Connecting People - Educating Investors Government Helps Your Retail Buyer... Chuck McCay, Broker/Investor...................3 Silicon Valley 2010 Real Estate at a Glance Jason Lee, Broker.........................................4 Buying Fundamentals Stuart Baeriswyl, Broker/Investor...............6 REO Business & IRA Dollars Lori Greymont, Investor/Entrepreneur........8 Business Entities for CA Investors Anthony F. Earle, Attorney.........................10 IRA’s and Real Estate Investing Jeb Hendley, Senior Investment Broker.....11 Selecting the Best Investments Tom Wilson, Owner/Investor.....................12 Reselling REO’s via Online Auctions Jesse Loomis,VP Bid4Assets.....................15 Putting Lipstick On A Pig! David Beck, CFP........................................16 Mortgage Loans - Is a Thaw Coming? Michael Ryan, Mortgage Broker................17 Paying a $20k note can be “Great News” Natalie Knowlton, Short Sale Expert.........18 Until You have your first Million... John Schaub, Investor/Author....................20 Real Estate Professionals and the IRS Richard Smith, Enrolled Agent..................23
Deals in the Shadows Bruce Norris President The Norris Group
he Obama Administration continues to push measures to stem the tide of foreclosures. There has been a slight shift in language in 2010, however. The new emphasis is on “unavoidable” foreclosures which include investors, speculators, million dollar homes, those that have defaulted on vacation homes, and borrowers incapable of making payments. Instead, the current Administration has decided to “focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation.” Looking back on the original HAMP language, the target audience hasn’t changed. Neither has the fact
that the program is completely voluntary. These are the exact same reasons HAMP failed to gain momentum when it was first released in 2009. While new financial incentives exist for banks to cooperate, little data exists to prove long-term success and sustainability of this program and much is at stake considering the state of the economy and new regulations coming at the industry from all angles. Executives from “Too Big to Fail” banks including Bank of America, JP Morgan, Citigroup, and Wells Fargo testified in front of the House Financial Services Committee hearing in mid-April collectively saying that permanent loan modification was not the answer nor was it the only option. Fairness, contract sanctity, and our lending future were reasons cited not to participate in principal right downs. (Continued on Page 9)
Until you have your first Million, it’s all about Focus! John Schaub
hen you begin real estate investing and are starting with few assets, you don’t want to diversify. Instead, you want to focus and become as good as you can in a certain area of real estate. If you are into houses, become the best buyer and manager in your town. If you are buying quality properties at wholesale prices, with owner financing and then renting to tenants that take care of your properties, you will have a successful program.
Diversification can come in several forms. First, it can come in the way you finance your purchases. Most of us agree that buying with owner financing on great terms is the best way to go. In a downturn, buyers who purchased with owner financing survive, as their “banks” are people who will renegotiate terms so that they can keep the property. Rarely do sellers want to repossess a property they sold on terms. Real banks will only renegotiate if you are broke or have no other resources. An investor with net worth and some money in the bank is not a candidate for a short sale or a loan renegotiation with a commercial banker. (Continued on page 20)
W Geraldine Barry Investor & President SJREI Association The SJREI provides the education and networking necessary to enable individuals to make wise, profitable investment decisions. Whether you have yet to purchase your first investment property, or are working on your hundredth deal, you’ve found the bay area’s most dynamic investors association. Three Chapter Meetings monthly to choose from: »» East Bay »» South Bay »» Mid-Peninsula
Published by: SJREI Assoc. (408) 264-3198 www.SJREI.net
Notes from Geraldine’s Desk
elcome to the latest edition of the SJREI Journal – we are happy to be providing another information packed publication for investors full of insights set to educate and inspire. We have Bruce Norris on our home page sharing his thoughts on the current economy and his comment “that billion is the new million” really struck a chord.
This simple investment strategy of acquiring properties, maybe one a year for the next couple of years, could be beneficial especially to those who are willing to do the research and complete their due diligence, explore their risk tolerance, and make good solid investment decisions. Even if you work full time you could easily do the research and start the process.
We are celebrating our 8th anniversary at the May 6th SJREI meeting with a wine reception at 5:30. Come join us, and network with other investors and enjoy the presentation with nationally recognized investor and educator John Schaub. Thank you for your ongoing support, our members are what make our organization great!
Some people have invested successfully in Texas – this is typically a state that does well when California does poorly. There are a large pool of renters available, rent-toprice ratios are strong in TX with approximately $1,000 rent for a house that costs $100,000. Keeping in mind, this is leveraged money making the return on investment very attractive. Our recommendation is that you always put at least 20% down, and have funds available in case of incidental repairs that arise, and vacancies.
I am always intrigued about how our members are being effective as investors. What we are seeing right now are people investing in: • Buying REO (bank owned) packages • Buying at the court house steps, fixing up, and reselling • Buying REO’s to flip • Buying for cash flow and to hold long-term This wide array of investment activities creates an interesting netowrking opportunity for all attendees.
Using Real Estate to Secure Your Retirement Real estate is a wonderful tool to help you achieve your financial goals, particularly your retirement goals. If you purchased a couple of houses right now that cash flow, in CA, or out-of-state, a renter will pay the mortgage for you and by the time you retire you could have those houses paid off. Then the rental income can help fund your retirement, or supplement it at the very least. Another advantage of investing in real estate is that it is a tangible asset, you can see it – it will not evaporate as is often the case with investments in the stock market.
As a real estate investor, the key to success in my opinion is to have a good, trust worthy property manager to protect your investment, and help your business be profitable. Yes, this is a business and that is how one has to view investments and check the numbers annually to decide if it is time to liquidate because the market is peaking, or because the house is not performing. If you buy right you have a good shot at making money long term as real estate generally appreciates over the long haul. Understanding where we are in the cycle and buying properties that cashflow, and make good financial sense is key. Real Estate investing is an exciting and rewarding past time. We welcome all level investors to participate at the SJREI from beginners to experienced . Check out our calendar of events on page 21 and we look forward to seeing you at one of our upcoming meetings!
SJREI President Connecting People, Educating Investors
Copyright © 2010 by SJREI Association LLC, All rights reserved, no part of this publication shall be reproduced or transmitted electronically without express permission.
Disclaimer: SJREI Association, it’s founders, members, or presenters, assume no liability or responsibility for the outcome of any real estate transaction, decision, or other action that any member, guest, or visitor, may enter into as the result of attending any meeting of SJREI, listening to any guest speaker, or talking to Editor: Geraldine Barry Publisher: MeghanKoslowski any SJREI attendee. SJREI in no way endorses any real estate offering that may be made. Members of SJREI, guests, and visitors are urged to perform their own due diligence investigations before entering into any real 2 SJREI Journal www.SJREI.net estate transaction.
Investors Sales Strategy by Chuck McCay
Government Helps Your Retail Buyer Purchase Your Investment House
ens of thousands of dollars are available to buyers through a variety City, State and Federal Government programs that have been made available to homebuyers to promote the purchase of primary residences. These programs can fit perfectly for the first time home buyer who wishes to take advantage of today’s low prices and historically low interest rates and is not quite able to come up with a 20% down payment to qualify for traditional financing.
Chuck McCay Broker/Investor McCay Homes
Investors can benefit from these loans by developing a list of retail and first time home buyers who will be both able and willing to pay top dollar when taking advantage of these government assistance programs.
Examples of programs that are available: Chuck has been a real estate investor since 1978 and has remodeled and flipped numerous fixer uppers over the years. He has invested in several states including Idaho, New Mexico and Mississippi. With the changing real estate market over the past few years Chuck’s focus is back on the Bay Area. He is actively working with investors who are looking to make purchases in the Greater Bay Area.
