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REI

S UM M ER 2014

VOICE MAGAZINE The Voice of the Profitable Real Estate Investor

John A. Sobrato

Larry Stone Assesses John A. Sobrato A Rebel With A Cause-Christopher Thornberg Inside Alain Pinel’s Global Approach Tips From the Trenches with HGTV Star, Beau Eckstein

Christopher Thornberg

Alain Pinel

Beau Eckstein

Alain Pinel

W W W. REIV O IC E . C O M


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REI VOICE

CONTENTS

Analysis 9

Cash & Carry Real Estate: Altos Research

18

House-Related Spending made up 17% of

GDP in First Quarter 2014: Core Logic

23-26 Cities Vs. Suburbs: Trulia-Jeb Kolko 38-39 Overheard in the field: Geraldine Barry

Advice 10-11 Risk Vs. Reward: Lori Greymont 15-17 Tips from the Trenches

with Beau Eckstein: Geraldine Barry

21

You Clicked it, You Bought it! Jeffery B. Hare

27-28 To Flip or not to Flip: Jeb Henley 34-35

Reinventing Education in Silicon Valley

36-38

Turning Real Estate Investments Into Great Business Decisions: Pam Blanco

Features 6-8 Cracking the Code with Game Changer Alain Pinel 12-14 A Rebel with a Cause: Christopher Thornberg 19-20 Larry Stone assesses John A. Sobrato

Basics 30-32 An Inside Look:The Millennials behind the data, Hannah Ash

41 Photographed by Frank Biehl

33

A case for real estate agents:

Geraldine Barry

Calendar & Investor Resources SUMMER 2014 REI VOICE


Publisher’s Note W

elcome. It’s a new season for us here at REI Voice - in step with our newly refined mission of delivering the content-rich, heavy-hitting news, interviews and data you requested, our summer issue really turns up the heat on what’s happening in the markets right now. Anything but holiday reading, this issue features Los Angeles-based Christopher Thornberg, the brilliant chief economist and co-founder of nationally respected Beacon Economics. As you’ll find out, Thornberg isn’t afraid to blow the whistle, or tell it like he sees it.

Geraldine Barry

Publisher/ President of SJREI Association

We interview the legendary Alain Pinel, high-end real estate agent and global thinker. Pinel’s lofty ideals, ambitions and thoughts on what’s happening in the market today absolutely come alive on the printed page.

Beau Eckstein, star of HGTV’s Flip It To Win It, shares his hard-won wisdom from the trenches. Eckstein’s been investing since 1999, and he delivers our readers an interesting call to action: take yourself seriously. Jeb Henley’s insider view of real deal real estate is enlightening and shares his logical and strategic approach. Larry Stone, Santa Clara County Assessor, one of our local favorites, takes us deep into the life and mind of John A. Sobrato - who never lost his focus on what was important despite his great success, family and giving back. We look behind the data and catch up with millennials to find out why they have, and have not, ventured into real estate. Alongside these content-rich feature pieces you won’t be able to put down, we provide key data to help you make sound investment decisions from industry leaders Trulia, CoreLogic and Altos Research. As you may know, interest rates are projected to rise in 2015; rising interest rates means home prices could skyrocket out of many buyers’ reach. As a smaller buying pool could be the case next year, now is the time to assess, evaluate and create plans of action for your portfolio. This issue is your compass as you navigate the sometimes-choppy waters of investing; use the information in the articles as guideposts and the data as mile markers for charting your personal course. REI Voice is published in California’s Silicon Valley, and as such, we often focus on issues central to California economics and housing markets. Living here in the country’s hub for innovation, it’s easy to forget that in so many ways, this state helps set the pace for the nation. Winds blow from west to east, and so do economic and housing trends. California, and Silicon Valley particularly, is a rather magical place full of pioneers; we are the inventors, the cinematographers, the test-drivers, the yardsticks - we create and we deliver to the entire country. To get your pulse on where the country is headed, look to California. To get your pulse on where real estate and economic markets are headed, look to REI Voice. When we cover local and regional data, it’s vital for investors from all parts of the country to take heed: what is happening in California now could be happening in your region next quarter or next year. As we are always looking for ways to innovate and increase our connection with you, the reader. We invite you to join us on social media to continue some of the conversations we’ve sparked here: as we are your voice, your input matters.

REI VOICE PUBLISHER Geraldine Barry 408.264.3198 geraldine@reivoice.com ASSOCIATE EDITOR Hannah Ash hannah@reivoice.com ADVERTISING SALES Brigitte Jones 408.898.7534 brigitte@reivoice.com MANAGING EDITOR Sara Edcao sarae@reivoice.com PRODUCTION ASSOCIATE Belle Li CONTRIBUTING EDITOR Leslie Murdock DESIGNER Bach D. Pho bachpho@yahoo.com

REI VOICE™ Magazine A Publication of SJREI Association™ Reproduction or use of any editorial or graphic is prohibited. To request reprints or reprint rights, contact info@REIVoice.com. REI Voice Magazine www.REIVoice.com 408.264.3198

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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 © 2014 SJREI Association. All rights reserved.


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FEATURES

Cracking the Code With Game Changer

by Geraldine Barry

Alain Pinel

Alain Pinel is a heavy hitter. Hawk like: he flies high above the details that bog so many of us down. He stops and takes in the global view. Calculating the moment, he zooms in and strategically executes getting what he wants. Meanwhile, everyone else is scrambling to decipher their next steps. His path to real estate was not typical. Pinel had been a political journalist in Paris, writing about the economy when he met a lady from the U.S. studying at the legendary Sorbonne. Soon the two would marry and relocate to the US. Pinel left a successful career behind him and assumed he’d have no problem securing a job. He loved the idea of California living. Deciding to get into publishing in foreign affairs, Pinel found that no one on the West Coast had any use for an intellectual guy from France. A friend of his was selling real estate for his dad and pulled him into the business. It was a quite a business - Fox & Carskadon, Pinel took the job because it was his only option. His work ethic and laser-like focus worked well for him - and for selling real estate. Soon he became Fox & Carskadon’s top manager, eventually running the firm that housed the office with the largest income per agent ratio in the entire country. When the business was sold to Better Homes and Gardens as a franchise, Pinel made the decision to leave and strike out on his own with Alain Pinel Realty.   Change, and the ability to adapt, is what Pinel attributes to his longstanding career. When he stumbled upon real estate, he found he most enjoyed the challenge of it all. Pinel went on to describe what he envisioned, “I wanted to bring real estate in line with the needs of agents. “Also, I wanted to bring international marketing and technology to the real estate industry,” he said. Pinel was first in the industry to embrace break-through technology and first in the marketplace to adopt an internal Internet system at his company. 

“Looking at things globally means never looking at one market in isolation, you cannot  explain California without looking nationally, and internationally, because the buyers who come here are coming from all over the country and the world.” Why focus on the luxury high end? “The high end is appealing because it’s is a very special niche that is not particularly impacted by cycles. That is a global clientele niche. I’m incredibly interested in global everything.” He enjoys looking at the bigger picture. “Looking at things globally means never looking at one market in isolation, you cannot explain California without looking nationally, and internationally, because the buyers come here are coming from all over the  country and the world.” He explains. Not a native of the United States, he’s equipped to think globally. Pinel explains, “When you focus on the high end and start to gain results, other business begin to follow in its wake. You develop a reputation and momentum follows.”

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Alain Pinel A man with decades of experience, I am eager to get his take on where the industry has been and where it might be headed. I ask Pinel to share his thoughts on the most dramatic changes - and why it’s been so hard for so many in the real estate industry to stay on top of these waves. Always happy to explain, Pinel says, “I love change, but emerging and constantly changing technology has made agents jobs challenging, agents are reluctant to embrace technology and change. As technology changes, we must change too.”


