway
esse Brewer is the founding partner of CAP Real Estate and Cincy Area Properties. CAP is the sales brokerage arm while Cincy Area is the thirdparty management firm. Both companies work side by side to source & maintain small to midsize apartment investments for clients as well as for Jesse and his partners. He is a member of Queen City REIA, in Cincinnati, Ohio.
Please tell us a little about who you are and what you did before getting into real estate investing: Prior to becoming a full time real estate investor/professional, I was a police officer for five years. Police work taught me a lot of things that I use in my business today. However the main thing it
Professional Publishing Inc., PO Box 6244 Beaverton, OR 97007
PRSRT STD US Postage P A I D Sound Publishing Inc 98204
continued on page 20
Vol. 3 Issue 2
The True Cost in Purchasing Insurance
Member Spotlight Jesse Brewer
13. Olympic Perseverance in Sales 15. Record keeping for the Real Estate Professional 16. How Can a Landlord Keep Up and Avoid Being Sued? 18. Couple Discovers Partnering to Purchase Real Estate in an IRA 19. What does it mean to be a Real Estate Entrepreneur vs a Real Estate Investor, and Which One are You? 23. Dear Landlord Hank
hate using the old worn out term “you get what you pay for” especially for Arcana’s first article with National REIA, but sometimes getting a “good deal” or saving a few dollars on your insurance premiums can lead to big problems when you need it most – filing an insurance claim. Like most insureds, real estate investors are no different than anyone else— many times price points are the sole driver of decision making, not proper insurance coverage placement. Every policy you purchase should include at
a minimum: replacement cost, all risk insurance coverages with normal exclusions, wind and hail coverages and liability coverages in the event of a third-party injury or someone claiming to being injured on your investment property. In today’s environment, I highly recommend a Flood quote whether the property is in a national flood zone or not. Five out of six flood losses experienced in Hurricane Harvey did not have flood insurance and many were not located in a nationally defined flood zone. One purchases insurance to have comfort in knowing that when something goes amiss,
and it will, the claim will be paid within a reasonable time line at a fair value. Unfortunately, investors are sometimes finding that an extremely low rate, quoted outside the industry-norm guidelines is not always accompanied by swift and accommodating claim payment. Do your homework and check references with your industry associates and leaders of your association. This additional step will pay significant dividends in the long term. continued on page 5
Be Careful What You Wish For Implications of the Tax Reform Effort
by Chris Kuehl, Ph.D.
hat was the old Chinese
curse purported to be? “May you be born in interesting times”? We are most certainly seeing those interesting times and few sectors have been as affected as real estate and housing. These are important parts of any nation’s economy but in the US the impact is especially profound. It has been the goal of many to promote homeownership – more than any other nation in the world. It has been asserted for years that homeownership creates social stability and economic growth. To that end there have been programs to underwrite home buying and
piece of legislation. It was a far cry from what was intended in the beginning and it has any number of flaws that presumably will be addressed in the years to come. Many of the provisions that most worried the real estate and housing sectors did not survive the final adjustments but some did and they will likely alter the markets in both subtle and significant ways. Before we get into some of these specifics it is worth commenting on the efficacy of the whole plan. Frankly, most economists have tax benefits to encourage that been dubious about the longownership. term benefits of this tax cut due The tax reform plan that finally to the timing of the plan. It is not emerged from Congress was typical of any large and complex continued on page 16
Published In Conjunction With
Real Estate Journal
Fresh Flooring Trends to Improve Investment Properties By Will Hudson, Laminate and Vinyl Plank Flooring Merchant, The Home Depot
leek, stylish flooring is an asset
to any investment property. Luckily, recent innovations in flooring materials have increased the possibilities for luxurious yet affordable options. The following five trends are a great place to start when considering new flooring projects. Let’s Get Digital Due to new digital printing advancements, flooring styles that previously required premium materials or substantial installation costs now are achievable with less effort and investment. These design technologies eliminate boundaries
finish that deters scratching, offering a durability advantage for owners looking to rent their properties for years. As flooring technologies evolve, The Home Depot remains committed to driving innovative new ideas. Our merchants work with leading manufacturers to develop durable and advanced laminate, vinyl and porcelain tile. We worked closely with Pergo to develop Outlast Plus, a next-level laminate capable of withstanding water for up to 24 hours. This creates new opportunities to bring woodlook flooring into bathrooms, kitchens and other water-centric rooms previously considered off limits. Available exclusively at our stores, this product also Load On Laminates includes an attached underlayment Much like its wood and tile that reduces sound and makes counterparts, laminate flooring installation faster, simpler and has evolved to a tougher and more more affordable. attractive form in recent years. Laminate planks now feature a thick, sturdy design and resilient Resurgence Of Vinyl between flooring materials and produce customizable tiles and planks in whatever style, color or finish. This also includes amplifying realism - if you desire a true-to-life appearance, look no further than rich designs ranging from knots and ripples in wood to wavy colors in marble. Digital printing also delivers variety that your tenants are sure to appreciate. Today’s floor printing machines reduce the number of repeat designs on tiles and planks, ensuring that the same pattern does not appear in multiple spots within a given room. This produces a more natural feel and adds realism that will make it harder for renters to detect a difference in material sourcing.
If you haven’t been involved in a flooring remodel for a while, you might be surprised at the evolution of vinyl. Previously considered primarily a low-cost option (think sheet tiles from the 1980s), vinyl floors now come in planks in a variety of trendy printed options, such as wood and stone looks. Vinyl is 100 percent waterproof, versatile and extremely durable. This makes it a great choice for rental properties that may go through resident transitions from year to year. The vinyl floor will last much longer than a standard carpet and repairs involve swapping out individual planks rather than the whole floor. Modern vinyl flooring is also easy to apply, with tiles and strips able to go directly over existing surfaces without the need to remove the subfloor. The Home Depot’s exclusive LifeProof luxury vinyl planks uses drop and lock end joints that fall perfectly ...continued on page 5
If you would like to be featured in our Vendor Directory then please contact Will Johnson at 503-336-2429 or at email@example.com
ADVERTISING & MARKETING
EMAIL SERVICES & MARKETING
Call Fire 1-877-897-3473 www.callfire.com
Call Fire 1-877-897-3473 www.callfire.com
1-800-GOT-JUNK 877-949-0607 www.1800gotjunk.com
Avis Rent A Car 1-800-352-7900 www.avis.com
Constant Contact 1-866-289-2101 www.constantcontact.com
Constant Contact 1-866-289-2101 www.constantcontact.com
Budget 1-800-214-6094 www.budget.com
The Home Depot 1-800-466-3337 www.homedepot.com
Equity Trust 440-323-5491 www.trustetc.com NuView IRA, Inc. 407-367-3472 www.nuviewira.com
BUILDING/PAINTING SUPPLIES The Home Depot 1-800-466-3337 www.homedepot.com
CLEANING/MAINTENANCE Odorxit 513-895-1000 www.odorxit.com
FIX & FLIP FINANCING RCN Capital 860-432-5858 www.rcncapital.com
HARD MONEY LENDING RCN Capital 860-432-5858 www.rcncapital.com
Rent Perfect 1-877-922-2547 www.rentperfect.com
OFFICE SUPPLIES Office Depot 1-800-463-3768 www.officedepot.com
PRIVATE LENDING RCN Capital 860-432-5858 www.rcncapital.com
REALESTATEINVESTINGSOFTWARE reipro 1-800-639-1918 www.myreipro.com
SHIPPING PartnerShip 800-599-2902 www.partnership.com
SIGNS & BANNERS Build-A-Sign.com 1-800-330-9622 www.buildasign.com
TENANT SCREENING Rent Perfect 1-877-922-2547 www.rentperfect.com
REALESTATEMARKETREPORTS Local Market Monitor 800-881-8653 www.localmarketmonitor.com
The views & opinions expressed herein by various authors may or may not reflect those of National REIA, its partners, advertisers or affiliates. 2
Real Estate Journal · Spring 2018
Real Estate Journal
Are You Fast Enough? by Rebecca McLean, Executive Director, National REIA
re you fast enough to compete in Internet time? Find out quickly by trying to speed read this quarter’s issue. Can you move your project from idea to market in four months? That's the estimated time of survival in the fast-paced world of the Web, where startups nest themselves in incubators & hatcheries, soaking up talent and ideas. What has that got to do with Real Estate you might ask? Well, everything. Everyday a few hundred people decide that they want to supplement their income or run away from their corporate job by getting into real estate. Some markets are seeing more competition than others but one thing is for sure – being good at what you do and doing it quickly, without hesitation, procrastination or inefficiency will put you ahead of the market. Do you worry that you're losing ground to a batch of fast companies that are in hot pursuit, ready to run you down? Fast is liberating. Working quickly overcomes procrastination,
imparts a sense of momentum and pays other unexpected returns. Tim was running behind on his proposal for acquiring private money. So he arbitrarily divided his notes into six sections and decided: "I'll simply write Section One today at lightning speed, Section Two tomorrow as quickly as I can, and so on." In a week, he'd written a complete draft. It needed reworking, but he'd "broken the back" of the project. One real estate investor we know can outline a complete marketing plan in five-minute "blasts" of inspiration, often while on a plane or waiting for a contractor to arrive. Sometimes, engaging other people in the enterprise can provide the momentum to reach warp speed. One investor who'd spent months tinkering unsuccessfully with a company description for her Web site, finally lost all motivation. In frustration, she called in all her partners and asked each to write a brief description of his or her area of expertise. In 30 minutes, she had her raw text, ready for a final edit. The point: Slow and steady wins
some races, but blinding speed can be best for others. Speaking of slow and steady… Are you slow enough to appreciate the beauty and style that come with taking your own sweet time and doing a project well, in a way that separates you from your competitors? Are you fast enough and slow enough to work in what David Allen, author of Getting Things Done, calls "weird time?" At a time when everyone has more to do than time to do it, the real trick is to maintain your focus: Speed, it turns out, is a function of how much stuff you let into your life. Ranking priorities, knowing when to ask for help or hire someone, and being organized can really bring more efficiency to your business. You can find information on how to grow your business in an effective way at your local REIA meetings. But what really matters is performance, peak performance: speed to market whether with a newly rehabbed home, a listing or money that everyone needs, or a new idea or strategy twist -
excellence in customer service, the capacity to outpace the competition. At National REIA we bring you the news, industry trends, benefits and information you need to perform at peak levels. Through our local REIAs we help ensure you are able to work as efficiently and effectively as possible. After all, being efficient in our business means we get to savor the rewards of all that work! So, to all of the members and partners who have supported National REIA and our local associations, a fast word of thanks. Now we've got to get back to work.
