REI Voice Spring 2016

SPRING 2016 $4.95

REI VOICE MAGAZINE The Voice of the Profitable Real Estate Investor

TOM K. WILSON ON CROWDFUNDING

PAM BLANCO TURNING THE KEY TO INVESTMENT EXCELLENCE KATHY FETTKE LAND ENTITLEMENT

HOW THE CLOTHIER MEN TOOK OVER THE INVESTMENT WORLD ONE GOOD TRASACTION AT A TIME

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REI VOICE MAGAZINE SPRING | 2016 PUBLISHER LORI GREYMONT 408-782-9162 EDITOR HANNAH ASH HANNAH@REIVOICE.COM CONTRIBUTING WRITERS GERALDINE BARRY MICHAEL GRIGELEVICH DESIGNER GRAPHIC CONNECTIONS GROUP GCFROG.COM ADVERTISING SALES LORAINE CRUZ 408-782-9162 PRODUCTION MANAGER LORAINE CRUZ 408-782-9162 LORAINE@SJREI.ORG TO ADVERTISE WITH US INFO@REIVOICE.COM OFFICE ADDRESS FOR REI VOICE & SJREI ASSOCIATION 6840 VIA DEL ORO, STE.225 SAN JOSE, CA 95119

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REI Voice Magazine www.REIVoice.com 408.782.9162 SJREI Association and REI Voice Magazine make no representations or warranties regarding the content, accuracy, or validity of the advertisements or of the articles contained herein. All persons should exercise due diligence and consult with legal and tax professionals before making any investment decisions.

Copyright © 2016 SJREI Association.

All rights reserved.

PUBLISHER’S

NOTE

P

utting together this most recent issue of REI Voice has been a great pleasure. It is always a privilege to work with the industry’s top-performing players: Chris Clothier, Tom K. Wilson, Pam Blanco and Kathy Fettke continue to make waves for investors and raise the bar higher for all those who follow in their formidable wakes.

In this issue, you’ll find the latest scoop on what is trending in real estate right now, meet the people who are netting big results - and find out how they’re doing it, get statistics and data to help you grow your wealth, and honest conversation about what it takes to make your income goals a reality. At SJREI and REI Voice, we have established a tradition of bringing you the industry’s top masterminds and leaders - the ones whose discerning voices we truly need to hear today.

This past year has brought nothing but top-notch educational programming to our sister organization SJREI - and our local investing organization has continued to grow and thrive since I took the reigns of this well-established community over a year ago now.

If you haven’t attended an SJREI meeting lately, be sure to check our calendar of events for an upcoming evening that is sure to enrich your future.

For those of you who hold the distinction of being SJREI members, you have personally met and mingled with many of the people included within these pages - continue to visit us at SJREI Association (SJREI. org), and meet other like-minded people. We welcome new attendees and if you have not attended in the past, email Loraine@sjrei.org to secure your free pass so we can change that.

Perhaps your own investing path is leading you to soon be published here too…. May these stories inspire you to find your own purpose and greatness: I hope we can sit down for an interview with you soon...

Lori

INTERESTED IN BEING A PART OF OUR MAGAZINE? REI Voice welcomes high-quality writers and advertisers.

To get the conversation started, connect through our social media, email loraine@sjrei.org or give us a call: 408-224-8167 3

Contents Welcome Editor’s Note

By Lori Greymont

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Features

Advice Social Media 101 for Real Estate Investors

35

Land Entitlement… It’s a Process

Coach’s Corner

By Lori Greymont

45

Quality Counts: How the Clothier Men Took Over the 24 Investment World, One Good Transaction at a Time

Turning the Key to Investment Excellence

6

By Amy Noble

By Pam Blanco

10 Types of Notices for Every Landlord

By Lucas Hall

By Geraldine Barry

9

By Hannah Ash

Crowdfunding: Legal Steroids for Investors

38

Real Estate vs. The Stock Market

40

By Tom Wilson

11

By Merv Plank

Analysis

Basics

Exporting Water In a Drought

15

Actions Count More than Words

32

Buyers Buy Benefits: Is The Price Per Square Foot Calculation Relevant?

37

True Friendship: One Huge Asset of Real Estate Investment

41

Bring Your Workflow into 2016: Three Steps to Streamline Your Process

19

7 Reasons to Join a Real Estate Investors Association

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By Christopher Thornberg, PhD

By Alain Pinel

By Geraldine Barry

How Low Inventory Is Slowing Home Buying

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Is Your Exit Really Your Entry?

22

By Ralph Mclaughlin, Trulia Chief Economist

By Dan Noble

By Jeffery Hare

By Nick Baldo

By Michael Grigelevich

Calendar Investor Resources

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42

REI Voice Magazine Continues the Mission of

SJREI

SJREI is the Bay Area’s premier real estate investing organization. A good real estate organization aims to connect investors with the education and networking they need to make solid decisions to enhance their wealth. The best ones, like SJREI, go several steps further.

With SJREI and REI Voice, we bring you the speakers, topics and time-sensitive information you need to make excellent investments.

We connect with you the industry’s most proven and accomplished voices.

We make things easy for you by highlighting proven experts and strategies - and membership includes the magazine as a resource to revisit when needed.

Join our community today www.SJREI.org

ADVICE

TURNING THE KEY TO INVESTMENT EXCELLENCE: WISDOM & EXPERIENCE FROM TEXAS POWERHOUSE PAM BLANCO

E

xperience definitely gives way to wisdom. Over the years, as I’ve headed up a very successful full service turnkey provider and property management company in the hot Dallas - Ft. Worth area, I’ve learned over and over again what makes an investment viable. Of course, some of what makes for a good investment depends upon what you, as an investor, happen to be looking for - however, there are time-tested rules of thumb that I, and my team, follow closely to maximize my investors’ ROI every year.

Not only do I believe in these rules, I use them every day. My company has created strategies and processes that ensure our investors get the most ROI from their investment dollars by paying close attention the certain investing do’s and don’ts.

When you keep maximum profit over time at the forefront of your decision making, the property you buy should reflect this. For example, if you need to choose between a multi-family or a single-family, you should know that single-family homes often attract longer-term renters, such as families and couples who tend to be financially stable and pay the rent on time.

Two can live almost as cheaply as one when food, rent and utilities are shared - while still enjoying that dual income. When you’re looking for a solid property to invest in, you may want to find neighborhoods that attract these demographics. In fact, paying attention to the demographics neighborhoods attract is a key part of what my company does: we help our investors make data-driven investment decisions based, in part, on demographics.

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Ask: What Would a Local Do? Always choose a realtor who knows the area you’re looking to invest in. Why? It’s critical to your success.

You want to work with someone who knows the area, trends, cash flow and, most importantly, the true ROI potential there within. Property managers can also be strong sources for uncovering market rents, trends and vacancy rates in an area. Every state has good cities, every city has good neighborhoods, and every neighborhood has good properties - but it takes someone with real insider’s knowledge to line up all three into a good investment for you.

Here are some of the factors we take into account when finding great properties for our clients:

Ask: What Would a Tenant Want?

Who are you buying your properties for? Tenants and, when it’s time to sell, potential buyers. Make sure you’re buying properties that are conveniently located to the amenities your tenants and potential buyers want: hospitals, universities, offices, shopping districts and entertainment. Pick properties in areas that people want to lease. Safety, desirability, vacancy rates, resale ability, appreciation potential, tenant quality, and price and rent ratios are all factors you can’t afford to ignore.

ADVICE

Ask: Do the School Districts Get High Marks?

Ask: What Size Will Attract Tenants?

When choosing an area in which to rent or buy, school districts always matter. Desirable school districts naturally attract desirable tenants and buyers. Though definitely a factor, academics is not always the main reason that makes a school district. For example, here in my stomping grounds of Texas, many people choose areas for their reputation in sports.

Know what size of property leases quickly in the neighborhood you are buying in. You want to attract a desirable tenant, so find the ideal property size for them. Bedrooms are very important when considering a rental property: a home with 4 bedrooms will lease higher than a three bedroom with the same overall square feet. The same rule applies to bathrooms and garages; a home with 2 bathrooms will lease higher and faster than one with only one bath.

Ask: What’s the Average Rent?

Ask: How’s the Craftsmanship?

The old adage is this: the older a property, the more you will end up spending in maintenance expenses.

However, a new house is not always guaranteed to have lower maintenance costs than older homes. Why? Some newer homes are poorly constructed, whereas a lot of older homes are built very well. If a home is older, you will want to complete a thorough inspection (including wiring, plumbing, roof, HVAC, appliance and foundation).

Ask: What’s the Condition of the Property Of course, the condition of the property is always important. Be sure that after you complete the inspection, you put together a comprehensive budget that includes the items you need to repair - and then ensure you account for those expenses in your profit calculations.

Rents determine your cash flow for the rental property, so you must find out what the average rent is in the area. The average rent needs to be enough to cover your mortgage payment, taxes and other expenses.

If this is not the case, don’t consider the property. Be sure to research the area well enough to gauge where the area will be headed in the next five years. Major development in the area could mean higher taxes in the future, which will affect your bottom line if increasing your rents is not an option.

Ask: Are there Amenities to Avoid?

Investors and property managers alike tend to shy away from things like swimming pools and other similar amenities - and for good reason. Pools come with increased liability and potential safety issues.

Increased insurance costs are sure to bring down your overall profits.

Our team follows the above guidelines to bring success to our many transactions with investors. At Professional Asset Management and Sales, we have a hands-on approach to finding the right properties for our investors, and then protecting them through proactive property management. To find out more about what we do, visit pamtexas.com.

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WHY INVEST IN ALABAMA? Now is a great time to add Alabama real estate to your investment portfolio. Alabama home prices are currently at historically low levels.

Alliance Wealth Builders of Birmingham specializes in helping real estate investors purchase high quality, undervalued, real estate investments and turn-key, cash flow, real estate in the greater Birmingham area, as well as other profitable markets within the State of Alabama; Huntsville, Montgomery/ Prattville.

1. Property Acquisitions 5. Property Management

The AWB Turn Key Process

4. Property Sales

2. Property Renovation

3. Tenant Placement

Our goal at Alliance Wealth Builders, Inc is to offer our valued clients a simple and hassle free experience when purchasing one or more of our Turn-Key income properties.

By purchasing one of our high-quality, turn-key real estate income properties, you’ll benefit from our teams handling of every aspect of the investment process; starting with property acquisition and property renovation, and continuing throughout the process of tenant placement and ongoing property management.

(205) 552-7009

www.alliancewealthbuilders.com 100 Century Park S., Suite 105 Birmingham, AL 35226

FEATURES

LAND ENTITLEMENT… IT’S A PROCESS

Photo

FOR REAL WEALTH NETWORKS CEO KATHY FETTKE, EXPERIENCE IS THE BEST TEACHER Kathy Fettke The Co-Founder and Co-CEO of Real Wealth Network

By Geraldine Barry

Kathy Fettke

B

uying land for development is no joke - the number of things that can go awry is endless when you consider just the entitlement process alone and its many complexities. Having a pro to oversee the project is highly recommended, particularly for a novice, or anyone who has not previously delved into this aspect of real estate development.