408.836.1091 www.chuckmccay.com McCay Homes
• City of San Jose provides up to $50,000 of down payment assistance to teachers and San Jose State Faculty • California - CalHFA - loans up to 95% of purchase price or down payment assistance up to 3% of sales price at 3.25% interest, deferred • California State Teachers Retirement System (CalSTRS) or Cal Public Employee Retirement System (CalPERS) makes loans with just 3% down that have no mortgage insurance requirement • Federal Housing Authority - FHA - 203K Rehabilitation Loan provides for one loan that finances both the acquisition (or refinance) and rehabilitation of a property; up to 96.5% of the projected value after repairs s
Getting a prospective retail buyer approved for a 203K loan can benefit several different types of investors. 1. The investor who has expertise in finding and taking control of distressed properties can earn profit through assignment fees or option contracts when selling to a retail buyer 2. A rehab investor who doesn’t have the resources or time to complete a particular project can flip to the retail buyer and have him/her complete the rehab 3. A trustee sale investor can flip a fixer-upper to the retail buyer without taking on the cost and risk of completing the rehab themselves
The 203K loan will finance 96.5% of the after repaired value of the home. The investor can earn a profit for locating and controlling the property while the buyer ends up in a great loan and built in equity when the project is complete and the loan finally closes. Both investor and end/retail buyer win.
Real World Examples: Example #1: Michael B. purchased a home at the Modesto Trustee sale for $97,000. He completed a minor $12,000 rehab and already had a buyer who was preapproved for an FHA loan and purchased the property for $142,000. Michael netted slightly over $25,000 in just over 90 days; a 22% return in a relatively short period of time. Example #2: Richard and Silvia, through their own marketing efforts, located a single family home in San Jose and closed on it for $332,500. The house needed $65,000 in rehabilitation costs and took about 60 days from close to the rehab begin complete. The buyer was a Principle in a San Jose school and received $50,000 of down payment assistance and had $50,000 of his own savings adding up to more than 20% down on the final purchase price of $485,000. The Realtor Richard and Silvia work with had developed a list of buyers, including this Principle, who were able to purchase this home using Government Programs. The time to market and close the property were significantly decreased. The couple net about $75,000 on this deal. To learn more about these and other Government Assisted Loan Programs go to: www.HomePurchaseAssistancePrograms.com or www.McCayHomes. com. SJREI Journal
Market Update by Jason Lee
Silicon Valley 2010 Real Estate Market at a Glance
his year, the Silicon Valley Real Estate Market started with the lowest level of inventory, not seen since 2007. The market was poised for a big move up in price, if levels of inventory remained subdued. Since spring is upon us, let’s examine how the market has fared since the beginning of this year.
Jason Lee President, Silicon Valley REO Silicon Valley REO specializes in: • Analyzing statistics and trends within the local market • Providing a true understanding of the real estate investment process • Putting together difficult deals by thinking outside the box while working with sellers, buyers and investors of all types. (408) 348-7988 (408) 998-1300 Jason@SVREO.com www.SVREO.com (DRE 01051200) 4 SJREI Journal www.SJREI.net
Due to the housing crisis and the economic impact of foreclosure on the housing market, we divided Silicon Valley Real Estate Market into three different segments. The least affected by foreclosure are the high end homes in areas such as Palo Alto, Cupertino, Almaden Valley. The middle group including Berryessa, Evergreen, Santa Clara are having their fair share of distressed homes. The group that took a direct hit of the foreclosure crisis are the low-end group of Alum Rock, Down Town, South San Jose, ect… We will examine each group.
The High End Group Let’s look at Almaden Valley from the beginning of this year. Almaden Valley entered 2010 with 41 active listings and by March 17th, the number has swollen up to 100 active listings. The median price for single family homes, sold in February of 2010, was $949,000. The pending closed sales were all in line with a normal market for this time of the year.
Summary It is too early to tell if the strong buildup of inventory will be met with the equivalence of buying interest. So far, the rate of increase in inventory has been surprisingly strong. It is crucial for sellers and buyers to keep track of the pace of change and the entire dynamic forces that shape our market. Most real estate offices and their agents rely on national media to guide their local market outlook and are still waiting for the good times to come back. The reality is “Everything in real estate is local.” The experts and
talking heads on TV only know the national sales trends. However, when it comes to Silicon Valley Real Estate, WE are the ones with the facts. Our research is the best guiding tool for sellers and buyers of this market.
For Buyers and Sellers Your decisions of buying and selling are often made by using comparables and here is how most realtors will present it to you. They would show you 3 sold, 3 active, and 3 pending sales comparables of similar homes. You make your decision on how much to sell or buy based on that information. This method has worked out well in the past because of the market’s low volatility. This was the trend from 1995 – 2007. Since 2008 to present time, the Silicon Valley market has experienced big swings because distressed sales, in the form of Bank Owned and Short Sales, have played crucial roles in determining what prices will do next.
The Comparables Method has an inherit flaw in this market. Allow me to explain: On March 20, 2010, you decide to sell your home and ask a realtor to list your home. The realtor will show you 3 sold comparables. This will include the escrow closed date range from December, January, and February of this year. All comparables were in contract 30 to 60 days prior to the close date. The active and pending will do you no good, since the only available information they provide are the asking prices and the numbers of days the house were on the market. Your realtor also promised that he or she will sell your home at the highest price in the shortest time frame using their company name and the proprietary system invented by the franchiser. He or she also gave you his or her opinions of the local market which are based solely on things they hear from CNN or some national experts from a galaxy far away like Los Angeles. You are about to make a decision to sell your home based on data that is,
Market Update by Jason Lee If the market trend is lower, your house may not sell at all and, as time passes, you will continue to lower the price of your home chasing the market downward.
Why are We The Best Realtors For This Market? Silicon Valley REO was founded with a vision to change the real estate practice to better serve our client base. We are driven by the thirst for local real estate knowledge. We have the facts and, by looking at the facts, we are able to predict what will happen next. We divided the local market into three segments: High-end, middle, and low-end markets. Each segment has three categories: Bank Owned, Short Sale, and Regular Sales. We compiled the statistics of supply versus demand from each category. This gives us a picture of the direction that the market will take in the next three to six months. We update the data on a weekly basis; our research is what sets us apart from other realtors. The national branch offices often send their agents to attend motivational seminars to boost their confidence in their sale force. They hope to replace real knowledge with an artificial high of mental ecstasy. Their opinions and promises may be detrimental to your wealth. Call us now to set up a confidential consultation. Let us show you the facts and you decide what is best for you. You owe it to yourself to learn what will happen to your real estate market. The very least you will get out of the meeting is you will know more than your past and present Realtors.
Jason is also available for private consultations and can be reached at 408-348-7988 or by email at firstname.lastname@example.org.
Broker’s Corner by Stuart Baeriswyl
Back to Basics in a Buyer’s Market
o you remember the real estate market way back in 2005-2006? This was the time when it had become so very evident to many of us that California real estate values had escalated way beyond the point of reason. That prices here had just nowhere else to go but down, and down in a very hard way. For the investor, inflating property values were so out pacing rents that basic real estate business fundamentals were simply no longer applicable. This was a time to sell real estate.