FEATURES

What can agents do to stay relevant? Pinel says, “The more service oriented they can be, the better. Buyers and sellers motivations have not changed, they simply want to buy and sell their properties. They have access to information on the web, but agents can interpret that information and be a resource for their clients. Buying and selling a home is a complex process, they can simplify it for clients, and that is how they bring value.” “It’s different today, certainly,” Pinel asserts, “before the internet started to provide data, the Multiple Listing Service (MLS) had a monopoly on the information, essentially buyers had to go through an agent who was an intermediary in order to gain access to the inventory. The Internet changed that. All now have access to  information.   Agents who could not adapt have fallen by the wayside.” His take on the younger buyers he’s working with is relevant. How do the Millennial’s and the “young affluents” figure in the market place? “They are a significant group - because they are in the high tech space mainly and make a lot of money fast. They know what they want for their lives – to be light, happy, see the beauty, live intensely in their pleasure and in their work. Forty years ago people had lives that revolved around their work. Today, with Initial Public Offering’s (IPO’s), profit sharing, stock options, this has changed the  way this group chooses to live. They do not want to drive for an hour or two to work, so they choose to work remotely, or live close to work.” How, I ask, are Zillow and Trulia making industry waves? Pinel explains that once buyers could only hunt for properties in the newspaper or work through an agent to gain access to the MLS. Now, Pinel says, “At first I resisted them, but my thinking has evolved as they have become a force to be contended with, whether I like it or not, these companies are part of the new order. They are the new aggregators that buyers and sellers are using to gain information,” he said. Pinel goes on to share that, “Information is power and as they get more powerful, realtors need to embrace and leverage their efforts – Zillow and other data aggregators can benefit agents by providing them with buyers and sellers.”

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As technology evolves, so too does the workplace. It’s becoming more fluid - we work from our cars, we work over cappuccinos. I ask Pinel about the new trend in which a brokerage will provide clients with a “hoteling” cube, in which agents are actually encouraged not be in the office - it’s changing the footprint of the office space and it’s the evolution of the new business order. Pinel says for years there have been discussions about the end of the office, as we know it, with all in agreement that they’re not really needed. However he notes, “Agents need structure, even though they work as independent agents - they function best as part of a team where they have help, services and guidance in an office. Most agents need an office setting to be effective.” How does Pinel view the real estate market for agents today? “Listings and sales are limited in the Bay Area right now, appreciation has however made it possible for those selling in the same price point to make more commission because price appreciation is offsetting the loss of volume. Nothing is stagnating in this market.”

“Listings and sales are limited in the Bay Area right now, appreciation has however made it possible for those selling in the same price point to make more commission because price appreciation is offsetting the loss of volume. Nothing is stagnating in this market.” Pinel’s big pointers for real estate agents who want to try and fly in this competitive industry? “You can’t do it alone,” he said. “Belong to a very effective and professional marketing network. Think, and market, off the beaten path, like social media and syndicated sites, at the high end - for example - The Wall Street Journal. Have direct mail systems in place. Use print media in smart ways. Highly target your buyers. Identify the best ways to reach them. Profile yourself as an service driven agent, as a player who gets results - and clearly demonstrate to potential, and existing clients, the benefits of working with you.”


ANALYSIS

Cash & Carry Real Estate:

Surprise-The Small Investor Dominates the Space! Cash on the line! I can almost hear the phrase being broadcasted at the local realtor’s office. The halls echoing their vote of approval. In the first quarter of 2013 this broadcast would have been an infrequent occurrence. The average realtor would consider themselves lucky to see an all cash deal cross their desk. 2014 however has inducted a previously exceptional buyer profile into the everyday line-up. There is a new theme in the market - “Think Green.” Previously the market followed a common theme, mortgages demand follows housing demand. However the most recent data rebuts this theory. According to data released Mike Simonsen CEO of Altos Research, in March of 2014, “All cash deals are high and climbing.” These deals represented nearly half of the markets transactions for the first quarter of 2014 at 47%. This is a substantial incline from 27% a year ago. Although the demand for mortgages declined and remains weak, housing demand in and of itself is experiencing an equal and opposite reaction. Housing prices will climb 10-12% in 2014 with no forecast of a subsiding housing demand, based on proprietary metrics, according to Simonsen.

The cash poor consumers’ assuming they can’t get a loan and the mistrust in the Global Financial System is driving cash-rich into income producing assets. These are factors impacting interest rates. Simonsen, states, “It also seems to be tied with the income growth disparity in this country. First time homebuyers may be losing out to small, cash-rich, investors.” The outlook for the second half of 2014 is less exciting than one may hope. Although the market is expected to maintain its upward trend, it is predicted to be at a slower, steadier rate. However this break in the volatility of the market may be setting the stage for an exciting 2015. Current economic stability and expansion potentially enables the Millennial generation to move out creating new waves in both the rental and purchase markets. Whichever direction the market moves one thing will always remain true. Cash is King and right now housing market is dominated by royalty.

So what is driving this new “greener” market? It would be easy to point the finger at large institutions with their tens-of-billions of dollars in investment firms. However, on the contrary they comprise only around 5% of the overall purchase market. Cashrich consumers and small-time investors (buying their second and third property) are in the driver’s seat leaving average first time homebuyers on the roadside. Interest rates, however, have declined slightly from their spike in July of 2013. Simonsen comments, “This implies that the bull market for US real estate has room to run when leverage increases again.”

SUMMER 2014 REI VOICE

9


ADVICE

RISK VERSUS REWARD: A Cautionary

Tale

By Lori Greymont As with anything, real estate investing comes with risks. Investing is more of an art than science. As with anything, wisdom earned through experience is too expensive. The first and best way to learn about investing risk is to learn from others. If you do have a wisdom experience of your own, consider it a learning experience and get back out there. A scenario has come to light in the past few weeks that we all should take note of and learn from. A seller borrowed money to buy distressed properties, rehab them, and then sell them at a profit. It was a profit sharing deal that was to be split in favor of the investor. Though risky since the lending was at 100% of the purchase and rehab, it didn’t seem like a terrible investment. It has, however, turned into a decision that several investors regret. What happened? The seller, being a sole entrepreneur, ended up seriously injured and completely unable to run his business for months. Instead of the investment cash being used toward rehabbing properties, it was allotted toward running the

company while the seller was unable to make sales and run his business. The seller has finally returned to business, but the houses are not rehabbed and the investor’s rehab money is gone. The seller is now trying to work out a plan with the investors, but the reality is they own un-rehabbed houses that are worth less than they invested.

As I’m located in the same region as the investors and selling homes in the same market as the seller, I’ve been contacted by several of these investors. These investors had previously bypassed some decidedly safer investments in favor of the bigger profits. These investors have asked my help on how to get their cash back or houses rehabbed. One investor commented that had they known it was a one-man operation, they would never have invested. Another investor complained that if they’d known they could lose their money, they wouldn’t have participated in the deal. These investors have several choices. They can wait for the seller

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ADVICE to fix the property which may take a long time since he has to start earning a profit again in order to get the cash to rehab them. They can hire someone to rehab them, putting in more money or they can sell the homes as they are right now and take a loss. My advice to the investors involved is to consider the cost of lost investments if they wait versus taking the loss now and reinvesting it immediately. Time is the one resource we never get back and time can often heal losses. I don’t recommend rehabbing them because I don’t think there is value is throwing bad money into a bad situation. Though this is certainly an unfortunate situation for all parties, there are lessons to be learned here. You will ALWAYS pay for an education, unfortunately, some lessons are more expensive than others So if you experience something similar to this, learn from it. First, and foremost, investing in anything with rewards also comes with risks. You can lose your money; nothing in life is guaranteed - aside from taxes and death, of course! Next, always do your own due diligence on an investment and the company you’ll be working with. When it sounds too good to be true, it can be (or it is!) If an investment turns out to be a lemon, cut your losses quickly and get the money back into another, safer deal. SAFER! It’s a mistake to try and make up the loss with another risky endeavor. Lastly, own your decision. Just as you would brag if your investment goes well, don’t blame anyone but yourself if your investment goes south. Loss is simple a learning experience of what not to repeat! Happy Investing. Lori Greymont is the CEO and Founder of Summit Assets Group, the premier purveyor of Turnkey properties with passive cash flow in Atlanta and Birmingham. Since 2009, Summit has transacted over 1,600 houses, helping investors achieve their personal financial goals. For a free no-obligation consultation on creating your own investment plan, please call 408-782-9162.

