Real Estate Journal - Summer 2018

Page 1

Real Estate Journal

Summer 2018

2. Add Value with Quick and Easy Deck Upgrades

Seven Things to Know Before You Buy a Rental Property

12. Top Ten Recommendations for SelfDirected Retirement Account Investors

4. Legislative Update

13. Strategies to Capture Investor Money

5. Rental Industry 2018 Policy Priorities

17. Appraisals that Don’t Sink Your Deal

6. 2 Investments Earn $130,000 in Profits to Help Boost 5 Self-Directed Accounts

20. Don’t Base Your Insurance Purchase Strictly on Price

Circulated To Over 40,000 Real Estate Investors Nationwide

Member Spotlight Ken Lacy


Please tell us a little about who you are and what you did before getting into real estate investing:

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continued on page 14

f you’ve ever flipped a house or bought and sold property you have undoubtedly run into a “stink” along the way that you struggled to get rid of. Whether it was from a long-gone mystery pet or maybe an unplugged freezer, it seems everyone has a story. You may even have used products in the past only to discover that spraying something in the air will only briefly cover up cat or dog urine odors. Maybe you’ve

removed and replaced the carpet and painted the floor beneath, but through past experience you know that doesn’t work either. Then along comes a hot, humid day and the smell is back. Most of the time, the carpet doesn’t really need replaced because it is in pretty good shape, except for the pet odors. Replacing the carpet is just an added expense when getting ready for a new resident to move in to your already expensive rental. And, quite frankly, you just don’t have the extra money. That’s where OdorXit steps in. You name the odor; and they have a product that can safely eliminate it. Their products are not a cover

up and eliminate the odor at the source. They are safe to use around people, pets and the planet as well as your bottom-line. In other words, you’ll replace a whole lot less flooring, concrete, tile and grout in your properties which keeps your rehab costs much lower. Through a special arrangement, members of National REIA get 25% off all OdorXit products by using the product code NREIA25. About ten years ago a property management company in Cincinnati, Ohio bought a lot of properties right after the housing crisis (taking advantage of the buying opportunity). These homes continued on page 8

Around the Economic Horn

“If you change the way you look at things, the things you look at change.” – Wayne Dyer


etting a different perspective

can be very insightful. During a property purchase, we often utilize another set of eyes to see things we don’t. Every industry has their own form of this thirdparty verification or review. When it comes to economics, the perspectives can be radically different, and if influenced by political allegiance, may even create a feeling of surrealism about the realities being experienced. For a couple of years now we have worked closely with Chris Kuehl and the economists over at The Black Owl Report who provide continued on page 7

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Vol. 3 Issue 3

You Work Too Hard to Give Up Profits to Odors!

RE Journal


11. When What’s Wrong with This Deal Could be What’s Right with This Deal

3. The Next, No Really, the NEXT Act


en Lacy is the Executive Director of Veterans Path Up (VPU), a nonprofit organization that rehabs homes for honorably discharged veterans, active duty and reserve servicemembers. The organization finds placement for veterans in VPU’s homes as renters and then helps guide them on the path towards homeownership. Ken is a Navy Veteran who served 9 years on active duty and 17 years in the reserves and is passionate about helping those who have protected our freedoms. He is a member of the Metrolina REIA in Charlotte, NC.

8. Thinking Doesn’t Make You Money

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Real Estate Journal

Add Value with Quick and Easy Deck Upgrades By Geoff Case, Merchant, Pressure-Treated Lumber and Decking, The Home Depot

which makes it both durable and easy to maintain. The material doesn’t splinter or rot, and it doesn’t need to sealed or stained. One example is Veranda’s ArmorGuard decking, which is backed by a 20year warranty including protection against color fade and stain.


here are many renovations or additions you can make to a home to increase its value. There is a growing love for outdoor spaces like decks and patios, according to the American Institute of Architects. These spaces are an excellent investment, as they establish or increase outdoor living area at a minimal cost per square foot. The national average for construction costs of a wood deck is less than $35 per square foot, according to the National Association of Home Builders. On average, adding a wooden deck equals an 81 percent return on investment when selling a home, according to If and when a home or property already has deck, look for smart and efficient ways to enhance or

upgrade. Decking projects range from simple upgrades like lighting or resurfacing to more advanced jobs like installing new railing systems or swapping out deck boards.

in appearance, decking material options are the most important decision to make.

Composite This material is becoming more popular in the decking Decking materials arena because it requires little Whether you are looking to maintenance and looks like real install a deck from scratch, repair wood. Composite decking is made an old deck or update for a change from a mixture of wood and plastic,

Natural Wood The beautiful appearance on this wood makes it a top choice for decks, although natural woods can cost the same as composite and come with more work. continued on page 11

Seven Things to Know Before You Buy a Rental Property Thing One of Seven: Utilities

By Bradley S. Dornish, Esq.


s a real estate lawyer for 25 years, I have watched many investors come and go, and some stay and prosper for the long haul. I have helped them with contracts, closings, evictions, contractor troubles and sales, among other things. Each time someone calls me for advice, they have some sort of problem which was either dropped on them or created by what they did or didn’t do. This, combined with my own experiences as a real estate investor, combine to give me a unique vantage point from which to observe real estate problems, and consider how to avoid the avoidable problems and situations, where an ounce of prevention is worth a pound of cure. This is the first of a long series of articles on “Seven Things” about different aspects of real estate investing. Why seven things? It could just as easily be five or ten, 2

but seven is a lucky number, and aboutseven makes a nice series of articles on each topic. So here we go; 1: Know Your Utilities Knowing your utilities means knowing which utilities are paid for by the tenants, and which are paid for by the landlord. A basic rule is that any utility paid for by the landlord will, on average, be consumed more generously by the tenants. I learned that rule

the hard way when I had a twelve unit in Squirrel Hill, with central heat. I would drive by in the dead of winter, and the windows on the upper floors were wide open in ten-degree weather, while the big old boiler chugged away and the gas meter spun like a blur. The gas bill was more than the mortgage, and it took me until June to break even on that building. By July, I had to start setting aside a reserve for the next year’s heat, so the building wasn’t worth it to operate.

A similar building with individual furnaces in each unit, and gas bills paid by the tenants, rented for only $50.00 less per unit per month. Why? If the tenants pay their own gas bill, they don’t usually leave the windows open in the winter, and even if they do, it doesn’t affect your bottom line. For the extra $50.00 per unit per month, I got $7,200.00 per year, and paid over $15,000.00 in gas bills for the heat, hot water and gas stoves, plus the electricity to run the pumps to keep the hot water heat circulating. Now I don’t mess around with paying tenants’ heat. If a building is worth owning, it is worth putting in separate gas meters and furnaces for each unit, and giving the tenants the bills for their own heat. For not much more, you can add central air and make your units easier to rent in the Spring and Summer. Knowing your utilities also means making sure the separate ...continued on page 12 Real Estate Journal · Summer 2018

Real Estate Journal

The Next, No Really, the NEXT Act By Rebecca McLean, Executive Director, National REIA


he Fast Company Article in February 2001 entitled, Get Ready for Act II begins by saying, “Certain assumptions about the Internet Economy have been shattered: the short-lived notion that there would be a separate business sector devoted exclusively to the dotcoms; the assumption that whenever a startup met a big, established company, the question wasn’t whether the startup would win, but when. Those ideas are dead.” And yet, here we are in 2018, and no, dotcoms are not exactly the same – the rise of the smartphone complicated the scene – but that market segment is still very much alive and well. Also, consider that the largest companies in internet history didn’t gain their traction, get profitable or even exist until AFTER 2001. Google didn’t become a giant until closer to 2002. Amazon didn’t become “really” profitable by most analyst’s standards until the 4th quarter of 2001. Facebook didn’t even launch until February 4th, 2004. The startups have very much won! And they have oddly become the big, established companies. It reminds me of the hippies of the 60s who fought hard against “the man,” only to grow up and be “the man” by the madness of the 80s. Even though the end of 2000 looked like the end for startups, we went through the huge growth of startups again in the cycle after the rebound from the tech crash. Startups again became all the rage! Facebook, YouTube, Instagram, Twitter, Snap Chat – all were created and launched after the Fast Company article of 2001. And yet, in The Guardian article of May 2018 they had this to say about startups, “Startups drive job creation and innovation, but the number of new business launches is at a 30-year low, and some economists, investors, and entrepreneurs are pointing their fingers at big tech.” The imps of startups are now the established corporate giants, and the whole argument begins again. My point in this illustration is that there are cycles – many cycles – in business that will continue. Doom and gloom will be predicted, and some of it will be experienced. Real Estate Journal · Summer 2018

Some big companies will fail, some small ones will succeed beyond imagination, and the pundits will argue, make more predictions and try to tell us what it all means – and yet it doesn’t stop. But we, my friend, can take control of our own destiny. As real estate investors, we have a special opportunity – especially as real estate investors connected to a REIA. Many of us left corporate America (and some of us never went there in the first place!) because we didn’t want to be subjected to these uncontrollable ups and downs. We wanted to be in charge of our own lives, captains of our own destinies – and we have unusual amounts of power to do just that. Not that we don’t experience changes when the whole economy changes – we certainly do – but we have more flexibility and ability to look for creative solutions than most. Legislation may arise from chaos in the economy (Dodd Frank anyone?), credit may dry up, some of our long time strategies may need to change, but we CAN change, and we do. This is where being independent and connected to a group of smart individuals who are operating in the same industry is invaluable. We try things, we share information, we share resources, we make it happen no matter what! This upcoming cycle does not mean that the dynamic companies and visionary leaders who are reinventing the ideas and practices of business – are over.