There were the exceptions. One could still make income property cash flow by structuring larger amounts of cash down on the purchase. Also, the experienced buyer could find properties and successfully flip them for a profit – fairly easily done during a strongly appreciating market. However, for the many of us who were not interested in flipping propSTUART BAERISWYL erties, the past several years have largely been a time Broker/Principal to sit back and wait. As “investors”, we want to locate Pebble Beach REI and buy decent properties that are in solid neighborhoods and that will cash flow, along with the added As an investor himself, Stuart expectation of appreciation.
Baeriswyl makes good use of his understanding of the various markets here in Norhern California to help other investors locate and purchase solid cash flowing rental properties
Now, consider for a moment what an awesome time it actually is to buy real estate in California. This is not to say that our market is a perfect buyers market. In reality, each ‘buyers market’ is fraught with its own difficulties or imperfections. Actually, having a real estate market that still appears to be overvalued by many, is for the astute buyer/investor, a market of possibilities. First of all, let’s consider some of the Stuart also has been provid- many apparent difficulties or negatives of this current ing his professional services market.
traditional buyers and sellers, translating his unique real estate investing skill-sets into helping regular home buyers and sellers complete their personal residential property transactions. (408) 373.6766 (DRE # 01807909) Stuart@PebbleBeachREI.com www.PebbleBeachREI.com 6 SJREI Journal www.SJREI.net
In most areas that I have been checking across the Bay Area, inventory is way down from where it was about 18 months ago. This is true largely across the board - from high priced neighborhoods on the Peninsula to the many lower priced markets (generally investor grade) across the Central Valley. In many areas, inventory has come down significantly, helping to cause a slight resurgence in prices. It would be wonderful to have a higher or an increasing level of investor grade property hitting our market of interest, but this is not the case right now. Obtaining traditional financing has certainly become problematic. It is much harder today, as an investor, to get a traditional financing. Yet, if you do qualify,
the almost historical low rates available now are in and of themselves a great opportunity. If you don’t qualify, there are “private money lenders” available. There is, presently, a general feeling of uncertainty causing many investors and buyers pause. The banking industry still appears to be in a shambles, and the very weak state of the Californian economy and housing sectors (save the Silicon Valley) are making people rethink their actions. Investors (the good ones) are by nature contrarian in their thinking, that is to say, when others are afraid to buy - they jump in. Late in 2008, my wife and I purchased three single family rentals in Contra Costa County. Many people thought that we may have bought too early into the cycle. However, we purchased these properties because they made good financial sense and they were located in strong rental neighborhoods. We bought because the price-to-rent ratio was right and, except for one of them, they were newer and thus minimized the potential of high maintenance costs. As it turned out, we may have actually bought at the bottom anyway. See below chart for Cash Flow Analysis.
In conclusion, finding good undervalued properties takes patience, courage, some skill, and often times ‘all cash’ to close. Yet, for the investor who is willing to take the time and do the research, buying income producing property here in California is now actually possible, and potentially very financially rewarding in the long run.
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The REO Business by Lori Greymont
Two Strategies for Benefiting from the REO Business with IRA Dollars
ave you heard the buzz about buying Bulk REO’s? In case you haven’t, it’s where an investor purchases 10-15 homes in a bulk package for around $100,000 ($6,000-$10,000 per house!). The investor then sells these houses for $25,000 to $35,000 to homeowners with a seller financing document called a land contract. Seller financing is critical to this business model because 1) banks won’t originate a loan for a home valued less than $60k, and 2) banks won’t lend to credit challenged homebuyers. In the bulk REO business, remember the lack of financing is why banks can’t sell the properties. So, you becomes the bank and the homeowner repays the loan over time at a lucrative interest rate—9% to 10%.
LORI GREYMONT Founder and COO
Summit Solutions Team Corp
Lori has over 20 years of real estate and entrepreneurial experience. She is involved in Summit’s financial management, project planning, sales support, operations, marketing, training, and strategic planning. Lori has significant hands-on experience in fixand-flip strategies, land banking, land to vertical development, rezoning, multi-family re-performance and single family sales and marketing through traditional and creative methods. Direct: 408-891-2983 Toll Free: 888-256-8339 FAX: 408-762-2019 email@example.com www.SummitSolutionsTeam.com 8 SJREI Journal www.SJREI.net
There are two ways to participate in this business, and both offer high Return on Investment (ROI).
Are you an active investor?
If you are an experienced investor and want to create a new business buying and selling these REOs, you will capture greatest upside in this opportunity. Cash flow is long-term and lucrative. This business is a long-term investment because as mentioned above, the land contracts pay out over 10-25 years at 9% interest. As the entry cost is so low, many active investors realize an initial ROI in 18-24 months, so everything after that is pure profit. However, the only way to realize quick cash is by selling the land contracts at a discount to passive investors. Selling a 10 to 25 year note early leaves a lot of profit on the table, but cash on hand provides you with an opportunity to purchase more properties and continue the cycle. Some active investors build their business with IRA money—but only after receiving competent direction from an attorney and an accountant experienced with this type of investment.
Are you a passive investor?
If you don’t want to create a new business, you can buy the cash flow from active investors!
For example, a $35,000 land contract would pay about $350 per month at 9% fully amortized over 15 years. This means about $63,000 is paid out over 15 years to you, the buyer. Someone could also purchase this note for $19,500 to $25,500. As a passive investor, one can purchase notes with Individual Retirement Account (IRA) money. All of the payments return directly to your IRA tax free. The typical yield on these land contracts is around 15-20%. If you are interested in purchasing notes, a good way to find sellers is to network at SJREI and to contact a bulk REO reseller such as Summit Solutions Team, Corp. We often know which of our client investors are interested in selling their land contracts.
The key to do either passive or active investing is to move your 401K’s and IRA money to a custodian like Entrust that allows you to direct your investments. Traditional Self Directed IRA’s are a step in the right direction, but the problem with using this option to buy real estate is that you will soon learn you need the custodian to sign all of your purchase contracts and sales documents. This step could actually cost you a purchase and a sale in this fast-paced business. Creating an IRA LLC with an experienced real estate attorney is one way to overcome these obstacles. (Jeffrey Hare is a SJREI affiliate experienced in this area.) In addition to getting checkbook control, a properly planned LLC can provide a way that you and your family can combine your IRA money to make investments. There are many federal regulations that must be followed, so use an attorney to help you create your IRA LLC and consult with tax professional, such as Richard Smith or Michael Gray, to ensure compliance with IRS requirements. If you have any questions on how you can participate in any of the bulk REO opportunities, feel free to contact me. Remember you are in charge of your own destiny so start creating.
(Continued from front cover ) Then again, according to Federal Reserve, these four institutions hold an estimated $448 billion worth of junior leans among other piles of troubled assets. Any talk of foreclosures, writedowns, or potential threats of cramdowns is likely keeping these banks up at night. Some suggest another bailout will be necessary if these banks are forced to comply and no one really knows how expensive any of these “solutions” will ultimately cost.
You’ve heard the buzz about bulk REOs—the once-in-a-lifetime opportunity to purchase distressed properties at bargain basement prices. When you’re ready to get started, call Summit Solutions Team. We wholesale bulk REO properties to real estate investors. We have the experience, the system, and the sources you won’t find elsewhere.