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FEATURE

A Rebel With A Cause

Economist, Whistleblower Christopher Thornberg

Tells It Like It Is Christopher Thornberg

by Geraldine Barry

Real estate - and the economics around it - is something of a niche world; within this niche world, Christopher Thornberg has been called a hero. Having blown the whistle on what he saw as a substantial housing bubble back in 2006, Thornberg is a highly educated, brilliant man who believes in telling it like it is - and he doesn’t care who he offends in the process. However, REI Voice sees him more as a sailor’s sailor – gruff but schooled; the type who always knows where he’s headed and isn’t afraid to let his crew have it when the stakes are high. Thornberg, chief economist and founding partner of Beacon Economics, has always been a rebel. Having grown up across the country in Rochester, New York, Thornberg pursued a degree in business administration - a degree he’s been quoted as calling ‘lazy’ since. After graduation half a year ahead of the curve, Thornberg promptly took off for Europe, Africa and the Middle East, spending the next two years traveling. Before landing back on this continent, his parents worried he’d never settle down. Thornberg proved his parents wrong, as proving others wrong is something the economist excels at, and ended up enrolled in University College Los Angeles (UCLA)’s highly esteemed MBA program. He went on to obtain his doctorate in business economics, also from UCLA.

“I became concerned with trends that did not match the fundamentals, when you have that scenario something bad will happen. Building houses faster than people needed to buy them had to end badly.” Upon finishing his education, Thornberg headed back across the continent again - this time, to enter the academic world and teach economics at renowned Clemson University. The classroom proved too theoretical for a man who enjoys realworld applications as much as Thornberg does, and so he made another change: this time he ended up back at UCLA, joining UCLA Anderson Forecast in 2001 with a focus on Los Angeles and, ultimately, California economic forecasting. In 2006, his career picked up even greater speed when his forecasting work led him to see something that concerned him. What did he see? An impending economic collapse. “I became concerned with trends that did not match the fundamentals, when you have that scenario something bad will happen. Building houses faster than people needed to buy them had to end badly.” His employers disagreed with this prediction, playing it down as a situation with more of a potential soft landing than the crash to which we all ended up bearing witness.

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Thornberg recalled, “I could see that it was large enough and bad enough that it would be painful.” Not afraid to call it like he saw it, especially with such large stakes at play, Thornberg ended up clashing with his former boss, who dismissed him as an ‘idiot’. Thornberg called his dad for advice, telling him, “I don’t think I can take this anymore!”. Thornberg’s father, also self-employed, and equally plain spoken, replied, “It’s about (delete expletive) time!” With that Thornberg moved on - but not without some self reflection. “I am who I am today because of my experiences at UCLA and the connections I made at that time are still a part of my life today, I really owe them a debt of gratitude.” Thornberg went on to found Beacon Economics, a highly regarded and globally influential economics consulting firm based out of Los Angeles. Given Dr. Thornberg’s considerable expertise, no spotlight on the man would be complete without a discussion about the current and future economy. Everyone knows there’s an impending social security problem in the country. What does Thornberg think? For one, he says, our pensions are underfunded. Medicare and Medicaid are out of control. No one seems to be doing much about any of it. “Until the government has the courage to address this, politicians will kick the can down the road. Politics are dominated by people who won’t acknowledge that there may be a funding problem they deny basic fundamental truths because the lobbyist’s and unions have a lot of power in this country,”


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FEATURE

A Rebel With A Cause

Cont.

We move on to Freddie Mac and Fannie Mae currently emerging from receivership. What does Thornberg think that situation will yield? Never one to hold back, he says the government is holding these lenders’ hands. If the government were to just let go, Thornberg comments, “You would experience short run disruption, if they were discontinued, but eventually it would sort itself out and we would have an independent mortgage system that did not rely on government in a pinch. The free market system would operate and thrive.”

“California is a terrible economy for business to operate in - and taxes are very high– the bright spot is that California is the fastest growing economy in the US today. It has wings and lots of fundamental strength,” he states. “The movie industry is exciting, Los Angeles is the epicenter of creativity and design, and tourism is on fire. Silicon Valley is changing the world with innovations and it’s the epicenter of technology.”

What about California’s current economic outlook? “California is a terrible economy for business to operate in - and taxes are very high– the bright spot is that California is the fastest growing economy in the US today. It has wings and lots of fundamental strength,” he states. “The movie industry is exciting, Los Angeles is the epicenter of creativity and design, and tourism is on fire. Silicon Valley is changing the world with innovations and it’s the epicenter of technology.” As quarterly earnings reports are coming in higher this year than last, I wanted Thornberg to share his view with the magazine. “I’m cautiously optimistic- because the fundamentals continue to improve- from consumer wealth to corporate profits to overseas demand and credit availability. Cautious because our political environment is still poisonous, there are some new signs of excess in the financial markets and government spending on direct needs like pension underfunding and social insurance are hampering infrastructure overpromises.“ What about the housing market here in the Bay area, one of the country’s most affluent? “The real estate market in the Bay area and Southern CA is currently experiencing a supply and demand issue. There is a whole lot of demand, and not enough supply, driving prices at a double digit pace. This makes owners’ happy, but if you are on the buyer’s side you are very upset about this. California has some of the most expensive real estate in the nation. In time, we will have a more normalized buyer’s market as equity is attained in this run up, and people will be enticed to sell.” Having travelled the world Thornberg has settled permanently on the West Coast, presently sharing his beautiful home in Bel Air, a ‘fixer upper’ which he completely renovated, with four cats and 500 low-water sustainable cactus flowers and succulents. When Thornberg’s not playing an economic superhero on the national stage, he’s making waves back at home. Not one to back off choppy waters, it makes sense that the economist and founding partner of Beacon Economics is an sailor in his free time - and can often be found navigating choppy waters.

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TIPS Trenches From The

ADVICE BASICS

With HGTV Star, Beau Eckstein

In the industry since 1999, Beau Eckstein knows real estate. In fact, his knowledge has been confirmed through his recognition and appearance on the HGTV show, Flip It To Win It, which aired this spring. The show challenges six Bay Area teams of experienced investors by assigning them the task of creating the most profit through the buying and selling of distressed and foreclosed homes. The challenge intensifies, as the investors are expected to complete these tasks in record speeds as they race to the courthouse steps with cash. While watching him in action on the show, it is apparent that Eckstein knows his trade. He is a skilled craftsman, doing what he does best, all the while confirming the fact that there is an art to his work-one that includes a strategy and passion. It is tempting to call Eckstein, a “jack of all trades”, as he is a real estate entrepreneur, a private money and construction financing specialist, an investor, and now a TV personality. However, Eckstein is highly specialized as a real estate industry pro in one of the country’s most affluent markets, the Bay Area. Some professions, like Eckstein’s, leave little, to no margin for error. Bomb squads, surgeons, law enforcement officers, and pilots; sure, they’re exciting jobs, glamorous and observed in high regard by the public. They’re not, however, for the faint of heart. Eckstein may be many things, but he’s not afraid of walking a fine line. Why? He knows what he is doing, and he does it well. As he says, “Flipping is rife with risk. Equity partners sometimes take half the profit and charge 16 percent interest on the funds. There is no room for errors when you are leveraged like that.”

Investing in the Bay Area can financially lucrative endeavor if correctly. Just one deal, Eckstein can bring an incredible payday, devastating financial loss.