Not for a moment. Technology and economic change remain a powerful force for strategic transformation. The globalization of markets continues to introduce new companies, new customers, and new ideas. And it’s true for investors too! Technology is now firmly planted in our business strategies from ordering rehab materials online at the Home Depot, researching opportunities via an online portal like REIPro, or listing your properties for sale or rent on your website. Transformation is here! Giant companies, such as hedge funds, that have never considered our industry before are in our market and aren’t leaving as quickly as we’d thought. Globalization is also expanding our customer base, and potentially our competitors, as buyers from China and Australia pour into some of the most unlikely cities. New strategies and ways of being an investor, like Crowd-funding, are becoming mainstream. Things change, but investors always find a way! Some of the ideas that took Amazon from a struggling startup on a profit roller coaster can help us as investors. As the Silicon Insider said in it’s May 2018 article, “What are the real lessons from Amazon's success?” 1) Run a good business, keep costs down, and don't get distracted. 2) Even in the digital age, over the long run it's better to be the oldest than the biggest, to be

familiar and forgotten, rather than a flash in the pan. 3) Don't read your press clippings. (or what the media is saying about real estate. 1 - all real estate is local and 2 – if you see it in the Wall Street Journal that opportunity is already passing) Thanks to what’s happened over the past several years, real estate investors have embraced – and will continue to improve – powerful new ideas about what it really takes to develop a winning strategy, how to build a creative and productive business, and what it means to succeed. At the same time, there are serious, significant new developments before us. We call this a new set of challenges “the next act” because it represents a fundamental shift in psychology and business practice. And like any deeply felt shift in the operating environment of business, the new conditions require us to change, just as they require all businesses and organizations that aspire to be great to change. First, we need to broaden our own thinking. At National REIA over the past five years, we’ve proposed a mindset shift about the way the new world of business works: Clinging to status quo stifles innovation. Speed releases initiative. The way to win is to out think - out innovate - the competition. Five years have seen many of these ideas, tools, and tactics move from radical innovation to conventional wisdom. This next act demands that we ask ourselves “What Do We Do Now?” That’s why we’re introducing the REIA Excellence in Innovation Awards. We want to know how to best serve our members. Things have changed and they are going to continue to change. Preaching old messages from the stage is no longer helpful. Collaboration, real time information, better resources, a little hand holding and teamwork will be needed. How can we be better supporters and resource providers? Second, we need to embrace the merging of the old economy and the new economy into... the future. We are trailblazing the unchartered territories of reinvention and innovation, and at the same ...continued on page 6 3

Real Estate Journal

Legislative Update

How do you know when to get the pitchforks & torches or just grab hors d'oeuvres and another drink? By Charles Tassell


hen do you deal with legislation? This question, in one form or another has haunted American individuals, companies, and trade associations for close to three centuries now. By addressing a bill with no legs or momentum, it can gain attention. That attention could then result in the development of momentum, or the perception that the bill has enough interest “to at least have hearings” and now time will have to be spent on drafting arguments – especially arguments that will fly with the committee without inflaming the issue - seeking expert witnesses and asking members, friends and relatives to write or call their Representative or Senator.


continued on page 10

taken on a special interest’s issue as a payback (or pay-it-forward). Those bills can be frightening but less likely to see daylight than a cave fish. Good guidance and

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Summer 2018

Summer 2018

Make You Money Doesn’t Add Value 8.2. Thinking with Quick Summer 2018 8. and Thinking Doesn’t Make8.You Money 2. Add Value with Quick2.andAdd Value with Quick andEasy Deck Thinking Doesn’t Make You Money Upgradeswith This Deal Easy Deck Upgrades Easy Deck Upgrades 11. When What’s Wrong 11. When What’s Wrong with This Deal 11. When with This Deal What’s What’s Sevenbe Could Things to Right Know Before Seven Things to Know Before Could be What’s Right with This Deal Wrong with This Deal Seven Things to Know Before Could be What’s Right with This Deal Buy a Rental Property for SelfYou Buy a Rental PropertyYouTen You Buy a Rental Property Recommendations 12. Top 12. Top Ten Recommendations for Self12. Top Investors Ten Recommendations for 3. NEXT The Next, Directed No Really, Account SelfAct No Really, the the Directed 3. The Next, ActRetirement Investors NEXT ActRetirement Account NEXT 3. The Next, No Really, the Directed Retirement Account Investors Capture Investor Money 4. Strategies to 13. Legislative Update 13. Strategies to Capture 13. Investor Money 4. Legislative Update 4. Legislative Update Strategies to Capture Investor Money Don’t Sink Your Deal 5. that 2018 Appraisals Industry 17. Rental Policy Priorities Rental Industry 2018 Policy Priorities 17. Appraisals SinkAppraisals Your Deal Prioritiesthat Don’t 17. Policy 5. Rental Industry 20185. that Don’t Sink Your Deal Your Insurance 6.20.2Don’t Investments in ProfitsEarn $130,000 6. 2 Investments inBase Profits Earn $130,000 20. Don’t Base Your Insurance 20. Don’t Base Your Insurance 6. 2 Investments Earn $130,000 on Price in Profits Strictly toPurchase Help Boost 5 Self-Directed Accounts to Help Boost 5 Self-Directed Accounts Purchase Strictly on PricePurchase Accounts to Help Boost 5 Self-Directed Strictly on Price $4.95

Issue 3

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Vol. 3 Issue 3

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Rental Housing Journal, LLC 4500 S. Lake Shore Drive Tempe, Arizona 85282

It is never a safe bet to simply ignore a bill. It was drafted because someone thought it was a good idea and pitched it to a legislator who then concurred. That legislator can send a lot of signals about their bill as well. They may not have even sought out cosponsors – a bad sign for the bill. Or the bill could have been handed to them by leadership to shepherd through the process – a sure sign of likely passage. When did the bill drop? Was it a last minute, under-the-wire kind of bill, or was the legislator campaigning on it, holding town hall meetings and press conferences? You can bet they have passion for the issue! More subtle considerations include the theme of the legislature that year. Yes, they may have an over-arching strategy such as justice reform, regulatory issues, business investment, etc. The reasons can be as simple as those issues poll well and they are getting ready for campaigns, or editorials/ headlines have been calling out excesses in local and state government bureaucracies. They

having offended leadership or has failed to quash rumors that they are considering a challenge against someone in the leadership. Or a lone member of the minority has

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is headed can result in hundreds of varying answers. However, going to good sources is critical!

might even be to address the needs and conditions of certain groups of citizens, be they poor, elderly, unemployed/underemployed or veterans. Another strategy that cuts both ways: we’ve already addressed that issue, and we are moving on to other areas of concern. For example, if a series of legislation (separate pieces) or even one omnibus bill has recently passed on an issue like towing, the likelihood of legislators willing to come back to the issue, is dismal. However, if a hue and cry has been raised on some unintended consequence or over-reach, a targeted or limited fix-it bill can oftentimes find traction. Finding out where a bill is headed can result in hundreds of varying answers. However, going to good sources is critical! For example, the sponsor or their staff can be very helpful, but often biased – even if you have their trust. Be sure to check on the opposition. What they claim about the bill can often provide insight but also their strategy! Of course, leadership, and the Executive Branch can also be very helpful. The problem with both, they often tell you what they want to happen, apart from what will happen. A good lobbyist who is in the know can often save time and effort by weeding out non-starters for a variety of reasons. Sometimes it is as simple as the sponsor

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inding out where a bill

NREIA’s Charles Tassell (R) meets with Federal Housing Administration commissioner Brian Montgomery in Washington

continued on page 7 continued on page 7 continued on page 7

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Real Estate Journal

Rental Industry 2018 Policy Priorities in Conjunction with:


he rental sector is a competitive and robust industry that helps today’s 39 million renters live in an apartment or single-family home that’s right for them. It’s also an important economic driver, contributing $1.3 trillion to the U.S. economy annually. We are actively working to meet the growing demand for rental housing, but we need public policies that don’t impede our ability to do so.

Regulatory Reform: Seek legislation that supports community-level infrastructure needs and drives new development and investment in the nation’s housing.

advocate for expanded federal tax to improve building Infrastructure: support an infrastructure package that invests in the nation’s infrastructure and streamlines permitting.

Telecommunications: Protect rental owner and resident interests as policymakers consider in-building and outdoor coverage, capacity, deployment and infrastructure issues.

Tax Reform Implementation: Ensure that the provisions in the just-enacted tax reform legislation, including the new 20 percent deduction for passthrough income, are implemented as Congress intended.

Fair Housing and Disparate Impact: Clarify HUD’s enforcement practices in light of regulatory and legal efforts, and improve compliance resources for rental housing providers.

Seller Financing: Continue the support of the Seller Finance Coalition and HR 1360 to expand the use of Seller Financing from 3 to 24 properties in a twelve (12) month time-frame.

Data Security: Seek reasonable data security and breach notification requirements that do not impose overly burdensome compliance obligations on all rental owners and operators.

Immigration Reform: Promote immigration reform that improves temporary worker visa programs and prevents rental property owners and operators from being required to enforce Clean Water Act: Seek regulatory clarity on immigration laws. permitting requirements under a ADA Reform: newly expanded scope of the Act. Continue to push for an end to U.S. Postal Service Reform: costly, frivolous ADA lawsuits. Ensure that postal reform Workforce Housing: legislation does not adversely Help policymakers develop affect mail delivery to rental effective solutions that will property residents or impose costly preserve programs that work, stem requirements on rental properties. the loss of additional housing stock and promote the development of Lead-Based Paint: Advocate for health-protective new housing. standards that address the issue of Low-Income Housing lead hazards where they are found Tax Credit: to exist. Increase program resources and allow “income averaging” to create Building Codes, Construction and Development: more mixed-income housing. Seek cost-effective building Section 8 Rental Assistance: codes, green building goals and Modernize and streamline the land use policies that support rental program to attract private sector development and redevelopment. participation as well as seek reliable funding and reinforce the FIRPTA: Call on Congress to either voluntary nature of the program. repeal FIRPTA or enact additional Military Housing Allowance: reforms to FIRPTA to promote Oppose reductions to the foreign investment in the U.S. military’s Basic Allowance for multifamily industry and meet Housing or other changes to the growing demand for rental military housing benefits. housing.

Housing Finance Reform: Ensure housing finance reform proposals include a federal guarantee and recognize the unique characteristics of the multifamily and SF-rental industry, and continue engagement with regulators as they pursue transformational policies outside the legislative process Companion Animals: Continue to address this issue and the over-abundance of a cottage industry supporting pseudo ADA claims and demeaning the rights of the truly disabled.