Is Credit Really Important to a Rental Transaction? by David Pickron
s a landlord, I often get calls
from applicants asking me how I look at credit. Many of them discuss their bankruptcies, divorces, or foreclosures; everyone seems to have a legitimate and heartbreaking story. This begs the question “Are there any great renters out there with low credit scores?” The answer is absolutely yes! Some of my longest-term tenants have come out of foreclosures when the housing market dropped. On the flip side, there are plenty of renters that bring along a healthy dose of heartache and evictions. As a private investigator that looks at rental files and people every day, I see the entire spectrum of credit, criminal, and eviction records. I have found the easy files are the approved and declined, but what about those gray areas in the middle? For example, your applicant has 700 credit score, no Real Estate Journal · Spring 2018
To help me make the right decision, I review their application and complete the process in the following order: First, I run the credit score through my set credit criteria. Every property I have has its own unique criteria due to the part of town, quality of unit, rent, etc. For this example I will use a middle of the road criteria of 650 Approved, 550-649 Conditional, and Below 549 Declined. After this filter, I now move forward with an applicant that is Approved or Conditional; anyone under the 550 is declined. Since our applicant has a 550 FICO, they are conditional and I move to step two. Second, and extremely important, criminal, good job, and great rental who has a 550 FICO, no criminal is the criminal background check. history, that’s a no-brainer. On the history or evictions, great rental The reality is, I am looking for flip side, they are a 480, never paid history and a steady job? If you responsible behavior. Responsible a soul, have several evictions and were to look, the credit score behavior communicates to me that an open warrant…once again, a reflects a bankruptcy due to a I’ll get my rent and they will take no-brainer. divorce 4 years ago. See where it care of my asset. If I see a recent Now, what about an applicant becomes a little gray? ...continued on page 11 3
Real Estate Journal
Five Tips for Real Estate Syndication by Kathy Fettke, Co-written by Donna Behrens
a real estate opportunity knocks, you want to be ready with cash in hand. But when you fall short of your funding target, you might want to partner up with other investors as a “syndication.” A real estate syndication is an entity that buys, manages, and sells a property investment. They are often structured as LLCs with a sponsor who actively manages the project and passive investors. They can also be set up as corporations or partnerships. It’s a great way to raise capital, but there are right ways and wrong ways to do this. I recently spoke with a syndication attorney, Gene Trowbridge, who’s had years of experience in the real estate field as a broker and syndicator before he went to law school. Now he’s helping other people to structure their deals, prepare the documents, and make sure the offering complies with strict SEC regulations. hen
Continuity Trowbridge says the number one mistake he’s seen in an offering is the lack of “continuity” or the designation of someone who can take the reins if the current sponsor becomes incapacitated or unavailable for some reason. And he says it happens all the time, and not just because someone has died. He told me he’s been a
borrowing more money from an institution wasn’t possible because the properties were damaged, so it had to come from investors. Although capital calls may become necessary, Trowbridge doesn’t believe they should be mandatory. Trowbridge says: “I don't think you can really force people, but I do believe in capital calls that are voted on. And, with maybe a fifty percent vote from the people that this is going to be the capital call. And, if in fact you can't put your money in, you’re going to be diluted. It's just that with the capital call we now have a new level of capital contribution across the company.” Percentages would be changed replacement for managers or to reflect the additional money general partners for several deals collected from a capital call. in his career and just one of those He says: “You cannot write an situations involved a death. He agreement that doesn't give the says they can happen for all kinds manager the ability to draft and of reasons, like a health issue, create some sort of an agreeable accident, bankruptcy, or a crazy capital call.” divorce. Investors should look for this in Cash Distribution Investors are also very interested the offering documents. He says if there’s just one person managing in “when” they will get their the syndication, something could money, so providing a timely happen to that person and leave “cash distribution” schedule will the syndication without direction. help sell your project. Trowbridge A single-member LLC is subject to says that development deals will that risk. Trowbridge says: “If that have a longer timeline, but if the manager dies, the LLC is dissolved deal doesn’t involve a lengthy automatically by an act of law so construction project, he believes cash distributions should begin now what do you do?” At the bare minimum, within six months. He says that deals that don’t Trowbridge says a syndication should have at least two people start paying investors quickly are running the show. If there’s no plan a “marketing mistake” and that for continuity, he says it’s best to investors should realize that they walk away and find another place have options. He says: “I think investors should know that there to put your money. are plenty of offerings out there that Capital Calls can start producing distributable Another issue that needs to be cash within the first six months.” addressed is the potential need He says if investors are doing it for a “capital call.” That’s when for the cash flow, you need to give a situation suddenly pops up them what they bought in for. As that requires more funding. As a for the people putting money into manager, it’s something you hope development projects, they are you will never need to do, but you doing it for capital appreciation have to have that option in place. so they don’t expect that kind of a Trowbridge offered an example, quick return on their investment. saying he had three syndicators working on apartment projects in Documents “Documentation” is another Houston that were damaged by Hurricane Harvey. If there were important part of a syndication, no provisions for raising new and Trowbridge warns that capital, they would not have had a ...continued on page 8 way to repair the damage. He says
With National REIAU, we have made learning from some of the best fast, easy and inexpensive. National REIAU delivers great low-cost, high-quality investor training on exactly the subject you want, exactly when you want it. Learn more by visiting www.nationalreiau.com
Real Estate Journal · Spring 2018
Real Estate Journal
True Cost... Insurance ...continued from 1 Another challenge in today’s real estate investment market is finding an insurance agent who understands your business and the financial exposures you as a real estate investor face. I’m amazed how many times I hear “Uncle Joe or my fraternity brother does all my insurance.” First question I ask them is “why?” followed with “what does Uncle Joe know about your business and the industry you’re in?”This often leads to a “deer in the headlights” look staring back at me. You must have an insurance agent experienced in this type of industry, a lack of understanding of the exposures you have as a real estate investor could be fatal to your business. Another big mistake is the assumption that a homeowner’s policy is all one needs to cover their investment property, especially on smaller portfolios. They call their insurance agent once they purchase the property, have them add an endorsement to their homeowner’s policy insuring their new purchase; listing the address, mortgagee, and the preferable insurance amount. Again, my first question is, “have you ever read your homeowner’s policy?” A typical homeowner’s Policy requires that the property is occupied. Occupied means more than just a table and chairs and a few pieces of furniture. If the property has been vacant at least 30 or 60 days, depending on the insurance company’s policy, and they prove the claim occurred when nobody was living in the property, there is a high probability they will deny the claim. How about the property being vacant while you “rehab” the building? Does your homeowner’s or landlord policy cover the vacancy period and the builder’s
partnership with National REIA, Arcana Insurance Services, LP is offering National REIA members multiple insurance products specifically designed for Investors and their tenants. Features include no Underwriting or inspections, 24/7 desktop and smartphone Certificate delivery system, outstanding Claims Management service, the best time-tested cash flow Insurance products available in the insurance market, and a very knowledgeable and courteous staff to take care of your insurance needs. Learn more by visiting nreia.arcanainsurancehub.com. risk exposures associated with your construction project. Many policies exclude this type of risk potential. In today’s investor environment, we are seeing more and more investors choosing to “hold” properties instead of flipping them to new buyers due to the high rental income returns being experienced in many markets. This introduces a whole new set of problems for the investor/landlord relative to their homeowner’s coverage. From a property risk analysis exposure, if the insurance company can prove the tenant caused the damage in question, the homeowner’s Policy may have an intentional acts clause giving the insurance company reason to deny a claim. From a liability risk analysis exposure, does the homeowner’s policy afford you third party coverage in the event a tenant’s guest is hurt while visiting your investment property? What if your tenant has a service animal at your location, does your policy afford you coverage? With your homeowner’s policy as your insurance program for your investment properties, there is also
the negative financial impact of your investment property losses impacting your own personal insurance loss history. So, choosing the wrong method of mitigating your potential financial losses whether through buying the wrong insurance policy or trusting “Uncle Joe” with his recommendations or both, has the potential to both sink your potential profits in your investment property and you having to pay more out of pocket when they raise your rates or cancel your homeowner’s policy. In the end, the main lessons here are choosing an insurance agent who knows your business and the market segment in which you are working and then purchase the correct insurance coverage. The risks you face in the future will continue to evolve and you need a knowledgeable source who will put your best interest before the mere selling of a low-cost policy. Understanding your financial exposures will go a long way in saving your real estate investments and possibly your business. Now, through an exclusive new
materials are bulkier and require more careful planning to install, they do require less time. To ensure a seamless, gap-free design, use a mortar specifically engineered for heavier tiles or planks. Custom Building Products’ Natural Stone and Large Tile mortar, for example, reduces lippage and produces a more level installation.
distressed tone. Properties in more oceanic regions, such as the East and West coasts, not surprisingly go more for lighter grey, white and cream colors that feel cool and casual. Likewise, areas more susceptible to colder winters, such as the Northeast, feature subtle accents ranging from beiges to tans. Depending on property dimensions and plans for the property, the exact parameters of any flooring renovation will greatly vary. However, an awareness of the latest trends and a mind for creativity can result in a floor that is brilliant, easy to install and a value driver for any property.
Mark A. Gannaway, CPCU, is the Chief Executive Officer and Founding Partner of Arcana Insurance Services, an all-lines property and casualty managing agency that’s been working with real estate investors since it began in 2005. Long before that, founder and CEO, Mark Gannaway, served as President, Chief Marketing Officer, and Executive Vice President for several other well-known agencies and brokerages. With over 35 years of experience behind him, including 20 with Lloyd’s of London as a US Coverholder; one of only a select few in the United States.
Fresh Flooring ...continued from 2 into place and reduce installation cost and time. Featuring an innovative rigid PVC core that delivers strength while remaining lightweight, LifeProof planks are an excellent choice when you need maximum durability. Go Big When Going Home With replica wood and stone becoming more popular, more property owners are gravitating towards large-format tiling and planks. Flooring materials have reached unprecedented sizes in recent years – planks now run as long as four feet in length, squares can go as wide as 16 inches, and rectangles now hit sizes of up to 18x36. While larger flooring Real Estate Journal · Spring 2018
Add Local Flair Flooring design trends are not universal and vary greatly by location. At The Home Depot, we see preferences for different styles of flooring across the country. Texas and the Southwestern region tend to prefer darker grey and brown flooring with a more
Will Hudson, is a Laminate and Vinyl Plank Flooring Merchant, with The Home Depot. As the flooring Merchant, Will is responsible for merchandising the Laminate Flooring and Laminate Installation businesses for all U.S. stores and homedepot.com. He has been with The Home Depot for over 13 years, serving in various merchandising roles.
Real Estate Journal
NREIA Legislative Update Seller Finance The Seller Finance Coalition (SFC) has moved its focus to the US Senate with an advocacy campaign requesting Senators to incorporate HR 1360 language into S 2155. Please be sure to send your email advocacy through National REIA’s Action Center (on NREIA’s website, under the legislative tab). There is a pre-drafted letter there for your convenience.