What else should investors look out for? Aside from easy access to funds; shrewdness counts. Don’t overpay for property; that impacts your margins. Rule #1, Buy right. The longer you hold on to a property, the more your overhead increases, especially if you are leveraged. With that in mind, neighborhoods matter, Eckstein says, “Don’t build the $2 million house in the $1 million neighborhood.” As Eckstein wears many different industry hats, he doesn’t just draw his paydays from flipping. He lends money to contractors, he invests in residential real estate, and he focuses on the cash-flow properties. His approach to how he gets his income evolved over the course of his 16-year career in the business. Like many other industry insiders, the economic downturn was an earth shaking experience. Unlike so many, Eckstein didn’t stay stuck. He bootstrapped his way back up and took the lessons he learned from that time to heart. He reflects, “I learned a lot of lessons the hard way because I lost my shirt.” Eckstein has been at both ends of the success spectrum. He originally started out as mortgage broker working with a Nevada branch. He bought properties in developing areas, such as Reno and Las Vegas. He was buying for appreciation, not cash flow. That strategy blew up for him and, as the market tumbled in the mid 2000’s, he sold what he could. He lost several homes to foreclosure, and with creditors chasing him; he ended up moving back to live with family in 2007

be a done says, or a

Investing in the Bay Area can be a financially lucrative endeavor if done correctly. Just one deal, Eckstein says, can bring an incredible payday, or a devastating financial loss. Eckstein clearly stands by what he does, as evidenced by his decision to showcase his work for HGTV’s national audience. Though the show may make it look easy, there is, in fact, nothing easy about what he does. Eckstein notes that securing permits in areas such as San Francisco, can be difficult and time consuming to do – the details have to be accounted for, getting a rehab completed on time and on budget is no small feat.

HGTV SERIES “Flip It to Win It”

SUMMER 2014 REI VOICE

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ADVICE

Tips From The Trenches

Cont.

With help from his brother Damian, to whom he had reached out, Eckstein was able to start building his career up once more. He approached it from a new point of view: he refocused on what he did best and enlisted help in the areas in which he was weak. As he’s always been a natural with marketing, Eckstein focused on the marketing side of real estate investing. He teamed up with someone who had strong analytical skills. Together, they were a “hunter” and a “gatherer”, with Eckstein hunting deals down and together he and his partner evaluate the opportunities. When the hunting and gathering portion was complete, the two of them would decipher whether what they had done, actually made sense. On his partner, Eckstein comments, “I consider him a very valuable resource, he has strength where I don’t.” Now that he is back on his feet and standing taller than before; it is apparent that Eckstein enjoys teaching and helping others get better at the craft. When referring to how he decides to buy, he tells me, “If the numbers work, and you know you can get the job done, you buy”. He took me on a walk through his recent La Fayette house deal. His estimated time-line on it was 6 months from purchase to sale. He bought the property for $925K - at the courthouse steps. He met the contractor via email. Since then, they have now completed several deals together. In a strategic move by Eckstein, the contractor now shares in the profit, giving him some skin in the game and a vested interest in getting the work done well and fast. The house ended up taking 11 months to complete. Renovation costs totaled $375K. The property sold for a clean $1.8 million, with a profit of $500K. (Editor’s Note: holding costs are not figured into profit.) What is Eckstein’s advice to other investors and those just starting out? Put in the time. Learn the business. Take it seriously. Take yourself seriously. Work out every day, hire a trainer, hire a business coach to help you get results faster. He says to remember that there are always those who aren’t affected by a market’s dips and peaks. Slow and steady wins the race. To stay safe, don’t buy emotionally. Follow the numbers, have a couple of exit strategies. Walk the line; do the right things, like setting up your Individual Retirement Account (IRA). Put your money to work. Education should be continuous. Because markets change, professional development applies to real estate investing too. As you learn, help others to learn from you and with you. As chief executive officer of SFR Venture, his primary expertise is in construction loans. Banks often times do not provide funds for construction loans because of the stringent credit guide lines for underwriting with institutional investors, so Beau’s niche market fills that gap. “There is lots of risk associated with those. I can make those deals happen...I’m a deal facilitator.” Eckstein’s role as a deal facilitator is an excellent example of how roles can change as you gain more knowledge and expertise in your art. Looking at deals every day makes you skilled at identifying the holes. Eckstein’s story is a captivating story of a courage and transformation. It reflects the true heart of a champion. When an obstacle knocks you down, the true testament of a winner is determined by how hard you work to build yourself back up. It is clear that Beau has a gift. His ability to learn from his past and continue to educate himself as he moves forward has made him the real estate success story he currently is today.

SUMMER 2014 REI VOICE

17


ANALYSIS

Housing-Related Spending Made Up 17.5 Percent of GDP in First Quarter 2014 First Look at 2014 Growth

Molly Boesel | Economic Trends, Housing Trends The U.S. Bureau of Economic Analysis released its advance estimate of first quarter 2014 gross domestic product (GDP) today and the numbers give the first look at 2014 economic growth. The first quarter 2014 year-overyear growth rate for overall GDP was 2.3 percent, which was stronger than the housing-related GDP growth rate of 1.9 percent. Quarterover- quarter growth rates were reversed, with a larger growth rate for housing-related GDP (+2.9 percent) than for overall GDP (+0.1 percent). To calculate the portion of domestic spending that is related to housing, we look at three expenditures from the release: residential investment (the construction of new single- and multi-family houses), spending on housing services (rent, owner’s equivalent rent and utilities) and spending on furnishings and durable goods. Together, these expenditures made up 17.5 percent of total real GDP in the first quarter of 2014, slightly lower than a year ago and down from the high of 20.6 percent in the third quarter of 2005. Housing services were 12.5 percent of housing-related GDP in the first quarter 2014, followed by residential investment at 3.0 percent and furnishings and durable goods at 2.0 percent (Figure 1). The share of GDP attributable to housing services and spending on durable goods has been stable for the past decade, with the fluctuation in housingrelated GDP coming from residential investment. Residential investment made up 6.2 percent of GDP at its peak in 2005. Figure 2 shows the year-over-year growth rates of the three components of housing-related GDP. Because housing services make up the majority of housing-related spending, the stability in this sector has led to stable growth in housingrelated GDP. The more volatile segments of housing-related GDP are residential investment and spending on furnishings and durable goods. The amount of residential investment peaked in late 2005, after which it began to plummet, ultimately posting double-digit yearover- year declines for three and a half years. While residential investment is 45 percent below peak levels, it has gained 31 percent from the trough hit in the third quarter of 2010. Changes in spending on furnishings and durable goods echo changes in residential investment, but the effects are muted as these expenditures are not completely dependent on new construction. Growth in residential investment has slowed dramatically since fourth quarter 2013, up just 6.9 percent in fourth quarter 2013 and 2.2 percent in first quarter 2014. Spending on furnishings and durable goods grew by 5.5 percent in the latest quarter.

Molly Boesel is a senior economist at CoreLogic. She is responsible for house price index modeling and analytics as well as analyzing and forecasting housing and mortgage market trends. Molly has more than 25 years experience in the financial analysis field and more than 15 years of expertise in mortgage market analysis, model development and risk analysis in the housing finance industry. She previously served as director of economics for Fannie Mae, and senior economist for Freddie Mac prior to that.


FEATURE

Larry Stone Assesses

John A.

SOBRATO

Photographed by Frank Biehl

by Geraldine Barry

The restaurant business isn’t easy, but it teaches anyone who works it the meaning of hard work, commitment and the value of a dollar. John’s father, John M. Sobrato, emigrated to the U.S. from Italy: volunteering as a dishwasher and cook for the U.S. military. When John left the military, he opened a restaurant in San Francisco; John’s Rendezvous, a speakeasy which quickly became journalist Herb Kane’s favorite restaurant. John brought his military work ethic to the restaurant; he worked eighteen-hour days and honored the then-tradition of being there to meet and greet his customers regardless of the hour. After the war, and the severe food rationing that accompanied it, John’s Mom suggested buying some property in Atherton. Buying the property would mean they could live, grow their own vegetables, raise chickens for the restaurant, and elevate their quality of life. They did just that - and five years later they sold that property for a nice profit. The elder Sobrato got cancer, and John reflected, “My Dad died from overwork.” On his deathbed, the elder Sobrato advised his son, “We made more money on the sale of the Atherton property than I made in the restaurant in years – don’t go into the restaurant business.” The restaurant business, and its pitfalls, was the start of the Sobrato family’s now well-documented real estate journey in Silicon Valley. As a pioneer at the time, John’s mother continued in real estate (this was at a time when most women did not work outside the home except to teach or nurse) building the first tilt up buildings in Redwood City. John laughingly shared “Mom thought she could make no mistakes in real estate in the 1960’ies, and in fact she couldn’t.”