Kathy Fettke, CEO of Real Wealth Networks, shares her insights on the process: “On our projects, we use local developers with 30-40 years of experience; one has three cycles under his belt. This is a risky business and I have found that experience is the best teacher.

There are two factors that present risk to developers that can have a significant impact on the outcome: market conditions and the entitlement process. If one comes online with inventory at the wrong time in the market cycle, prices and profit margins are impacted.

However, if the entitlement process is delayed or stalled, the project’s viability can be put in jeopardy.”

Both factors are distinctly different but critical to the success of any development project. How does one mitigate these factors? With her successful track record and years of experience, Fettke is the right person to ask. Fettke shares that she works with developers who purchase product from distressed sellers or banks, at great discounts, and her preference is to pay all cash.

Distressed sellers often over-leverage, which puts them in the unfortunate position of having to sell if things don’t go according to plan.

Paying with all cash helps eliminate one of the risk factors. It provides stability and gives flexibility to the process, providing contingency options. Hence, if the market changes and the property is not leveraged, waiting until the market turns around is not an issue.

On leveraged projects when a note comes due, or debt has to be serviced, these are usually non-negotiable items.

The Entitlement process can be a wild card. Fettke recommends being familiar with the local building permit process in the city, or local municipality, prior to finalizing the deal. If entitlements cannot be secured - then no deal. The ideal here is to purchase land with the entitlements in place or one that the local City Council is already on board with.

The Entitlement process (or Permit Review Process) includes several components: ● General plan approval ● Environmental Impact Report ● Zoning/rezoning ● Vesting Tentative map ● Design Review ● Site Specific Permits unique to every project ● Occupancy certification The General Plan approval can be a lengthy process, often taking up to two years to complete. This includes an Environmental Impact Report; additionally, City or local Council approval has to be secured, something that can be difficult to accomplish. Keep in mind that every project is unique and has it’s own set of nuances, and some cities have more stringent laws than others. One is well-advised to be familiar with local ordinances, and players, in order to understand the landscape prior to getting involved in the process. This can provide security and eliminate surprises during the actual development.

Continued on Page 10 9

FEATURES

Rezoning follows the General Plan. Depending on the type of zoning required, Single Family Residential (SFR) can take up to 6 months to secure, and is done consecutively, so after the General Plan and Environmental Impact Report (EIR) is approved, rezoning is pursued. The Vesting Tentative Map then needs to be approved and consistent with the general plan above - it can be onerous to navigate unless all conditions are satisfied. Design review and Occupancy Permits are the final steps.

Overall, the entitlement process is long and complicated, and this is the reason why there is not a surplus of developers - they are a small fraternity. They know each other and work together to get things done.

The profile of an ideal developer is someone who pays attention to details and is cognizant of current market conditions and the approval process. Developers are multi-taskers and understand the different dynamics that can impact the outcome. They are flexible, and they use conservative pro-forma estimates based on today’s climate; they are very familiar with their market and build in contingencies just in case.

One of the greatest opportunities available for investors today is distressed development projects. When the global financial crisis toppled Lehman Brothers in September of 2008, many developers discovered their credit lines were suddenly pulled. Imagine spending years buying, entitling, planning and building subdivisions, condos, and commercial buildings, only

10

to find that halfway through construction, the bank funds you were promised are no longer there. Sadly, good builders and good projects went into bankruptcy or foreclosure and the projects sit unfinished.

Real Wealth Network has teamed up with highly experienced developers who seek out these kinds of projects. They are often too big for an individual investor but too small or complicated for hedge funds.

This is a niche that has become quite profitable for some of our members.

Real Wealth Network Recent Project Returnism: Here’s a peek at the final returns of past projects.

Of course, we can’t guarantee the same kind of performance in future projects but here’s what we’ve done in the past! ● The Portland project returned 20% annualized. ● The Dublin Heritage Park returned 35%-40% depending on when investors got their funds into the project. ● The Dublin Challenge project returned 20% ● The Cannon Ranch Project outside of Tampa is still in process but we’ve already received offers for 4x what we paid for it. ● Pleasant Hill Project: Still in process

ADVICE

10 TYPES OF NOTICES Photo

FOR EVERY LANDLORD

Lucas Hall

Y

ou’d be amazed at the stories I’ve heard from fellow landlords over the past two years of running Landlordology. From the dirty cat lady to the lucrative traveling tenant who is rarely home, but never misses a rent payment. From meth labs to prohibited subletters, a landlord has to be ready for anything.

My 7 Cardinal Rules The good news is there are really only seven “Cardinal Rules” for successful property management (in my opinion):

1. Screen well and don’t discriminate.

Lucas Hall is the Chief Landlordologist at Cozy, which offers free online rent collection and tenant screening tools, and is the founder of Landlordology.

The 10 Different Types of Notices The industry best practice is to send a formal notice via Certified Mail/Return Receipt Requested, via the US Postal Service. Certified mail is the only proof of delivery that most courts will accept, apart from a registered server.

1. Notice to Pay or Quit

“Pay up within X days, or move out because I’m terminating your lease.”

When a tenant doesn’t pay rent when it’s due (plus any grace period), the landlord can send a warning notice that basically says “Pay up within X days, or move out because I’m terminating your lease”.

2. Make rent payments easy and automatic.

3. Have a rock-solid lease and stick to it.

4. Always give proper notice before entering.

This notice does not give a landlord permission to change the locks on a tenant or cut off the utilities.

You would still have to go through the formal eviction process to have the unlawful tenants removed by the police.

5. Be fair, honest, and make timely repairs.

6. Know how and when to use “notices.”

7. Only withhold the deposit for actual,

Most states have their own rules on exactly how much notice a landlord must give a tenant. Generally, only three to five days notice is required. Our state law guides will help you research your state’s specific rules.

itemized damages(material or financial).

2. Notice to Cure or Quit Obviously, property management is more complicated and involved than these seven rules, but following them will put you above 99.9 percent of other managers, and help to ensure your success. In this article, I’m going to review rule six – knowing how and when to use the different types of notices.

“Fix the violation within X days, or move out because I’m terminating your lease.”

If a tenant violates a condition, clause, or rule within the lease agreement, a landlord can provide them with a notice that says “Fix the violation within X days, or move out because I’m terminating your lease.”

Continued on Page 12 11

ADVICE

The most common lease violations are: ● Unapproved subletters/roommates ● Unapproved pets ● Unapproved renovation or use of the property If the tenant remedies the violation, then he or she can stay in the property, and the lease continues as normal.

3. Unconditional Quit Notice

“Your lease is being terminated in X days because of __________.”

In the previous two notices, a tenant is allowed a specific number of days to fix the problem. With an unconditional quit notice, a tenant is not given the opportunity to stay, even if they remedy the issue.

It doesn’t forgive their sins (i.e. unpaid rent or noise violations), but it just means that they won’t be allowed to stay even if they pay up or keep quiet.

The most common situations where a landlord can serve an unconditional quit notice are: ● The tenant has been late on rent more than once. ● The tenant participated in a serious illegal activity (such asdrug dealing) on the premises. ● The tenant caused serious damage to the rental property, or damage that cannot be remedied. ● The tenant has repeated the offense or violation (noisedisturbances, pet hoarding, etc).

Because an unconditional quit notice is considered to be the most harsh of all the notices, not all states allow for it. Even those that do specifically restrict its use to certain situations.

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4. Offer of Renewal

“Your fixed-term lease is set to expire on MM/DD/YYYY, and I’m pleased to offer you a renewal.”

Because most fixed-term leases don’t auto-renew (hence the point of having an end date), the landlord and tenant must sign a renewal agreement in order for the tenancy to continue. If I want to renew a lease, I’ll notify the tenant of the offer 60-80 days before the end of their current lease. This is because I require 60 days notice of non-renewal from my tenant, so I want to make sure they have enough time to consider their options and are still able to give proper notice if they choose not to stay.

Please, please, please don’t be that landlord who requires 60 days notice of non-renewal but then doesn’t present them with a renewal offer in time – that’s just not fair.

5. Notice of Non-Renewal

“Your lease or monthly rental agreement is set to expire on MM/DD/YYYY, and a renewal will not be offered. You will be expected to vacate on or before MM/DD/YYYY.” Any time you want to terminate a daily/monthly/ weekly/yearly periodic lease, you’ll need to send a notice of non-renewal. It’s also commonly called a nocause eviction, because the landlord and tenant can terminate a periodic lease, with proper notice, at any time.

If you have a fixed-term lease, but it auto-renews, and you’d rather it not, then you should use this notice as well.

Again, every state has rules on how much notice is required for periodic leases. The amount of notice required varies from 7-60 days for a monthly lease, so be sure to check out your state laws.

ADVICE

6. Notice of Rent Increase

“Your rent will increase to $X, an increase of X%, starting on DATE.” Raising the rent is tricky business. If you raise it too high, your tenants will leave. If you don’t raise it at all, you’ll lose money due to inflation. If you do raise the rent, you need to send proper notice to the tenant, which is usually 30-60 days in advance, depending on your state laws. My suggestion is reward great tenants by not raising the rent, and then make up the difference when they finally vacate.

7. Notice of Entry/Intent to Enter

“I’ll be stopping by between 2-6pm on Saturday, July 4th, to perform the annual inspection and photograph the property” Most states, but not all, require that you give proper notice before setting foot on the premises. Meaning, if you just want to walk around the back yard, you still need to give notice. Even if your state doesn’t have a requirement to give prior notice before entering the property, the industry best practice is to give 24 hours notice.

Most of my intent to enter notices are sent via email or text, but if I don’t get a confirmation from them, I’ll send a postal letter if there is enough time.

8. Notice of Intent to Dispose of Abandoned Personal Property

“Come pick up your stuff, or I’m going to sell it/throw it out/put it in storage.”

Again, each state is different in how it requires landlords to deal with the abandoned personal property of a tenant. Some states require a landlord to send a 30-day letter to the last known address. Others allow a landlord to throw out or sell the belongings immediately after the tenant has abandoned the premises.

Though I always tell my tenants to remove their “Trash AND Treasures,” selling the tenant’s abandoned fish

tank can sometimes mitigate the financial damages that the tenant caused.

9. Notice of Repairs/Renovations/Outages

“A contractor will be changing out the electrical panel on Friday, and the power will be out all day.”

This type of notice is often combined with the “Notice of Entry” because someone usually has to enter the property to make the repair. If you will be cutting off essential services, such as water, electricity, or heat for more than a day, you should consider relocating the tenants to a hotel (at your expense) until the repair is complete. Without access to essential services, a dwelling is considered uninhabitable.

10. Notice of Transfer of Ownership/Management

“Effective immediately, I have transferred ownership of the property to Mr. Smith.