Real Estate Journal · Summer 2018

Flood Insurance: Seek long-term reauthorization of the National Flood Insurance Program (NFIP), enact reforms of the program that would afford better NFIP coverage options to operators of rental housing, and capitalize on efforts to bolster private market solutions for flood coverage.

operators to consider criminal history in employment and residential screening. Consumer Reporting: Ensure that reforms of the consumer reporting process and resident screening system do not hamper necessary business operations of rental property operators.

Energy Policy: Seek practical, cost effective solutions for improving the energy performance of building systems and appliances, support research Criminal Background Checks: on building technologies, and Protect the ability of rental


Real Estate Journal

2 Investments Earn $130,000 in Profits to Help Boost 5 Self-Directed Accounts Investor Uses his Real Estate Investing Knowledge to Help Grow his Children’s CESAs as Well as his IRAs

By Kent Kinzer

The profit went back into the accounts in the same proportion it came out of the accounts. “I love that I was able to partner everyone’s accounts and make about $80,000 in profit for our family,” Brian says.


hen Brian from Tennessee learned that he could selfdirect his retirement account and his children’s education savings accounts into alternative investments such as real estate, he was eager to begin. One concern, however, was that there wasn’t enough money in his children’s accounts to invest in any real estate opportunity he might find. Brian learned he could include his children’s accounts in his real estate investments to grow the accounts for their future education needs. As a result, he and his wife have incorporated their entire family’s accounts into investments to boost even the small-dollar accounts in a relatively short period of time. Land investment grows CESAs Brian opened Coverdell Education Savings Accounts (CESAs) for each of his four children through Equity Trust Company. He saw the savings potential: money saved in a CESA can be withdrawn tax-free when used for qualified education expenses. An active real estate investor, Brian decided to try to grow his children’s accounts using selfdirected CESAs. A CESA’s annual contribution limit is $2,000. Brian was concerned that it would take a while to build up enough capital in the account to be able to invest in real estate. His purchasing power increased when he learned that he could partner with other self-directed accounts to make investments. Brian thought it would be difficult to find a suitable investment property for less than $50,000 in

the city of Nashville, but before long he found a vacant lot in the city for $8,000. He partnered three of his children’s self-directed CESA accounts to purchase the lot. One child’s CESA invested $4,000, and his two other children’s CESAs each invested $2,000. Brian saw potential in the lot because he spotted new housing construction nearby, as well as a mobile home park that was on the market. “As I reviewed the potential of the area, I believed the value was going to change once they sold that mobile home park,” Brian recalls. “Once the mobile home park sold, additional houses were built continuing to push values up.” The land was sold 60 days later for $60,000. The sale proceeds returned the CESA accounts in the same proportion as was used for the purchase. Increased purchase

power leads to bigger investment After the lot sale was complete, the CESAs had a combined total of approximately $60,000. Brian began to look for a larger investment, where he could again partner the accounts together. He found two adjacent lots, one of which included a dilapidated house. For this investment, five Equity Trust accounts partnered in equal proportions to produce the $120,000 purchase price: his and his wife's Roth IRAs, and three of his children's CESAs. “We didn’t tear down the old house; we only changed the way the property was marketed,” Brian recalls. He divided the two lots into three and put it back on the market for sale. A year after purchasing the land, he sold all three lots for $200,000 to a developer who wanted to build homes on the site.

was full of the spirit of creation. As always, resilient Americans got inspired and generated amazing things out of chaos. When we have similar challenges in the future – and many of us believe those are coming sooner rather than later things may get more difficult.

The game could get tougher. The pace of change can make our heads spin. No question, we are living in the most amazing time in the history of the business of real estate. I think that the next act will be a time of amazing opportunity, fun and maybe some tough times

Making the transition: real estate investing inside a retirement account Brian had been investing in real estate for a while before he was aware that he could self-direct his retirement account, CESA or other accounts into real estate and other alternative investments. Between his and his wife’s retirement accounts and his children’s CESAs, Brian’s family now has a total of eight accounts at Equity Trust. He has learned that the selfdirected investing process is different than when he completes real estate investments outside of a qualified retirement account. For example, closing documents must be titled with the account as the owner rather than personally (for example: Equity Trust Company fbo John Doe), and any expenses related to investments are paid from the account. He found the self-directed investing process to be “straightforward” and that his investments were able to be completed relatively seamlessly. “I like that Equity Trust is so responsive,” he says. “I can request paperwork, a wire transfer or check, and have it completed on time and correct.” Closer to “semi-retirement” and paid tuition Brian and his wife continue to use their family’s accounts to invest in real estate and other assets. Brian continued on page 17

The NEXT Act...continued from 3 time, demonstrating respect for the enduring, timeless nature of business: the art of strategy and the power of the customer, the energy of technology, and the drive of ambition. The last crash, correction - call it what you will - of the new economy 6

–a time when our character will have to be measured as carefully as our financial performance. So join us. I don’t believe this era of prosperity is over. I just believe it might just be close to beginning – again. Real Estate Journal · Summer 2018

Real Estate Journal

Economic Horn...continued from 1

excellent perspectives on all parts of the economy. At National REIA we also draw on HUD’s housing economists and their regional reports, among others. Rather than sharing a singularly themed article, looking at one facet of the economy, please consider this as a series of insights into several of the various facets of the overall economy, which we believe can and will have an impact on your overall business.

billion rate in the month. Some of that could be seasonal. Most educational loan growth would come in August and September as colleges and universities begin their fall enrollments. Long term, we need to see the debt-to-income ratio come down. But, there’s nothing in the April report (given the strength of the economy, plentiful jobs, and low unemployment rate) that should be sending us any warning signs. Boost to Q2 GDP. Positive inflators to GDP recently helped boost second quarter GDP estimates from 4.6% to 4.8% according to the Atlanta Federal Reserve’s GDPNow. The updated Blue-Chip estimate hasn’t been released [as of this writing]. So, when it comes in, it should include a positive labor report, strong manufacturing and services reports, and other factors that should improve even the conservative Blue-Chip estimates. This could also boost sentiment that the Federal Reserve will be forced to hike interest rates perhaps more aggressively than the 3 hikes in 2018 currently predicted and on-trend. We still believe that two more hikes are easily in the works and are already baked into investor outlooks – and if we see stronger growth rates in manufacturing and continued brisk supply chain activity with sustained current consumer spending rates, we’ll get the fourth hike in 2018.

Consumer Credit Trend Changes. The household debt-to-income ratio dipped slightly in April. It’s still at the high end of the 3-year trend as the chart at right depicts (gray bars). Consumer credit rose at a lowerthan expected rate of $9.3 billion in April. There are two sides to consumer credit, revolving and nonrevolving credit. Consumers did run up their credit-card debt slightly as revolving credit, which has been trending negative in the past two months, rose $2.3 billion in April. The way economists view this type of credit may not make fiscal sense to most people. Higher use of credit can be a good thing if employment, wages, and the broader economy is expanding. The notion here being that consumers are consuming; but they will likely have the wherewithal to pay down this debt over time. However, higher debtto-income ratios become a problem when we start to see recession risk grow – which we currently US Consumers Spending don’t. Nonrevolving credit, which Record Rates on Autos includes student loans and vehicle A recent report from Experian financing rose at a slower $7.0

showed that consumers individually set some new records on auto purchases. • The average price of a new vehicle: $31,455 • Average monthly payment on a new vehicle: $523/month • Average annual income going to auto payments: $6,276 per vehicle • Annual auto insurance premiums on new vehicles: $907.38 With the average American spending nearly $7,000 per auto (for those that finance new vehicles), many analysts are starting to speculate that this (plus student loans, higher rent and mortgage costs, and other debt factors) could be impacting auto sales. Capital Spending Remained Strong Through April The factory orders data showed that April’s capital goods new orders rose by 1% month-over-month. Orders were up 5.7% year-over-year and on a compounded annual rate of change basis, capital goods orders were up by more than 12%. That’s the headline. We track this closely because of the importance it poses in keeping the US out of recession. Going back to the 1940’s, when capital investment and spending drops below zero on a yearoveryear basis, the US has gone into recession 11 out of 13 times. We had begun to fall below zero late in 2016 as concerns over the election put spending on hold but rebounded in early 2017 when capital spending released and some cash that had been put on the sidelines went back to work. For now, capital spending is still strong – which means that one of the conditions required to topple economic growth is showing no signs of risk - at this time. Finally, as housing is closely related to employment: The JOLT from the JOLTS Report That’s a play on words, but we got a Jolt in headlines from a recent JOLT Report (Job openings, layoffs, and terminations). The headline

that everyone focused on was the new record number of jobs available exceeding the number of people out of work for the first time in history. Specifically, there were 6.346 million unemployed people looking for work and 6.698 million jobs open. The chart below from the Federal Reserve shows the strong job openings report. This gives fuel to the argument that the US needs to keep an open immigration policy – or at least get quicker and more streamlined in approving work permits for foreign workers. As we have seen, several economic reports are now showing ‘repressed’ performance (although still strong) because of a lack of available workers. The quits rate was also at highs not seen since 2005. This means a couple of things. First, people are now job jumping more rapidly because of the number of available jobs. That could bode well for those companies that have a competitive compensation portfolio and can offer improvements in quality of life issues. It will also increase and widen the competitive divide and the levels of talent various companies will have. It’s another story altogether, but there is a tremendous amount of competitive advantage and cost savings for those companies that can hire top talent. Just know that there is going to be an increase in the competitive divide across all industries in this cycle where companies with the wherewithal to pay higher benefits and wages can put the squeeze on those that can’t - more so than in recent cycles (primarily because of tight worker conditions – some companies are forced to fill positions with workers with little or no experience). Second, we may be seeing a topping out of the quits number because workers could be getting to the point that if they were going to make a jump, they have. That would seem to hold water, until we see a month like May in which the US economy created about 230,000 jobs. As long as job creation remains strong, opportunities will still abound and the quits number will likely remain high. About Armada and the Black Owl report: Founded by Keith Prather and Chris Kuehl in 2000, Armada began as a competitive intelligence firm, grounded in the discipline of gathering, analyzing, and disseminating intelligence. Today, Armada executives function as trusted strategic advisors to business executives, merging our fundamental roots in corporate intelligence gathering, economic forecasting and strategy development. Learn more at www.