John graduated from Santa Clara University at 21, and went to work at Midtown Realty, and soon thereafter partnered with Carl Berg; the two became a formidable team. Together they developed such projects as the Amdahl campus, which the company could not afford to occupy once completed, causing major consternation to the partnership. Eventually, Fujitsu became a tenant, and still occupies that site today. John went on to explain, “Carl was a brilliant guy who eventually ventured into the tech world - helping a company that got in financial trouble by working with them weekends and evenings. Carl developed, and executed, a plan to turn them around. He found a niche that he loved. My preference was to stay in real estate.” Stay in real estate he did. Sobrato’s journey has been much storied - making legendary status. Today, John Sobrato is a real estate mogul, a self-made, humble, slightly shy man. Though he would rather not be recognized as a billionaire the truth is he is one of the world’s most successful men. Sobrato shuns the “limelight” and frankly does not care for it. His focus today is on his family, his charitable foundation and the “occasional deal”. Santa Clara’s highly respected county assessor Larry Stone, a formidable-man himself, with his own sizeable career with great success in government, politics and public service, caught up with John for an interview. What follows is a fascinating portrait of a career, a philosophy, and John’s unique perspective on the city of San Jose.

Q&A

Q: Larry Stone, There is a strong family tradition and legacy in philanthropy through the Sobrato Family Foundation benefiting 450 companies with $260 million since 1996. Tell us more. A: John Sobrato. I’m very proud of the Sobrato Family Foundation and its work. Warren Buffet called and asked me to join the Giving Pledge. (The Giving Pledge is a commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to philanthropy.) I told him that 100% of my money was already donated. “Fine you’re in.” Buffet said. John continued, “The reason my wife and I were able to do that was because our family were taken care of via family partnerships that were established with our children when they were very young. That was the best business decision I ever made…” Q: Larry Stone, What are the plans for the three large lots you purchased from the San Jose downtown Redevelopment agency? A: John Sobrato. When we purchased those we were hoping the A’s were coming to town. They are all approved for high-rise buildings - but we can’t make the numbers pencil. When you build from scratch the numbers simply don’t work, and the rents are not there to justify building yet.

SUMMER 2014 REI VOICE

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FEATURE

Q&A

John Sobrato

Cont.

Q: Larry Stone, What do we need to do to make San Jose prosper and grow for the next generation? A: John Sobrato. We need to make it easier to develop and secure building permits. The lack of adequate staffing at the building department is a problem. They recently relaxed fees, which is good. What is the biggest problem in San Jose right now? It takes too long to get projects approved and built. We need to develop a vibe in San Jose that makes it a place where young people want to come. In a few years Caltrain will be electrified and a trip San Francisco will take only 40 minutes, which gives people the option to live in San Jose and work in the city. If they can have the nightlife, and fun lifestyle, outside of work in San Jose, that is just what young people want. Larry Stone: What was your best and worst project? The same 17-story building at 488 Almaden Boulevard – it was the best because it was a great project, but the worst because it came on the market at the peak of the dot.com bust. We were fortunate to eventually sell it to BEA Systems. Larry Stone: How do we turn around the homeless situation in San Jose? Currently, the Sobrato Family Foundation has 25 housing units in Gilroy dedicated to families, but that is a drop in the bucket. I’d like to see utilizing the top of some of these buildings downtown that are not serving a purpose: bring in units on skids, get people off the streets, turn them into 10x10 living spaces. There could be one centralized kitchen and shower facility available. Asked by an audience member if he were granted one wish what would it be? Mr Sobrato said “I would like to extend a preschool language program for three year olds that the Sobrato Family Foundation founded, that currently educates 11,000 children from Spanish-speaking families in Santa Clara, and San Mateo counties. I would love to see this program implemented statewide simply because the program works.” As evidenced by both the back-story and this interview, John Sobrato is not a common man. He has lived in the same house for 50 years, and has been married for over 50 years to Sue with whom he has three children. A yacht is his one extravagance - it’s where he spends several weeks a year and entertains family, friends, and business associates. Aside from that, there are no butlers or staff to answer his door, no chauffeur drives him around; they cook their own meals, and in living as they do - set an example for the rest of us to follow on what matters most in life. One of the world’s top billionaires, John’s story is a testament to a successful life lived with integrity, clarity of vision, true philanthropy, and leadership.

Writer’s Note: Special thanks to Larry Stone, for including REI Voice at the interview. Please note, this interview was edited for clarity and length.

20

REIVOICE.COM


YOU CLICKED IT YOU BOUGHT IT!

ADVICE BASICS

By Jeffrey B. Hare, Attorney at Law People probably spend more time checking for cracked eggs before they put the carton in their shopping cart than they spend reviewing real estate contracts before buying a property. Anyone who has sat through an escrow closing knows that it would be sheer lunacy to attempt to read every word of every document before affixing their thumbprint and their initials, so they tend to simply ignore the documents altogether. In today’s digital world, it becomes all too easy to simply click your way through a complicated legal document and ignore the consequences. This tendency to ignore the “fine print” extends to more than real estate contracts. People are quick to click “I Agree” when asked if they have read and understood the Terms of Use, especially when they are in a hurry to download the latest App to their smartphone or make that last-minute online purchase from Amazon. More and more, people are going online to complete routine transactions, from buying stamps to depositing checks. The act of clicking the “I Agree” or similar button is that it creates an enforceable, binding contract between the user and the company. More and more, companies are asking their customers to “go paperless,” and forego the printed statements and instead rely entirely on a cyber interface with their customers. The courts upheld so-called “shrink wrap” contracts which bound customers to terms and conditions when they tore open the plastic wrapping on CDs containing the latest software and upgrades. This gave rise to the term “click wrap” when courts upheld contracts formed when users clicked the “I Agree” button. Although electronic signatures have been around for a while, improvements in technology now allow the average person to easily affix an electronic signature to virtually any document. In the world of digital commerce, this creates a dilemma. We appreciate the speed and convenience of using electronic transactions, authenticated in many cases by an electronic or digital signature. A real estate transaction that used to take hours or even days to get signed, initialed, and transmitted now can be completed in a few minutes with a suitable connection, even on a smartphone. However, just because it is technologically possible to initial and sign a complicated series of contracts and other documents does not mean the user is going to be any more inclined to read and attempt understood them. In fact, the same technology that makes it possible to affix an electronic signature with ease makes it even more convenient to simply ignore the terms of the document itself. At least one electronic software program simply advances the viewer to those sections of the document where an initial or signature is required, in some cases skipping over pages of material! It’s a classic case of “Buyer Beware.” Clicking through a complicated real estate document on a smartphone may be an incredibly convenient and fast way to do a transaction, but it can also make it easier to ignore the importance of the information that is being provided. When you click “I Agree,” you are affirmatively declaring that you have read, understood, and agree to be legally bound to the specified terms and conditions contained in the contract. Lawyers are fond of advising their clients to “Get it in Writing.” To this, I would add: “Read it!” © 2014 Jeffrey B. Hare APC

Jeffrey B. Hare, Attorney at Law, provides outcome-oriented legal services to real estate investors, commercial and residential property owners, and real estate developers. As a real estate attorney with over 25 years’ experience in real estate and business transactions, Mr. Hare provides his clients with a practical, cost-effective approach to solving complex legal issues, including due diligence, contract review, and negotiations. He also has extensive experience with entity formation (LLCs, etc.), and is very familiar with the use of self-directed IRAs for alternative investments such as real estate. SUMMER 2014 REI VOICE