Then again, according to Federal Reserve, these four institutions hold an estimated $448 billion worth of junior leans among other piles of troubled assets. Any talk of foreclosures, writedowns, or potential threats of cramdowns is likely keeping these banks up at night. Some suggest another bailout will be necessary if these banks are forced to comply and no one really knows how expensive any of these “solutions” will ultimately cost. “Billion” is the new “million” it seems. During the April hearing, JP Morgan projected it would take $700-$900 billion to bring underwater borrowers to current market value. While I’m certain that was used for effect, that number slightly exceeds the $50 billion set aside from TARP funds to help with the latest revival of HAMP and also flies in the face of banks insistence there is no such thing as “shadow inventory.” We investors now define shadow inventory as properties the banks have conveniently ignored. We all have stories of homeowners that are still in their homes after two years of not making payments and have yet to hear from their lender. Delinquencies continue to rise and foreclosures mysteriously continue to remain low although slightly up. Professional real estate investors, REO agents, auction companies, and the surrounding industries aren’t the only ones waiting for the release of more properties. Even local cities and counties are scratching their head as they desperately try to spend the Neighborhood Stabilization Program (NSP) funds of which only half of the allotted $4 billion has been spent. HUD even redefined the term “foreclosure” and “abandoned” in April to aid them in doing so.
•Cherry-pickers Welcome. Before you purchase, you can review the property list and select only the properties you want, putting you in control of your profitability. •No Lot—No Burn-out Guarantee. If you purchase an entire property list without review, you have 10 days to exchange vacant lots and burn-outs for standing structures, reducing your risk of a difficult sale.
Call Us: 888-256-8339
•Speedy Processing. We deliver your deeds in weeks instead of months to ensure quick turnaround once you have a buyer.
•Help When You Need It. We offer training and Alex@SummitSolutionsTeam.com mentoring to help you succeed in turning your www.SummitSolutionsTeam.com
list into owner occupied homes and to get the cash flowing quickly.
Summit Solutions Team Corp. - Bay Area Owned and Operated So when will these properties come out? How quickly? The truth is, no one knows. Most REO agents have been told to “hurry up and wait” since Spring of 2008. We continue to hear rumblings of property release but nothing has really materialized yet this year. We’ve seen pockets increase but not enough to say the flood gates have opened. My bet is we’ll see more properties coming out later this year. There have been statements in the media predicting Fannie, Freddie, and Bank of America will all have a significant increases in foreclosures. Add to this the pile of HUD properties headed toward foreclosure and there will definitely be an increase of inventory headed back to the lenders. SJREI Journal
Legal Update by Anthony F. Earle
Business Entities for California Real Estate Investors
t has been argued that the American legal system unduly promotes and encourages a litigious society, with California often cited as evidence for the validity of this argument. Other states, in turn, often consult – and frequently follow – California legal precedent when addressing for themselves legal issues which California has previously considered. For this reason, it is important for real estate investors – whether they invest in California or other states – to be aware of the conflicting and sometimes inconsistent rulings by California courts on the issue of whether to recognize or disregard the asset protection qualities of business entities used to hold real estate assets.
ANTHONY F. EARLE Attorney Anthony F. Earle is an attorney licensed to practice law in all California state trial and appellate courts, the United States Supreme Court, the United States Court of Appeals for the Fourth and Ninth Circuits, federal trail courts in the Northern District of California and the United States Tax Court. He has served as judge pro tempore for the Santa Clara Superior Court and is also a licensed Real Estate Broker. 408.786.1060 800.515.7560 www.earlelaw.com 10 SJREI Journal www.SJREI.net
Long before Limited Liability Companies (LLC’s) and other legal entities were commonly used to hold real estate for the purpose of asset protection, the “alter ego” legal doctrine arose in the law to “pierce the corporate veil” in cases where the “corporate-separateness” of legal entities had been used to commit fraud or to otherwise shield an entity’s owners from the entity’s violation of law. When a court uses the alter ego doctrine to pierce a corporate veil, the legal protections of an LLC or other legal entity are disregarded and the owners of real property held by the entity are treated as individuals for the purpose of civil litigation. In addition to using the alter ego doctrine to pierce the corporate veil in cases where the owners of an LLC or other entity have committed fraud – which constitutes a legitimate and uncontroversial use of the doctrine – several California courts have applied the doctrine to cases where no law was violated nor fraud committed. The justification courts have given for this expansion of the doctrine is that invoking the court’s “equitable” powers as a
means to apply the doctrine is necessary to prevent an “unfair” result. In one such case, Mesler v. Bragg Management Co., 39 Cal.3d 290, 300-301 (1985), the California Supreme Court held that a group of affiliated real estate entities that were technically exempt from a local rent control ordinance because each entity held title to four rental units or less, could nonetheless be treated as a single entity for purposes of the rent control ordinance. The court found no evidence of fraud or bad faith on the part of the defendant entities or their managers, and the defendants produced an expert declaration stating that the use of separate entities to own individual properties is exceedingly common in the real estate industry. In justifying this result, the court said that even though “there are legitimate purposes for the way Defendants are organized does not preclude a finding that with respect to the [rent control ordinance] it would be inequitable to recognize Defendants’ separate existence. Id, at 300-301. By disregarding the legal distinctions between the entities and their owners, the court in Mesler effectively substituted its notion of “fairness” for the law as enacted by the California legislature. Judicial change in the law, like many other types of change, is usually incremental and gradual. Given recent trends in the law, it seems more likely than not that California courts will continue to decide cases based on what lawyers in black robes consider “fair” and “unfair”, rather than on the actual text of laws. Thus, it is entirely foreseeable that many California courts will further expand the use of the alter ego doctrine, so as to apply the doctrine in new, different, and more far-reaching contexts.
An Alternative Investment Strategy by Jeb Henley IRA’s and Real Estate Investing
$125,000. Our Team in Houston, Texas coordinates the renovation and sells the houses in the MLS. The investor gets his investment back with a profit and starts the process again.
Senior Investment Broker
A licensed CA real estate broker since 1978, Jeb Henley started investing in commercial and residential properties during the California equity boom of the 70’s, 80’s and 90’s. Throughout his career, Jeb has invested in and owned and managed apartment buildings, industrial parks, and warehouse complexes.
Consider your IRA - what kind of interest are you making? Buying a house to flip and leaving it with the professionals to complete is a simple yet effective strategy particularly for the busy professional. Our clients have been very pleased with the results we have secured for them - anywhere from $10,000-$25,000 in profit on a given deal that we do all the work on. Our clients typically only spend 2-5 hours on the paperwork! The home is purchased for cash in the IRA name, and it is possible to have other partners or participants in a project. The IRA shelters the investor from taxes when the flip is complete.
here have been many seminars discussing the topic of IRA investing. Right now the motto “Cash is King” rules all markets. How can you profit from the REO opportunities available today? Look at your IRA accounts, most of my clients have them scattered in multiple accounts with no time or energy spent developing an investment strategy.
The Texas Market is very stable and has limited foreclosures. The re-sale market is easier to predict in that market. Once you buy a house below market - that is the most important step towards making a profit. If, for any reason, the house does not sell you can hold for cash-flow. It is always good to have a couple of exit strategies.
My clients buy middle class homes in Houston ranging in price from $100,000 to $175,000. A current example is a property purchased for $61,000. Repairs are $32,000 for an after repaired value of $119,000 to
Come join us for our Investors trip to Houston and Dallas June 16th, 2010. Sign up at SJREI.net. Come meet our team, and see a market that makes money.