He, or his agent, will contact you soon to provide instructions for your rent.”

When a property is sold, the lease is transferred to the new owner.

Despite what some landlords would like to believe, a lease doesn’t automatically terminate upon the sale of a property. The new owner becomes the new landlord, and the tenant is usually allowed to finish out the rest of their lease. I rarely give the contact information of the new owner to the tenants, because, quite frankly, I don’t know if the new owner wants to be contacted.

As the new owner of the property, he or she can decide if they want to be an active participant, or a silent investor.

The new owner certainly has the right to stay anonymous, and hide behind a property management company, if they choose. I leave it up to the new owner to make contact with the tenants, and to dictate how he/she wants to manage the property.

You can also use this type of notice if you change management companies.

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ANALYSIS

EXPORTING WATER IN A DROUGHT Christopher Thornberg, PhD

T

Dr. Christopher Thornberg, PhD Contributing REI Voice Columnist, Co-founder of Beacon Economics

he good news is that El Nino came back in 2016 bringing with it much needed rains and a snowpack that is already well above normal.

California’s drought may not be gone—in fact it could go on for some time—but its effects are clearly reduced.

the right to divert a fixed amount of water for irrigation, but they lose those rights the next year if they use less than the maximum. As a result, those farmers, not knowing what their water needs might be in the future, never voluntarily cut back their water usage.

That doesn’t mean we should stop talking about water, however. There will be another drought in the state— possibly worse than the last one. Moreover, California has plenty of water to deal with these periodic dry spells. It only needs to appropriately manage its supplies to avoid both the billions of dollars in losses that stem from sharp reductions in urban consumption, and environmental damage.

These outdated water rights have skewed incentives so badly, they actually encourage shockingly wasteful consumption by agricultural interests even in the midst of a record drought. Despite the surge of media stories about a “devastated” industry, agricultural has been enjoying record years for both production and revenues, indicating that the industry truly can prosper with far less water than it normally consumes.

Even more problematic is the agricultural industry’s growing business of functionally exporting California’s scarce water to foreign buyers at rock-bottom prices as the rest of our economy and ecology grapples with tough cutbacks.

California has always had erratic rain patterns and the state has wisely invested in an extensive infrastructure to store and transport water. But this wisdom is being squandered because of the incomprehensibly bizarre “use-it-or-lose-it” water rights system that rules the state. The system predates 1914, when a formal water permit system was established. It gives many farmers

By now, the statistic that agriculture makes up 2% of the state’s economy but uses 80% of the consumed water Continued on Page 16 15

ANALYSIS

supply is well known. The problem with this number is that agriculture doesn’t need to use 80% of the state’s water in order to prosper. If you didn’t hear the news, agriculture had a banner year in 2014—recording a record high $53.4 billion in revenues, up 5% from the previous year. This calls into question the decision by policymakers to place the majority of the reductions in supply on urban and environmental needs.

Some want to credit the industry for managing well in a crisis situation. For example, some farmers have cut back on consumption through methods such as drip irrigation, which conserves water better than surface irrigation without meaningfully impacting production.

However, most farmers have resorted to simply drilling deeper groundwater wells to make up for lost access to surface water.

Even more recent data suggests 2015 will be similarly prosperous for the agriculture industry. Through the first three quarters of 2015, overall incomes for workers and proprietors in the industry averaged $32.2 billion, up 4% from the previous year—and this is despite the decline in agriculture prices last year (NOTE: The difference between the total revenue numbers and the income figures from the U.S. Bureau of Economic Analysis are earnings from farms that are incorporated). According to the California EDD, farm employment in 2015 was 417,000, the highest number in 25 years. Exports of agriculture and agricultural products produced in the state hit $4 billion last year— another record.

In Beacon Economics view, the success of the industry suggests something completely different—it proves that agriculture doesn’t need the water it consumes on an average basis in order to truly thrive. It may well be easier and cheaper for farms to behave as if the supply of water is largely limitless, but it clearly isn’t necessary. This is important for the long run— by preventing unnecessary consumption in times of plenty the system leaves more water for recharging reservoirs and water tables, efforts that will help the state through the next inevitable drought. Moreover, the figure that is perhaps the most shocking isn’t the size of the revenues being earned by the agriculture industry, but the source of them.

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$35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000

1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1

$Millions

California Farm Personal Income Worker Earnings and Proprietor Profits, Source: BEA

ANALYSIS

California Produced Exports of Hay, Alfalfa etc Thousands Tonnes, Source: WISER Data

2,500 2,000 1,500 1,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

500

The largest crop in the state by acreage is alfalfa, also known as forage or hay. According to the 2014 data, there was 1.37 million acres of state land devoted to growing this plant, roughly 5% of the state’s total land acreage. Hay is a very water-intensive crop, needing 4.5 to 6 acre-feet of water per year to grow. This implies that over 7 million acre-feet of water were used to irrigate hay grown in the state in 2014.

In context: this one crop, all by itself, used almost as much water as all of California’s urban areas combined even as reservoirs were rapidly drying up. Why is this a problem? First, hay isn’t a particularly valuable crop.

Revenues per acre are less than 20% of what they are for grapes, nuts, or other such cash commodities. This low value implies that the profit per acre-foot of water consumed is shockingly small—just $41 per acre-foot (based on an average gross margin of 17%). The typical California family pays well over $900 per acre-foot for their water while San Diego is currently paying a private vendor $1,700 for each acre-foot of desalinated water.

The standard justification by the agriculture industry for this incredibly low-value use of large quantities of water is that it is necessary to support the far more valuable meat and dairy segments of the industry.

California Alfalfa and Hay Production 2014 (000’s) 1,375 Acres Tons Grown 7,388 Revenue $1,737,024 AF Water Used 7,150 Economic Value $235.1 Revenue per Ton Revenue per AF $242.9 Profit per AF $41.3 This argument has no logical basis. The local meat and dairy industry could easily purchase feed from other parts of the nation where water is far more plentiful.

The increase in cost from importing hay rather than growing it locally would assuredly be less than the billions of dollars in value that would be created by diverting this water to urban usage in the state.

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ANALYSIS

But what makes this all the more troubling is that a large portion of California’s hay crop is not being used by the state’s dairy and cattle operations. It is being put on boats and shipped overseas for foreign consumption. The last four years have seen a record flow of hay, alfalfa, and other forage products grown in the state going to foreign buyers – an average of 2 million tons per year. This represents over one-fourth of the state’s annual harvest.

If calculated out in terms of water used, this means that the state’s agricultural sector exported roughly 2 million acre-feet in water in the form of low-value animal feed in the middle of one of the worst droughts in memory. This is enough water for 4 million Californian households – the population of Los Angeles County.

It is also a significant portion of the water that flows through the Sacramento Delta into state and federal water projects in a normal year. And it is 80 times the water that the San Diego desalination plant is producing on an annual basis.

In addition to the volume, the state isn’t getting much in the way of value for its water. The price of these exports is only slightly above average—revenues of $288 per ton of feed produced, much of which may well be driven by additional processing. In 2015, state agricultural interests received just $560 million for the 2 million acre-feet of water exported and sold abroad even as state and local regulators pledged billions in spending to expand water storage and capture systems.

The industry is profiting roughly $50 per acre-foot consumed. For that $50, the highly touted San Diego desalination plant can product 3% of one acre-foot.

Who is buying California’s water? Recent news has focused on Saudi Arabian purchases of farms here and in Arizona. The reality is that buyers from the Middle East are late to the game. For years, the largest buyer was Japan—but a new buyer has rapidly climbed to the top. As of 2015, the largest foreign buyers of California’s hay exports, in order, are China (36%), Japan (33%), and South Korea (12%).In 2009, China consumed only 2.5% of exports—one-third of Taiwan’s consumption.

Hay and alfalfa are the worst offenders, but not the only ones. Cotton, rice, and wheat are all grown in the state at low values per acre-foot of water consumed.

If these wasteful crops were scaled back even by a small amount—say 25%—the saved water would be enormous—plenty for urban needs, storage recharge, and environmental needs. And the reductions in 18

revenues would be less than $1 billion out of a $50 billion haul in 2014.

The online news site ProPublica and The Atlantic recently published an article about a Wall Street “maverick’s” proposed solution for the water issues in the West. While this financial guru is surely a bright person, the West’s water problems don’t need an offkilter genius to solve them—the answers are pretty obvious. If farmers had to pay for water at a rate that was even one-tenth of what urban areas pay, production of these low-value, water-intensive crops would slow substantially.

“The West’s water problems don’t need an off-kilter genius to solve them.”

And if farmers were allowed to sell their water to whomever they wanted, they would happily sell it to urban areas in lieu of growing hay in the desert. The arbitrage possibilities are so large that a $100-per-acrefoot “tax” could be levied on the sale of the water and the proceeds used for economic development and environmental renewal in areas where hay farming would be retailed. In short, everyone would win.

Why doesn’t this happen? Largely because politicians to date have been far too timid to try and break down the horrendously distorted yet highly calcified water allocation system in the state. And sadly, the return of El Nino may have allowed them to avoid the obvious for yet another year—making the long-term harm to the state’s economy and ecosystem even worse. Hopefully our leaders won’t waste the opportunity to take action during the next record drought.

BASICS

BRING YOUR WORKFLOW INTO 2016: THREE STEPS TO STREAMLINE YOUR PROCESS Nick Baldo

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ithin any industry, the use of technology can drastically improve your productivity and position your business for long-term growth.

The world of real estate investing is no different. In an industry that is commonly associated with old-school negotiating tactics, a heavy dependence on instinct, and an out-dated agency model, it can be difficult to identify the most appropriate application of technology.

An investment business is successful to the degree that it is scalable. Technology can certainly help to accomplish this scalability; however, we must first thoroughly understand our business processes and determine those areas that best lend themselves to improvement through technology Follow these three steps to give you the confidence you need to implement technology within your real estate business.

Step 1: Define and document your Business Processes Framework As real estate investors, we’re often told to “treat your investments like a business.” What does this really mean? Most of us realize that this advice goes beyond the simple act of forming an LLC or a corporation.

Treating your real estate investing as a business means creating a living, breathing entity that has both tangible and intangible value. The value of your business is largely based on your ability to create and maintain consistent and scalable business processes.

All too often, we count on our instincts to run our business. We operate with a reactionary mindset instead of building and utilizing a proactive and predictable set of processes. Your business processes can be viewed as a set of workflows that are influenced by various triggers. These triggers, whether predictable or unforeseen, provoke certain processes to begin, change course, or end. As you gain experience, you will be able to predict, with increasing accuracy, the triggers that most heavily influence your business. Creating your Business Process Framework is the first step in preparing your business to adapt to any situation.

Your Business Process Framework is a comprehensive documentation of every step your business takes within various situations and scenarios. These processes may lead to profit or they may be merely administrative.

The most useful Business Process Frameworks take a comprehensive look at the entire business and outline each step in detail.