Real Estate Journal · Summer 2018


Real Estate Journal

Thinking Doesn’t Make You Money By Alex Goldfayn


e think too much, and it doesn’t pay very well. In fact, thinking about doing something – considering it – won’t make you a single dollar. Action makes money. And thinking about action actually delays it. I tell my clients that perfection is very closely related to procrastination. If you want to make more money, communicate with more customers and prospects. Actually communicate. Don’t think about communicating, and carefully plan them for extended periods of time. Simply communicate. Why We Think Instead of Do? I frequently tell clients and speech audiences that you already know everything I’m about to teach here. But knowing things is different than doing things. Knowing things also makes no money. So, what keeps us from taking action? The single greatest factor that makes you think instead of communicate is fear. Fear of rejection. Fear of failure. Fear of leaving a voice mail. Fear of upsetting the customer or prospect. Fear of being yelled at. In sales, like children, we do everything possible to avoid being yelled at, and we all do this. You are not alone here. Fear makes us overthink. Fear keeps us from picking up the phone and calling customers and prospects. Fear moves us

away from the phone and to the computer keyboard to send emails instead. We know that the telephone is a far more effective tool. We know that we would sell more if we talked to our customers instead of emailing them. But we email anyway. So, how do we move past (or thru) the fear? Here are some suggestions: 1. Be aware of it. Know that fear is the reason you don’t do things that would bring more money home to your family while helping customers and prospects more. 2. Understand that your fear probably currently exists in your subconsciousness. That is, you’re not even aware that it keeps you from doing important work, because it occurs automatically and incredibly quickly. It rears its head in milliseconds. 3. Know that your fear isn’t real. It only exists in your head. During

a recent discussion of these very same topics, a client said there is a difference between fear and danger. Fear is in our heads. Danger is in the real world. There is no danger in calling a customer to ask about their family. There is no danger in inquiring with a customer about what they are working on now, and where you might be able to offer assistance. 4. Listen to your happy customers. They will tell you how wonderful and valuable you are. Listen to them regularly. Marinate in their feedback. Marinate your colleagues in the warm, joyful feedback of your happy customers. This will address your current fears and inoculate you against further fear. 5. Ready-Fire!-Aim. You don’t have to 1,000% comfortable or ready to do something. Because you will never be. Right? When are you ever allthe- way, perfectly and entirely ready to do something? Rather, communicate when

you’re almost ready. Because the distance between almost ready and completely ready is dysfunctional. A business coach taught me this 20 years ago, and it has served me well for my entire career. Imperfect action always trumps procrastination. Then, simply, do stuff. For sales growth, the “stuff ” needs to be communications: 1. Make proactive phone calls. Not cold calls but relationship calls. Human calls. 2. Tell your customers what else they can buy from you. 3. Ask your customer what else they buy from the competition that you can help them with. (I know this feels uncomfortable, but ask them, and they will tell you! Nobody ever says “I don’t want you to help me more.”) 4. Follow up on quotes and proposals. 5. Ask for referrals. 6. Ask for testimonials. 7. Communicate testimonials. 8. Send hand-written notes. Show people that you care. Be present. Don’t think about being present. That won’t make you any more money. Actually be present. That’s what will feed your family! Alex Goldfayn is the author of the brandnew Wall Street Journal bestseller, Selling Boldly. Learn more about his revenue growth consulting and speaking work at www.

Give Up Profits to Odors!...continued from 1 were valued in the $250k - $500k range. That being said, statistics show that close to 60% of tenants leave behind cat or dog urine odors – which we know is a terrible smell that the next resident will not tolerate. These homes were not immune from those odds. Units with these issues just can’t be rented or sold at full value when they have varying degrees of pet odors. This company’s maintenance personnel tried everything to eliminate the stenches but were unable; They tried carpet shampoos – even the ones that say “remove pet odor;” commercial carpet shampoo services; vinegar & baking soda; and even professional 8

carpet steamers. And still, the odors remained. So, what did they do? There is always an option to rent to other pet owners. However, more of the carpet will stink later because new pets will urinate in the same place. That’s when these property owners purchased a case of OdorXit. They mixed the OdorXit Concentrate with water and sprayed it on hardwood and linoleum floor coverings. Then, utilizing a vacuum scrubber, they cleaned the carpet using OdorXit in the shampoo, as directed. The carpet smelled fresh and clean for days. And the odor didn’t come back. Once you spray everywhere (everywhere!) there is urine,

the pet odor in any home will be eliminated. The smell won’t come back, even on the most humid days. How do you find other spots that might not be on the carpet, but hiding on the surface of a door or even the baseboard? Try using an Ultra Violet (UV) flashlight. A UV light makes most urine fluoresce or turn a yellowish-green color and urine-marked wood will easily fluoresce under this light. Additional places to spray OdorXit Odor Eliminator include: Behind cabinets, under carpet tack strips (remove before treatment), door thresholds, window sills, duct work on the floor or low on the wall, and the bottom edge and

sides of doors. The property owners described above treated all the fluorescing areas with OdorXit and got rid of their pet odors. They were able to rent and/or sell their houses at full value. Remember, OdorXit believes that you work too hard to give up profits to odors! You name the odor and they have a product that can safely eliminate it. Their products are not a cover up, eliminate the odor at the source and are safe to use around people, pets and the planet. For more information visit

Real Estate Journal · Summer 2018

Real Estate Journal

The Office Depot name and logo are the registered trademarks of The Office Club, Inc Š 2018 Office Depot, Inc. All Rights Reserved.

Real Estate Journal ¡ Summer 2018


Real Estate Journal

Legislative Update...continued from 4 insight into the legislative process is essential to having an effective influence…and worth the price. So, when do you pay for insight, and how much do you need? There are typically several levels of engagement with a professional lobbyist. The cost will depend on the level of engagement, duration of the session, and the size and temperament of the State’s legislature. Consider the following as a rule of thumb: The most basic level of engagement: Monitoring of legislation. This is typically a weekly or monthly report of bills and movement of bills. Second tier: Advanced Monitoring: Some level of assessment and feedback from lobbyist on legislation.

Illinois REIA’s George Skidis (R) talks with with Congressman John Shimkus about issues facing the real estate investing industry

even leveraging a coordinated with Candidate Questionnaires, grassroots response as necessary. an organization can move onto the radar of numerous legislators Fifth Tier: Third tier: (beyond regional limitations) and Full engagement: This includes Influence level: Assistance/ gain an outsized influence. And addressing industry damaging bills guidance in supporting or opposing that is pure value for members and a “few” pieces of legislation. (filing and the most difficult issue: passing the industry! position statements, beginning to a bill! Grassroots coordination Monitoring vs assessment: will be essential, as will regular What does my lobbyist bring to meet Legislators, etc.) and developed relationships with the table? Fourth Tier: legislators. At the most basic level, every Engagement: Lobbyist assist Depending on the State and the Real Estate Investors Association with meetings with Legislators, level of complication of the rules should engage at the assessment testimony for and against bills, involved a PAC can be helpful in level. Professional Lobbyists Interested Party meetings, and moving an organization ahead one understand initial engagement by typically includes weighing in tier, through strategic utilization. trade associations and are usually heavily against a few bills – possibly Additionally, when combined very willing to work with them and their financial limitations. The expectation is that over time, as the lobbyists help provide value, and benefit the association, Wealth Building positively an increasing level of participation Summit, August 18-19 will occur. A few additional things to DoubleTree Hilton Cleveland – Westlake, OH consider when hiring a lobbyist: ask if they have experience in your Just steps from our Corporate Headquarters! industry’s field. Do they know housing issues, financing issues or something entirely different? A nexus of similar interests can be helpful, though a lobbyist who is 90% supported by the Realtors© or Home Builders is definitely going to have a loyalty issue at Discover How to get your FREE Account and some point IF your issues differ. Learn to Take Control of your Financial Future at Feel free to ask about conflicts of interests. Most lobbyists will the Equity Trust Wealth Building Summit be able to tell you upfront where they see potential problems. For REGISTER NOW: example, the lobbyist for local municipalities, may not be the most helpful advocate when trying to limit municipal fees. 9 Content-rich education geared to all levels of investors In general, lobbyists will address 9 Hear from industry leaders and client speakers who will share their experiences their concerns upfront and early. utilizing self-directed accounts to invest in alternative assets The lobbying field is not large and 9 Learn how to get started on your path to financial freedom word spreads quickly if there are character issues. Equity Trust Company is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever If the lobbyist is part of a law making an investment decision, please consult with your tax attorney or financial professional. firm or an attorney, a conflict of EU-0050-01 © 2018 Equity Trust®. All Rights Reserved. interest review will automatically be generated. Non-attorney

shops are common, and often less expensive. These lobbying shops often represent several commercial interests, specializing in various areas with relationships among key legislators. Meeting with two or three of these is often a good start to engaging the Legislature. Out of session, many of these lobbyists can also help with advice and connections at the municipal level. Finally, engage a lobbyist for the legislative cycle, which is typically two years long. If you are starting mid-cycle, there is no reason to go beyond the end of the next legislative session. For example, if the session runs January, 2017 through December of 2018, all bills will expire at that time and new legislators may enter the arena based upon the November 2018 general election; a contract running until the end of 2018 would be wise, with a new contract running concurrent with the next session implemented appropriately. In all of these efforts, talking with individuals “in the know” can help raise the overall association awareness and start developing institutional knowledge about the process. Organizations can, and should start small, developing abilities and a knowledge base, as well as growing relationships for the long term. Remember, legislatively speaking, the industry that is not at the table, is on the table.