Brighton Financial Group Vernon Williams
4675 Stevens Creek Blvd – Ste 245 Santa Clara, CA 95051
•Home •Auto •Umbrella Packages •Special Landlord Packages •Commercial Renters •HEALTH (LicNo. 0E76242) SJREI Journal
Investor Insights by Tom Wilson
Selecting the Best Investments in a Perfect Storm Economic Drivers, Strong Employment, Cash Flow and More TOM WILSON Owner/Investor, Wilson Investment Properties Tom Wilson is a retired high-tech manager who has bought and sold more than 1500 units, including three condo conversion projects, 3 syndications and seven multi-family properties. Currently, Mr. Wilson is focusing on a program of providing high quality, high cash flow rehabbed and leased foreclosures to investors. He is active in real estate investment associations and provides mentoring to new investors.
don’t recommend being a real estate investor ,unless you have a well-defined strategy, quantitative goals and dedicated to go by the numbers and not by unsupported advice or emotions. My engineering training and 30 years of experience managing high tech profit centers in Silicon Valley taught me how to analyze for the best return on investment in any market. Today, the principles remain the same. Anyone can do it, however, one needs to be very disciplined and educated about the submarkets and products, or ride the coattails of someone who is.
The primary parameters for selecting the best investment markets are: • Rent to purchase price ratio • Population growth and inward migration • Employment and business climate • Housing affordability • Location • Cost of living • Rental market • Current and projected market conditions
• The highest rent per invested dollar for a major economic center in the United States, and therefore the highest cash flow • Broad-based economy that has outperformed the United States’ average by two times during the past decade • No. 1 ranked business climate in the United States; no state income tax • Leading MSA for corporate headquarter relocations and expansions • Most affordable housing of top 20 cities ($129,000 median July ’09) • Central location in the United States attracts companies desiring time zone and distribution competitive advantages
Dallas/Fort Worth is the Fourth Largest MSA in the US and the Fastest Growing of all Large Cities
Now that speculative investing for fast profit has gone the way of the last supermodel, the wise investor is focused on cash flowing assets and safe harbors in this perfect storm. Are there markets that have weathered the storm well, are superior in many of the parameters above and have had relatively calmer waters during these past few tumulus years? Indeed, my experience in more than 1500 investment unit transactions in the past 10 years has revealed that DFW is one is the best in the United States.
The strengths of DFW are: • Fourth largest and fastest growing MSA (Metropolitan Statistical Area) in the United States 12 SJREI Journal www.SJREI.net
Source: Texas State Data Center and Office of the State Demographer
(Continued Page 13)
Investor Insights by Tom Wilson (Continued from page 11)
‘Right now, I prefer to invest in homes over commercial and multifamily products because homes have more liquidity, are generally lower risk and appreciate faster,’ Wilson says. • DFW airport is the second largest in the Unite States and fourth largest world wide • One of lowest cost of living major Metropolitan Statistical Areas (MSAs), yet above average house hold income • Highest millionaire growth rate in the United States • Strong rental market (95% July ’09 for single family homes) • Very landlord friendly • One of safest harbors in the United States for real estate and economy, especially in past few years • Excellent long term growth projections. Yes, the national economy crisis has affected even DFW, but not significantly compared to other MSAs.
Professional Asset Management & Sales Our company Professional Asset management and Sales was created to serve investors with the highest level of professionalism and competence. With this in mind, our goal is to assist each investor in achieving maximum results. Our sales team has over 40 years’ collective experience in the real estate industry. We understand that property management is a key element of the successful equation. Our managers are Licensed Real Estate Agents who have knowledge of both rental and sales markets. With P.A.M. you will never have to worry about your investment, whether you live in town or across the country!
Texas is the second most populous state, so
there are indeed many home foreclosures, especially since there is such low cost housing and consequently a high percentage of sub prime loans, but in spite of this, Texas foreclosure rate is only 17th in the country. Historically, the last economies to slow down, are the first to go back up. I don’t know when DFW will start appreciating again, but I believe it will be before many other areas, and our window of opportunity to invest optimally in any leading area may be shorter than we think. Right now, I prefer to invest in homes over commercial and multifamily products because homes have more liquidity, are generally lower risk and appreciate faster. Even in a good region, one must be very careful though in selecting the right product, neighborhood and professional service and management team. Make sure you rely on resources that have a lot of investment experience in that region.
Professional Sales • • • • • • • •
Advertising and Marketing Knowledge of Market Area Property Selection Competitive Market Analysis Negotiations Closing Coordination Regular Communication Due diligence
• • • • • • •
Licensed Leasing Agents Marketing/Advertising Competitive Management Fees Comprehensive Market Study Individual Property Accounting Maintenance/ Make Ready Delinquent /Eviction Procedures
Pam Blanco Owner/Realtor ®
2000 E. Lamar Blvd., Suite 600, Arlington, TX 76006 817-907-7347 Cell 817-549-0013 Fax firstname.lastname@example.org
If I’ve learned anything in investing, it is that
variations in performance from the median can vary tremendously in any general geographical area, and only experienced professionals can help you minimize that risk. I believe that the wise will not wait and see, but act to grasp the best opportunities of our lifetime when everyone else is hiding from this perfect storm.
Wilson Investment Properties is a real estate investment company founded
in 2005 by Tom Wilson in Silicon Valley. He and his team have provided over two hundred and thirty high quality fully rehabbed turnkey rental properties for investors. All properties are highly selected and rehabbed with for optimum quality and cash flow and to the same high standards as Mr. Wilson’s own investment portfolio. WIP and their professional associates supply all of the services needed for complete turnkey transactions. SJREI Journal
MILES/BARRY CONTRACT FURNITURE MILES/BARRY CONTRACT FURNITURE is
a full service independent furniture dealership providing quality, cost-effective interiors for businesses of all sizes. We offer creative, flexible solutions tailored to individual space requirements, budget and aesthetic concerns.
MILES/BARRY CONTRACT FURNITURE’s ex-
Contact: Barbara Miles 650-359-5611 email@example.com www.MilesBarryFurniture.com
perience in the industry brings you prompt, professional service for every aspect of your project. You will enjoy the care, accuracy and efficiency of working with just one contact.
• • • • • • • • • • • • • • •
PRODUCT SALES Ergonomic Products Workstations-New and Refurbished Casegoods-Veneer & Laminate Filing Systems Conference Rooms Lunch Rooms Training Table PROJECT SERVICES Consultation on Project Phases Design CAD Drawings Installation Reconfiguration Affordable Pricing Panel Cleaning Leasing Extensive Product lines
Rodrigues Tile Company • Family business, established 1972. • Reliable, seasoned, dedicated, professional workers • Install ceramic, porcelain, granite, marble, travertine, limestone, saltillo tiles • Commercial or residential, new or remodels • Honest, professional and guaranteed work
Call today for your FREE estimate 41060 High Street Unit F. Fremont, CA 94538-4366 (510)490-6995 * Fax (510)490-7076 14 SJREI Journal www.SJREI.net
Online Auctions by Jesse Loomis
Buying Distressed REO Portfolios & Reselling via Online Auctions
he high volume of foreclosed properties in distressed markets (particularly in the Midwest), combined with thriving sales on online auction site bid4assets. com, has created a huge opportunity for investors. Savvy investor groups are now purchasing portfolios of properties on quitclaim deeds, commonly known as “tapes”, which are essentially spreadsheets of properties with little more information than addresses. Below you will find tips for collecting information on these properties in order to create effective online auctions.
Jesse Loomis VP Business Development Bid4Assets Jesse Loomis is the Vice President of Business Development at a real estate online auction company Bid4Assets. com. In his tenure at Bid4Assets, he has been instrumental in the sales and marketing of over $250,000,000 in real estate sales. Bid4Assets.com is the leading online real estate auction company and has sold over 60,000 properties for banks, government agencies, and the private sector.