Tax Reform Tax reform has started! The initial wave of tax reform has been passed, and as National REIA has pointed out there are positives and concerns. I won’t say negatives yet, because we have to wait for the regulatory onslaught that is already underway by the IRS in “clarifying” what the House and Senate meant. One of the key areas we are focused on is the definition of full time job versus part time efforts. The designation HUD Lead Law Update or distinction could result in the On August 10, 2017 HUD awarding or loss of a 20% tax break issued a notice updating its for Pass-through entities like LLCs. Lead Safe Housing Rule (LSHR). This rule impacts all Public Housing Reform The next wave of welfare reform is Housing Authorities, Project Based Properties, AND Housing percolating in Washington DC and Choice Vouchers, i.e. Section 8 the focus is on limits to generational vouchers. The rule increases the housing and unlimited housing responsibilities of property owners for the able-bodied. With the who accept vouchers. Be sure to economy moving and jobs-aplenty, reach out to the Housing Authority the Republicans in Congress are to make sure that if you accept a ready for another bite at the apple voucher holder, you are working of reform. Needless to say, this will under the most up to date rules for be neither quiet nor quick. As yet, notification and maintenance. only a few key principles such as 5-year limits to subsidized housing have been leaked out. There will
National REIA is one of the founding members of The Seller Finance Coalition, which was formed in February of 2014 to advance the interest of the seller finance industry. Last year the Seller Finance Coalition continued to grow with the addition of several thousand new grass roots members across the country.
be a lot more on this issue once the budget is actually passed and IF the GOP believes it will help them in the mid-term election.
similar plans. Ironically, even Bloomberg News is reporting on the ineffectiveness of Rent Control! (see article on www. RealEstateInvestingToday.com). Energy Benchmarking Additionally, California property LEEDs programs have taken owners are working through the on a new life of their own – not impossible task of “proving the just as incentives for developers, negative” by showing that they but as a standard of efficiency by no longer have bed bugs if a unit local elected officials appealing to was found to have them by a prior their green constituents. Energy resident. efficiency is a good thing, but there is a cost/benefit factor that needs to Inclusionary Zoning be considered, and that has been Requirements: over-ridden by the folks claiming Numerous cities like Philadelphia, the earth is growing hotter, oops, have been working on approving no colder, oops climate change. new zoning mandates for mixed Well the weather is changing, but income housing. in the Midwest where common sense still resides, we call it the Evictions: Are the hottest issue to “address” Seasons. Needless to say, many The book of these efforts are on the coasts. by municipalities. “Eviction, ” has set the stage for There are alternatives to LEED and many are much more pragmatic. an argument for making it more Consider Green Globes and Energy difficult to evict a resident. Yes, Star as examples. In fact, Chicago even if they have wasted their IL is considering an energy rating income, or spent their money on system which would require drugs – as repeatedly documented all buildings to have an energy in the book, and lied to their benchmarking – with an Energy landlord, repeatedly... somehow Star© system that is under re- the accountability aspect of paying evaluation and may be changing its a bill, i.e. rent, should now be more own system. Benchmarking has its difficult to enforce. Read the book. set of problems, and while adherents Be aware. Be ready for it to come support the process as transparent, to a community near you! One the unintended consequences may argument to make is to ask that be decreased property values over rental contracts be handled similar and above the cost of the utilities to other installment payment agreements, like auto and home involved. loans. If those are worthy of being Rent Control broken, then the rent payment California may be facing a can as well. For more information rent control-style program to its please visit www.NationalREIA.org ballot process by a group evolved and click on the Legislative tab. from ACORN. Several Cities are also considering implementing
For more information about the SFC and the Seller Finance industry, visit www.SellerFinanceCoalition.org. Follow us on Twitter @SFCdotORG and Facebook.
Real Estate Journal · Spring 2018
Real Estate Journal
Blissfully Ignorant by M. Jane Garvey
o you have a clue what you
are doing? Are you using the - "what I don't know can't hurt me" mentality to run your business? If so, stop it! You are putting yourself at tremendous risk, and you and your blissfully ignorant cohorts are putting our whole industry at risk. There is a continuous influx of blissfully ignorant investors setting out to make their fortunes. TV shows and mentorship hawking gurus tell people about how easy it is to make a fortune in this business, attracting people in droves. Some of these new investors have paid a small fortune to blissfully ignorant coaches or mentors who lull them into a false sense of security. Others join groups, clubs, and associations where the blissfully ignorant leaders provide enthusiastic hype, leading by example, paying no attention to the real rules of the game. Ask yourself - how many of the rehabbers you see ever mention lead laws? One local "leader" actually had people parading
Real Estate Journal Âˇ Spring 2018
through a sample rehab that was red tagged. Think he was following the local building departmentâ&#x20AC;&#x2122;s regulations? Welcome to reality! This business is not as easy as it looks. There are rewards, but there are also risks and rules. The rules of this game are real, and continuously changing. And there are dire consequences to ignoring them! As I got into the business full time
back in the 1980's I started seeing instances where my property lost value due to changes in ordinances at the city level. I saw landlords who were blissfully ignorant of local laws lose tens of thousands of dollars to tenant's rights attorneys. Then I saw tax law changes wipe out the fortunes of people that I had looked up to as very successful investors. The trend has continued. Lead Laws - Crime Free Housing Laws - Fair Housing Laws -
Tenant's Rights Ordinances - Seller Finance Laws - etc. Recently some of the laws have started to carry criminal penalties. It is one thing to see your fortune wiped out because you weren't paying attention to the rules, but going to jail because of it - that is another whole level of consequence. In Illinois, the state legislature is in session at the moment. Our business is at risk - they are busy changing the laws. These are the laws under which we are to live and conduct our business. In the Illinois General Assembly alone there have been 3,579 bills introduced in the Senate, and 5,820 bills introduced so far in the House this session. If you add those to the new ordinances at the county and local level, and of course all of the things going on in Washington, you can become quickly overwhelmed. In addition to actual laws, there are governmental bodies issuing rules and regulations, and there are courts that issue opinions that affect the application of the laws. If your property is part of an ...continued on page 14
Real Estate Journal
Effects of the Tax Bill on IRAs and Other Accounts by H. Quincy Long
any people are wondering
what ended up in the final version of the tax bill and how it affects IRAs and other accounts. First, a brief civics lesson is in order. In the United States Constitution, Article I, Section 7, Clause 1 states that “All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as with Amendments as on other Bills." In this case, the House of Representatives proposed the tax bill, and then the Senate passed amendments to the proposed bill. Since the proposed bills were not identical, a conference committee was established to work out the differences between the two versions of the bill. Once reconciled, the modified version of the bill goes back to the Senate and the House of Representatives to be voted on in its final form. If the final
bill is passed by both chambers, the bill goes to the President to be signed into law or vetoed. The reason this is significant is that confusion often arises when one chamber proposes a change which does not match the proposal in the other chamber. Until the final
version of the bill is negotiated and passed by both chambers of Congress, there is no way to tell what changes were actually made. With that bit of background, let’s discuss what changes did, and just as importantly what did not, get passed in the final version of the
tax bill. First of all, with regard to the Coverdell Education Savings Account (CESA), no changes ended up being made. The House bill had several proposed changes to the CESA, including provisions to disallow any additional contributions to a CESA after December 31, 2017, and allowing a CESA to be rolled into a qualified tuition program (a Section 529 plan). The Senate amendments had no changes proposed to the CESA. Both the Senate and the House had provisions to modify Section 529 plans. In the final version of the tax bill, the Senate amendment prevailed. For distributions made after December 31, 2017, Section 529 plans may not distribute more than $10,000 in expenses for tuition incurred during the taxable year free of tax. Any excess distributions received by the individual are treated as a distribution subject to tax under the general rules of Section 529. ...continued on page 10
Five Tips for Real Estate Syndication ...continued from 4 sponsors should not even think about drafting their own offerings. He simply says: “Don’t do it.” He says investors should always read the offering documents and if it looks like they were not written by an attorney, don’t invest. He says anyone who’s done a little investing should be able to recognize the red flags. He offered an example saying that in one deal investors were “going to put together an LLC and they were going to sell ‘shares’ and the LLC was going to be ‘president’.” As you may know, LLC’s are run by managers, not presidents, and they offer member units, not shares. Sponsorship One last piece of advice: If you are putting the deal together, be sure you are up for the job of “sponsorship.” Trowbridge says it’s not a job that anyone can handle. He says: “It’s one thing to be a commercial real estate broker and sell someone a property and when the deal closes you get paid and the buyer gets the keys and you become friends. But it's a totally different thing when you're going to be in charge of 15, 20, 30 people's money for the next six of seven years.” 8
He says the job can come with some difficult demands from investors. He cited a scene from the movie “It’s a Wonderful Life” when everyone runs to the bank to withdraw their money, and Jimmy Stewart has to tell them the money isn’t in the bank. It’s been invested. He says that’s the job of a manager, to tell investors that “no” they can’t have their money yet. Trowbridge says you need to have systems in place to communicate with investors to keep them updated, and satisfied with the progress of your project. Lessons from the Past I didn’t have this kind of checklist at my fingertips when I did my first syndication, but I knew it was an opportunity I couldn’t pass up. A 40-year veteran developer came to me and said he had the chance to buy 27 waterfront townhomes in Portland that had gone to the FDIC after the bank failed. The construction loan had been pulled and the former owner no longer had the funds to complete the project. It was 70% built. The developer said we could get the entire project for just $3M. That was a $10M discount from the $13M
cost of the former construction loan! I reached out to the members of Real Wealth Network to see if anyone was interested. We got such a tremendous response that we were able to raise the $3M in a weekend. But since I had never done a syndication before, I didn't know there were very strict S.E.C. regulations about raising money. I should have sent out a Private Placement Memorandum with all the details of the deal, along with all the possible risks. I also should have had an LLC with an operating agreement in place. And most importantly, this all happened in 2010, before crowdfunding was legal, so I was only allowed, at the time, to approach "friends and family" and people with whom I had an existing relationship. Fortunately, the deal went really well and investors made over 22% IRR during the worse of the Great Recession. Those same investors have come back to participate in nearly every syndication we've had since, and fortunately, to this day we are still able to find fantastic deals like this one. The difference is, we now follow the S.E.C.'s very strict rules on
fund raising, and we only work with developers who have a proven track record in the kinds of projects they bring to us. To find out more, visit www.RealWealthCrowd.com Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch. Donna Behrens has worked as a TV news writer and segment producer in the San Francisco Bay Area for more than 25 years. She is a podcast producer and writer for the Real Wealth Show and the Real Wealth News for Investors. Learn more at www.RealWealthNetwork.com.