Real Estate Journal · Summer 2018

Real Estate Journal

When What’s Wrong with This Deal Could be What’s Right with This Deal By M. Jane Garvey


e are in an interesting market. Many investors are saying that they are having a hard time finding deals. There is a buying frenzy for houses and apartments. At the same time I hear others are saying that the market is about to crash and they are selling out. Over the years I have observed that the problem many investors actually face when they are having a hard time finding deals is that they are looking for the same deal many others are looking for. Digging in the same corner of the gold mine, so to speak. Without something that sets them apart and gets them to the deals before other buyers, they are fighting a losing battle. In the meantime, other opportunities are available with no one even noticing them. Be a problem solver. Look at a situation and see if there is something you can do that is not being done that will improve

things. In the real estate world this can come in all sorts of different forms. If you are open to the opportunities you will find them in abundance.

Here are a few ideas to get your creative juices flowing Converting Rentals to Condos - One of the more common things we have seen over the

years is investors buying rental properties and converting them to condominiums in markets where there is more value being placed on condos. Note, there are occasions where a de-conversion adds value, so be open to the possibilities. Subdivide Land - take a large parcel and break it down into smaller parcels in areas where there is more of a market for small parcels. The opposite, an assemblage will sometimes add value in a market where there is a need for a larger parcel of land. Split a Property and Sell the Parts - A house that comes with a spare lot can provide an opportunity of this type. A high-rise condo in a dense urban area that comes with a separately deeded parking space can sometimes be split for extra value. A lake house that comes with a boat slip at the marina may offer a similar opportunity. You could even buy a property and split off part of it to sell, while keeping the rest for long-term investment continued on page 13

Easy Deck Upgrades ...continued from 2

Natural wood needs to be regularly weatherproofed and stained to keep their appearance. Types of popular natural wood include redwood, ipe, which is a Brazilian hardwood, tigerwood, which has a rich color with stripes, and cedar, which is rot resistant. Pressure-Treated Wood If wanting to stick to a tighter budget, pressure-treated lumber is a great product to consider. This wood is affordable and durable. Another option growing in popularity is color-infused wood, which comes in a variety of different color options that don’t fade like or stains or finishes. Real Estate Journal · Summer 2018

Decking enhancements If a deck or patio doesn’t need to be completely renovated, small changes in appearance or creative add-ons can create an outdoor space worth spending time and entertaining in. Resurfacing Revive the deck by first giving it a good cleaning, then apply BEHR DeckOver. This resurfacing product is durable, mildewresistant finish that is made to last without cracking or peeling. Lighting Add to the ambiance of the

The benefits of this new trend include better sight lines with thin cables, durability that can withstand most weather conditions and minimal maintenance. For a more traditional deck-railing look, consider installing pre-built railing systems or sections. This will save you both time and money. Making major or minor updates to a property’s deck is a great way to make the property more desirable to potential buyers or renters. Although prices of renovating a deck vary on factors like locations, size and materials, what you add it is still a cost-effective alternative outdoors by incorporating lighting to adding on a room in terms of in the patio or deck. Low-voltage return on investment. LED lights continue to grow in popularity, especially since they use 80 percent less energy. These Geoff Case has been with The Home Depot are a great option for decks as they for more than 18 years and in the lumber and building materials industry for nearly can light a path from a patio to the 30 years. He has worked as a merchant home when installed in walkways, and a supplier – experiencing the different steps and post caps, adding to building practices and regional nuances the atmosphere and safety of of lumber and building materials in five the outdoor area. Solar-powered different states. landscape lights are also a nice option to add energy efficiency to the home’s deck while avoiding the hassle of wires. Railing systems Create an open feel to the deck by installing cable-railing systems. 11

Real Estate Journal

Top Ten Recommendations for SelfDirected Retirement Account Investors By Jeffery S. Watson, Esq.

it. My loan to Fred will be secured by a mortgage against the house he is buying and fixing. There, in three simple sentences you can explain a deal that many people could take paragraphs to cover.


uring a speaking engagement in front of a large REIA in a Midwestern state, I asked the audience how many of them had set up a self-directed retirement account. Approximately 85% of the room raised their hands. After the presentation, I discussed that fact with a friend of mine has been doing self-directed investing since the late 1970s. He made the comment that when that question was asked a little over ten years ago, only five to ten hands would be raised in a room of over a hundred people. Clearly the awareness of self-directed investing is growing. With that in mind, I would like to share with you what I consider to be the top ten recommendations for self-directed retirement account investors. sounds simple. You should be able to explain the deal in three 1. If you do not understand sentences to an 8-year-old child. the deal, do not do it! When a person is able to explain This is one of the fundamental something complex in a way rules in all types of investing, that even an 8-year-old child whether inside or outside a can understand, then you know retirement account. Understanding they truly understand what they the deal means more than just are doing. I have seen too many being able to say you understand investors who made investments it. It means being able to explain with a self-directed retirement it in a way that makes the complex account and later regretted it

2. Always fund your accounts every year. Many real estate investors are struggling with ongoing monthly cash-flow needs, and they forget to discipline themselves to set up an automatic or systematic program for funding their retirement accounts, whether they are Roth IRAs, 401(k)s, HSAs or CESAs. Pick the two or three accounts that really matter to you and determine what your monthly budget needs have to be in order to be able to put approximately $6,000 per year into those accounts. At a minimum, you should be funding approximately $6,000 into your IRA, your because the person with whom spouse’s IRA, and your HSA. If they invested or to whom they lent you do not fund your accounts, money was far more sophisticated you will have very little to work than they were, and they felt like with for investing purposes. The they had been taken advantage of. discipline of consistently funding Ask me how I know! your accounts creates the “seed” Allow me to give you an example you will plant and subsequently of a simple explanation. I am going reap in future, profitable harvests. to loan $50,000 from my retirement If you never create the seed, you’ll account to Fred. Fred is going to never be able to plant it. use that money and other money to buy a house, fix it up, and resell continued on page 19

Seven Things: Utilities ...continued from 2 utilities in the building are really separate, and tenants don’t heat common areas or parts of other units on their own bills. If the furnace for unit 1 has just one duct in unit 2, or in the common entry or basement, and the Public Utility Commission or the individual utility receives a request for an audit of the utilities for that tenant, you will end up with that tenant’s whole bill in your name. The worst case I saw of this problem was a tenant who was a clever law student. Note that law students are not a protected class. He had gas heat and a bill in his own name, but he was never available for the meter reader, and always called in his own readings for the gas meter for almost a year. He had very low bills, but when the meter reader did come in March, and gave the tenant a $2,000.00 bill, he called the utility to do an audit, they found a duct in the basement had come (or been pulled?) apart, and the tenant’s furnace was heating 12

the common basement. The whole bill went into the landlord’s name and was still being litigated with the PUC two years later. Further, a landlord is not allowed to take a common bill, like a water bill for a single meter on the whole building, and divide it among the tenants. If it isn’t a real separate meter, you must pay the bill and price the rent high enough to cover the bill. Knowing your utilities also means knowing which utilities are publicly provided, by a municipality or municipal authority, and therefore lienable against your property, regardless of whether the unpaid bill on which the lien is based is in the tenant’s (or former tenant’s) name, or in the landlord’s name to begin with. An electric bill from PP&L or West Penn power is from a private company, and they don’t have the right to lien or charge you for the tenant’s unpaid bill. But if the municipality where you have

your property buys the electricity from the utility and resells it to your tenant, that same electric bill now comes from a municipal authority, and if the tenant doesn’t pay, the unpaid bill attaches as a municipal lien against your property. The worst illustration I have seen of this is tiny Pitcairn, PA. There, the water and sewage, electricity, cable and internet are all provided through a municipal authority. If a tenant owes $350 in rent,pays the rent, and doesn’t pay his water, sewer, electric, cable (including services like HBO, cable modems, internet phones and pay per view movies), you could end up with a notice of unpaid bills for that month in excess of the rent you received and eventually a lien against you for that unpaid amount. I gave up my buildings in Pitcairn after getting a bunch of those notices. Knowing your utilities requires that you verify the information the seller provides on utility costs, too. Many sellers

have a tendency to underestimate their seller paid utilities to make a building for sale look like it cash flows better than it really does. The various utility companies maintain actual records of usage, which you should check before you close on the building. Finding out the numbers are wrong before you buy gives you the opportunity to renegotiate the price or buy a different building with better cash flow. Finding out a year after you buy may give you a lawsuit against the seller for misrepresentation, but it won’t change your cash flow right away, even if you eventually win the suit. Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania. He can be reached at

Real Estate Journal · Summer 2018

Real Estate Journal

Strategies to Capture Investor Money By Stuart M. Gethner, RPh


hen I walked into the living room, he handed me a cashier’s check for twenty-five thousand dollars. At first, I was shocked, honored, nervous and a tad scared. The “what ifs” started creeping into my mind. My FIRST investor check and it was for a deposit on a sixplex in central Phoenix and I was shaking like a leaf on a tree in September! I worked HARD on that presentation, following The SixStep Formula (my Bible) and was confident this investor would eventually come on-board. After all, I made it a no-brainer for where he wanted to park his $100K, even though I only got twenty-five thousand since that was what he was comfortable giving. But I broke the ice – my & flip or short-term transaction? first investor. And that was many Since that time, I have had years ago. multiple investors that have funded Are you looking for investor millions of dollars in transactions money for your next wholesale, fix using NONE of my own money or

stock-tip or venture capitalist are always knocking at the door of the potential investor. Not to mention their ability to diversify their capital by purchasing a franchise (think We Buy Ugly Houses or McDonalds) or investing in oil & gas. Most of the time together was spent on “The Presentation” step from The Six-Step Formula. Have you heard the expression, "Failing to plan is planning to fail?” Is that always true? Aren’t some people in business successful in spite of their poor customer service or inferior product? Here’s a Gold Nugget: You can’t “wing-it” if you’re serious about working with investors. Having an investor invest their money in your next deal is a process just like everything else. It takes work – just like everything else. And some are easier to work credit. Remember, in the investor world with – just like everything else. As every business grows it there are many opportunities looks for capital (money) because to invest their capital and it is continued on page 21 not just in real estate. The latest