Jesse Loomis (301) 562-3421 firstname.lastname@example.org
Online auctions can attract buyers worldwide, so it will be important to guide these buyers in valuating your property. A good place to start for getting a rough estimate of a property’s value is Zillow.com. While Zillow’s estimate of value is usually not accurate for these types of properties, Zillow also provides a list of active listings and recent sales on the same street. If you’re selling a rehab property for $10,000 and a turnkey house three doors down is on the MLS for $60,000, this conveys a powerful message to potential buyers. When selling real estate online, good photographs are crucial. You’ll want to provide clear pictures of the interior and exterior of the home, and even a few pictures looking up and down the street. If you need to hire someone to take photos, I recommend either looking on Craigslist.org or using nvms.com. NVMS has a network of professionals and can send someone out to take photos of any property in the country for around $35 to $75.
vert a well-organized spreadsheet into online auctions in about one business day. When you start collecting information on properties, set up a spreadsheet with column headings like “bedrooms”, “bathrooms”, and “living space”. Let your inner salesperson shine and write a compelling description that will appeal to investors and homeowners alike. Once your auction goes live, the real excitement begins as you interact with buyers and monitor bids. When buyers submit questions, they will be automatically redirected to your own email. Try to provide prompt and informative answers. Exuding professionalism will build buyer confidence and increase bidding activity. Keep an eye on your auctions to monitor the bidding activity. For properties that sell successfully, Bid4Assets’ system will automatically email you the buyer’s name, phone number, and email address. Have your post-auction email template with settlement instructions ready to go for when the auction closes. Bid4Assets has sold over 62,000 properties via its internet platform and the really successful sellers are the ones who have refined their methodology over time. Bid4Assets focuses on attracting investors who rehabilitate distressed properties as well as first-time homeowners. Bid4Assets is proud to work with portfolio sellers to get neglected properties in the hands of a buyer who will make repairs, pay off any back taxes, and bring it to occupancy. These efforts are going a long way to help stabilize troubled markets!
Online auction site bid4assets.com can conSJREI Journal
Retirement Planning by David Beck Putting Lipstick On A Pig! Before becoming a financial planner, I worked as a product manager for an electronic component manufacturer. Part of my job was to prepare market forecasts for new products. This always involved making assumptions about the future and dealing with incomplete data. I know first hand that numbers can be massaged to support the intended goal – typically, to justify investment in the new product.
David Beck, CFP® Bay Area Planners David Beck is an independent, fee-only financial planner. He specializes in helping clients understand their financial situation and explaining issues such as Roth Conversions and how real estate fits into an investment portfolio.
Mention this article for 15% discount
My work now involves forecasting the financial futures of my clients, and recommending investments to enable them to meet their goals. I use sophisticated software that has numerous inputs, including assumptions about the rate of inflation, rates of return, COLA, longevity etc. By suitably adjusting these assumptions, I can make almost any set of numbers look like they support a comfortable retirement. This sort of skill is prevalent within the financial services industry, and has been described as ‘putting lipstick on a pig’. This is NOT what you need or want! The motivation for presenting incomplete or inaccurate information is usually personal gain based upon the sale of a financial product. Many Advisers do not disclose that they cannot discuss or sell some types of investments, and quietly guide their clients only to those they can offer. Until a recent court case (Financial Planning Association v. SEC, March 2007), brokers for Wall Street firms had an exemption from the consumer protections of the Investment Advisors Act of 1940, allowing them to offer advice without full disclosure or fiduciary duty. They were able to avoid mentioning pesky details like the conflict of selling proprietary products with ridiculously high
sales charges (loads) and disclosing for whom they were actually working (their employer, not you). As a CERTIFIED FINANCIAL PLANNER ™, I have a fiduciary duty to my clients to place their interests before my own. This is why I choose to operate as a ‘fee only’ planner – so that sales commissions cannot introduce bias into my advice. This also allows me to recommend a full range of investment asset types, including physical real estate. A more subtle form of motivation for ‘polishing’ the results is a simple human desire to please the client. Everybody wants to think they are on track, with a comfortable retirement ahead to them. A client meeting that ends in gratitude and smiles is always preferable to one ending with concerns, or even tears, after the delivery of a tough message. How can you, the client, have confidence in what you are being told? I develop a decision framework for the client to operate in, and suggest options for consideration. A large part of this work is in educating clients to understand the levers, and the effects that pulling them have. We go over each assumption in a spirit of full disclosure, looking at examples of how altering the assumptions changes the overall picture. My goal is for the client to be able to make educated decisions, and not be subject to those imposed from my own frame of reference.
408-725-7135 David@RetirementPlannersOnline.com www.RetirementPlannersOnline.com
Bay Area Planners provides:
Comprehensive financial planning and investment advice for the real estate investor.
Real estate investors want a financial planner knowledgeable about real estate and in tune with their goals. Financial Planner David Beck provides options and solutions that honor your interests. He will guide you to achieve your financial goals. David advises clients on financial independence, investments, tax reduction strategies, retirement distribution strategies, and estate and wealth preservation. Specific to real estate, David assists with cash flow evaluation, real estate acquisition and disposition, tax reduction and deferral, and estate planning for investment real estate owners. Using professional financial planning software, he will show you if a proposed real estate investment increases or decreases your future net worth and makes good sense. 16 SJREI Journal www.SJREI.net
Financing Update by Michael Ryan
Mortgage Loans–Is a Thaw Coming?
he money dam controlling the downstream flow of cash showed serious cracks in 2007. In 2008, the dam burst. In an overreaction, the streams feeding the reservoir were blocked off and dried up. Investment banks stopped packaging and selling loans and the US government took over Fannie Mae (FNMA) and Freddie Mac (FHLMC).
Michael Ryan Mortgage Broker
Michael Ryan & Associates
Michael Ryan - GRI, CCRM, CAM and founder of Michael Ryan & Associates. Our corporate motto is to put YOU, our clients, first and exceed your mortgage expectations. With 19 years of industry experience, we have proven our business model to be successful. Call me if I can be of assistance.
(408) 986-1798 email@example.com www.Michael-Ryan.com
The rush to rebuild the dam began in 2009, using new designs, new materials, and more planning. All to prevent a future break. One new material is the Home Value Code of Conduct (HVCC) to avoid collusion between sellers and appraisers. A second is no more stated-income to avoid ‘liar loans’. And for rental properties, owners will need to meet higher net worth requirements. These few examples give a quick glimpse of the new dam in the works. Entering 2010, challenges continue. At the Federal level, we read the FHA risks going broke due to bad loans written prior to 2009. This is perhaps the first time that housing actually triggered a recession, which then made housing even worse. We see this in the number of credit-worthy borrowers falling into default and upside-down loans. With 1 in 8 people not working ... you do the math. The solution: jobs, jobs, and more jobs – not spending, but private sector jobs. I read a recent congressional report from FNMA chief economist, Doug Duncan, indicating home ownership will balance out at around 66%. Sadly, the current number is 67% which means there is still a ways to go, or about 2 million homeowners yet to become renters. For whatever reason, the media missed this second point. Current restrictive lending policies will help make this estimate true, as more restrictions mean fewer homeowners. To help spur the home buying market, our government continues to preach home ownership from the pulpit,
while providing tax incentives, low interest rates, and other breaks for buyers. Yet what will prove helpful is actual home buyers living in their properties. The value is incalculable. For investors, the reality is sweeter. It is a perfect storm and we have the needed umbrellas – low prices, low interest rates, and ample money to lend. This time last year, FNMA relaxed investor rules to allow for 10 mortgaged properties and we have such lenders, if your big bank says no – which they will. Bottom line: This is an investor’s market and the astute investor is picking and choosing the best available, safe and sound investments. History proves the best time to buy is in the midst of a recession. For proof, we need not do anything more than talk with friends who purchased property during the last ‘great recession’. Yes, current values may be back to the early 2000’s, yet this is still double what was paid in the early 1990’s, and is double again what was paid in the 1980’s. The initial question ‘Is a Thaw Coming’. The answer: The thaw has been with us for a year. It is slow and consistent. Early preparation allows each of us to spend more time active and prosperous. We serve our customers one-on-one. This insures the best loan for each unique circumstance. Our goal is to make the loan process understandable and worry-free, with no surprises. Customers appreciate our high level of service and the extra efforts to earn their trust. Our purpose is to exceed client expectations, whether residential, commercial or investment property, call us for a consultation for all of your financial/mortgage needs. As an investor myself I am well versed in real estate investment strategies, and maximizing your portfolio to grow your assets effectively. SJREI Journal
SHORT SALE CASE STUDY
by Natalie Knowlton
Paying a $20k Note can be “Great News!”