Real Estate Journal · Spring 2018
Real Estate Journal
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Effects of the Tax Bill on IRAs ...continued from 8 The definition of higher education expenses was expanded to include certain expenses incurred in connection with a home school. Both the House bill and the Senate amendments proposed identical changes to the Roth conversion and recharacterization rules. The proposal was to disallow any recharacterization of a contribution to one type of IRA into the other type of IRA (a Roth IRA contribution to a traditional IRA contribution or the reverse). For example, if you made a contribution to a Roth IRA and later discovered that you made too much money to qualify for a contribution, you would not be permitted to recharacterize that contribution. However, in the conference committee a change was made which allowed the recharacterization of a contribution to one type of IRA into the other type of IRA, but did not allow
a recharacterization of a Roth conversion contribution. In other words, the recharacterization rules remain the same except for Roth conversions. Beginning January 1, 2018, once a Roth conversion takes place, it may not be reversed (or recharacterized). As a result, much more thought must go into a Roth conversion decision in 2018 and future years. Significantly, no changes were made to the Roth conversion rules which allow high income earners to contribute to a traditional IRA and immediately convert that contribution into a Roth IRA. This is known colloquially as a ‘back door’ Roth contribution. Finally, a change was made to the rules for Unrelated Business Income Tax (UBIT). Under the previous regulations, an organization that operates multiple unrelated trades or businesses aggregates income from all such
activities and subtracts from the aggregate gross income the aggregate of deductions directly related to the trades or businesses. As a result, an organization was able to use a deduction from one trade or business to offset income from a different unrelated trade or business, thereby reducing unrelated business taxable income. However, the tax bill added a new provision (Section 512(a)(6)), which requires an organization to compute its unrelated business taxable income separately with respect to each trade or business and without regard to the specific $1,000 deduction generally allowed under Section 512(b) (12). The organization’s unrelated business taxable income is the sum total of the amounts (not less than zero) computed for each separate unrelated trade or business, less the specific $1,000 deduction. Beginning in 2018, a net operating
loss deduction will only be allowed with respect to the trade or business from which the loss arose. As a result, an organization may not use a deduction from one trade or business to offset income from a different trade or business for the same taxable year. Fortunately, net operating losses from a taxable year beginning prior to January 1, 2018 that are carried forward to a taxable year beginning on or after that date are not subject to the rule, and can be used to offset unrelated business taxable income. The final bit of good news is that the rules for inherited IRAs did not change in the tax bill. Given the power of an inherited Roth IRA, particularly if that account is self-directed, this is really great for those who have one and know how to work it. H. Quincy Long is a Certified IRA Services Professional (CISP), a Texas attorney, and is President of Quest IRA, Inc., with offices in Houston, Dallas, and Austin, Texas. He may be reached by email at Quincy.Long@ QuestIRA.com or by calling 855-FUN-IRAS (855-386-4727). Nothing in this article is intended as tax, legal or investment advice.
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Real Estate Journal · Spring 2018
Real Estate Journal
Unleashing These Strategies for Rising Interest Rates by Stuart Gethner
hough I love being a real
estate consultant, there are times I’m still learning. Economics, for example. Oh, I get the concept of supply versus demand. The less there is of something, the more the price can go up. Remember that toy, TickleMe-Elmo? There were fights in the aisles of Walmart to purchase this toy. And people were selling their Tickle-Me-Elmo toys on eBay for three times the original price. That makes sense to me! But how about rising or falling interest rates? How does that affect us as part-time or full-time real estate investors? How do rising interest rates affect your business? And who decides if interest rates go up or go down? Who’s “The Fed” and what do they do? Consider this. If you’re a wholesaler or someone who likes to fix & flip, then an increase in the interest rate affects the buyer of your product. Which, in turn, affects you! As interest rates increase, the Buyer’s payment goes up for the same house. So, when a Buyer’s Loan Status Report qualifies them for a specific monthly payment, then the amount of money they can spend on a house is affected. I like easy math, so here’s the skinny. A 4.5% interest rate generates a $710 / monthly payment.1 That payment increases
to $1,125 when the interest rate increases from 4.25% to 6.75%. Put it another way, If the buyer can afford a monthly payment of $1,125 then the purchase price of their home drastically decreases from ~$315,000 to ~$250,000. Can you believe this is due to an increased interest rate from 4.25% to 6.75%? That’s a sixtyfive thousand-dollar ($65,000) difference! So, obviously buyers typically do not like interest rate increases. However, buy & hold investors do enjoy increased interest rate increases. Let’s look at the same thing a different way. When the cost of money goes down, (low interest rates) the flow of money goes up and access to money becomes
easier. Conversely, when interest rates increase, access to money becomes harder. And when access to money becomes harder, the value of the property increases. But what if you’re a wholesaler or a fix & flipper and interest rates are going up? Or, you’re a buy & hold investor and rates are going down... should you stop investing in real estate? Of course not! When interest rates go up many people will rent instead of buying so rents tend to increase. Conversely when interest rates go down, people will want to buy. So, the wholesaling and F&F market is refueled. When The Federal Reserve System (aka The Fed) was established by Congress, one of their mandates was to moderate long-term interest
rates. In the past the Fed believed raising interest rates would slow down an economy while staving off inflation. Likewise, lowering the interest rate should stimulate an economy. Obviously, there is a fine balance between the two. As Mesiter Eckhart said, “The price of inaction is far greater than the cost of making a mistake.” Any time is a great time to be a real estate investor, whether it’s partor full-time. The ability to create cash or cash flow with reasonable leverage allows everyone to participate in some capacity in the business of real estate. Don’t let rising interest rates allow opportunities to pass-youby because you’re not sure where we are in the marketplace. Or, uncertainty about which strategy to best employ in today’s market. So, Is it time for you to take inspired action? Stuart Gethner is President of Gethner Education, Coaching & Consulting. He has created tremendous success with his investors and consulting clients on an individual basis.To contact to Stuart, see his schedule of upcoming events, to discuss his services or have him speak at your next event go to www.ContactStuart.com and click on the button CONTACT STUART.
Purchase Price of home $250,000. Down Payment = 20%. Interest only loan payments.
Is Credit Really Important ...continued from page 3 drug conviction, I could probably assume there would be drugs in my unit. My tenants’ visitors and friends would most likely have drugs on them also, so do I want this type of individual around my asset? If I find shoplifting, what might I expect? Assault? You get the picture. In my units, a conditional applicant cannot have a blemish of criminal history or they are declined. Third, an eviction record disqualifies all my applicants if it was within the last 2 years. Also, any open judgments to landlords allow me to know they have not paid their rent in the past. Why would I expect them to suddenly change and be able pay me in the future? For the applicants that are considered “conditional” or Real Estate Journal · Spring 2018
“approved,” I need to see evidence of a stable job or proof they can pay the rent. Verifying income is difficult nowadays, so a simple paycheck stub is the best way to confirm income. Make sure you check the “Year to Date” totals to ensure they match the answers provided by the applicant in relation to your application questions of how long have they been employed there and how much they are compensated. Finally, I send out an adverse action letter to those who have not qualified which gives them a chance to explain or clarify anything. What if something was reported incorrectly or some simple paperwork could clear up confusion? An adverse action letter is a simple way to protect
the interests of all of the involved parties. So how important is credit in my evaluation? As you can see, credit does play a role in my evaluation as one step in the process, but it really only weeds out the worst of the worst at the beginning. When it comes to identifying a great renter, no criminal history, no evictions and a good job is really where I place the most importance. I understand every landlord, state, property, and laws have an effect on our process of onboarding a tenant. There are a million ways to run a property and qualify applicants; the process I shared with you is a good framework to start. No one knows your property or situation better than you.
Being a landlord or property investor can be the best job in the world if done correctly. Credit, Criminal, and Eviction searches are vital to your success. With more and more people deciding to rent instead of buy, being a well-trained landlord is a great opportunity to find success. David Pickron has been a licensed private investigator for over 20 years, specializing in tenant screening for real estate investment owners and property management companies. His company, Rent Perfect, an Investigative Screening Company, helps clients onboard tenants from the initial background check to leasing and payment collection. You can learn more by visiting www.rentperfect.com or calling 1-877-922-2547.
Real Estate Journal
Real Estate Journal Â· Spring 2018
Real Estate Journal
Olympic Perseverance in Sales by Alex Goldfayn
mong the many amazing achievements we got to watch in the recently concluded Winter Olympics, two stand out in my mind for the deep lessons they can teach us as salespeople. The American Chris Mazdzer won a stunning silver medal in luge. And yet, here is what he posted on social media just three weeks ago: “What kills me and has been driving me wild for over a year now is the fact that no matter what I do, my top speed and ability to be with the top guys in the world has disappeared, and I don’t know why... There comes a point where giving it everything you have and believing in yourself starts to fade away and I am almost to that point.” Three weeks after openly musing about quitting, he wins the first American medal This is often how it goes in sales too. You can do everything right, and not get the sale. Repeatedly. You can make the calls, set
the appointment, have a great meeting, write an excellent quote or proposal, follow up repeatedly, overcome objections correctly, and still get rejected. Over and over. And this can happen for months and even years. You might feel like the sales will never come. You might say, “I’m doing everything right, and they’re not buying,” and you’d be right. You might feel like
giving up. Do not. Keep going. Keep doing the right things. Even if they are not generating the results you are looking for, keep doing the right things. It won’t be easy, but don’t you stop. We must continue doing the things that are in our control. Communicating with customers and prospects, that is in our control.