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BASICS

How you document your Business Process Framework is entirely up to you. Many investors choose to create an extensive flow chart to document each specific business process; other entrepreneurs can establish a clear view of their processes with just a simple outline. Regardless of your formatting preference, the simple exercise of documenting your business processes will force you to take a deep look inside your business and reveal areas that need improvement. You may even be surprised to find areas of your business that are neglected when your business processes are retained in your mind.

Sample Business Process Framework Marketing Vacant Rental Unit

Your Business Process Framework will serve as a living and ever-changing playbook for your business. Don’t rely on your memory and instinct as a basis for your business: that is the role better suited for your Business Process Framework.

Step 2: Perform a profitability audit on your Business Process Framework Once you’ve documented your Business Process Framework, your next step is to determine the profitability of each of your process steps. To determine your profitability, you must map your business costs (both time and money) and revenue to each step within your Framework. This can be rather difficult to nail down, but the goal is not 100% accuracy. Your objective is to develop a rough idea of the areas within your business that are most and least profitable. For

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example, we would expect our rent collection process to be more profitable than our accounting process.

It’s important to factor time into your Profitability Audit. If you are paying employees, the financial cost will be a function of your employees’ time. However, many entrepreneurs fail to account for the cost of his or her own time spent on the business. This can be addressed by making a conscious effort to track your time. Use a free app like Toggl to track your hours spent on various activities within your business. We all know we spend too much time responding to email, but the actual data can be astounding!

As you complete your Profitability Audit, you’re likely to find patterns and certain areas that warrant further investigation. There is a good chance your investing business adheres to some interpretation of the 80/20 principle. For example, perhaps 80% of your business profit can be attributed to 20% of your effort.

The key areas of your business are likely to be those that eventually result in income: generating leads, increasing rents, re-positioning property, etc.

You should also consider the areas of your business that do not generate profit but consume a great deal of resources. For example, your process for dealing with property maintenance is bound to result in negative profit. Nonetheless, your Profitability Audit will provide insight as to how the costs of property maintenance compares to the costs of other administrative processes within your business.

Your Profitability Audit is nothing more than a deep dive into the most crucial processes of your business.

Upon completion, you will have a strong understanding of those processes which could benefit from a decrease in cost and/or an increase in productivity.

Step 3: Fill the gaps with technology Your Profitability Audit will unveil the important few processes within your business that will most heavily influence your success as an investor. Your job is to now look for ways to increase profitability within these key areas of your business. As is often the case, technology is a great way to reduce cost and improve efficiency within businesses.

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Of the most crucial process steps of your business, how do you determine which lend themselves most easily to technology? Technology is best suited for processes that are quantitative, predictable, and/ or data intensive.

“Do you have clearly defined Key Performance Indicators (KPIs) that drive your business?”

Most of us understand that software is much better suited for performing quantitative analysis than our brains.

Investors are more likely to create a new spreadsheet to perform a simple calculation than to spend the time struggling with pencil and paper! However, there is often still room for improving your business’s use of technology for quantitative analysis. For example, is your process for performing analysis documented and well-understood throughout your organization? Do you have clearly defined Key Performance Indicators (KPIs) that drive your business? If so, what is the mechanism for calculating and communicating these KPIs throughout your organization? Your business may benefit from a dashboarding product such as Klipfolio to clearly communicate the key quantitative drivers of your business.

Predictable business processes are easily improvedupon with technology. Cloud-based operations products such as Podio allow us to build automated workflows that help to run our business on autopilot.

The triggers that initiative many business processes are predictable and repetitive.

For example, it’s easy for us to build an automated workflow to deal with vacancies within our rental units. The trigger is the tenant deciding not to renew his or her lease. Once this happens, the process of filling a

vacant unit begins. This process follows the same exact steps every time. We can easily build a Podio workflow to help us market the vacant unit, schedule showings, notify tenants of showings, accept applications, sign new leases, etc.

In 2016, we should all be using some form of cloudbased document storage and collaboration tool. For example, you could set up a company-wide Google Drive folder that stores all the key documents needed by your team. You should also try an app like Scannable to digitize business cards you receive into Evernote.

Prepare to Grow There is an appropriate time and place for the use of technology within your real estate business. Only a clear understanding of your business processes will bring to light those areas that are best aided by technology. As you grow as an investor, you can take a proactive approach to ensuring that your business is ready to scale with you.

NICK BALDO Real Estate Investor, Founder of IncomeDigs.com

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ANALYSIS

IS YOUR EXIT REALLY YOUR ENTRY? LESSONS FROM THE PRIVATE INVESTMENT COMMUNITY Dan Noble

Dan Noble serves as Director of Investor Relations for Summit Assets Group.

Contact Dan directly to discuss Summit’s turnkey investment opportunities at 408.268.9777.

I

t happened once again today – the new client declared, “I don’t think I planned my exit strategy very well for these properties…” His current exit options would require nothing short of a herculean feat. He wanted to discuss refinancing his way out of high interest loans with short calls, and then wanted to sell those same properties. He needed to do this in preparation for an imminent retirement and move to another area of the country where additional investment property would be purchased to provide passive income for his retirement years.

To do so, you first need a goal. If, for example, the goal is to live the life you love , we’d first need to know what that would be, what it might cost, and by when it would need to be funded.

The transition into retirement comes with great expectations, doesn’t it? We dream of enjoying all the experiences we’ve always wanted. It’s possible to have these wonderful experiences when you’ve designed a complete investment strategy that produces enough income to give you a truly “paid in full” lifestyle that is, to be financially free & secure with a stable to increasing passive income to enjoy your later years.

● Steal – Desperate measure and not recommended

Accomplishing this may be far more simple than you imagine.

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How do you pay for life right now?

Simple enough to answer: ● Job – most have one which provides the income we use to pay for the things we need and want ● Borrow – If we fall short through overspending, we can borrow to make up that shortfall

● Invest – This activity, when properly employed over time, has more potential than any other

Real life example of how this might look.

First consider where you are now: ● Job – produces an income of $12,000 per month ● Life – currently our needs and wants cost us $10,000 per month ● Savings – we save the additional $2,000 employment income for investment

ANALYSIS

One plan, then, might look like this:

$10,000 – Create a passive income stream to pay for our life

And - you’ve accomplished a cash flow of over $10,000 per month!

1 House – costing $150,000 Rental income = $1,500/month Mortgage payment + taxes + insurance = $771 Property management fees of 10% of gross rents = $150 Vacancy and Maintenance each at 5% of rent, 10% = $150

Monthly revenue = $429 Now, take all revenue and pay off the loan - so that once it’s paid off , you have $1200 per month, net Buy 1 per year for the next 10 years - while your tenants pay down the loan

Tactics over time: ●Continue to save and accumulate capital monthly ● Use savings and passive income while you’re working to pay off mortgages and buy more property ● Buy a minimum of 23 properties in any one geographical area to build leverage with service providers and tax advantages ● Buy middle class properties below market value which appeal to the largest percentage of the population ● Keep accumulating property until the minimum monthly income necessary is obtained ● Every 2 years sell or exchange the 2 worst performing properties for better ones ● Keep going – Never quit! ● Values & rent will likely increase over time

The Secret Sauce Investment strategies should be simple and contain these 3 elements: 1. Entry – How will you acquire all the assets necessary to accomplish your goal 2. Holding period – How long will you hold the assets and what milestones will be accomplished 3. Exit – At what point will you sell, exchange, or give away the assets – Even death is an exit strategy, so plan for it Returning to my new client, had they considered what they wanted to accomplish and by when, and where they might want to live in their retirement years, they almost surely would have made different choices to enhance retirement planning. Now the cost in time, energy, loss of equity, expenses, and taxes will delay them, forcing a change in strategy to match their new plans.

So, here’s some advice: begin at the end. Define your end goal and work toward that. Above all else, act – take that first step to purchase that first property (it gets easier after that).

The sooner you start, the sooner you’ll get there. You will never be able to save fast enough to build a retirement without the all important INVESTMENT component.

On behalf of everyone at Summit Assets, we wish you the best of luck: real estate investing can open the door for the life of your dreams. If we can assist you in taking that first step, finding property, or engaging with me in a coaching program to build this structure for yourself call me!

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Memphis • Dallas • Houston

HOW THE CLOTHIER MEN TOOK OVER THE INVESTMENT WORLD, ONE GOOD TRANSACTION AT A TIME

QUALITY COUNTS Hannah Ash

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y now, I’ve interviewed numerous real estate pros. There’s something about Memphis Invest’s Chris Clothier that is disarmingly genuine. I catch up with him between meetings on a Thursday in early Spring - despite his hectic schedule and calls that continue coming in, he gives me his undivided attention. I lead with a strong question that cuts to the chase, “what’s the one big thing about your company that I should know?” Without missing a beat, he responds, “You can have anything you want in life, if you help other people get what they want.”

Over the past twelve years, Memphis Invest has built an impressive track record of getting people what they want in life. Their investors average a substantial 8% on returns - a fact of which Clothier is clearly proud.

Memphis Invest, I learn, is more than just a turnkey provider - it’s a long-term investment management company. It’s the go-to for investors who want all the great returns of investment without the hassles that crop up. It’s where investors turn to when they want to make their money work harder without having to work harder themselves -- Chris and his ace team are the ones who field the property repairs, midnight tenant phone calls, find the right properties in the right markets, and secure the best vendors to handle necessary renovations. Not only do they handle all of this, it’s what Memphis Invest does best.

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A family-owned company, Memphis Invest was founded by Clothier patriarch Kent Sr. The company has grown organically after planting it roots many decades ago. Kent started out in the supermarket industry, managing a billion-dollar supermarket operation by the young age of 32. Kent brought his expertise in the grocery industry with him to Memphis and began American Wholesale Grocers in 1987. By 1995, he built the enterprise into a $50-million venture, which he sold in the late 1990s. He went on to pursue his passion for real estate and ended up being asked to speak at real estate investing associations. Friends and fellow investors kept turning to Kent for advice, asking him for his assistance in finding and managing investments as successfully as he had been finding and managing his own.

“It’s not about selling properties, it’s about matching our properties with our clients’ needs.”

One thing led to another, and Memphis Invest took shape, carrying with it a mission to give people what they want in life. Two of his sons, Chris and Brett, both successful in their own right, joined the Memphis Invest management team and the dream began in earnest.

The company decided to expand into Texas, adding offices in Dallas and Houston. The markets they target

FEATURE

today -- Memphis, Dallas and Houston -- are among the strongest in the country for growing investment dollars. Key factors that make these markets desirable, as Chris puts it, include “affordability, economic growth and temperate climates.” Chris points out that the temperate climates translate to less weather-related wear, tear and maintenance for their property owners for example, no snow removal. “The markets we offer give our clients a high level of comfort,” Chris explains, and I can see why.

Memphis Invest’s clients come to the Clothiers looking for quality investments. Looking to truly grow their portfolios, investors typically purchase multiple properties at a time. Though not required to be accredited, the Memphis Invest team invests time with each new investor to fully understand their needs and wants. “We haven’t ever sold a property,” Chris proudly tells me. “What?” I ask him to repeat himself.