young couple fell behind on their mortgage payments as a result of the deterioration of the husband’s construction company due to the economic downturn. His wife was not generating enough income to support the family of four.
NATALIE KNOWLTON Short Sale Results Team
They originally purchased a property in March, 2005 for $449,500. The property was financed for $400,000. Eight months later the family signed a HELOC (Home Equity Line Of Credit) for $100,000. The majority of this money was used for the purchase of a car, pay off credit cards and to purchase equipment for the construction business.
Natalie comes to us with 5 years of experience with Successful Short Sale transactions. She has been a guest speaker at several nationwide training conferences on the topic of Short Sales.
A very large concern for this family was the fact the second loan was a “recourse loan” (meaning the bank can pursue them to repay the money after the 1st lender foreclosed). They had no idea what, if anything, the 2nd lender would agree to. The 2nd lender could linger for a few years waiting for the construction business to pick up, and then Natalie leads the Short Sale Re- apply a judgment on the family and even garnish sults Team- serving the Bay Area their wages.
as well as Monterey and Santa Cruz Counties. The Team is a group of professionals who understand real estate and the details involved to complete a Short Sale.
The family had out grown the small 2 bedroom property, were $200,000 underwater and were unable to keep up with the payments. They were denied a loan modification and had no hope for a principle reduction. A Short Sale was the next step for them to minimize the financial damage. The Short Sale was approved for a sale price of
$200,000! The 1st lender (Bank of America) with a $400,000 balance took a $226,013 loss on the sell, netting only $173,986.89. The 2nd lender (Citi) with a balance of $100,000 agreed to forgive $80,000. They only asked for a note of $20,000 with 0% interest and 10 year terms. The family knew they still had benefited more than $20,000 since they still had the car and construction equipment. They also took into consideration the 13 months of no mortgage payments. They are now relieved of the uncertainty “not knowing” the outcome. They are renting a larger house in a nicer neighborhood for much less, and moving forward with their lives. Do you know the powerful questions many Homeowners don’t ask themselves when they are struggling with what to do next? A Short Sale can be a stressful and time comsuming process, but in the many cases they are necessarty to manage of mortgage debt. As an experienced Short Sale Team we help relieve that financial stress for families by coordinating Short Sales. A Short Sale is when the bank accepts less than what’s owed on the property.
A short sale becomes a business decision for the families involved. The new HAFA program actually helps with the Short Sale process! Many banks are now offering money to the sellers for the transition to more affordable housing.
Are You or a Friend Behind on Payments? What if you didn’t have to fight Foreclosure alone?
The Short Sale Results Team: Serving the Bay Area as well as Monterey & Santa Cruz Counties. ‘Let us help make the best of a bad situation!’
Ask for Natalie Knowlton (650) 900-4608 Cell (831) 402-5107 ***FREE*** PRIVATE CONSULTATION ***FREE*** TO THE SELLER (BANK PAYS)
For more information visit our website at WWW.BehindNpayments.com (Annika Lewis’s site) Check out our videos at WWW.ThunderbirdRealEstate.com click “videos” on the left to see an expo We are paid when the Short Sale lender approves the commission for the transaction at the close of escrow. There are few absolute answers with Short Sales. Each file is evaluated on a case by case basis. We recommend that you consult your Attorney and CPA f you are facing this dilemma. Not all Attorneys and CPAs will agree with each other’s advice. If this was an easy decision it would already be made. DRE#01487628
18 SJREI Journal www.SJREI.net
nvesting in real estate is an exciting and rewarding business that can even be fun. Yet there are several keys to making your investing activities a success. Understanding these basics are the key to building a solid foundation for your investing career. It is the goal of the SJREI Association to help you succeed. The knowledge you will gain by attending this program will set the stage for a successful investing career. You will learn how to make wise choices, and discover where to get the help and information that you may need along the way, minimizing your exposure to unnecessary pitfalls and costly mistakes. By attending this workshop you will be provided with the important tools you will need to start investing your way to achieve financial freedom.
Get on the fast track to competent investing with JumpStart Program The SJREI Association has put together a great team of instructors to educate you. The information available at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you evaluate and invest wisely. This is your opportunity to learn from some very experienced investors who have wide ranging specific skill sets. Come spend the day with us, and get ready to take flight.
SJREI Education Center Instructors
Class offered quarterly, Instructors subject to change- Next class: Saturday, August 7th Call (408) 264-3198 or Visit www. SJREI.net to Register Rehab and Property Management for Investors Nancy Chillag, Attorney/Investor Chillag & Associates is an innovative law firm specializing in real estate & construction. As a buy, fix and hold investor Nancy has great information and experience to share with investors.
Financial Planning – Know Your Net Worth & Where You Want To Be David Beck, Financial Planner Understanding your own balance sheet is the foundational piece in taking control of your finances. David will set the stage for this.
Due Diligence for Investors Jeffrey Hare, Attorney/Broker/Investor Jeffrey specializes in real estate law & real estate property transactions. He picks up the pieces when investors don’t do their due diligence, and will share his expertise with this very important component of investing.
Understanding Cash Flow and Property Analysis Richard Smith, Accountant/Investor Accountant for 30 plus years, serious investor will share tips and worksheets to complete a cashflow analysis… the numbers tell the story.
Locating Deals & Market Analysis Stuart Baeriswyl, Broker/Investor Stuart buys for his own portfolio and assists with finding properties that will perform over the long-term. A seasoned pro, Stuart will share his insights with investors on how to do to find deals that make sense.
Find the Model that Works for You Jeb Henley Different Investment Models to explore from a Broker with thirty years experience
Financing for Investors Michael Ryan, Mortgage Broker Michael Ryan & Associates is an 19 year veteran of the lending industry. As an investor himself Michael understands investor needs and his knowledge and expertise will easily guide you through the extensive maze of loan options for home or business financing.
Orientation, Goal Setting and Business Planning Geraldine Barry, President of SJREI Association, Investor, Entrepreneur Strategy is the name of the game; come join us to customize one to fit your need & goals. SJREI Journal
to buy a house worth $150,000 for $100,000 cash and close in three days. I would then find an investor who would put up the $100,000 for an 80% interest in the property and I would take a 20% interest. We would own it free and clear, I would end up with 20% of a free and clear house. The investor would end up with $120,000 interest in a $150,000 house, and I would do all the work. Do that a few times and you will own the equivalent of a whole free and clear house and cultivate a few investors along the way.