Making the calls. Making the visits. Following up. Telling our customers how else we can help them. We control the mechanics and energy of our work. That’s up to us. Conversely, whether the customer buys is not up to us. There are all manner of variables out of control: timing; the customer’s need; the customer’s mood; the customer’s budget; the customer’s interactions with his family that day; whether the customer is dealing with a fire when we call; and dozens of other possibilities. But what we do is totally within our control. Our approach. Our repeated efforts. Our communications. Our perseverance. Keep doing the right things. Keep trying to help your customers as much as you can, as best you know how. That’s the work. Keep going. A couple of days after Mazdzer ...continued on page 15
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Real Estate Journal
Blissfully Ignorant ...continued from 7 association, you have yet another layer of "government" with its own set of rules. As a long time property owner and landlord, I have personally seen the pile of papers that it takes to lease a property in my area grow from a 2 or 3 page lease and a receipt to a pile about 1/2 inch thick with no less than 19 different documents with disclosures and various acknowledgments. It was realistic to expect a tenant to read, understand and abide by the 3-page lease. These days, chances are pretty good that it has become a pile of papers that gets glanced at, signed, and put away just in case something goes horribly wrong. Each homeowners association, municipality, county, and state has their own set of required documents or procedures, some
conflicting. And, as I mentioned earlier, the requirements are constantly changing as the laws, ordinances, mandates, rules, and regulations are tweaked by people who think that they can make something better, protect their electorate from the blissfully ignorant or evil landlords and rehabbers. Do you suppose that the generic forms sold in office supply stores or even the on line "state specific" forms that are being sold are up to date and comply with the law in your subdivision? What can you do? What should you do? First, pay attention. If you are fortunate enough to have connections with people who are paying attention - support them, both with your time and your
money. Use the attorney who spends time and money keeping up with the law and who will research the law when needed. Use the real estate agents and property managers that actually pay attention. Join the groups that are legislatively active. Read the minutes of the City Council meetings and the local news feeds. Support the organizations that hire lobbyists to keep them informed and give them a voice. Second, when you know the law, follow it. Yes, you can sometimes get a tremendous advantage when you act blissfully ignorant. But since ignorance of the law is no excuse, by ignoring the laws, you run the risk of being wiped out and in jail. You also put pressure on lawmakers to continuously tighten the screws, since their constituents are
Strengthening Our Foundation
still suffering at the hands of the evil landlords. I have been legislatively involved since I got into the business. It is a pain in the butt. It costs me thousands of dollars and hundreds of hours each year as a leader trying to make sure my group is aware of the ever-changing laws. I regularly feel like my members would rather not know - in other words, they want to remain blissfully ignorant. This is frustrating, but human nature. I do not feel my time or money has been wasted. I have met and made friends with some of the most concerned and conscientious investors in the country. I feel that we have made a difference some of the time in some laws that have passed. I have also had a much better shot at being aware of the laws and doing it right in my own investing. I hope you will join the cause, both at the National level through National REIA, but at the state and local levels as well. We need your support. PS - If you belong to a group whose leaders are blissfully ignorant, encourage them to get involved. This is an imperative part of being a responsible leader. Jane Garvey is President of the Chicago Creative Investors Association.
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Learn more at www.NationalREIA .org -StrengtheningFoundation_Columns.indd 1
11/20/14 10:51 AM
Real Estate Journal · Spring 2018
Real Estate Journal
Record keeping for the Real Estate Professional By Jeffrey S. Watson, Esq.
recent tax court case involving Alvin Jones, an insurance agency owner, highlights some of the many challenges faced by busy professionals who, for tax purposes, seek to become real estate professionals. Mr. Jones owned and managed ten singlefamily homes in 2011 and eleven single-family homes in 2012. He spent a considerable amount of time complying with requirements for Section 8 housing to keep these properties full and cash-flowing. After an audit by the IRS, Mr. Jones’s deduction as a real estate professional was disallowed because he was deemed not to be a real estate professional. A very important requirement to qualify as a real estate professional is the ability to prove that the majority of your work time is spent on real estate, not on any other activity. In the case of Mr. Jones, the IRS compared his records for what he did regarding his real estate business with his records for his insurance agency. They were able to use his own record keeping against him. His insurance agency business had several on staff with sufficient payroll and a lot of revenue. Mr. Jones had also documented substantial mileage driven in both tax years relative to his insurance business. The IRS used this information to show that he spent more time being an insurance agent than he did being a real estate professional. Unfortunately, the Joneses did not receive good advice going into 2011 and 2012. If they had, they
would have been told that Mrs. Jones could have kept records to show that SHE was the real estate professional, thereby giving them both the benefit when they filed as married filing jointly on their 2011 and 2012 taxes. Mr. Jones should also have been advised to keep logs for both business activities as to how much time was spent each day on each business to document and be able to prove that he did spend more time being a real estate investor than he did being an insurance agent. Since you can’t go back in time and create records that are credible and reliable which can be submitted as evidence, I suggest you begin now in the early part of this year and keep records showing how much time you spend doing real estate versus any other business activity. I realize you chose to be a real estate investor because you want to be self-employed and have the freedom that goes with that, but there are times you have to prove you are doing what you claim to be doing when called into account by the IRS. Being able to defend the highly-coveted tax deduction of being a real estate professional is one of those instances. The purpose of this article is not to list and explain all the requirements
of being a real estate professional. Other resources are easily available for that. I want to explain some of the technical record keeping that is going to be required if you have other business endeavors besides being a real estate professional. As I’m writing this, I’m thinking of a good friend of mine who is a real estate investor, and he is involved in a multi-level marketing company. My counsel to him would be to keep records distinct for both those business endeavors. How many miles did he drive each day relative to each business? How many hours each day did he work on real estate matters versus marketing matters? This would obviously require keeping separate and distinct business checking accounts and separate business operations. For those whose only source of revenue is working as a real estate investor, this is a reminder that you still need to keep records of your activities, such as the number of hours you work, because you do have to prove that you put in a minimum number of hours in the year. Fortunately, the time spent driving counts toward those hours, which underscores the importance of keeping an adequate log for all your driving activities.
I recognize that keeping records of all the things you do – all the places you drive and the purpose for the drive including beginning and ending mileage, how many hours per day you spend on real estate versus any other business activity – sounds like a colossal pain in the neck, but it is important you develop a system for quickly and accurately doing that. Keep a log in each vehicle you own with columns for the date, beginning and ending mileage, destination and reason for the trip. You can use a calendar to keep track each day of how much time you spend in your business activities. For those of you who include in your log the activity of driving around looking at houses, please keep a record of what houses you looked at or what neighborhoods you were in during the day. Being in business requires you to become skilled at having systems and processes in place to make things run smoothly. The case of the Joneses is an example of the necessity of having systems and processes in place to keep track of important information to substantiate valuable tax deductions. After the Tax Reform Act of 2017, the real estate professional tax deduction is more important than ever before. Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio 4 times via litigation. Read more of his viewpoints at WatsonInvested.com.
Olympic Perseverance ...continued from 13 medaled in luge, the ageless Shaun White won the gold in the snowboard half-pipe by achieving the highest-scoring run in his third and final effort. He had fallen on his previous run. White is famous, and quite rich, and nearly twice the age of many of his competition. “He’s an industry by himself,” was how the NBC announcer described him. He already had two gold medals. But he had failed to medal in the previous Olympics, and decided that’s not acceptable. He doesn’t need to do this. He’s incredibly successful and Real Estate Journal · Spring 2018
comfortable without this, and yet, there he was, breaking down in tears while celebrating his win. That’s because about four months earlier, he wiped out so hard, and was injured so badly during a preOlympics competition that he had to be airlifted out. He fell on directly onto his face, tearing up his money maker. After treatment, he left the hospital and went back to work. He landed a perfect 100 point score in the Olympics qualifier. And on the very last run of the competition, he
won the Olympic gold medal. Even after big failures, keep going. Even after long-term failure, try again. If it didn’t work the previous 18 attempts, who cares about the 19th? It’s no worse. In fact, it’s pretty much exactly the same number of failures as 18. But you never know if that next effort will be the one that makes everything happen. Even when you feel like you have nothing else left to give, like the silver medalist Mazdzer, don’t you quit. Stay in the game. Keep doing
the right things. Keep trying to help people. And one day soon, maybe today, you may find yourself enjoying the biggest, most important sale of your life. A sales success of Olympic proportions. Alex Goldfayn is the author of The Revenue Growth Habit: The Simple Art of Growing Your Business by 15% in 15 Minutes a Day. He is the CEO of The Revenue Growth Consultancy, and author of the brand-new book, Selling Boldly.Learn more about Alex’s keynote speaking and revenue growth consulting practice at www.goldfayn.com.
Real Estate Journal
How Can a Landlord Keep Up and Avoid Being Sued? by Christian Bryant
f you are one of those real estate
investors that dares to manage your rentals on your own, you have your work cut out for you. In addition to doing the actual job of a property manager, you have to stay up to date on federal, state, and local law changes. Given that the landlord/tenant relationship is one of the most litigious professional relationships that exists, you absolutely can’t afford to miss a law change. Landlords are sued for tens of thousands of dollars on a regular basis, with some lawsuits soaring into six figures. Since the law sees you as the professional in the relationship, ignorance is never a follow my three simple legislative valid defense. If I haven’t already tracking tips. scared you into hiring a professional 1. Get familiar with your state management company like IRC and local government websites Real Estate (www.IRCEnterprises. – You may need to do a little com), then read on. research in the beginning to It’s easier than it sounds, if you find all the relevant web pages
tenant issues you could end up with a lot of emails about issues you aren’t interested in. If you choose not to sign up or they don’t have an email list to join, then you just need to check them on a regular basis. Create a reoccurring appointment on your calendar to spend one hour a month checking these sites for upcoming landlord / tenant issues. In some rare circumstances, a public notice is required for any law change. There will also usually be a mandatory public comment meeting before changes are passed. 2. Newspaper Websites, Industry Specific Blogs, and for your area. You will want Google Alerts – Even though to find out which governing print media readership has bodies and committees debate decreased, your local paper and vote on proposed law is still producing daily news changes. Many will have email content. They should have a update lists you can join, but if website and a social media you only care about landlord / ...continued on page 19
Be Carefull What You Wish For ...continued from page 1 unusual for the government to cut taxes during a recession or even a downturn. This tax cut was not the largest the US has seen in recent memory – both of the Reagan cuts were bigger and so was the Kennedy cut. These came in the middle of an economic reversal and did roughly what they were supposed to do – boost growth by getting more money in the hands of business and the consumer. This cut comes as the economy has already improved. The growth rates have been over 3.0% since the second quarter of last year and the unemployment rate is 4.1%. It is arguable the economy needed no more stimulating and the Federal Reserve has said as much as it now talks of higher interest rates through 2018 and they have ended all the other programs designed to push more money into the system. In the face of this apparent recovery we get a massive tax cut and we have already seen the downside of this move. Companies and individuals have largely behaved as they were expected to. They are spending. Companies are investing in machinery and they are paying bonuses and they are hiring. Consumers are buying and no longer fear hauling out that plastic. This has prompted some 16
very real fears of inflation and everybody knows what the response to inflation will be – even higher interest rates. Much of the motivation for the return of stock market volatility has been the fear of inflation and the subsequent Fed response. The era of easy money has come to a screeching halt. There is no guarantee of high inflation as many factors will have to come together and at the moment there is simply not that much inflation to worry about. This has started to change however. The latest jobs report showed that wages are now going up at a 2.9% annual rate as employers are being required to pay those new hires more. Even more importantly employers have to pay their existing staff more to keep them from being poached by other hungry employers. The price per barrel of oil has not returned to the bad old days of $100 but it has gone up by more than 50% in just the last several months. This has already led to fuel surcharges in the trucking and rail sectors and the airlines are starting to hike fares in response. You can see where this is going. Where will housing fit in all this? The Federal Funds rate doesn’t immediately impact mortgage rates as these tend to follow long term bonds more closely but
those bonds react to what the Fed does and that does mean higher mortgage rates in the not distant future. For the last year or so there has been constant reference to the “headwinds” affecting the housing market. It was expected that mortgage rates would climb, it has been noticed that home prices are up and in some markets the rise has been dramatic. There was even concern about the slow pace of wage gains. Now there are changes taking place. Those mortgage rates are going up and prices are as well. At the same time the consumer has more to work with – higher wages, lower taxes and the vast majority of the population is now gainfully employed. It is a bit of a tug-of-war between factors that encourage buying a house and those that suggest not buying at this point. This brings us back to the provisions of the tax reform. Can it still be asserted the US wants people to buy homes as opposed to renting? Yes, but the incentives took a little hit. Fortunately, not as severe as had been anticipated at one time. One of the key conversations was over the mortgage interest deduction. This has been attacked by many economists as a benefit primarily for the wealthy as the more one spends on a mortgage loan the
higher the interest payment and the bigger the tax write off. The flaw in this logic has been that home prices vary dramatically from one part of the country to another. A one-million-dollar house in Kansas City buys quite a nice little mansion and a twobedroom bungalow somewhere near the beach in California or a modest dwelling in New York. The threat to eliminate the deduction was held off and there was a modification that limited how much deduction could be claimed for expensive homes. In addition, there was a grandfather clause that protected previous home buyers. There was also a reversal of the original provision that would have required people to live in their home five of the last eight years to reap capital gains benefits but that was dropped and the existing law stands. All in all, the threats to real estate were blunted to some degree but there has been enough subtle change it will take some time to understand what this will really mean for a market that has been driving the whole of the US economy for the last two to three years.