21


Diana Nyad

Author & World Record Holder

Bruce Norris Ben Gay III tony Alvarez

July 18-20, you’re invited to a life-changing event: the Millionaire Maker. It will take place only once, will be followed by 60 days of mentoring, and I guarantee it will break the “box” in which you’re living. What does “try” mean to a world record breaker? Millionaire Maker dares you to look in the mirror and realize you have more inside than you know. On Friday night, together we’ll watch a very special documentary about the inspiring story of worldrecorder holder, Diana Nyad. At the age of 61, what motivated her to be the first person ever to swim from Cuba to Florida in shark infested waters? You’ll find out first hand when she joins us live on Saturday, challenging you to rethink what “try” in your life really means. How do you break out of the “box”? I’ve hand-selected over 15 guest speakers and panelists to join us. Prepare to be motivated as we explore first-hand how these successful real estate investors and business pros realized their untapped potential. Then, challenge yourself to discover your personal formula to take that same rigid discipline you have in your best areas of accomplishment and use it to improve every other area of your life. 60 days of Mastermind Mentoring? That’s right. After the live event, you’ll join me and one of our speakers weekly for Mastermind Fridays. For 60 days, we’ll explore additional reading materials to keep you motivated and committed to the goals you set. We’ll also keep you updated on personal goals we speakers have set for ourselves. We’re all just one habit away from living a very different life. We’ll be doing this together. Millionaire Maker asks you to commit 60 days to attain the next level in whatever is important to you now! Is it about realizing financial success via real estate investing? Yes! Will it be about learning a step-by-step process to attaining your specific personal goals? Yes! Is it about learning that the “box” you’ve chosen to confine your life to can be replaced by iron will and new-found skills? Yes! Please don’t hesitate, commit right now to attend. There is limited seating due to the nature of the mentoring piece after the live event. Change the trajectory of your life by joining us in July for this one-time-only event! Sincerely,

P.S. I so strongly believe in this event I’m offering a money back guarantee. If after the first full day you’re unhappy, hand in your manual and I’ll refund admission. In addition, use The Norris Group as your hard money lender on a Socal deal within two years after the event and I’ll rebate the cost of the event 0.5% per loan until you get it back in full. See the web site for full rebate details and to register before we sell out. See you July 18th!

Mike Cantu

Also FeAturING: Danica Patton, Jennifer Shenbaum, Andrea Esplin, Holly McKhann, Rick Solis, Doug Van Soest, Steve Landis, Bill Tan, Silvio Brigliadoro, Iris Veneracion, Jack Fullerton, Ward Hanigan, and Randy Grigg.

DAte & loCAtIoN:

Friday, July 18 – sunday, July 20 Westin South Coast Plaza Costa Mesa, CA

reGIster At:

www.thenorrisgroup.com/millionaire or call (951) 780-5856

$1,797 until 6/16 $2,297 after Event includes Friday evening movie snacks; breakfast, snacks, and lunch Saturday and Sunday; all seminar materials during live event; web portal access with additional content and recordings from live session. Mentoring books materials will be responsibility of attendees so each can choose preferred format.


Home Prices & Population Growth:

ANALYSIS

Cities

Vs.Suburbs

Jed Kolko | Trulia Trends: Real Estate Data for the Rest of Us From some angles, it looks like the housing recovery has brought an urban resurgence: for instance, the most urban counties are growing faster now than during the housing bubble, and many dense cities are having a boom in apartment construction. However, the most recent data show that asking prices in urban neighborhoods are rising only slightly faster than in the suburbs, and the suburbs actually have higher population growth. The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed. Asking Prices Continue to Rise as Spring House Hunting Season Begins Despite declining investor purchases and more inventory coming onto the market, asking home prices continued to rise at the start of the spring housing season. Month-over-month, asking prices rose 1.2% nationally in March 2014, seasonally adjusted. Quarter-overquarter, asking prices rose 2.9% in March 2014, seasonally adjusted, reflecting three straight months of solid month-over-month gains. Year-over-year, asking prices are up 10% nationally and up in 97 of the 100 largest metros. Albany, NY, Hartford, CT, and New Haven, CT, are the only three large metros where prices fell year-over-year, albeit slightly.

SUMMER 2014 REI VOICE

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Cities Vs. Suburbs

ANALYSIS

Cont.

March 2014 Trulia Price Monitor Summary

% Change in asking prices

# of 100 largest metros with asking price increases

% change in asking prices, excluding foreclosures

Month-over-month, seasonally adjusted

1.2%

Nor reported

1.1%

Quarter-over-quarter, seasonally adjusted

2.9 %

97

2.8%

Year-over-year

10.0%

97

9.5%

* Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

Cities Outpacing Suburbs in Price Gains, but Suburbs Lead in Population Growth The Trulia Price Monitor and the leading sales-price indexes report price changes for the nation and for many large metro areas (For asking home price changes in 100 largest metros, click here: Excel or PDF). However, metros include both cities and their suburbs, and urban and suburban areas often have very different housing markets. The construction boom in single-family homes during the housing bubble was centered in the suburbs, and the subsequent bust was particularly painful in many of those same suburban areas. Many have wondered whether the housing bust has sparked a new preference for urban living in dense, walkable neighborhoods over sprawling, car-dependent suburbs. To compare how urban and suburban neighborhoods have fared in the housing recovery, we look at two measures: (1) price gains, based on the change in median price per square foot among all non-foreclosure homes for sale on Trulia, and (2) household growth, based on the U.S. Postal Service’s count of addresses receiving mail in each ZIP code. Both measures are year-over-year, comparing March 2013 with March 2014. We classify urban and suburban neighborhoods based on the kind of housing they have – urban neighborhoods are those where a majority of housing units are condos, apartments, and townhouses, while suburbs are those where a majority of housing units are detached, single-family homes – which we think is more meaningful than using big-city political boundaries. Therefore, by “cities” we mean dense, urban neighborhoods. We also define “high-rise” neighborhoods as urban neighborhoods where a majority of housing units are in buildings with 50 or more units. Nationally, the change in median price per square foot was a bit higher in urban neighborhoods (9.8%) than in suburban neighborhoods (9.4%). Household growth, conversely, was higher in suburban neighborhoods (1.1%) than in urban neighborhoods (0.9%) over the past year. Locations with stronger demand should have both higher price growth and more population growth, so how can prices be rising faster in cities while population is growing faster in suburbs? Because supply matters, too. Suburbs can have faster household growth but smaller price gains because it’s easier to build new housing in suburbs than in dense urban neighborhoods, and new construction accommodates population growth while taking pressure off rising prices.

Home Prices and Population Growth in Urban and Suburban Neighborhoods Change in median price per SQFT, Y-o-Y

Change in number of households, Y-o-Y

Urban neighborhoods (incl. high-rise neighborhoods)

9.8 %

0.9 %

High-rise neighborhoods only

11.4 %

1.8 %

Suburban neighborhoods

9.4 %

1.1 %

Note: among neighborhoods in the 100 largest metro areas.

SUMMER 2014 REI VOICE

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ANALYSIS

Cities Vs. Suburbs

Cont.

Although the suburbs have been growing faster, why does it seem like big cities have had a resurgence in the housing recovery? Three reasons: 1. In high-rise neighborhoods, home prices rose 11.4% year-over-year, faster than urban neighborhoods overall and faster than suburban neighborhoods. These hyper-urban neighborhoods – which include much of Manhattan, Chicago’s Loop, and downtown Boston and downtown San Francisco – are highly visible but, in fact, make up a very small share of urban neighborhoods. Most urban neighborhoods look more like Brooklyn than Manhattan, or more like San Francisco’s Inner Richmond than the Financial District. 2. The construction recovery has been disproportionately urban. In 2013, apartment building construction hit a 15-year high, even though single-family home construction is still considerably below normal levels. That means many dense cities where much of the housing stock is comprised of rental apartments, including New York, Boston, and San Francisco, have been having a construction boom relative to their local normal level of construction. 3. Population growth in urban areas has rebounded in recent years after falling during the housing boom. Census population estimates show that the most urban counties – which we define as those in the top quartile by household density (that is, most households per square mile of land area) – grew by 0.8% between 2012 and 2013, after growing less than 0.2% in the boom years of 2003-2006. Still, this top quartile of highest-density counties – which includes all five New York City boroughs, San Francisco, the District of Columbia, Los Angeles, and others – grew more slowly than the second-most dense quartile of counties, which includes suburban counties of large metros as well as the main counties of smaller, lower-density metros, such as Rockland County, NY, and Contra Costa and Riverside counties in California.