He goes on, “It’s not about selling properties, it’s about matching our properties with our clients’ needs. If it works, great.” So, once a client comes to Memphis Invest, the team finds properties that match their needs.

Absent are the aggressive sales pitches and emptypromise verbiage that gives the industry a bad name.

It’s a refreshing approach that’s served Memphis Invest, and its clients, well. Chris relates a story of a local competitor who came to them to find learn more

So, how does a would-be investor find themselves working with Memphis Invest? It’s a process. I’m surprised to hear that the Clothier is selective. He shares, “Not every investor is a good fit for Memphis Invest.” Who is a good fit, I ask? “Investors who want great returns and quality investments without the legwork,” Chris tells me.

Memphis Invest isn’t the cheapest option in the industry - nor do they aim to be. “With passive investments,” Chris explains, “cheaper is never better.” When you’re buying a cheap property, as with any decision to buy the less expensive option, you sacrifice something, somewhere. With cheaper investments, you may end up paying less upfront, but down the road, the price tag grows while the returns shrink. Whether it’s the need for ongoing repairs, a less-than-steady base of tenants and larger rates of vacancy, or a significant time investment - buying a “cheap” property can end up costing a lot more than it looks on paper.

about their practices. The competitor had copied the Memphis Invest marketing material almost word for word - and during their meeting with Memphis Invest, the competitor confessed, “I know you say you do all those things. We say we do, too. It’s what everyone in the industry says. But you guys actually do them.”

Their work, Chris says, speaks for itself. When investors see the properties, “they are blown away.” That’s what sets them apart - not being the cheapest game in town, or having the most aggressive sales pitch, or working with every investor that comes their way….it’s having the best product that gives the best returns year after year. The proof that the Memphis Invest way works is in the pudding.

“60% of our deals are made by repeat investors. They keep coming to us for our value and reliability,” Chris concludes. For a company that began because of a true demand for Kent Sr.’s investment guidance, it’s apparent that Memphis Invest will continue to grow, both in demand and in returns for their investors, for decades to come.

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FEATURE

Memphis • Dallas • Houston

Why Memphis? (or Dallas? Or Houston?)

If you ask Memphis Invest clients, they’ll say that the Memphis, Houston and the Dallas-Fort Worth Metroplex areas are gold mines. But - aside from the Texas Rangers and NASA, what makes these investing areas tick?

Before we find out, let’s do a quick recap on what makes a market strong - for investors. Believe it or not, cities that command huge rents aren’t exactly the most lucrative when it comes to cash-flow: cities that are affordable with strong, stable job markets are ideal. Here are some economic indicators to consider when evaluating a real estate market: stable, established employers (colleges, hospitals, major companies), a diversified economy (so that unlike in Flint, if one industry is hit hard the city can recover) and a reasonable cost of living.

Why Memphis?

Memphis is easy to sum up: affordability and jobs. It goes without saying that Memphis is the stomping grounds for Memphis Invest. What makes Memphis a strong market? It’s more metropolitan than one might think: it’s home to one of the largest economies in the whole of the Southeast. With the second busiest cargo airport in the world (second only to Hong Kong), and the third largest rail center in the U.S., Memphis is a hub for transportation and shipping. FedEx calls Memphis home, as does two other Fortune 500 companies AutoZone and International Paper Co. Memphis has a relatively low cost of housing, making it an affordable city to buy into. Combine that with the high population, and Memphis is a gem hidden away in the Southeast of the country.

Why Houston?

Below, we’ll look at each area Memphis Invest believes in - and evaluate them in terms of a diverse economy, employers and cost of living.

Why the Dallas-Fort Worth Metroplex ?

There’s one word for Dallas that describes it perfectly: growth. The economy here is the 12th largest -- in the world. With a population of over 7 million, the Dallas population is able to support stable employers who keep on flocking to the area: the gross metro product exceeds $300 billion. The diverse economy here - from oil to tourism - lends strong stability to the market. In terms of tenants, Dallas has it all: students, families, seniors, snow birds, and singles.

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Houston could be called the Job Capital of the U.S. and for good reason. It was the first major city in the country to regain every lost job from the recession: jobs have now increased to 230% of pre-recession numbers.

The economy is diverse, with major employers ranging from the oil industry to engineering and universities.

Due to the sheer number of jobs here, housing is hot.

Renters abound - and, for real estate investors, it’s an ideal location in which to enjoy stable cash-flow and an easy influx of tenants.

BASICS

7 REASONS TO JOIN A REAL ESTATE INVESTORS ASSOCIATION Michael Grigelevich

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f you’re interested in real estate investing, the best thing you can do to set yourself up for success, in my opinion, is to join a local REIA. What is a REIA? It’s a real estate investing association comprised of like-minded people who, like you, are also interested in investing. REIAs, like our local San Jose Real Estate Investors Association, welcome everyone. When you attend your first meeting, you’ll be greeted by seasoned pros who are eager to share their enthusiasm and wisdom; you’ll also meet new investors who are looking to get connected and further their educations and experiences.

One of the great strengths, and weaknesses, of real estate investing are the many different strategies investors can use to find success. When you’re starting out, it’s easy to become overwhelmed by the many options available to you. SJREI, our local REIA, is a safe haven where you can bounce ideas off fellow investors, ask someone who’s been there and done that, and really vet different possibilities. A true wealth of information for creating wealth, your local REIA can serve as a key way to grow and protect your assets.

Here’s my list of 7 top reasons to join an REIA such as the San Jose Real Estate Investors Association:

1. Learn the Ropes Maybe you’ve been a long-time REI Voice reader - or maybe you’re just joining us. Perhaps you’ve read a few books about investing or have a friend who’s found success with their own investments. If your interest in investing is piqued, your local REIA is the first place to go to take the plunge and start learning the ropes from the people who’ve successfully mastered them.

2. Mitigate Risk Real estate investments have earned a strong reputation for bringing solid returns and creating income streams that you, and future generations, can prosper from.

That being said, there is always a certain amount of risk. It’s not advisable to go into investing alone: at your local REIA, you can meet the people who will be able to help you decipher complicated verbiage and see the real deal behind an investment opportunity.

3. Support and Get Supported One of the best things about an REIA is the wonderful support both new and seasoned investors receive and give. Whether you’re mingling with the night’s Continued on Page 28 27

BASICS

keynote speaker or talking with a neighbor, there’s no better place than an REIA meeting to get cheered on and encouraged for the investment work you’re doing or considering.

4. Find Opportunities

6. Give Yourself a First Class Education When was the last time you invested in upping your knowledge? Great REIAs, like SJREI, bring you a first class education every month. For example, this April, Fannie Mae’s Chief Economist and Senior VP Doug Duncan is SJREI’s keynote speaker.

Whether you network with an REIA affiliate or a fellow investor, your local REIA is the place to go when you want the inside scoop on hot opportunities that you won’t find anywhere else. Get access to local and longdistance deals through the trusted network of longtime REIA members and affiliates.

7. Stay Ahead of the Trends

5. Save Money

Of course, you can always find great deals and great vendors in REI Voice or through research. That being said, there’s nothing quite like being able to interact in person with local investors - the camaraderie, the new ideas, the education, advice and opportunities make joining your local REIA worth every penny.

Whether it’s finding out which vendor to work with or where to go for a loan, nobody knows how to save you money on your investment pursuits better than the investors at your local REIA. Your REIA membership will more than pay for itself thanks to all the great tips you’ll uncover at each meeting.

Whether it’s new laws that may impact your investments, or an industry trend you need to be aware, your local REIA is the place to find out key information that can make or break your portfolio.

If you’re local to the Bay Area, be sure to visit www. sjrei.org to learn more about SJREI. If not, you can find an REIA near you by visiting nationalreia.org.

ANALYSIS

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HOW LOW INVENTORY IS SLOWING HOME BUYING Ralph Mclaughlin

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Ralph Mclaughlin Trulia’s Chief Economist

ationally, the number and share of starter and trade-up homes on the market has decreased over the past four years. We find increases of premium home prices are strongly correlated with a drop in the number of trade-up homes on the market, while a larger share of homes owned by investors is likely affecting the supply of starter homes.

● Nationally, inventory has dropped most for starter

America is experiencing a housing shortage. Not only are there fewer homes available to buyers of all income levels, those just starting out or making their first foray into home ownership are worse off than they’ve been in years. There are fewer homes available, an even if they can find a home, it’s likely to be more expensive.

● Rising prices is causing homebuyer gridlock. The

Compared to other inventory reports, the Trulia Inventory and Price Watch is a new quarterly report that offers buyers and sellers deeper insight into the supply and affordability of homes within different segments: starter homes, trade-up homes, and premium homes.

Home seekers need information not just about total inventory, but also about inventory in the segment they are interested in buying. For example, changes in total inventory or median affordability don’t provide firsttime buyers useful information about what’s happening with starter homes. In addition, there is also a strong relationship between inventory and affordability in the three segments, so it’s important to track segment changes because that change is likely to induce change inventory and affordability in other segments.

Looking at all the housing stock nationally and in the 100 largest U.S. metros from January 1, 2012 to March 1, 2016, we found:

and trade-up homes, but less so for premium homes; ● Regionally, starter home inventory is down most in the West and South. Starter home affordability is down most in California;

growing price spread between premium homes and trade-up homes in some markets is highly correlated with fewer trade-up homes coming onto market.

Nationally, Starter and Trade-Up Home Inventory Down More Than 40% Since 2012 Heading into the spring house-hunting season, inventory remains tight and affordability is worsening, especially for starter-home buyers. Over the past four years: ● The number of starter homes on the market dropped by 43.6%, while the share of starter homes dropped from 30.2% to 27.7%. Starter homebuyers today will need to shell out 5.6% more of their income — based on the median income of start-up buyers — towards a home purchase than in 2012; ● The number of trade-up homes on the market decreased by 41%, while the share of trade-up homes dropped from 27.2% to 26.1%. Trade-up homebuyers today will need to pay 2.6% more of their income for a home than in 2012;

Continued on Page 30 29

ANALYSIS

● The number of premium homes on the market decreased by 33.4%, while the share of premium homes increased from 42.7% to 46.2%. Premium homebuyers today will need to spend 1.4% more of their income for a home than in 2012.

Low inventory is taking a toll on the affordability of all home segments, but especially starter homes. At the bottom of the housing market in 2012, starter homes were nearly affordable, primarily because starter prices were discounted: homebuyers needed only to shell out 32.2% of their income to buy the median priced starter home. Now, starter homebuyers would need to dedicate 37.7% of their income – a 5.6 percentage point increase. This is significantly more than the 2.6 and 1.4 percentage point increase in income that trade-up and premium homebuyers need to spend, respectively.