What’s Wrong with This Deal Could be What’s Right ...continued from 11 Add Infrastructure – If you buy “raw” land and put in roads and utilities, “infrastructure,” this will add value if there is demand for buildable land. You may even get the community to add the infrastructure because the property tax base can be increased with new housing or businesses. Raise the Rents - One of the biggest opportunities can come from properly positioning properties for the marketplace. If rents are too high, without appropriate amenities, you will have a vacancy issue. If rents are too low, you will not only have lower cash flow, and a lower property value, but you may attract more difficult tenants. You should look around and figure out what amenities are needed to bring you the best bang for your buck. “There are Riches in Niches.” - Why, because there is more demand than supply. Niches are market dependent. They can be as simple as accepting pets, a no smoking policy, providing internet/ cable, accommodating students, military rentals, on-site day care, senior housing, short-term rentals, furnished rentals, vacation rentals, and many, many more. Look Real Estate Journal · Summer 2018

around. What things are people likely to need or want that aren’t being provided by others in the marketplace in adequate supply? Some people think, well that is so obvious. If the opportunity is there, why hasn’t the owner made the most of it? Why hasn’t someone else grabbed it? If you dismiss the possibility without investigating, you will miss many great opportunities. There are a variety of reasons that people don’t take advantage of the opportunities that are within their reach. First and foremost, they might not even realize they exist. People who own properties sometimes have blinders on. They purchase a property with an intended purpose, and never take the time to adjust their plan as time changes. Opportunities shift with time, so to maximize our returns we should do an occasional reassessment. I would suggest that this is something you should do at least annually. There are other owners who can see an opportunity, but do not have the time, money, knowledge, resources, connections, etc. to take advantage of it. Sometimes they are open to partnering with

someone who can add something to the situation and help them take advantage of the opportunities that exist. To find these opportunities, look for off-market properties, properties that are in the right place, properties with signs of a tired owner, properties that are being marketed but are not selling. Pay attention to the things that drive demand. What has changed about the area? Is it becoming popular with a different demographic that may demand different amenities? If you can spot these trends, you can bring value.

Personally, this is the kind of investing that I enjoy. It is usually more a matter of investing some time and expertise than money and sweat. There is little competition, and if there is competition, you look elsewhere. There is no reason to be scrambling for deals when there is opportunity all around you. Jane Garvey is President of the Chicago Creative Investors Association.

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.

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Real Estate Journal

Member Spotlight Ken Lacy ...continued from page 1 Prior to my current position, I worked professionally for an IT company as the Director of Client Services, and before that VP of Operations for a telecommunications company, which is how I ended up in Charlotte. Long before that I served in the U.S. Navy on a submarine (USS Hawkbill, stationed at Pearl Harbor, Hawaii) and later as an EOD (Explosive Ordnance Disposal) diver. I finished out my Navy career as a Navy Diver and retired with 9 years active duty and 17 years in the reserve, which included a tour in the Middle East. After the leaving active duty, I worked in Security Operations for Texaco Oil in London, England, before coming back to the states to work in the civilian world.

I was asked by a local nonprofit to assist them with getting veterans into homes (two years before starting Veterans Path Up). While working with a local real estate investor on a house that she was rehabbing, we helped our first veteran and her two daughters get into that home. Since then, I have helped over 40 veteran’s and/or veteran families get into homes utilizing my resources before and after creating VPU.

Describe a typical work week for you as a real estate investor: Right now, my focus is 100% towards Veterans Path Up. During the week we work on establishing new partnerships, nurturing our existing relationships and thanking our supporters! The three key areas I focus on are identifying, and Where is your current qualifying veterans, researching market and what is your potential properties and most focus or area of expertise? essential, finding funding. All Charlotte, NC, and Richmond, efforts are in support of growing VA. We focus on rehabbing the organization so that we can homes and identifying honorably achieve our vision of ending discharged Veterans to rent the veterans’ instability across the home while getting them on the United States. In this effort, we are path to homeownership. currently embarking on developing VPU chapters in other states. Our How did you get started? first chapter started in Richmond, Ken with a prototype remote controlled 40’ boat

Ken with his Navy Reserve dive team on deployment

Va. and additional chapters will be the due diligence from a partner, coming on line by Q3 of 2018. who did not do his due diligence very well. He claimed the house How long have you been was in the “Historic District” of investing in real estate? Monroe, when in fact it was one I got started back in 1997 with property over from the historic the rehab and flip of a townhouse district. I dropped the amount in Virginia Beach. But I really got that I would lend on the property, the ball rolling in 2013 with my however, the projected ARV (after first hard money loan. repair value) of the property was still too high. The borrower Tell us about your first deal: I did a hard money loan out of a SDIRA (self-directed IRA) on a fix & flip house in Monroe, NC, in 2013. The investor who borrowed the money from my IRA relied on

Metrolina REIA Project Manager Leading the Team of Volunteers with Charlotte Mecklenburg Police Department volunteers working on VPU house rehab


Real Estate Journal · Summer 2018

Real Estate Journal

501(c)3 and your donation is fully tax deductible to the extent that the Member Spotlight Ken Lacy ...continued from page 14 Various projects and rehabs undertaken by Ken and Veterans Path Up Ken was an Explosive Ordinance Disposal (EOD) Diver in the U.S. Navy law allows. We are also working on our Pave the Path fundraiser taking place in mid-July, 2018. This 2-day event will feature seasoned real estate professionals sharing their knowledge and experience to empower participants on your own path to professional success.

United States. What has been your top struggle in this business? Acquiring homes to rehab and obtaining funding. What do you like most about what you do? Helping those who fought for our freedoms.

Do you have a tip or advice that you would pass along to other investors? Education does not have to be expensive. The best thing you can do is plug yourself into your How much time do you put local REIA. Don’t be afraid to ask into your real estate education? The majority of my real estate questions and be willing to give of education now comes from yourself in whatever capacity you attending Metrolina REIA’s can - even if you are brand new. monthly meetings, sub-groups, You can always volunteer to get Mastermind events and other more involved. seminars. The seminars and How important is joining a Mastermind events involve local REIA to a new investor? immersion averaging about 15 days Joining your local REIA is the per year. Education and training single most important step you are extremely important, however, can take. Once there, you are establishing and nurturing trusted able to get a wealth of knowledge relationships along with consistent from multiple seasoned real networking is just as important if estate investors in one location not more so! NOTE: You can know and it’s local. You are also able to everything in the world, but if you hear national and targetfocused don’t have anyone to work or invest speakers who have their pulse on with…..all you have is a head full other areas of the country which, of knowledge. Ken was an Explosive Ordinance Disposal (EOD) Diver in the U.S. Navy in turn, brings additional value to ultimately wholesaled the deal and Richmond, VA. the table. Has coaching or mentoring lost money. However, he made Do you have a real estate license? played a part in your success? What is your favorite me whole so I do respect him for Absolutely….the list of incredible No selfhelp or business book? this. Here is my advice: Do your people who have been part of The book Traction, by Geno due diligence, trust but verify, and coaching and mentoring me is long. What projects are you Wickman presents a good model align yourself with people you like, I could put actual names down, currently working on? for running your business. know, and trust. Your REIA is the We are working on a 5-bedroom however, I’ll end up accidentally best place to start. home in Richmond, VA that missing some who have been Do you have any interesting instrumental and so very giving of will be a transition property for hobbies or something unique How do you fund their time. honorably discharged veterans. that you like to do? your investments? Scuba diving, boating and By utilizing SDIRAs and/or other One of the bedrooms will be What are your current ADA compliant, and the home playing tennis. people’s SDIRA’s. Veterans Path and future goals? Up historically has used private will be a stepping stone for the My goals over the last four Does your business money/SDIRA’s and donations to veterans to prepare them for SFRyears have been centered around have a website? fund its rehabs, along with material single family residence homes building the model for housing grants from Home Depot and in that Veterans Path Up-Richmond our Veterans. My current and will be working on. Our affiliate one case, a cash grant from BB&T future goal for VPU is to create Facebook? bank. In addition, Ingersoll Rand in Charlotte is currently vetting chapters across the country which VeteransPathUp Corporation has just awarded potential properties for its next will enable us to achieve our vision VPU a $30,000 grant which will project. If you know anyone who of ending Veteran instability in be used on our “Path Up” house in is a likely candidate to “donate their house” to a veteran, we are a homes throughout the entire

Real Estate Journal · Summer 2018

Various projects and rehabs undertaken by Ken and Veterans Path Up


Real Estate Journal


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Real Estate Journal · Summer 2018

Real Estate Journal

Appraisals that Don’t Sink Your Deal By Kathy Fettke, Co-Authored by Donna Behrens

during the foreclosure crisis. There were so many distressed properties on the market, it brought all values down. Later, during the recovery, buyers were often willing to pay more than the comps as prices surged. Durbin said that with today’s tight inventory, bidding wars drive home prices through the roof, making appraisals more of a fast-moving target.


etting the price right on a home is extremely important for both sellers and buyers, but in today’s market, it can also be one of the biggest challenges. There are several wildcards in the appraisal process that could skew the numbers, and put a transaction at risk -especially if there’s a loan involved. If an appraisal comes in lower than the agreed-upon sales price, the loan amount will also be lowered, and the deal could fall through unless someone makes up the difference. But, the buyer may not have that extra money, and the seller may not want to shave any more off an already negotiated sale price. Getting an accurate appraisal can help avoid that situation, but there are challenges in the appraisal process. Today, the sales volume is down due to low inventory levels and tight lending guidelines so it’s often difficult to find good comps. Many neighborhoods are filled with homeowners who are not selling because they fear they

won’t find a replacement property or because they are locked into low rates. Fewer sales makes it more difficult to determine values based on recent sales activity, because it’s hard to compare prices among the few homes that do go on the market. If the appraiser relies on

Accurate Valuations Serve Both Sides Despite the challenges, sellers need to know what their homes are worth so they can price them properly. If a home sits on the market for too long because it was listed too high, buyers often think something is wrong with it. Price reductions can also spook them, and offers come in even lower. Buyers also need accuracy so they can negotiate a sales prices older comps, they may be out- that beats the competition in a ofdate. Foreclosures and short bidding war, but doesn’t beat up sales can also artificially lower the their future equity. If there’s a lot value of nearby homes as well. of competition in a market, they Clarocity chief valuation officer may go over the appraised value, Ernie Durbin said recently in a but at least they will do that with Real Wealth Show interview that their eyes wide open. appraising a property became Getting it right ahead of time is difficult when values plummeted continued on page 18