Real Estate Journal · Spring 2018
Real Estate Journal
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Real Estate Journal · Spring 2018
Real Estate Journal
Couple Discovers Partnering to Purchase Real Estate in an IRA Combining small dollar IRAs with another funding source heightened the Colorado couple's investing possibilities. by Kent Kinzer
Below are the condo investment details. As Laurel also learned, aurel of Colorado was real estate investing doesn’t always interested in using her go according to plan. The Condo retirement funds to invest in 2 purchase shows how Laurel’s real estate. She didn’t have enough planning for different scenarios in her retirement account to cover came in handy: the purchase of a piece of real estate she identified, but as she Condo 1 – Sold with discovered, that wouldn’t hold her Seller Financing, Buyer Paying on Note back. • Purchase price: $20,000 Laurel and her husband, Jason, each used their self-directed Roth • Funding: Laurel’s LLC IRAs to invest in two condos, but – $18,000 (90 percent) neither had enough to cover the and Jason’s Roth IRA – full amount of their respective $2,000 (10 percent) purchases. To come up with the • Repairs: $8,000 remaining funds, the couple also • Total expense: $28,000 looked outside of retirement accounts and combined funds with • Sale price: $39,500 with another source. seller financing: 30-year loan to the buyer at 8.9 percent Self-directed IRA investing: (monthly payments of $315) starting small and partnering Profit after expenses– The buyer with different funding sources is currently paying the loan off Laurel had previous real in monthly installments. After estate investing experience and 30 years, total interest will be discovered the ability to use almost $75,000 on top of the buyer qualified retirement accounts paying the $39,500 principal. to invest in properties. She and In accordance with partnering Jason transferred some of their percentages, 90 percent of any retirement savings to self-directed income from the property goes IRA custodian Equity Trust back to the LLC, and the other 10 Company, each opening a Roth percent goes to Jason’s Roth IRA. IRA. Looking for opportunities that fit Condo 2 – Sold with their price range, Laurel searched Seller Financing, Buyer the real estate market in North Behind on Payments Carolina. After completing due • Purchase price: $23,000 diligence they found two condos • Funding: Laurel’s LLC they were interested in purchasing, – $20,700 (90 percent) but their IRAs did not have enough and Laurel’s Roth IRA money to purchase both. They – $2,300 (10 percent) learned they could partner their • Sale price: $30,000 with IRAs with outside funding sources seller financing: 15-year note to complete the investments. Partnering on self-directed • Profit after expenses– investments is possible, as detailed Similar to Condo 1, the in IRS Publication 590. When property sold with seller partnering two or more funding financing, but the buyer sources, any expenses have to be didn’t stay current on paid from the funding sources payments. Fortunately Laurel in the same proportion as the was prepared for this risk. purchase. Likewise, any profits Laurel’s loan servicer began the flow back to each funding source foreclosure process on Condo in the same percentages. investment number 2 with a Laurel’s existing LLC provided few potential outcomes. Before additional funding to complete the foreclosure is complete, the buyer purchases - Laurel’s Roth IRA was can catch up on payments, or the invested in one and Jason’s Roth buyer could sell the property and IRA in the other. pay-off the loan in full. If those don’t occur, Laurel can see the foreclosure process through and
receive the property back. "It’s important to have a lot of exit strategies," said Laurel.
In addition to a free account, NREIA members receive: • GOLD Level Service membership (priority Self-Directed Investing processing and exclusive Growing in Popularity access to an experienced Laurel found that she had to client service team) educate some of the people involved for one year with a transaction about self• Jumpstart to Financial directed investing. For example, Freedom online home when she closed on one of the study course investment properties, other parties • Digital download of #1 at the closing weren’t familiar with ranked book on Amazon the unique titling required on the Self-Directed IRAs: Building purchase agreement associated Retirement Wealth Through with a retirement account. On top Alternative Investing of that, the IRA was partnering with another entity, which resulted • More wealth-building in a purchase agreement most title education agents don’t often see. Investment titling was one of Visit www.trustetc.com/nationalreia or call 844-732-9404 to learn more. a few differences when using a self-directed IRA (the property it *Free Self-Directed IRA refers to an Equity titled in name of IRA), but Laurel Trust Company self-directed IRA with no says she wasn’t intimidated by the annual maintenance fee for 12 months. process. "Sure there’s a learning curve, Equity Trust is a financial services company that enables individual investors to diversify but there’s a learning curve about investment portfolios through alternative everything in life," she says. asset classes, including real estate, tax liens, Continuing to Build Wealth with Self-Directed IRAs Laurel plans to continue to make self-directed investments and gradually add more properties to her Roth IRA. Her goal is to "grow my IRA so that it can buy a property outright, without partnering with my LLC," she explains. If Laurel is able to use just her self-directed IRA on a purchase, all investment profits would be in the taxadvantage account, with hopes it will grow future wealth. But for now, she is content successfully partnering her Roth IRA and her LLC to purchase real estate. Special Self-Directed Account Offer for National REIA Members Equity Trust Company is a national sponsor for the National Real Estate Investor Association (NREIA) and is offering NREIA members and its affiliated chapter members the opportunity to experience the concept of selfdirected investing with a free selfdirected IRA for one year.*
private equity and precious metals. Our tax-advantaged, self-directed investment accounts appeal to entrepreneurial investors who want to take control of their wealth. We offer clients a robust account management system, online investor community and wealth-building education, which enable them to grow their knowledge and complete transactions with ease.
Kent Kinzer is the National Business Development Manager at Equity Trust Company.Equity Trust is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust 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.This case study is provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.
Real Estate Journal · Spring 2018
Real Estate Journal
What does it mean to be a Real Estate Entrepreneur vs a Real Estate Investor, and Which One are You? by Troy Miller
have been in the investing
segment of the real estate industry indirectly all my life, and directly for the past 15 years. I can still recall my first real estate investor association or “REIA” meeting. After watching the presentation and a “call to action.” I thought to myself, “What is this is this place called “OZ” that I had landed in?”A magical place where real estate investing was more than just buying and selling a house. Successful businesses and wealth creation were flourishingcreativity, entrepreneurialism and innovation abounded led by a colorful cast of characters: Gurus, educators, etc. Overtime, I began to see a distinction among the attendees; those that were strictly in it for the transactions and those that were focused more on a long-term business strategy. Take for example, the need for asset protection and wealth preservation. While both groups are very interested in these issues, their approach was very different. Transactional investors see it as a necessity for the transaction, but entrepreneurs see it as part of their overarching business strategy.
Another example is what some may call sharing best practices. Many times, landlords share their war stories with one another about trouble tenants. Landlord A tells landlord B about three clauses in their lease and how it protected them. Landlord B loves the idea of these stand-alone clauses and decides to place them into Landlord B’s lease. Unfortunately, clause #1 and clause #3 completely contradict each other and nullify the contract. So unbeknownst to Landlord B, the asset protection Landlord B thought he/she had in place, was just undone. Had Landlord B met with their legal professional along with thinking about how these clauses fit into their overall business, they would have avoided this mistake and truly protected their assets long term. The key differentiator between a real estate investor and a real estate entrepreneur is having a long-term game plan. Investors are generally transactional; the job starts and stops when the rehab is over or the wholesale deal has closed. A real estate entrepreneur, however, is focused on the totality of a business plan. And finally, a real estate entrepreneur has made a career of real estate vs going transaction to transaction.
When I served as Executive Director of the Investment Community of the Rockies(ICOR) in Colorado, a member came up to me to say that he loves the content but what he felt was missing is that what happens next step. In other words, after he achieves his real estate business goals and his desired lifestyle, what’s next? Where do I go from here, how do I make the best of what I have amassed, and how do I protect and preserve my assets to serve me and my family’s wealth building plan? Great question. So, I ask you, what is your wealth-building plan? In your real estate business, you maybe have you a contractor or GC, a property manager, your accountant or CPA. And for your wealth building plan, you might have your tax attorney setting up your business entities, insurance provider beyond just insuring your properties, but who is calling all the shots? Who is putting the plan together? Who is the one ensuring it all works together to make sure goals are met? Recently I sat down with Doug DeShields, President of National REIA to talk about this very subject. He said to me, “You need that quarterback back there in the pocket looking at all the players,
looking at their key strengths and weakness, and looking at the defense coming at you.” So, who do you have calling the shots or are you just running a short game hoping to make a touchdown to win the game? We need to start switching the mindset of the short game (transaction) to the long game (long term business strategy) and start playing the role of a real estate entrepreneur. This is going to require that quarterback I was talking about. So, you have the team and in fact you are part of the team, but how do you find the quarterback? Where do you find the information, education and networking to help take your business to that next level? Having been in this industry directly for over 12 years I have talked with investors who feel like they have outgrown their real estate investing association, meetup or peer group. They struggle to find a place to meet and connect with others who are in the trenches near or full-time. While most educators are primed or focused for the beginner investors they are doing most of the leg work, research, and development themselves. As I began to think, why is this? Why
classes even if the topic doesn’t interest you. One of the most valuable membership benefits is being able to network with other landlords in your area. You will be able to learn from their mistakes/experiences and develop a network of landlords you can call on when you need advice. I am a firm believer that being a Real Estate Investor and being a Property Manager are two very different professions. Not all Property Management Companies are created equal, but if you find a good one, they will help improve your long-term bottom-line and help you avoid accidentally violating a new law. If you do decide to self-manage, know that you will need to treat it like a parttime job.