Why is inventory so low, especially for starter and trade-up homes? Three reasons: First, investors bought many of the foreclosed homes during the recession and turned into rentals. Second, a larger share of lowerpriced are homes are still underwater compared to premium homes, which means that these homeowners are unlikely to sell and take a loss. Third, and most importantly, rising prices are creating homebuyer gridlock. In other words, the spread of homes prices, specifically the growing difference between premium homes prices and trade-up home prices, is likely causing a decrease in trade-up home inventory.

Why does the premium price spread matter? The more premium home prices rise, the more difficult it is for trade-up homeowners to find a premium home that fits their budget. And if trade-up homeowners can’t find a home that fits their budget, they are less likely to sell their existing home. In fact, there is a strong correlation between growth in the premium home price gap and a drop in the inventory of trade-up homes. In other words, housing segments are intertwined. The more premium prices rise, the less likely existing trade-up homeowners will put their home on the market.

For Starter Homebuyers, Wrangling a Home out West is Tough Across the 100 largest metros, 95 have shown a decrease in the number of starter homes over the past four years.

30

Of the 10 metros that have seen the largest drop, all are in the West and South. The number of starter homes in Salt Lake City has dropped the most, from 1,243 to just 151 – an 88% drop in four years.

Starter Home Affordability Worsens in California The list of metros with the largest decrease in starter home affordability – which is affected by both the number of listings and home-buying demand – looks rather different. Nine of the 10 metros experiencing the largest drop in affordability are located in the Golden State. For instance, starter-home buyers in Oakland, Calif., would have to spend nearly 70% of their income to afford a 30-year fixed-rate mortgage on a starter home, which is 29% more of their income than in 2012.

The cause of this sharp drop in California’s starterhome inventory: demand for starter homes remains high because of strong job growth. Faced with growing demand and tight supply, prices of all homes in California have risen sharply over the past few years.

And as prices rise, homebuyers tend to follow the principles of supply and demand.

This means buyers must settle for smaller, less expensive homes than they might otherwise buy elsewhere. Some of this substitution effect could play out in the form of homebuyers increasingly looking down the housing ladder – those who might normally buy trade-up homes might actually be looking at buying smaller, less expensive homes that fall into the starter home category, inflating prices past the affordability points for true starter-home buyers.

Prospective first-time and trade-up homebuyers should consider that if the inventory of homes for sale continues to drop, finding a home will remain difficult.

They likely will be faced with more competition for the few homes that are on the market, which can lead to bidding wars and homes selling higher than asking price. Sellers are in an increasingly better position to sell their home than in years past, but may have trouble finding another home to buy. Ultimately, premium home buyers will have a much better shot at finding a home, since over 46% of the listings in the last three months were in this segment.

Source: Trulia.com

甀洀瀀猀琀 愀爀 琀

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BASICS

Photo

ACTIONS COUNT MORE THAN WORDS Jeffrey B. Hare

I

n the eyes of the law, what you did is more important that what you said you did. Sometimes, you can be held responsible for what you didn’t do, if you said you were going to do something but didn’t, like making a promise that you didn’t keep.

A famous and wealthy person repeatedly promised to endorse a project proposed by an entrepreneur.

All the entrepreneur had to do was line up some initial investments and put the initial stages of the deal together, and the famous and wealthy person would come with a celebrity endorsement and lots of capital. As you might have guessed, the entrepreneur lined up the initial investor, put the beginning pieces together, and the Big Guy didn’t come through. So the entrepreneur sued on a number of grounds, including fraud: he claimed that the Big Guy never intended to deliver fame and fortune. The Big Guy tried to get out by arguing he wasn’t a partner or otherwise involved in a joint venture, and therefore could not be held liable for a fiduciary duty. In a preliminary procedural ruling, the Court agreed, but held that the Big Guy might be found liable for fraud, stating that “a broken promise to perform a future act may constitute actionable fraud if there was no intent to perform when the promise was made.

Of course, making allegations and proving them can be quite a different matter. Real estate investors often rely on promises by others to perform future acts, and just because someone promises to do something and fails to do so doesn’t mean you can sue them for fraud. In order to prevail in an action for fraud, one must establish (prove) that the misrepresentation was made knowing that it was false, with the intent to defraud or induce reliance; that the reliance on the promise was justified, 32

By Jeffrey B. Hare Attorney at Law

and that the party making the claim suffered damages resulting from the fraud. Sometimes the promises of fame and fortune are so outlandish and over-the-top that a court or jury will conclude that there’s no way that a reasonable person could have relied on the promise; the reliance was not justified on the facts.

Moreover, in a real estate transaction, the injured party has to prove that the damages resulted from the fraud, and not from other factors, such as market conditions, faulty construction, or just a really bad deal.

Real estate investors often form business relationships with others to get the deal done. Some put up money; others contribute an interest in the property, from outright ownership to an option. Others contribute skills and services, such as contractors and brokers.

These deals are frequently formed with a handshake, and in others, more formal measures are employed.

Sometimes these are called “partnerships” or “joint ventures,” and if a lot of investors are involved, “syndications.” When things work out as planned, everyone is happy. But things rarely go as planned, and that’s when disputes arise. The nature of the business relationship, and the respective duties and obligations of the parties, come under intense scrutiny, and the outcome is often determined by the actions of the parties, not what was on the printed forms.

Even in the absence of a written agreement, the Court can make a determination that a partnership or joint venture was formed based on the actions of the parties, and from that determination, the Court can find that the parties owed a fiduciary duty – a duty of utmost loyalty and care – to each other. All that is required is a finding that there was a joint interest in a common business, a sharing of profits and losses, and a right

BASICS

to joint control. In addition to holding the responsible party to a much higher standard of a fiduciary duty, the Court will also hold that the statute of limitations period is extended in which the injured party can bring a claim. An oral promise normally has a two-year statute of limitations, whereas a claim based on breach of fiduciary duty may be as much as four years from the date the breach was discovered.

Many real estate investors look for ways to maximize their return. One way private money lenders seek to do this is by offering a competitive or favorable rate or lower points in exchange for a percentage of the net equity. In some of these situations, the lender will include language giving them some degree of control over the project. By doing this, the lender – who ordinarily would only be entitled to repayment of principle and interest – seeks to exercise some management authority in order to ensure they get a share of the profits. In this way, the lender becomes more of a partner, and may unwittingly become

obligated under the higher fiduciary duty standard. In other words, be careful what you ask for!

What are the lessons we learn from these examples?

Big Guy thought by standing in the background and avoiding any formal relationship with the entrepreneur, he could avoid being held to the higher fiduciary duty standard, but found himself facing allegations of fraud for failing to fulfill his promises. The private money lender seeking to exercise control to ensure a higher return discovered they unwittingly had formed a partnership and became subject to a higher fiduciary duty standard. As Spidey knows, with greater control comes greater liability. The main lesson is that the actions of the parties ultimately are more important than the words, spoken or printed, in determining the consequences of those actions.

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www.Sequoiawa.com Niki@Sequoiawa.com 33

䈀䔀䌀䄀唀匀䔀 圀䠀䔀一 夀伀唀 一䔀䔀䐀 䤀一匀唀刀䄀一䌀䔀Ⰰ 夀伀唀 刀䔀䄀䰀䰀夀 一䔀䔀䐀 䤀吀⸀⸀⸀

䐀愀瘀椀猀ⴀ䐀礀攀爀ⴀ䴀愀砀Ⰰ 䤀渀挀⸀ 椀猀 漀渀攀 漀昀 琀栀攀 漀氀搀攀猀琀 愀渀搀 氀愀爀最攀猀琀 椀渀搀攀瀀攀渀搀攀渀琀 愀最攀渀挀椀攀猀 椀渀 琀栀攀 䐀愀氀氀愀猀⼀䘀漀爀琀 圀漀爀琀栀 䴀攀琀爀漀瀀氀攀砀⸀ 圀攀 愀爀攀 挀漀洀洀椀椀攀搀 琀漀 挀漀洀洀椀 瀀爀漀瘀椀搀攀 挀氀椀攀渀琀猀 眀椀琀栀 琀栀攀 戀爀漀愀搀攀猀琀 挀漀瘀攀爀愀最攀 愀瘀愀椀氀愀戀氀攀 愀琀 琀栀攀 洀漀猀琀 挀漀洀瀀攀攀攀瘀攀 爀愀琀攀猀⸀ 伀甀爀 匀挀栀攀搀甀氀攀搀 䐀眀攀氀氀椀渀最 倀爀漀最爀愀洀 琀栀爀漀甀最栀 愀渀 䄀⬀ 爀愀琀攀搀 椀渀猀甀爀愀渀挀攀 挀愀爀爀椀攀爀 椀猀 愀 昀愀渀琀愀猀猀挀 眀愀礀 琀漀 挀漀渀猀漀氀椀搀愀琀攀 礀漀甀爀 爀攀渀琀愀氀 搀眀攀氀氀椀渀最猀 漀渀 漀渀攀 洀愀渀愀最攀愀戀氀攀 瀀漀氀椀挀礀⸀ 倀爀漀最爀愀洀 䠀椀最栀氀椀最栀琀猀 刀攀渀琀愀氀 漀爀 瘀愀挀愀渀琀 栀漀洀攀猀 䄀瘀愀椀氀愀戀氀攀 椀渀 洀漀猀琀 猀琀愀琀攀猀 ㄀ⴀ㘀 昀愀洀椀氀礀 甀渀椀琀猀 一漀 爀攀猀琀爀椀挀挀漀渀猀 漀渀 愀最攀 漀昀 栀漀洀攀猀 䈀愀猀椀挀Ⰰ 䈀爀漀愀搀Ⰰ 漀爀 匀瀀攀挀椀愀氀 䘀漀爀洀 䰀漀猀猀 漀昀 䰀漀猀猀 漀昀 刀攀渀琀猀 甀瀀 琀漀 㘀 洀漀渀琀栀猀 倀爀攀洀椀猀攀猀 氀椀愀戀椀氀椀琀礀 甀瀀 琀漀 ␀㄀Ⰰ Ⰰ

圀攀 漀û攀爀 愀渀 唀洀戀爀攀氀氀愀 漀瘀攀爀 琀栀攀 匀挀栀攀搀甀氀攀搀 䐀眀攀氀氀椀渀最

倀漀氀椀挀礀 ␀㄀Ⰰ Ⰰ 甀瀀 琀漀 ␀㔀Ⰰ Ⰰ ⸀

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ADVICE

SOCIAL MEDIA 101 FOR REAL ESTATE INVESTORS Amy Noble

Amy J. Noble serves as Social Media Marketing Manager for both Summit Assets Group and SJREI Association.

T

he quaint days of AOL and Myspace are just a memory in 2016. Today, companies of all sizes routinely turn to social media to market their products and brands. As a real estate investor, you can absolutely put social media to work for you. Whether you’re looking to connect with fellow investors, network with great vendors, secure a loan, sell a property or find great tenants - social media truly has something for everyone.