To sum up: although home prices and population are growing fastest in hyper-urban high-rise neighborhoods, asking prices are rising only slightly faster in urban neighborhoods as a whole than in suburban neighborhoods. Furthermore, population is growing faster in the suburbs than urban neighborhoods overall, despite the fast growth in high-rise neighborhoods. The densest counties don’t have the fastest growing population, but they’re growing a lot faster than they did during the housing boom, when lower-density counties grew considerably faster. Population growth since the housing bust has slowed most in the bottom quartile of counties, which are largely rural areas, not suburbs. The suburbs are far from over.

Jed Kolko, Chief Economist Jed leads Trulia’s housing research and provides insight on market trends and public policy to major media outlets including TIME magazine, CNN, and numerous others. Jed’s background includes a Ph.D. in Economics from Harvard University and more than 15 years of publications and research management in economic development, land use and housing policy, and consumer technology adoption.


ADVICE BASICS

Jeb Henley A Rewarding Risk Aversion Strategy Every day, the media paints a picture of how simple it is to flip properties and make a quick profit. All you have to do is buy a below-market value property, put some money into fixing it up, throw it back on to the market and the money will come, right? It’s just not that simple. The price run-up of the past few years has created a lot more competition in the field, making good deals much less obvious and more difficult to find.

An Inside Look At Two Renovation Projects: Houston & San Jose

Over the years, I’ve done too many rehab projects to count. One of the inherent risks in a rehab project is this: you’re running against time. The market is ever changing. World events cause markets to change; tax code changes alter markets, disrupting buyers’ enthusiasm and or interest rate spikes. There are never guarantees the market will rise. Strategy is key, and you must be prepared for anything - and always have your back-up plan in mind.

Evaluate Your Risk Many factors must be considered when making the decision to invest in properties you plan to flip. The logistics can get pretty complicated. Location is very important. If you purchase a house in an up-and-coming neighborhood, you’re banking on the neighborhood increasing in value. If you decide to buy in a really nice new development, you’ll need to attract higherend home–buyers who want the luxury features, and low maintenance new construction offers. If all goes well, you could make a nice profit. But if something goes wrong, such as: faulty budgeting, timing issues, a crime spike in that up-and-coming neighborhood, or even worse, a “Black Swan” event occurs creating a sudden detrimental impact on the economy -- you could be stuck with a house you can’t get rid of. So much in house-flipping depends on the real-estate market, which we all know is cyclical. During a boom, flippers have the upper hand and in some areas can almost name their price. However, during a slow period, many of these fixed-up homes can sit on the market or be rented out, but the rents may not cover the debt service and other expenses.

Flipping Houston I recently did a flip on a property in Houston. It was a fourbedroom, three bath house in a high demand area near downtown. The client paid $180,000 cash when the market was flying three years ago. An IRS tax credit expired and the market collapsed. Luckily, we implemented our alternative strategy and rented the house for $1,800 a month, and held it for three years. Recently, we sold the house all cash for $245,000. The owners were never concerned, and are pleased and ready to do it again. When you buy in that price point you have choices and choices are valuable.

Flipping San Jose

Victorian House Project Downtown San Jose · Purchase Date: November 1, 2013 Total # of Units: 8 Units

Bed/ Bath per unit: 4- Studios

4– 1 Bed /1 Bath

Purchase Price: $ 755,000

Pre-Renovation Rent Roll: $ 76,100

Approximate Rehab Costs Including Debt Services: $250,000

Post-Renovation Rent Roll: $ 113,000 Suggested Resale Price: $1,395,000 Projected Net Profit: $ 390,000

Although actual net profit has to be determined, the property cashflows today post construction Jeb Henley Equity Transition 831-419-4200

With this in mind, I took a different approach to the Bay Area market. In 2013, I began a project in the heart of Silicon Valley, downtown San Jose. Located within walking distance of the Adobe Systems buildings, this property came with eight units. I liked the area because it was beginning to attract the much-coveted tech workers who want to walk or bike to work. The neighborhood was still in transition, changing from the presence of low rent tenants to the emergence of the new tech-centric culture. The building’s existing residents were section eight, the rent roll was low and repairs had been deferred; this does not sound great, however, the fundamentals looked solid. This building presented a strong growth opportunity in a transforming area. 27 SUMMER 2014 REI VOICE


ADVICE The stage was set for this project’s success. With multiple units and a rising rental market, gentrification was occurring. The problem, however, was finding an investor who had the foresight to recognize the changing market and the potential for success. It took speaking to many potential buyers before I found an investor that was forward thinking and ready to take action. Remember the best deals are not perfect deals. By the time an area is identified as a solid investment, many of the great deals have evaporated.

Anatomy of My Bay Area Deal Downtown San Jose is in transition – moving toward higher rents with high tech owners and tenants. This 8-unit property was a one hundred year old Victorian style home that had not yet been renovated. This was a great deal, where it lacked perfection, it made up for in potential. The current upswing of the neighborhood made for a great time to renovate. We went to work. The building needed a roof, new gutters, new paint and full interior upgrades. This rehab was no small task, however we approached it strategically. We tackled two units at a time, and rented out the other 6 while we worked. By renovating only a fraction of the units at a time, it allowed for the remaining units to continue generating income and in turn that income helped cover the renovation costs

of the project by yielding higher rents. This is why, in my opinion, it is better to invest in property that creates cash flow. The property upgrades were completed right on time and on budget. A year later, it is back on the market at almost twice its original purchase price.

Why Your Strategy Matters This strategy above translates into other markets as well. We have done 62 multi-family buildings in Phoenix with this same risk reduction model. While we still believe in flips, we have changed our approach to minimize our risk exposure. It is best to seek out deals with limited, to no debt, that can be done quickly to avoid shifts in the market. Working with short timetables, and having income producing rent rolls while renovations are in progress, also helps to reduce the risk.

Risk Management = Success Flipping is an art. It’s about timing. It’s about deal making. It’s about seeing the bigger picture - of a property, of a neighborhood, of a town - and making calculated decisions based upon a variety of factors. The algorithm to this art is ever changing, given the numerous variables. However, there is one key factor, and it is as simple and complicated as this: risk is unavoidable and thus needs to be mitigated into and accounted for, every in step of the process.

Jeb Henley is a Real Estate Broker and investor with over 35 years’ experience with both residential and commercial properties. Mr. Henley has been investing, selling and exchanging real estate since 1975 in both California and across the United States. As a Broker, Mr. Henley works with strategic partners and affiliates to locate solid real estate values that will provide his investor clients with opportunities for both cash flow and appreciation. Using his extensive experience in handling real estate transactions ranging from single family homes to large commercial properties, Mr. Henley focuses on helping his clients to develop and build a successful real estate investment portfolio, from initial acquisition to eventual sale or exchange of the property.