Successful landlords with only one to three units will spend at least five hours a month taking care of their tenants, maintaining their properties, and staying educated. The most important thing is to never allow yourself to get complacent. The landlords who I see lose the most money investing in rentals are those that think being a landlord is a passive activity. It’s not always easy, but you can be successful if you create a plan and stick with it.
continued on page 22
Keep up and Avoid Being Sued ...continued from 16 terms accordingly. presence that will make it easy for you to get fast local news 3. Landlord Support Associations updates. If you do a little digging, – If you really are going to try you might even find some and manage your own rentals, industry- specific news blogs then the best money you will like ours (www.ircenterprises. spend is on a membership with com/industry-news) or www. a quality Support Association in RealEstateInvestingToday. your area like the Portland Area com. Typically, you can Rental Owners Association subscribe and have new articles (www.PortlandAreaROA.com emailed directly to you. If not, or a REIA and their landlord add them to your government subgroups). Most Support sites’bookmark list. Another Associations provide regular useful tool is Google Alerts industry updates in addition to (www.google.com/alerts). Sign education, classes, lists of local up, and you’ll get an email alert contractors, legal rental forms the moment Google finds new for your area, and even local content related to the search legislative representation. If you terms you create. If you aren’t do join a Support Association, getting any notifications, or you will get the most out of you’re getting ones that aren’t your membership if you are what you’re looking for, you an active member. Try to make will need to alter your search it to all their meetings and Real Estate Journal · Spring 2018
Christian Bryant is President of IRC Enterprises (specializing in Property Management, Evictions, & Residential/Commercial Sales for Investors) and is President of Northwest REIA. For more information please visit www.IRCEnterprises.com.
Real Estate Journal
Member Spotlight ...continued from 1
Participating in the Landlord Santa holiday outreach
taught me was how to deal with people in any type of situation and treat them fairly, no matter what the circumstances. I have three sons and a soon to be step-daughter that I am fortunate enough to be able to spend a lot of time with, watch them grow up and find their own ways. Through them I get to be very involved with youth sports and school activities such as football, basketball, academic team and more. While it keeps us busy I find it very fun and rewarding not only for my kids, but for me as well.
Jesse served 5 years as a police officer proior to becoming a Real Estate Investor
Where is your current market and what is your focus or area of expertise? My current market is the Cincinnati MSA (which encompasses SW Ohio, Northern Kentucky and SE Indiana). While I concentrate more on the Kentucky side of the market, these days if given a choice or preference I still broker, manage, and invest in a fair amount of deals on the Cincinnati side of the Ohio River as well. My focus is small to midsize apartment communities. The four, eight, ten, twelve and up to forty-unit type properties. Now that does not mean we will not look at bigger deals because we most certainly have. However, on the other side, I will not focus on anything smaller unless it is in an area that I already own several other properties/units - which makes it easier to add & manage because I already have a presence there. Covington, Kentucky is one of those such areas where I do a lot of personal investing.
How did you get started? I always wanted to get involved in real estate for as long as I could remember. Finally, back in 2002 I decided it was time. I started reading what I could find and also talking with family members who had experience with rental property. About a year went by when I found a great rental opportunity that I jumped in and bought - a SFR (single family rental) that I still own to this day! From there I was hooked. Rental properties are like tattoos, you can’t have just one. I started looking for ways to buy more of them. I got my real estate license and the rest is history.
Working on a multifamily rehab project
Tell us about your first deal: My first deal was a little 3-bedroom house in Newport, Kentucky. It is a shotgun style, (meaning that you must go through one bedroom to get to another). I bought it out of foreclosure for $24,000 (which I financed) and then got a small rehab loan on it. By the time I was finished with it (over budget and longer than I anticipated), I was able to rent it out. Through the years I have been able to refinance it and keep it rented relatively easily. I still own that little house to this day, it’s one of the few SFR’s I still have.
How do you fund Describe a typical work week your investments? for you as a real estate investor: This is probably one area I This varies depending on what could write a whole book about. week of the month it is for me. Since we have the management arm and the sales arm, I often find myself splitting time between the two components of the business. For example, if it’s the second week of the month, most of my time is spent reconciling the previous month’s books for our third-party management clients, verifying the statements are correct and then sending out funds. The rest of my time is split between working on new acquisitions, touring properties, working with clients on the sales brokerage and developing more partnership / ownership opportunities.
Depending on the deal is how I will finance it. Recently I’ve purchased properties using all cash with funds from another sale, saved up cashflows or refinancing something else. In the last few years I’ve been successful at finding some good owner-financing opportunities, but even with those, most of the sellers I’ve dealt with still want a down payment of sorts because they are looking for some initial liquidity. Mostly though, I have a good relationship with some local banks that I go to for funding on deals. Keep in mind that local banks, in my opinion, will have more “common sense” than larger banks that need to check off boxes for underwriting. But keep in mind their terms are generally not as good (as the larger banks I’ve ...continued on page 21
How long have you been investing in real estate? I’ve been investing in Real Estate since 2003, so right about 15 years now. I’ve been licensed in Kentucky since 2006 and then I got my Ohio License in 2007. My current business model, where we do sales brokerage, third-party property management and project management on properties, has been going since 2008. Jesse’s first rental property that he bought back in 2002 and still owns today
Real Estate Journal · Spring 2018
Real Estate Journal
Member Spotlight ...continued from 20
Speaking to the Greater Cincinnati Northern Kentucky Apartments Association
not only doing what I am doing (because it’s good to see how others do things in your business to get fresh perspective) but also from people that are doing different things in other areas that I have an interest in learning about or even expanding into! The important thing to remember when looking at education is that it may not be a traditional seminar in the classroom. The best environment (in my opinion) comes from talking with people in the industry and seeing how they are doing things and learning what you can, helping you grow. I will say though that the best teacher anyone can ever find are the lessons you will learn by making a mistake and losing money on something. So, when that happens to you (and I say when because if you are in the business long enough it will happen), analyze it, learn from it and adapt so it doesn’t happen again. Do not be afraid to share your experiences with others as you might just save someone from making the same, possibly costly, mistake.
Has coaching or mentoring What projects are you found). I have yet to find a bank played a part in your success? that does not expect 15-20% down currently working on? Coaching and mentoring has on an investment property because I have several small projects played a huge part in my success they want to see that you have “skin going at one any time. In fact, I but I would combine that with in the game,” so to speak. just finished renovating a 6-unit building that I purchased that sits Do you have a real next door to a 5-unit I already estate license? owned. So, now that this is Yes, I have licenses in a couple completed I basically have 11 units states - a real estate broker’s together in that project. Currently license in Kentucky and a sales I’m about 70% of the way through agent’s license in Ohio. My a 7-unit (purchased not too long business partner, who owns the ago) and under contract to close sales brokerage and management on a six and a 7-unit (both are company with me, has a broker’s in Northern KY) that will be in Ohio and a sale in Kentucky. renovated. If that’s not enough to So, between the two of us we are make your head spin, we also just covered for not only ourselves but remodeled our new offices and will for the few agents in either state we soon be moving there and then our have working for us. old office will be retrofitted and turned into a duplex.
One of Jesse early house flips
Real Estate Journal · Spring 2018
How much time do you put into your real estate education? Real Estate education is something that is very important to me. For starters, I am required to get in continuing education hours for my real estate licenses, which between Ohio and Kentucky average out to 16 hours per year. More importantly to me is keeping up with my business and investing and in doing that there are no set rules. I am always seeking out opportunities to learn from seminars that may seem interesting and relevant, as well as books and magazine articles. However, what I have found over the years to be the most beneficial is networking with others and learning from those who are
networking and being around and associated with other like-minded individuals. That has really had a positive impact on my business over the years. No matter where you are in this business finding a good mentor and/or a group of people that you can talk with, share ideas and bounce things off of, is worth its weight in gold (and then some). In addition, when you are helping and coaching someone, the situations they are facing might be similar to the ones you yourself have or are experiencing. As a result, when you talk them through and do some brainstorming, you may end up solving problems you’re grappling with yourself. What are your current and future goals? This is a moving target and changes daily. I used to say my goal was to have 2,000+ units under management. I came very close to that goal about a year and half ago and then it changed. I took a hard look at our management company and discovered that profitability was way down because we were overstretched and not very efficient. At that point I redefined my goals and through that process, I wound up getting rid of several units and making some ...continued on page 22
Jesse’s first book, Tenants Uncommon
Real Estate Journal
Member Spotlight ...continued from 21 constructive moves. Right now, my goals are to continue pushing efficiency while adding units to the management company. We still do a fair amount of third-party management services but one area that we’re focusing on is becoming partners or sole principal owners in the deals in which we are working. Eventually I would like to be part or sole owner of 90%+ of our units under management. Currently it’s about 35-40%. What has been your top struggle in this business? Depending on what part of the market cycle we’re in defines that top struggle. Currently it’s finding good quality deals that are priced right for sale. Most sellers do not want to sell because their properties are making money and they are worried they won’t be able to reinvest the money and make a decent return. They fear that if they take the cash they will be subject to capital gains and depreciation recovery. If you would have asked me what the top struggle was in 2009 or 2010, I would have said getting people to trust the market enough to invest in properties and buy them for what was a great market-timing opportunity. The market is very cyclical and what goes up must come down. If you’re
How important is joining a in it long enough you will see your business’ struggles mirror the local REIA to a new investor? market. I would say joining a REIA is important; however, it is one of What do you like most those things that you get out of about what you do? it exactly what you put in. What It’s two-fold; I really enjoy the I mean is this; if you join a local thrill of the hunt. I like working group and go to the meetings, but a contract, negotiating a deal and then don’t put yourself out there, getting it done. I also really like it don’t do any networking, don’t when we get an under-performing try to learn and participate then property, put a plan of action in ultimately it won’t do you any good. place and then see it all successfully Just remember that your time is come together. very valuable and be careful not to overextend yourself – and watch Do you have a tip or out for those people that will suck advice that you would pass away all your time. Once you start along to other investors? networking you need to assess each This is something I could person you meet. If you find they probably write a series of books are negative and will simply drain about. I will say that one of the you and never do a deal, you need biggest things I see people doing, to move on until you find other that I tell them is a mistake, is people that are the opposite, “the when they try to force a deal to do-ers,” so to speak. Again, time is work that is just not good. It’s like a limited resource so be sure to use trying to make a square peg fit into it wisely. Your local REIA is a great a round hole. No matter how hard place to invest that time. you try, it’s just not going to work and you need to move on. When What is your favorite selfit comes to deals, you need to take help or business book? a look, analyze it and if it doesn’t “The Secret,” by Rhonda Byrne work move on. If you try to force it, Do you have any interesting and don’t let up, eventually you will convince yourself that it’s viable hobbies or something unique and before you know it you’ve that you like to do? made a bad deal worse. There are a couple things that come to mind here. First and
foremost, I like to write and I’ve published several books. The ones that I most enjoyed writing were the “Jesse Brewer Tenants Uncommon” books. There are currently two in this series and I am working on a third. Another interesting area of my life is the charity we started eight years ago called “Landlord Santa.” The concept is simple; We take children from deserving families, (chosen through a selection process) shopping for coats, hats, gloves and holiday toys. We raise funds through our vendor partners, property investors and other fundraising efforts throughout the year. In 2017, we we’re able to take 47 kids shopping. Each one got an allotment of $250 to spend on items for Christmas. Eight years ago, we started with 4 kids and have grown ever since! Does your business have a website? www.cincyareaproperties.com Social media accounts? Facebook: cincyproperties or JesseBrewer
Entrepreneur vs Investor, ...continued from page 19 doesn’t this already exist? Why isn’t there a place for real estate entrepreneurs to go where they can get timely information to make better educated decisions that will empower them to elevate their business and create a social environment that fosters a trusted community to do just that? Last spring while at ICOR, I created the Out of State Investing Summit because I saw California real estate entrepreneurs who were priced out of the California market coming in droves to Colorado to
look for opportunity. While they might have known the basics of investing, they had nowhere to turn to gather information about the nuances of the different market. The same held true for Colorado investors who began to look for opportunity out of state as well. So being the connector that I am, I wanted to make it easier for my members by creating this Summit. After the success of this event, I went back to the drawing board to evaluate how the event could be improved to help investors
Did you know? R e a l E s t a t e I n v e s t i n g To d a y i s the online news site for National REIA featuring daily updates with news and information that affects your bot tom-line. It ’s updated d a ily, n eve r b o rin g a n d a lways informative.