2. Facebook

To maximize your efforts, be involved and stay connected. Responsiveness is everything. People live in a fast-paced world right now and they expect quick replies. Personally, I try to reply to everyone, whether it’s a message or a comment, within 3 hours.

Next, be aware of trends. We get used to a certain way of getting our information - for example, memes and short videos are popular ways of communicating via social media today. Finally, post often! It doesn’t pay to be a wallflower, so post often and stay engaged with your followers (bonus: the more you post, the more followers you accumulate over time).

Twitter is the platform to use when you want to spark conversations or get questions answered. Using Twitter, you can directly tweet to a user - and their followers.

Use hashtags to keep the conversation going (for example, #101SanJoseRoad would be a good hashtag to use if you’re discussing a certain property).

Now, here are some specific ways you can put the power of social media to work for you:

1. Instagram

Instagram, the social media app and website that encourages social connection through sharing images, is a great platform for showcasing properties. Here, you can show off new properties that are for sale or for rent.

Be sure to use geotags to set the property’s location and relevant hashtags - such as #bayarearealestate and #bayareaforrent !

Though we’re all familiar with the standard status updates, Facebook can do so much more for you. One of Facebook’s greatest superpowers is groups. You can join local community groups - and when you need a good vendor or want to market a property - post away!

It’s a clever way to connect with thousands of locals.

3.Twitter

4.LinkedIn LinkedIn is the platform to use for networking. Here, you can connect with fellow investors and their associates. Want an introduction to a reliable plumber?

Need to find a solid property manager? LinkedIn’s reviews provide you with valuable information about a person or company’s track record.

To sum up, though the number of different social media outlets has certainly skyrocketed since the 90’s and 00’s, it’s not as difficult to jump in as it may look at first. Choose a social media platform (or two) and start learning the ins and outs. Practice, experiment, post often. The payoff in terms of new connections, potential deals, possible tenants and educational opportunities is certainly worth the time you’ll invest getting started.

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Full Page Ad

ANALYSIS

BUYERS BUY BENEFITS: IS THE PRICE PER SQUARE FOOT CALCULATION RELEVANT?

Photo Alain Pinel

I

never cease to be amazed at the fact that many Realtors (not to mention home-sellers) are judging the value of a luxury home mostly on the basis of its square footage. For a bank appraiser or a home builder to think that way, I can understand; it can indeed be a part of the valuation methodology, but for Realtors?

At the high-end, no two homes are the same, even when they appear to be. Take two identical penthouses in New York, both brand new; same top floor, same square footage, same layout, same amenities. I guarantee that one is worth more than the other. The price delta could even be wide. Perhaps one has a better exposure to the sun, or a nicer view, or sits next to another beautiful residential building, while the other has a service station for a neighbor, or one is further away from a noisy school yard, etc. Are these two properties identical? In terms of size, quality and layout, maybe; in terms of value, of course not.

I remember looking at fancy real estate while in the South of France, about 10 years ago. One town got my interest: Cannes, the site of the international film festival, stretching pretty along the crystal blue Mediterranean.

Right in the middle of “La Croisette” (Heaven’s local version of a boardwalk), there is a nice white residential building where, every so often, condos are “offered” for sale. I saw one I liked (I am easy to please): third floor, large bay-windows and a balcony open to the beach, the sea and a harbor full of the most amazing yachts.

Not to forget a full view of the street action underneath, at the level of Cartier, Hermes, Prada…You see what I mean. That little pad was available for the taking at over $10,000 per square foot. It was in 2006, if I recall

Alain Pinel General Manager of Intero Prestigio International

(No, I did not buy it….). In the back of the building, another condo was unofficially on the market. Bigger and on a higher floor, but the asking price was not even half that of the first & smaller one. The view was nice, but who wants to overlook a pool, a garden and a bunch of rooftops when the alternative –for only twice as much- is the panoramic vista of the Mediterranean?

Square footage is largely irrelevant at the high-end.

Buyers buy benefits, real or perceived. Bigger is not necessarily better. Depends what you really want, or what you really need. It’s okay to want to live in a 20,000 sq.ft. home. It might even be pleasurable. But please understand that if and when you decide to sell it, it may fetch only what a nearby property of similar quality but smaller size will obtain in the open market.

“BUYERS BUY BENEFITS, REAL OR PERCEIVED.” Size usually needs to serve a purpose to be worth the money it costs to build. For example, you can get your money back and sometimes make a little more if you put a home-theater in your home, or a library, or a wine cellar, or an indoor pool, or a racquetball court and perhaps even a ballroom… Why not? However, if you have a huge house just to have huge rooms or lots of bedrooms (too many?), square footage could be more a handicap than an added value.

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FEATURE

CROWDFUNDING LEGAL STEROIDS FOR INVESTORS

Tom Wilson

C

rowdfunding has become a hot topic. And for good reason. It allows an investor to participate in an investment that is normally reserved for the wealthy. However, it is far from new.

It is simply syndicating, a popular investing technique before crowdfunding for real estate ever was a term.

Syndicating and crowdfunding is the pooling of capital with other individuals for a common purpose or a common goal. In real estate, that common purpose is the purchase of a real property of any kind; in fact, a high percentage of large real estate investment ventures are syndications.

What most have been talking about is what the SEC just enacted on October 30, 2015 called Regulated Crowdfunding. While in the headlines crowdfunding has been off and running for years, legally it’s been in a waiting game. Regulated crowdfunding allows smaller syndicators and investors advertise, including on the internet, to pool funds up to $1,000,000 in 12 months in small amounts (typically $2-20K) from non-accredited investors. However, it has many tight restrictions on how much one can invest and comes with the requirement that they use a licensed SEC dealer or portal - not the panacea that everyone thought it was going to be.

When a syndication is offered to the public, the SEC considers it a security, and for initial public offerings (IPOs) and subsequent large corporate offerings, the requirements and costs are significant ($100-250K).

However, for smaller offerings to dozens of investors in the promoter’s active database, rather than to thousands in the general public, the SEC allows exceptions (Reg D), the most common of which for decades is section 506 that allows the syndicator to raise unlimited funds as long as the number of non-accredited investors is no more than 35.

38

For non-accredited investors, one must file and provide a strictly defined Private Placement Memorandum (PPM), although, most syndication attorneys recommend providing this document of disclosures and proformas to all investors for transparency and liability protection. A good PPM will be more than 100 pages and should provide all of the pertinent information that an investor needs to make a good informed decision on investing.

Prior to September 2013, one could not advertise to the general public, however, the new 506c (vs the old retitled 506b) allows general solicitation as long as the investors are accredited and are vetted by the syndicator. These requirements have significantly restricted the popularity of 506c so far.

The term syndication has no legal significance. The responsibility, obligation and relationship of the syndicator to the investment group and the investors to each other are determined by the form of organization, most commonly an LLC. Anyone or any entity can syndicate a deal, and yes, you do need to be careful with whom you team and invest with.

Why do people invest in real estate syndications?

Most investors do not have the time, knowledge, or experience to search hundreds of properties to find a gem to acquire and underwrite. But there are real estate companies who do this for a living. By getting involved through a good real estate syndication, investors have access to larger and higher quality investments than they could on their own and gain the ability to invest in real estate without the burden of acquisition, operations, and disposition. One gets the expertise, management and borrowing power of a team of proven experts.

FEATURE

Who is involved with a real estate syndication?

How does a syndication make money?

The first ingredient for a real estate syndication is a “syndicator” (also called “sponsor” or “promoter”).

This individual or company is in charge of finding, acquiring and managing the real estate. They have a history of real estate experience and the ability to underwrite and perform the due diligence on the real estate. The other party is the investors. These are the individuals who invest with the syndicator and own a percentage of the real estate as a result. They get all the benefits of property ownership, but they are not involved with acquiring the property, arranging financing, and doing the day-to-day management or disposition at the end of the hold period. Professional management is crucial to successful commercial or multifamily ownership and is usually provided by the syndication.

Rental income from a syndicated property is typically distributed to the investors from the syndicator/ manager monthly, quarterly, or annually according to the terms set forth within the entity. A property’s value usually appreciates over time as rents escalate which increases the NOI (net operating income).

When the property is sold, the increased equity is first distributed to the investors according to the preset preferred rate of return, then the additional equity above that is distributed according to the terms of the contract between the investors and the syndicator. The syndicator, therefore, to the advantage of all, is highly incentivized to manage the investment to outperform the proforma and projections.

What is the process of a syndication?

If control and liquidity are top priorities, then syndications may not be for you. If leveraging the experience and capabilities of experts to maximize the return to risk ratio of a large real estate investment with minimal involvement is a priority, then it may be very worthwhile to find a great syndicator and metro to invest with.

There are many moving parts to a commercial or multifamily acquisition, operation, and disposition.

In a multifamily or commercial syndication the due diligence and loan process steps are enough to choke a horse. Hundreds of hours are generally invested by the syndicator and his team to secure the product including the research and projections for the regional market economics, the specific product business, the demographics, many inspections, and bids for any improvements. Then there is the legal process and finding the best loan source and terms along with the extensive application and qualification. It makes a home loan look like a visa charge at the convenience store.

And that is just the starting point. Once the property is purchased, optimum professional property management, both the strategic and the day-to dayoperations, is critical to maximum the returns for the investors. This can make or break the projections.

When it is time to sell, the syndicator has excellent knowledge of the market in that region for that type of product and can maximize the sell price and terms.

Having a syndicator who can synergize all of these parts increases the return/risk ratio.

The only thing that matters is what you do next.

For your free copy of Wilson Investment Properties article “Are Real Estate Syndications for You?” and a guide to “Commercial Real Estate Terms” please go to our website, www.TomWilsonProperties.com.

About the author: Tom K. Wilson has utilized his experience and skills acquired in 30 years of managing some of Silicon Valley’s pioneering high tech companies to buy and sell more than 3,000 units and over $150 million of real estate, including three condo conversion projects, nine syndications, and eight multifamily properties.

He founded and owns Wilson Investment Properties, Inc., a company that has provided over 500 high cash flow, high-quality, rehabbed and leased residential properties to investors as well as multifamily and commercial syndications.

Active in real estate associations, Mr. Wilson is a frequent speaker on real estate investing where his expertise and experience makes him an audience favorite. He is the weekly host of the Wed 2pm edition of KDOW’s RE Radio Live in San Francisco, the Wall Street Business Network (1220am).

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FEATURE

REAL ESTATE VS. THE STOCK MARKET Merv Plank

Y

ou have lots of options when considering where best to invest your money. Many investors, however, aren’t sure whether the stock market or real estate will provide the better return? Afterall, stories of stock swings, record highs followed by record lows, leave many investors leery. The housing downturn five years ago also spooked investors, leaving some unwilling to jump back into the market.

Investing in the Stock Market = High Risk The stock market has historically yielded high returns, but those returns come with risk. With thousands of options and wild market swings, the stock market is a risky venture. Many saw their retirement and savings dwindle down to mere pennies the last time the market faced a downturn. Those who invest in the stock market can also face hefty capital gains taxes. Yikes.