$130,000 in Profits to Help Boost ...continued from page 17 hopes his investing will help him ranked book on Amazon** enter a “semi-retirement” phase of Self- Directed IRAs: Building life more quickly. Retirement Wealth Through Alternative Investing In addition, Brian believes continued investment in the CESAs • More wealth-building will help pay for the children’s education private school and potentially Members are not limited to one college. “I’ve got a good start on it,” account – the first year is free, no he says. matter how many accounts are opened. Special self-directed Visit account offer for National REIA members or call 844-732-9404 Equity Trust Company is a to learn more. national sponsor for the National Real Estate Investor Association Additional Self-Directed Real (NREIA) and is offering NREIA Estate Investing Education members and its affiliated National REIA Executive chapter members the opportunity Director Rebecca McLean will to experience the concept of keynote Equity Trust’s upcoming selfdirected investing with a free Wealth Building Summit, August selfdirected account for one year.* 18-19 in Westlake, Ohio, speaking In addition to a free account, about the state of the real estate NREIA members receive: industry. For more details on this • GOLD Level Service event, visit membership (priority wealthbuildingsummit. processing and exclusive access * Free Self-Directed IRA refers to an experienced client service to an Equity Trust Company team) for one year selfdirected account with no annual • Digital download of #1 maintenance fee for 12 months. Real Estate Journal · Summer 2018

** Book reached a #1 ranking in Amazon’s Retirement Planning category when launched in June 2016 Equity Trust is a financial services company that enables individual investors to diversify investment portfolios through alternative asset classes, including real estate, tax liens, 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 wealthbuilding education, which enable them to grow their knowledge and complete transactions with ease. Case studies are 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.

should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. 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.

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


Real Estate Journal

Appraisals that Don’t Sink ...continued from 17 preferable. So, what can you do to avoid a low appraisal? Tips for Getting an Accurate Appraisal As a buyer, you should meet with the appraiser when he or she goes to inspect the home. You can also ask the lender for an appraiser who lives in the area and is familiar with the local market. It might help to share what you know about recent foreclosures or short sales that might negatively affect the comps and keep you from qualifying for that loan. The appraiser should also have a residential appraiser certification that might include designations from the Appraisal Institute. If you are a seller, pay for an appraisal before you decide on a listing price, and have it done by a professional from your area that’s also listed on the Appraisal Institute website. You can share the appraisal results with the buyer’s appraiser, and if the buyer’s appraisal comes back on the low side, question it. There could be some overlooked or new information that needs to be taken


into account. Whatever comes of this process, it’s important to acknowledge that appraisals are not an exact science. Durbin says: “At the end of the day, the appraiser wants to produce what’s called a credible report.” He says: “There’s no right value. For an appraiser, the market value its more of a collective opinion. Appraisals are supposed to represent what a typical buyer and seller would pay for that property in this marketplace.” Traditional Appraisals Becoming Optional in Some Cases While appraisals may be critical for some real estate deals, Fannie Mae and Freddie Mac are no longer requiring the traditional in-person appraisals for certain properties. The two governmentsponsored enterprises tweaked the rules last year, so that some appraisals could be done with proprietary analytics and recent property data. Not all properties are eligible for these appraisal-free loans.

According to the Washington Post, the guidelines include a down payment of at least 20% and previous appraisals on those same properties. The companies began doing this last year, and recently told the Post that about 60,000 or 5% of the total numbers of loans issued in 2017 were approved without those in-person appraisals. That helped deals close more quickly, and saved buyers money. Appraisals typically cost about $500. The appraisal industry isn’t thrilled about the new development. It, obviously, takes money out of appraiser pockets, but it could also jeopardize accurate valuations. And, bad valuations are a risk to the housing market and ultimately to taxpayers if they have to bail out Fannie and Freddie, as they have before. Sacramento-area appraiser Ryan Lundquist made a good point in the Post article. He says that a computer database “cannot smell 20 cats living at the property.” It’s also impossible for a computer

to know whether there’s deferred maintenance, or other issues inside homes. While buyers can save a few hundred dollars by opting out of an appraisal, it may not be a good idea. They may not need it for a Fannie/Freddie loan, but it will help them more accurately negotiate a purchase price.

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.

Real Estate Journal · Summer 2018

Real Estate Journal

Ten Recommendations for Self-Directed Retiremen ...continued from page 12 3. Know the things in which you cannot invest. The list of things in which you cannot invest with a self-directed retirement account is very simple: collectibles, shares of sub-S corporations, and life insurance contracts. Once you understand what you cannot invest in, it means everything else is possible. The same theory also applies to the next rule. 4. Know the prohibited transaction rules, or hire someone who does. We all think we understand the rules; but when we are in a hurry and get into a deal with a lot of moving parts, we often don’t take the time to analyze the transaction in light of all the prohibited transaction rules, particularly rules regarding not providing a service to your account, as well as direct and indirect benefit rules. Many retirement account investors are unable to distinguish between what they believe is a service and/ or managing their investment, let alone explain whether they are using their retirement account in a way that either directly or indirectly benefits them now or in the near future. It is prudent to do at least an annual review of the rules regarding prohibited transactions and disqualified persons so you can keep current as to what you can do with your self-directed retirement account investments. There are many good resources from custodians, administrators and trustees, lawyers, and even some reasonably-priced books on the internet. These will give you a basic understanding of most of the rules for prohibited transactions and investments, and disqualified persons. If you are a fact junkie like I am, or if you suffer from chronic insomnia, you may want to take the time to carefully read 26 U.S.C. 4975, as well as the Plan Asset Rules promulgated by the Department of Labor.

12% rate of return. Since the goal is to amass a good-sized retirement account, you need to work toward that goal. My suggestion is that you do it by focusing on longer-term deals. Consistency is important, because slow and steady wins the race. Another benefit of doing longerterm deals is that it is much easier to do the necessary due diligence and underwriting for one longerterm deal than for a series of shorter-term deals. There are fewer demands on your time and fewer opportunities to make mistakes. 6. Do small-dollar deals until you get really comfortable with doing all the due diligence, underwriting and documentation that goes along with self-directed investing. If you do a small-dollar deal (remember, all accounts started out small) and something goes wrong, you only lose small dollars. If you do a large-dollar deal, particularly at the beginning of your investing career, and something goes wrong, it could be fatal. As your confidence and experience grows, you can do larger-dollar deals.

7. Dealing and acting like a business owner inside a self-directed retirement account is not a good idea. Many people will tell you that UBIT can be your friend, and I would agree that in certain circumstances, UBIT or UDFI are potential allies to your retirement account; but acting like a dealer or owning a business inside your self-directed retirement account is not wise. Not only does it create a higher risk of liability and lawsuits, but there is a greater likelihood that it will attract the attention of the IRS. You will also have to file a more complex tax return because the debt or business activity income inside your self-directed retirement account is not tax-free. I’ve had people say to me, “But, Jeff, I’ve been told that in order to have a truly self-directed 5. Remember that it is a retirement account, I must have retirement account, and checkbook control.” Checkbook you need to treat it as such controls comes when the IRA owns by doing longer-term, an entity, such as an LLC or trust cashflow- producing deals. that is funded with IRA dollars, Many times, an investor gets and the checkbook is in the control trapped in what I call “yield of the account holder. My response disease.” They are looking for a to that is that IRA-owned entities high rate of return and are willing can either be awesome or awful. to do short-term deals (such as You had better know when, which hard money lending) in order to and why. achieve those rates of return. While It’s a rule of practice in my office 3 points and 15% might sound that I will not assist a self-directed impressive for a 6-month period of retirement account holder in time, that deal pales in comparison Ten Recommendations for Selfto an investment that may last for Directed Retirement ...continued four years consistently earning a from 12 setting up a single-member Real Estate Journal · Summer 2018

LLC to be owned by an IRA wherein the account holder insists on being the manager (person in charge of the funds). I insist that they have an independent, non-disqualified third party as the manager of that LLC or the trustee of that trust. 8. Open a Roth account. Many investors who are getting up in years have lamented that they only have traditional accounts, and they don’t think there is any way they can get a Roth account. My response to that is that anyone with a pulse and a way to earn and report active, earned income can have a Roth account, and they need to get one NOW! There are simply no excuses. Once you have learned the definition of what constitutes active, ordinary, earned income (income that is subject to income tax or self-employment tax such as W-2, paycheck, 1099 or Schedule C income), you will understand the importance of getting some of that money into a Roth IRA or Solo 401(k) with Roth component. The magic of the Roth is absolutely crucial. Not only does the money get to grow tax free, but under the right circumstances, it can be withdrawn from the account in the form of a qualified distribution tax free. 9. Make sure you double check the beneficiary designations for the accounts you have established. This rule actually applies to every type of retirement account, investment account, or bank account you have. You need to double check your beneficiaries. Is that money going to go to the person you want it to go to in the event of your death? Is the beneficiary designation consistent with your overall estate plan?

10. Become creative and learn how to play nicely with financial friends. Self-directed retirement account investing is a team sport. It is not a solo activity. Anyone who understands the prohibited transaction and disqualified investment rules understands that you cannot take money from your self-directed retirement account and use it for your own investments or put some of your current assets into those accounts, so you must learn how to work with other individuals in a cooperative manner. You need to find those individuals by networking with them at your local REIAs to determine if their business standards are the same as yours, if their objectives are similar to yours, and if they seem like the right kind of person to put on your investing team. When you play nicely with financial friends, all of you prosper and benefit. Avoid doing a deal with someone who believes they alone need to be the one who profits and benefits from the transaction. If the investment is not mutually beneficial, it shouldn’t be done by a group of financial friends. One of the benefits of developing a group of financial friends is that you can do repeated deals with them as various situations and opportunities arise. 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.