Visit www.realestateinvestingtoday.com 22
even more. Based on feedback and many discussions, I am now creating two strategy tracks - one for the active and one for the passive investors. Along with the tracks I am committed to building a community for these tracks that will have trust, accountability and quality with all stakeholders. I have partnered with the Uniting Investors community (www. UnitingInvestors.org) to begin a series of quarterly events focused on content, information, wealthbuilding and preservation strategies paired along with investing strategies that are working in the marketplace. For 2018, we will be presenting “Out of State Investing” Summit that will be held May 1920, in Los Angeles. Then it’s on to Seattle in August, and back to the east coast in Southern Florida in late October. These are exciting times filled with opportunity with real estate entrepreneurs. Together we can build a place and community where a new standard is going to be set. I think what I am most excited about is developing that tried and
trusted community, and to set the tone that all participants and speaker presenters will be screened via a background check. The goal here is to assist in gathering information, vetting the content and participants, and setting a new standard in the industry. We hope that you can join us, and if you are interested, you can visit www.UnitingInvestors.org and leave me comment through my UI profile (just search for name) with questions, comments, or suggestions on how to continue to build, elevate and empower the Real Estate Entrepreneur!
Real Estate Journal · Spring 2018
Real Estate Journal
Landlord Hank is written by veteran landlord and property manager Hank Rossi to answer questions from other landlords & property managers from around the country about their rentals. Landlord Hank’s columns can be found online at Real Estate Investing Today and the website for the American Rental Property Owners & Landlord Association (ARPOLA).You can also submit a question to Landlord Hank through both sites. ear
Dear Landlord Hank: Should I Give A Tenant More Time To Pay? Owning rental property is a business and not charity. This week a landlord asks, “Do you think I should give a new tenant who says she lost her job more time to pay?” Each week veteran landlord and property manager Hank Rossi answers questions from other landlords and property managers around the country about their rentals. Dear Landlord Hank: A new tenant with good references moved in one month ago.The first of the month has come and gone with no rent payment from the tenant. I’ve contacted her for payment and she said she lost her second job and can’t pay the rent right now, she just needs a couple of weeks to find that replacement job and 1. Access she’ll be back on track. Do isyou Rentegration.com a think I shouldweb give her more time? based, multi-usI understand er hersoftware situation and am offering cus- person. tomers 24/7 access a compassionate to forms generation, Landlady Betty
Dear Landlady Betty: most landlords, I think. This is a legal notice stating tenant No. If she can’t pay one month, Now that the economy is better is in violation of lease and must she won’t be able to pay for two and more rentals are available I’m remedy the situation by having months. Even if she finds a job actually seeing less of “doubling up an unauthorized tenant leave immediately, she most likely won’t or extra unauthorized roommates.” within 7 days. If tenant doesn’t receive her first pay check for two I can’t speak to legal matters but a provide proof that “guest” is gone, to three weeks, so she will always great lease will help the landlord in then I’d file “7-day notice of nonbe one month behind. If she this situation. I always address this compliance notice of termination” doesn’t find a job tomorrow, this situation up front, verbally, with meaning that tenant will be evicted non-payment will continue. Tell the tenants, concerning guests and in 7 days due to this violation of tenant you are counting on her rent the amount of time a guest can the lease. for your obligations. I would tell stay, per the lease. In my lease, it This is a trying time in our job her you’d like to help but you have is 72 hours that a guest can stay of property manager and landlord, obligations that you were counting without PRIOR written consent of but it must be done. Don’t be soft on her rent to help pay. If she can’t landlord. I ask tenants if they plan and allow your lease to be violated. live up to her obligation, she’ll have on having anyone else living with Your kindness will be repaid with to move immediately. them, up-front, family or not. I having to do this chore a short I don’t know what state you make sure all occupants are on the distance down the road, so you are only putting off the inevitable. live in, so find out how to evict lease by name. someone in your state now. Don’t make the same mistake I Sincerely, did. I’ve made the mistake in the In Florida, I have to give someone Hank Rossi a written three-day notice to cure past of allowing a tenant to get a the problem. Then I would file roommate when my tenant lost one of her two jobs and couldn’t make About Landlord Hank:“I started in real estate eviction. as a child watching my father take care of That is going to take six weeks the rent. I told my tenant she’d have our family rentals- maintenance, tenant at least to have someone removed. to have a rental agreement with relations, etc , in small town Ohio. As I grew, I This is a business and must be her roommate and this roommate was occasionally Dad’s assistant. In the midtreated as such. Compassion for would have to be screened and 90s I decided to get into the rental business on my own, as a sideline. In 2001, I retired your fellow man is great, but you accepted by me but she would from my profession and only managed my must take care of your business or be responsible if anything went own investments, for the next 10 years. Six you won’t be able to pay your own wrong. years ago, my sister, working as a rental The situation went bad after agent/property manager in Sarasota, bills. Keep your business and charitable about a month and the tenant had Florida convinced me to try the Florida to evict her roommate and then lifestyle. I gave it a try and never looked contributions separate. back. A few years ago we started our own I had to evict her. A very messy real estate brokerage. We focus on property Sincerely, situation and one best not to be management and leasing. I continue to Hank Rossi involved in. manage my real estate portfolio here in w Florida and Atlanta. Visit Hank’s website: Tenants andDatabase roommates Management - Rentegra-can 1. Access - Rentegration.com is a web 4. Dearbased, Landlord Hank: Longhttps://rentsrq.com tion.com is an easy to use, drivmulti-user software offering cus- get injunctions ordatabase restraining Term tomers Guest24/7or accessUnauthorized to forms generation, en software. Most form fields are auto orders against each other if things Tenant?archives, property management data- populated from the database. The modbad. 4.I Management shyworkaway from are all integrated and together. base, basic accounting, vendor ordering goulesreally 5. Value 2. Rental and 3. Simplified Landlord Hank Rossi follows up roommate For example, rentals a customerand can use the rentand other services. suggest you Large property manageForms discussingAccounting Database roll function to identify all delinquencies, onLease a question tenant 2. Rental - Unlimited doapply as well. If create a tenant does have anan fees, and eviction forms with is Rentegration.com ment companies that Unlimited use and of aLease full Forms Owners anda few managers roommates, tenant guests and use of a full line of state specific rental simple clicks of the mouse. unauthorized guest or tenant, this use Rentegration.com line of state specific rent-Rentegration.com lease forms. can astrack income and easy to use, database how heand handles the All situation a should a clear violation of your 5. Valuebe - Large property management al andforms lease are forms. All by attorneys driven software. Most for only forms gencreated and/or ex- pense forcompanies each unit, landlord manager. that use Rentegration.com Color Standards for National Tenanteration Network localand rental property housing associations. lease. In this situation, in Florida, Rentegration.com forms form fields are auto popwillLogo save time property andfor company.generation will save time only forms He is not giving legal advice, are created by attorneys ulated from the dataand money over other I and would give my tenant “7-day 3. Simplified Accounting - Owners • Logos areover provided on the CDmethods. in all threea forms: money other Mid Perfect mid and small all black, reversed to white, or in PMS 280 Blue/PMS 7543 Gray spot or 4/color applications. just how he handles it himself asfor and managers can track income and ex- notice and small size property managers and methods. Mid and small and/or local rental housbase. The modules are of non-compliance with Please see below for specific use examples. size property managers pense for each unit, property and compaindependent rental owners can manage landlord and property manager. • No other colors are acceptable for use for theand logo. work size property managers ing associations. all integrated lease with opportunity cure.” independent rental ny. Perfect for mid and smalland size property their entire business at a fractiontoof the • No altering of the logo is allowed. If you have a special circumstance that requires something not This ismanagers an on-going situation for together. For example, and independent rentand independent rental ers, own- who cost ofneither other and providedsoftware on the CD, please callforms. NTN NATIONAL HEADQUARTERS 1.800.228.0989 for assistance. own-
5 REASONS TO USE RENTEGRATION archives, property management data- base, basic accounting, vendor ordering and other services.
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PET AGREEMENT Rating Scale
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48-HOUR NOTICE OF ENTRY
TENANT(S): ___________ ______________________ ADDRESS:
Management Database Rentegra1. Accessin: - Rentegration.com a web State specific rental and lease forms available AK, AZ, CA, CO, isDC, DE, FL,4.GA, IL, IN, KS, KY, MA, NC,- NJ, NV, NY, OH, OR, PA, TX, UT, VA, WA & WV. IN Out TENANT(S): ____________________________________________________ DATE:________ LIVING AREAS ADDRESS: ____________________________________________________ UNIT: _________ KITCHEN CITY: _________________________________________ STATE: __________ ZIP: _________ Walls
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web based, multi-user software offering cus- tomers 24/7 access
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Rentegration.com is a Real Estate Journal · Spring 2018
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