Investing in Real Estate= Stability and Control

Merv Plank

CEO Alliance Wealth Builders

tend to wait for that magic moment to invest or sell, never sure whether the next day might see a large loss in the market. Most investors sit on their investment watching nervously as the market swings up and down with the possibility of losing it all just in time for retirement.

Real Estate Investment= Tax Advantages Real estate investing isn’t just stable, it also has many tax advantages that stocks do not offer. Investors are able to deduct interest from their loans as well as the cost of repairs and maintenance on the rental property.

Other advantageous tax deductions include insurance, mortgage interest, and property taxes. Capital expenses or improvements to the property, and even property management fees, can also be deducted.

Benefits of Investing in Real Estate > Benefits of Investing in Stock Market

Real estate investment is ideal for those who like stability and control. Investing in Turn Key real estate allows you, the investor, to maintain control of your investment, a benefit not available to those putting their money into stocks. Investing in real estate also allows you to improve or to add value to your property. Real estate investors are able to invest their money with people they know, another benefit not possible with the stock market. Real estate is also a tangible investment, one that you can see and touch.

While it is possible to see a substantial return in both the stock market and in real estate, investing in real estate is best for those who like to see an instant return on their investment. Real estate rental properties provide a steady, stable source of income, and with the right property management team, investing in rental properties serves as a hassle-free option for busy investors.

Turn-Key Real Estate= Immediate Cash Flow

Alliance Wealth Builders, Inc. specializes in helping individual and institutional investors from around the world purchase turn key, cash producing real estate in the greater Birmingham, Alabama area, and other key markets in the State of Alabama. Alliance Wealth Builders, Inc. investment properties are truly TurnKey and professionally managed.

Perhaps one of the biggest benefits of investing in real estate is that it provides an immediate cash flow.

Imagine being able to see an immediate return on your investment. For those who choose to invest in the stock market, this isn’t always a benefit. Investors 40

About Alliance Wealth Builders

BASICS

TRUE FRIENDSHIP: Geraldine Barry

ONE HUGE ASSET OF REAL ESTATE INVESTMENT

I

’m excited at the progress that has been made and the opportunities that present themselves for women in leadership positions in real estate. Further, I’m thrilled that we get to play a small role in developing and inspiring younger women to “lean in.” I’m extremely grateful for my friendship with SJREI CEO and REI Voice publisher Lori Greymont - and all of my female entrepreneur executives that I am proud to call friends. Over the years, they have shared their journey to success with me in a very authentic way - and for that, I am grateful. I know that without these collaborations, and some necessary reality checks, none of us would be able to have made the leaps in progress over time that we have.

I feel blessed to have worked with Lori over the years, and the mutual respect and support for each other’s businesses, and with her at the helms of SJREI & REI Voice, I was able to let go - knowing the organizations I founded would continue to flourish under her astute leadership.

As an entrepreneur I understand the difficulties that have to be surmounted to make progress in a field that is male dominated. I’m happy to know so many powerhouse women who have helped me get to this place in my career, where I feel I can truly make a difference. That is the space I find myself occupying happily today! This is never accomplished alone, so I’m truly grateful for the encouragement I have received along the way.

Women today have so much to offer in terms of business and the steady way we move forward juggling families, children, and wearing multiple hats. I love the way we nurture one another along this sometimes grueling journey. Business is challenging and being responsible for leading is both a tremendous honor and responsibility.

Having peers, and for me - other females particularly has helped me to grow and understand that essentially we all thrive and struggle at times. Nothing runs in a straight line, but sometimes in the midst of a storm we forget this. Ultimately, it is these relationships that help us to keep going; we share our pain and being transparent on this sometimes painful journey called life encouraging one another. Essentially, we are all trying to be our best selves, and assist one another understand the dynamics and navigate the difficulties that arise along the way.

I look forward to future collaborations with Lori as I grow in my new role working with Kathy Fettke at Real Wealth Network - who has opened a new chapter for me with an academy that focuses on education and a charitable foundation. I will be playing a big role in both of these are things that make my heart sing. Just as Lori thrives in her business and follows her heart, I want to do the same. So to clarify- I will not be starting a real estate club or competing against SJREI but rather I will continue to support Lori as she builds and grows hers.... just as we have always done for each other over the years.

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INVESTOR RESOURCES INSURANCE PERSONALY & INVESTMENT David-Dyer-Max Insurance 972-864-0400 x247 Michelle Pepper www.garlandinsuranceagency.com

IRA IRA Services 650-593-2221 Michael McNair www.iraservices.com The Entrust Group 800-392-9653 bneville@theentrustgroup.com www.theentrustgroup.com

MORTGAGE BROKERS Michael Ryan, Morgage Broker/Banker 408-986-1798 mike@michael-ryan.com

TURNKEY PROVIDER Wilson Investment Properties Tom Wilson 408-867-1867 tomkwilson@earthlink.net www.tomwilsonproperties.com Columbus Turnkey Houses Dave Payerchin 614.285.3600 www.columbusturnkeyhouses.com

INVESTMENTS

Highlands Residential Morgage, LTD 214-679-3396 Graham@theparhamteam.com www.texasinvestorloans.com

Summit Assets Group Dan Noble 408-782-9162 www.summitsassetsgroup.com

PRIVATE MONEY Zinc FInancial 559-326-2509

Wilson Investment Properties 408-867-1867 tomkwilson@earthlink.net www.tomwilsonproperties.com

Socotra capital 916-277-9304 chris@socotracapitol.com www.socotracapitol.com

Homevesters/We buy Ugly Houses Franchise 800-200-6475 mark.mckeller@homevestors.com www.homevestors.com

CALENDAR OF EVENTS May 12th

May 14th

Notes Investing with Proven Notes Expert Eddie Speed

Hands-on all day Notes Investing workshop with SJREI’s May speaker Eddie Speed.

SJREI favorite Eddie Speed, of Notes School, will deliver another information-packed presentation on how to get ahead with notes investing.

June 9th

June 11th

Market Timing Expert & Best-selling author Robert Campbell

Hands-on all day Market Timing workshop with SJREI’s June speaker Robert Campbell.

brings his expertise on when to buy and when to sell.

Don’t miss this chance to get tips on how to profit from what’s coming with the next market cycle!

July 7th

July 9th

Cash flow is king when it comes to retirement.

Cash flow expert John Schaub plans to show SJREI just how it’s done with his highly regarded workshop on retiring well with real estate.

Hands-on all day real estate retirement workshop, with SJREI’s July speaker John Schaub.

The best leads for discounted houses!

Money opportunities for purchase, rehab & rental of properties Training and support, to help you avoid mistakes

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Lori Greymont

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ADVICE

TO WIN, SOCIAL PROOF YOUR GAME

COACH’S CORNER Lori Greymont

I

love animals, and I recently added four sheep to my “herd” of animals at home - this got me thinking about how we follow the herd or don’t when it comes to major decisions. Mooo Baaa Mooo Bahhh...if you have been around me often, you know what I am saying when you hear me start making these noises.

Why am I making them? One reason: often, people involved in decision-making are simply following the herd. Even though there’s no reason for them to do so, they fail to think on their own. Think you’re different?

Think again...

Instinctively, we all want to follow the crowd. Why? Think of a flock of sheep (or even a school of fish).

The group sticks close together, with the weakest on the inside and the older males on the outside. If one of them gets spooked, they all run in the same direction, crashing in on each other to stay as small and tight as possible. The ones on the outside edge fight to get into the safety of the middle until the danger passes. Not one of them wants to race ahead of the pack or stray in the back. That would be detrimental to their survival!

Well, we must be more evolved than fish or sheep, right? After all, we can reason and talk our way out of situations, but the truth is this: from the time we become self-aware (around age 6 or 7), we mostly strive to be just like everyone else. Think of how kids pick on those who are different... think of how young adults strive to be in the “popular” crowd. Think about how you, as an adult, want to drive the nice car, have the nice house, and keep up with the Joneses.

While I think society can pressure us to be concerned about the opinions of others, it’s worth digging a little deeper and looking beyond just that. Why do we care what others think, anyway? In my opinion, we all have an innate sense of survival that drives us to want to blend in rather than stand out. It’s this sense of survival that moves us to the center of the crowd rather than to hang out on the fringes. This can be good - but it can also hold us back.

Imagine you’re at a fair with rides and food stands. At lunch time, you and your family walk up and down the fairway looking at all the options. You decide you want to get BBQ tri tip sandwiches, and there are two stands right next to each other. One has a line about 7 people deep and the other doesn’t have any customers. The price is the same. Which one do you choose? Almost instinctively, you go to the one with the long line, right?

Why? It appears that all of these people know that the food is good - that must be why they’re waiting in line.

But, take a moment and think about it: how many of these people have been to the fair for more than one lunch?

How do they know it is good? Most likely, they selected the vendor on the same criteria as you did- the line of people is validation that the food is good. Choosing the line with the people is a form of “social proof.” The truth may be drastically different, though: perhaps the food vendor with no line is more experienced and faster at getting food out to the customers, so no line forms . . . What’s the lesson? First, if you happen to be a food vendor, it pays to understand social proof and create Continued on Page 46 45

ADVICE

a line for your product to reel in more clients. Second, as a consumer, don’t always assume the “herd” knows best. It is okay to do independent research. In this case, for example, just ask the vendor without a line for a sample: if you end up liking the food, you just saved yourself the time standing in line!

So, let’s take this social proof theory to real estate (I am assuming you are a buyer of real estate). As a buyer, you want to know that the house you are buying is desirable. One of the ways you can find out is by driving through the neighborhood and checking it out - is it occupied? Remember back when entire subdivisions were empty? While times have changed, we haven’t. Not many of us wanted to be the only occupant of a subdivision then - and we certainly don’t now. So, attend the open house. How many people are there? How many people have requested information packages on the house? That’s another key indicator of desirability. Finally, how many offers are on the house?

If you do decide to make an offer, my suggestion is to be steadfast in the top dollar you want to pay before you put in your first offer. Why? Because once you bid, another instinct kicks in, and this instinct is often is the nemesis of logic.

Your instinct to win will compel you to bid higher and higher just to win the property. But, once you have won it, the first thing you will do is look behind you and question how you ended up so far ahead of the herd! You realize you are in a dangerous spot because you may have bid too much in the thrill of the buying game. If you have your number set in stone in advance of bidding, that will ease some of the pain of buyer’s remorse. Again, knowing how we think will help us to set up systems that help us succeed in all the areas of our lives. It’s imperative that we recognize our motives and behaviors since our thoughts create actions, actions create habits, and habits create our lives.

This idea of social proof is one of the critical driving forces we should learn for our own success. Feel free to give me a call if you have ideas on how to use this to better buy or sell real estate. I am always on the “hunt” for new ideas!

Lori Greymont is the CEO of Summit Assets Group, SJREI Association, & publisher of REI Voice Magazine.

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