Real Estate Journal

Don’t Base Your Insurance Purchase Strictly on Price By Mark Gannaway

All accounting records at your fingertips. Dashboard platform to purchase other coverages including builder’s risk, flood, renter’s insurance, tenant discrimination and cyber liability.


t’s no secret, the days of purchasing single family homes for investment purposes has become extremely competitive and challenging for the average buyer. No doubt it’s a sellers’ market, especially in major metropolitan areas like Atlanta, Charlotte, Chicago, Dallas-Fort Worth, Phoenix, Portland and Seattle with values appreciating in the last 12 months 8% to 25%. Overpaying for a property typically leads to an unsuccessful ending, especially if you’re financing the property with a lender. Higher purchase prices mean lower ROI, unless the investor can collect higher rents to offset. Higher rents require higher income tenants which again is a limited resource. Plus, there is a chance the price will be too far out of the market standard and therefore, out of the Investor’s control. As the Arcana team travels around the country visiting NREIA chapters, the first question we most often hear is “What are your rates?” Not about coverage, industry experience, service standards, technology or how do you pay claims? Real estate investors in many cases are still just checking the “insurance box” when purchasing a policy. Often, we hear “I have a good deal!” which means they believe they have the best price. The next question I asked them, “Have you ever submitted a claim?” followed by “Have you read your insurance policy?” Most of the time the answer is “no” in both cases. Everyone wants a good deal, including me, but how do you define a good deal? Lower insurance rates don’t necessarily equate to lower outof- pocket expenses related to your insurance program. Payment plans, cancellation provisions and what “isn’t covered” in your insurance policy is more impactful to an Investor’s bottomline returns

5. Great customer service and outstanding claims turnaround.

than merely cheap rates. Wise investors should be looking at every expense related to the purchase and financing of the asset, but as I have mentioned before in this periodical and in speaking engagements to NREIA chapters and other groups, don’t base your purchase strictly on price. If you’re a “flipper”, the rate doesn’t impact the purchase and sale of a home - especially assets purchased and sold within 90 days. It’s the hidden cancellation charges most insurance companies charge like minimum premiums, earned policy fees and short rate cancellation charges that impact overall cost. If your strategy is to hold and rent, then you’re looking for maximum cash flow to fund one’s investment and make a decent financial return for you or your investors. Under the Arcana / NREIA customized program, you truly get the best of both worlds. Listed below are the advantages of the Arcana’s insurance program for members of National REIA.

earned policy fees, daily Pro-rate insurance calculation, monthly Inarrears payments with no interest charges, and flexible payment schedules. The following scenario shows how the Arcana / NREIA program is different from most insurance companies. -for example: You purchase a one-year insurance policy through Arcana / NREIA for $365 and you sell the home on day 30 day of the insurance policy and go online and cancel your policy. The total insurance charge is $30 dollars plus applicable State surplus lines tax which is typically 5% of the earned premium. This as opposed to the other Policies where you might be facing a threemonth minimum payment. 2. No Underwriting – No photos, loss history, or inspections. 3. Maximum Benefits Replacement cost, All-Risk Coverage with normal exclusions, no Vacancy Clause, Occupied and Vacant rates the same.

4. Industry-leading Technology 1. Maximized Cash Flow – No – 24/7 ordering capability from minimum premium charge, No your computer or smartphone.

6. The buying power of the NREIA’s 40,000 plus members give you the best program for the best price, especially for small portfolios or new investors to the market. I also want to bring up another point; the insurance world is no different than you when it comes to expectations on the use of its financial capital. Insurance companies are looking for a reasonable return on their investment. Arcana is a U.S. Insurance Coverholder for Lloyds of London, the largest property insurer in the United States. Less than 80 firms can claim this prestigious title. Recently our underwriters informed us that, overall, the U.S property markets have lost money the past 2 years. Fortunately for our customers, Arcana had another good year, not a great year, but better than most according to our companies underwriting divisions. The U.S domestic insurance companies have also experienced poor results. So, don’t expect the insurance market to reduce pricing any further. If you see lower pricing, be weary and cautious. Do your homework & due diligence. What you think might be a “good deal” probably isn’t. Please give us an opportunity to speak with you directly or at one of your REIA meetings. We will demonstrate to you why the Arcana / NREIA insurance program is the right insurance decision for your portfolio. You can also learn more by visiting www.nreia. arcanainsurancehub. com. Mark A. Gannaway, CPCU, is the Chief Executive Officer and Founding Partner of Arcana Insurance Services, an alllines 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 wellknown 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.


Real Estate Journal · Summer 2018

Real Estate Journal

Capture Investor Money ...continued from 13 selffunding only works for as much money as you have in the bank. And when you are successful, it is prudent to leverage money for time or a fair interest rate so that you have more time. Would you like to have extra capital to invest when those opportunities present themselves? On the same plane are investors who do not want to have their money sitting in a bank earning below inflation interest rates. You and I know there is no better investment than real estate as it is a SECURED tangible asset. So, our goal is to illustrate to the investor that our opportunity is worth placing their capital for the short- or long-term. For me, The

Six Step Formula is invaluable. It taught me that every step must be spelled out with a reasonable financial assessment. For example, it shouldn’t cost twenty-thousand dollars to update or upgrade a twobedroom one-bath apartment in a working-class neighborhood. And here’s another gold nugget: your financial assessment (aka pro forma) should have an expense field called, miscellaneous (MISC). Any seasoned investor, real estate or other, knows nothing ever goes as planned. So, to NOT have a field called MISC will show the investor you’re not savvy or experienced. We have seen exponential growth in our business over the few years

as a testament to partnering with investors. Isn’t it time for you to experience an increased bottom line. If not you, then who? If not now, then when? Stuart Gethner is a practicing real estate investor and consultant. He facilitates workshops on foreclosures, short sales and lease/options to everyone – from real estate novices to professionals alike. If you would like a FREE copy of the Six Step Formula to Secure Investor Money go to www.

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Real Estate Journal


ear 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 rent resources by Arpola. You can also submit a question to Landlord Hank through both sites. When to raise rent, and especially for a long-time tenant, can be a difficult question for a landlord and property manager.

you to stay, but I need to raise your rent ‘X $’ starting in three months. Can you handle that?” And then I wait for them to talk. Don’t you say anything even if you have to wait for a few minutes for them to think about it. They may be calculating if they really do have the budget for your rental increase. Also, you need to know if there is anywhere else they can go that is comparable for less money. I’m also willing to negotiate an increase for a great tenant. If they really can’t afford the full rental increase, maybe they could pay half of your desired increase. The rental market will also influence my decision to raise rents. Dear Landlord Hank, I want to be at least competitive with other rentals with the same We have some long-time, great tenants who always pay on time. location and amenities. I have let How do you know when to raise the tenants talk me out of an increase rent for these types of tenants? Of too, on rare occasions. course markets are different across Great tenants are golden. But so the country, and when we bring in a are wonderful places to live, with new tenants we raise rates, but how comfortable surroundings, safety do you handle the older, long-term and responsive management that ones you want to keep? makes an effort to keep the ship and all passengers running smoothly -Landlord Tim and happily. Sincerely, Dear Landlord Tim, Hank Rossi Great question, Tim, and a tough answer. I won’t let a desirable, longterm tenant go over a rent How often should a landlord or increase, but when our fixed property manager conduct rental expenses increase I talk to the inspections of their property? tenant individually. How to raise rent for a long-time Dear Landlord Hank, tenant? It goes something like this: Do you conduct rental inspections? “My expenses have increased How often? annually and you haven’t had a rent -Dorothy increase in ‘ X’ years. I really want

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Dear Landlady Dorothy, How often do I conduct rental inspections? It depends. I do a very thorough vetting process to clear a prospect to become a tenant. The most important criteria for me is good rental history. When I put a tenant into one of my properties, I feel very good that the tenant will take care of the property. Sometimes I inspect rentals right away That being said, if I have the slightest hint that something may be off or if another resident nearby says something to me about a particular unit, then I inspect right away. The folks that we have doing pest control are in units every month. They know to not only kill pests but to look for water leaks, drips, or unsanitary conditions and let me know right away. Make sure your lease authorizes inspections. The 10-month mark for rental inspections If a tenant has great rental history then I normally conduct an inspection at the 10 month mark. That is when we contact tenants to see if they are going to renew or leave. If they are going to leave, I start showing right away for next tenant and want to make sure all is right with the unit. Then when tenant leaves we do walk thru inspection for any damages. Picking the right tenant for your rental often involves a tenant who is up front, and honest. This week a landlord asks, “Is an old drug conviction a big deal?” 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, We have a potential tenant with a meth conviction from five years ago who says he is now clean and more mature. He told us right up front we would see his old drug conviction when we checked his criminal record, and that he has not done any drugs since his conviction. Has a good job, good pay and always paid his previous landlord on time. Do you think we should rent to him?

-Landlord Sam Dear Landlord Sam, This is a tough one. Has this potential tenant good references for the last 5 years from more than one landlord and employment reference? Since this is a conviction and not just an arrest, this applicant could be denied as criminals are not a protected class under Fair Housing law (no legal advice here!). But people do change and if this person really has moved on from his criminal past, and you can verify that without a doubt, you could give this applicant a chance despite the drug conviction. I’d want to know if the meth conviction was for using the drug, manufacture of the drug, distributing the drug or any combination of these. Be fair with this applicant and treat this applicant and all applicants the same. If you do accept this person as a tenant, he can’t have any special treatment like frequent inspections, etc. He’d need to be treated like everyone else. Good luck! About Landlord Hank: “I started in real estate as a child watching my father take care of our family rentals- maintenance, tenant relations, etc , in small town Ohio. As I grew, I was occasionally Dad’s assistant. In the mid-90s I decided to get into the rental business on my own, as a sideline. In 2001, I retired from my profession and only managed my own investments, for the next 10 years. Six years ago, my sister, working as a rental agent/property manager in Sarasota, Florida convinced me to try the Florida lifestyle. I gave it a try and never looked back. A few years ago we started our own real estate brokerage. We focus on property management and leasing. I continue to manage my real estate portfolio here in Florida and Atlanta. Visit Hank’s website:

Real Estate Journal · Summer 2018

Real Estate Journal

Real Estate Journal · Summer 2018


Real Estate Journal


Real Estate Journal · Summer 2018

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