Next, Start Acquiring A Cash Position John Schaub learned his craft in the best way possible: 35 years on the job, investing in every kind of real estate, dealing with every twist of the economy and managing hundreds of tenants. Johnâ€™s unique focus on investing in single-family homes in quality neighborhoods enables his readers and students to accumulate wealth while providing affordable housing for families.
Obviously, having some cash in the bank gives you diversity and liquidity. When you are starting your investment program you keep every nickel working. As you acquire more equity, you should begin building toward a 10%-20% cash position. Then, if we have a big downturn, you will be both able to comfortably survive and take advantages of the bargains at the bottom. This cash will not earn much of a return while it is waiting, but the occasional steal you will acquire will make up for the 2% while you are waiting.
(Continued from front page)
In summary, you can obtain some safety through diversifying and holding some properties highly leveraged, and others with small payments or free and clear. You can hold some cash in reserve and hold some notes that you create when you sell. Of course you can do this in separate entities, like a Roth IRA, or another retirement plan, or even an insurance policy with a cash value that you can tap in a hurry. If this is a new thought to you, lay out a plan to build a little safety into your program over the next couple of years. (Extracted from The John Schaub Newsletter)
You borrowed their cash and they want it back.
Next Step- Get Something Free And Clear One way to obtain some safety in your portfolio is to own property free and clear. If you are just starting, set your goal to own part of something
20 SJREI Journal www.SJREI.net
Mark your Calendar for SJREI Events! John Schaub Day Workshop East Bay Meetings South Bay Meetings Mid-Peninsula Meetings JumpStart Program Special Events
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Advanced Buying Strategies for CA Market May 8, 2010 Sat 8:30am - 4:30pm Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA
Are you ready to learn and implement advanced strategies that can increase your profits and reduce your management expense? »» Learn how to negotiate better terms and better deals »» Understand how to use options »» Instruction regarding sandwich positions and creating wraparounds »» New strategies for borrowing at lower rates on better terms, with less risk Come join us to meet John!
2010 Real Estate Expo
May 22, 2010 Sat 10am - 4pm June 2010 Milpitas Crowne Plaza 777 Bellew Drive, Milpitas, CA
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July 2010 F 2 9 16 23 30
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The 2010 Real Estate Expo is the only real estate show in Bay Area geared exclusively towards the real estate investors and real estate related professionals. We focus on bringing the highest quality real estate suppliers and service providers to you. Here’s your chance to talk one-on-one with all the experts in their fields. This is an exclusive opportunity for Targeted Networking and Connecting with your ideal clientele. We will also be offering FREE Educational Seminars all day. Learn from the stories and tested methods of our hugely successful speakers.
Get on the fast track to competent investing!
August 2010 August 7, 2010 Sat 8am - 5pm T 5 12 19 26
Biltmore Hotel, 2151 Laurelwood Road, Santa Clara, CA The SJREI Association has put together a great team of instructors to educate you. The information available at this workshop can literally save you tens of thousands of dollars by keeping you away from the wrong properties, and helping you evaluate and invest wisely. This is your opportunity to learn from some very experienced investors who have wide ranging specific skill sets. Come spend the day with us, and get ready to take flight.
Come join us for these dynamic Real Estate information gathering and networking opportunities. SJREI Journal
2009 Real Estate Expo Review Information
“We had a very well attended event, with almost 30 exhibitors who were very pleased with the turnout, marketing opportunity, and the business that was generated from the event. We organized this Expo in 6 weeks - the 2010 one will be organized over four months and we are anticipating a much bigger event with several experienced speakers and a panel of professionals. I always say that free events are generally very sales oriented, I am coordinating the educational component of this event and it will be educational and informative.” Geraldine Barry, President of the SJREI Asso..
“We got a lot of clients from this event, I am looking forward to the next one.” Speaker & Exhibitor, Tom W.
“As an investor and exhibitor I am very happy with the results and I very much enjoyed the presentations.” Hannah, F.
“I was very impressed with the level and quality of the speakers, and the variety of information shared. I was glad I took the time to attend.” Caroline H.
Mark your Calendar for 2010 Real Estate Expo, May 22 (See page 21 for details)
22 SJREI Journal www.SJREI.net
“Good statistics and information were shared which give us investors a good indication of where the market is heading.” Jeff K.
TAX PLANNING by Richard Smith
Real Estate Professionals & The IRS
ccording to an IRS spokesman, “several thousand” returns of real estate professionals have been audited in the last year and 3,000 are under audit now. Of particular interest are real estate agents who are deducting passive real estate losses against other income by claiming real estate professional status.
The Real Estate Professional
Spouses filing a joint return are qualifying taxpayers if and only if one spouse separately satisfies the time tests requirements without regard to the services performed by the other spouse.
Here’s how it works:
Material participation may be established by the description of services performed and the approximate number of hours spent performing the services during the period. The descriptions can be in the form of appointment books, calendars, or narrative summaries.
Under IRC §469, taxpayers are generally not allowed to deduct losses on passive activities against other income. Real Estate rental losses are passive losses, which may provide an exception.
RICHARD SMITH Enrolled Agent Richard Smith & Associates Richard Smith, who is an Enrolled Agent and licensed by the IRS, and his team have prepared taxes for individuals and corporations for more than 30 years. Richard is an active real estate investor who has more than 100 houses in his portfolio plus a large multi-family building.
10050 N. Wolfe Rd. SW2-140 Cupertino, CA 95014 (408) 446-5551 firstname.lastname@example.org www.richardsmithtax.com
must materially participate in the subject rental real estate activity. Whereas the taxpayer may meet the half-time and 750-hour requirements based on other real estate activities, the taxpayer must meet the material participation requirement based solely on his or her rental real estate activities.
Taxpayers may not report net losses on passive rental activities, if adjusted gross income exceeds $150,000. Taxpayers may report net losses on rental real estate limited to $25,000, if adjusted gross income is less than $100,000. “Real estate professionals” may deduct rental losses 100% Generally, taxpayers have not fared well in court when trying to defend real estate professional status against an IRS audit. Taxpayers lose because they fail to meet the requirements and/or because they fail to properly document their compliance.
What defines a real estate professional?
To qualify, the taxpayer must meet two tests: 1. More than one-half the personal services performed by the taxpayer in trades or businesses during the year must be performed in real property trades or businesses; 2. Taxpayer must perform more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participates.
Real property trades or businesses consist of : -
Development & Construction Acquisition & Conversion Operation & Management Leasing & Brokerage Proving real estate professional status The taxpayer must prove through reasonable means that his or her personal services meet the time requirements.
In addition to meeting the time requirements, the taxpayer
The IRS is pursuing real estate agents who:
claim “real estate professional” status. The IRS contends that real estate agents are not specifically mentioned in the Code, are distinguishable from brokers (mentioned in the Code) and therefore, do not qualify for real estate professional status. An individual is treated as materially participating in an activity if certain test are met.
The three most common are:
1. The 500-hour test is met if the individual participates in an activity for more than 500 hours during the year. 2. The substantially all test is met if the individual participates in an activity for the tax year and that is substantially all of the participation in the activity for the year; in other words, if the individual is the only one participating in the activity. 3. The not less than others test is met if the individual participates in the activity for more than 100 hours during the year and the individual’s participation is not less than the participation of any other individual.
Single Activity Election:
In determining whether a taxpayer satisfies the requirements to be a real estate professional, the rule applies that each rental property is a separate activity unless the taxpayer elects to treat all interests in rental real estate as a single activity. Thus, the Tax Court has ruled that where a taxpayer owned multiple rental properties without having made the election, the taxpayer was required to meet the time test independently for each activity. SJREI Journal
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