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BASIC

BASICS

An Inside Look:

The Millennials Behind

by Hannah Ash

THE DATA

As the housing market continues to recover, one thing, or rather one group, is missing from the bounce-back: those all-important first-time homebuyers. Though once upon a time, not so long ago, first-time homebuyers, and particularly those in the 35 and under age bracket, accounted for as much as 50 percent of the buying market, today’s picture looks drastically different. Data released in 2013, by the National Association of Realtors’ Realtors Confidence Index, indicated that the number of first-time homebuyers had fallen to a jaw-dropping 30 percent share of the buying market. In April of this year, U.S Census Bureau data confirmed that millennials just aren’t buying: the data showed that home ownership for the under-35 set had declined to 36.2 percent, the lowest on record since the bureau started collecting related data in 1982. Though these numbers are concerning, they probably don’t come as a surprise to most of us. The economic downturn changed the future permanently: for the millennials and all those who come after them. That change isn’t just financial, although that’s a large part of it. The economic downturn impacted how the under 35-set approach their careers, think about work, where they work and how they think about their future and families. Naturally, it also impacted their views and approach to real estate. A 2013 research report by the Pew Research Center concluded that millennials are, “Confident. Connected. Open To Change.” When it comes to investing and home ownership, is this true? We interviewed a handful of millennials from throughout the country (those loosely defined as having been born between the early 1980’s and the late 1990’s) to get our pulse on what’s going on with this transformational generation. Loren Groves, Google+ Product Manager living in San Francisco, states that commute may figure largely into future decisions, “Commute has a massive impact on my day. I commute to Mountain View from San Francisco everyday taking 1-2 hours each way. I also commute to Seattle every other week. If I had a family, I would want my house to be as close to the office as possible and I would rely on video calling technology instead of flying when possible.” Groves goes on to state that “…expanding social networks are expanding housing options, and locales, “millennials” have larger networks. We know more people and spent more time developing those relationships. The number of options one has for a spouse, job, or house is correlated to the size of one’s network. Growing and maintaining this network then becomes the main deciding factor to buying a house. I live close to friends and in the city, unfortunately my job is not in the city, but two of my three requirements are satisfied.”

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Loren Groves, Product Manager

Google+

Groves goes on to state that “…expanding social networks are expanding housing options, and locales, “millennials” have larger networks. We know more people and spent more time developing those relationships. The number of options one has for a spouse, job, or house is correlated to the size of one’s network. Growing and maintaining this network then becomes the main deciding factor to buying a house. I live close to friends and in the city, unfortunately my job is not in the city, but two of my three requirements are satisfied.”


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BASIC

The Millennials

Cont.

Low inventories in affordable price ranges could be part of the reason homeownership is dropping for the under-35 set. It took Vincent Piscopo, 30, of South Burlington, Vermont and his wife Jess Leachman, 31, over a year of hunting to find an affordable home in the right school district. He says the house is a “real fixer-upper,” but is quick to quip, “We were lucky to find it.” Affordable inventory in his part of Vermont is generally low with prices generally high. Technology, he says, was instrumental to his search. “I used Zillow, Trulia and Google Maps. We worked with a real estate agent and were constantly texting back and forth.” So how did Vincent finally find his home? “Craigslist,” he says. “It was an estate sale. I called the guy up and was there within minutes. I texted my realtor; within three days we had our offer in. We got lucky.”

Given that the job and housing markets still appear to be in a state of flux depending on the area, today’s first time home buyers might be looking at their first purchase as more of an investment than permanent home. Sara Ecdao, 29, of Silicon Valley, CA, for example, says “I definitely plan to buy a home within the next five years, however, right now, I’m unclear whether my first home purchase will be an investment property or personal residence.” Sara goes on to say, “Being single leaves me not as eager to settle into a home which I associate with building a family.” Loren Groves agrees saying, “I find it difficult to buy a house while I’m single and building my career. I feel that this is something I should discuss with my future spouse.” On average millennials are waiting until their well into their 30’s to get married and start their families. This leaves many of them viewing their first real estate purchase as an investment as opposed to a long-term personal residence. Aside from low-inventory and lackluster credit with student loans creating an additional financial burden, another reason millennials aren’t buying right now? They’re just not in a hurry. The economic downturn hasn’t scared them off; it’s made them more thoughtful about buying and selling. Seeing the market as less iron-clad than generations before, they’ve adopted somewhat of a causual relationship with real estate. Nina, 29, from New York, New York, is already a homeowner. She says she won’t consider buying again for a while, commenting, “…I’m waiting for the right time in my life to make the most of my existing investment by selling to upgrade and invest in something different.” She works remotely sometimes, and says that working remotely could very well influence where she buys next. She is not shaken by the economic downturn, stating that if anything, it’s made her more cautious, not reluctant. For some of the older generations, who were lucky enough to follow the ‘go to college, buy a fixer-upper, start a family’ program, it might be easy to write the younger generation off as uninterested in the responsibility of homeownership. After all, it was the millennial generation that flocked, in large numbers, back to parents’ houses and basements in the wake of a lagging job market. Renting is, after all, a one-stop shop and home ownership, with its broken pipes and financial obligations, is more complicated. To write off an entire generation as lazy or irresponsible, however, isn’t accurate - or fair. Some millennials just don’t feel pressured to buy – they are career focused and building their futures that way. Others are contending with tight inventory markets and rising home prices. Renting might be ‘easy’ at first glance, but the millennials clearly realize it’s not without its disadvantages. They just see home ownership differently: it’s part of a journey, it’s an investment and it’s not, necessarily, a permanent destination.

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BASIC

A Case for Real Estate Agents:

by Geraldine Barry In an environment where agents are often sidestepped, and under appreciated, I’m here to make the case for the Real Estate Agent. The best deal I ever completed was secured through an agent who had a pocket listing (essentially a listing that never became available to the public on the Multiple Listing Service (MLS).

Successful investing means lots of details to consider, however, finding a top-notch agent is not one to skip over. Take the time now to find an agent with a proven track record - one you can work with time and time again - so that you don’t have to go back to the drawing board for each new deal that pops up.

Why did I get first shot at that deal? First, it was based on a relationship that I had developed over time. My agent knew me as an investor. My agent knew that I had my finances in order, understood my buying criteria, and knew that I would act quickly - for the right property. So when a deal came up that fit my criteria, he gave me first shot. He knew that if the numbers worked I could make it happen, and I did, benefiting both of us.

Today’s most ambitious real estate agents are using all of the sales channels at their disposal to sell and find deals. According to statistics released by the Pew Internet Project in September of 2013, over 71 percent of adults are on social media. Smart, savvy agents understand this - and you can find them on Instagram, Twitter, Facebook and even Pinterest. Google Plus appears to be a particularly real-estate friendly social media format so be sure to do some hunting there, as well.

A percentage of deals never make the MLS, and when they don’t you want to have the first shot at those – agents that have that key access. Reasons properties don’t hit the MLS are as varied as the sellers themselves. Sometimes sellers don’t want hundreds of people walking through their properties, maybe it’s a mess, perhaps the house was owned by a hoarder, maybe it’s simply completely run down, and maybe it does not qualify for regular financing? There are myriad of reasons that properties don’t hit the regular market place – and many reasons why you should work with agents that give you an inside glimpse. In tight inventory markets like our current market place, agents control inventory through their listings. Agents ultimately decide who gets to buy what, and relationships are often the deciding factor in finalizing a sale. Relationships with clients, relationships with other agents – it matters. Remember: people like working with people they know, like and trust. Despite our technology driven world where online everything is embraced, the personto-person relationship is still paramount. That is why developing a relationship with those agents who control inventory is a must for the successful real estate investor. So when you find a good agent, hold on for dear life. That agent will be your guide and captain through what can be a bumpy ride, even for the most experienced investor.

Whether you’re new to the area or just short on resources or inspiration, attending a networking event or mixer is a great way to get out there and forge some real connections offline. Real estate, and investing, events attract the industry’s go-getters who are there to socialize, market themselves and put in a good word for past vendors and agents who have done good work for them. Let’s face it, reputation matters - especially your own. If you want to work with the best, you need to be the best. High-end real estate agents who really deliver results don’t want to waste their precious time on diva clients - so don’t be one. While you don’t want to be a pushover, it’s important to remember why you are there, what your end goals are, and to keep the details as focused on cash and property as possible (read: put your personal dramas and concerns aside). Build a reputation for yourself as an excellent client and, in time, you’ll have trouble finding those elusive rock star agents that deliver rock star results.

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ADVICE

Reinventing Education in by Geraldine Barry

Silicon Valley

Innovative educator John Dewey is quoted as having said, “Education is not preparation for life; education is life itself.” If there is one educational institution in Silicon Valley that embodies this approach to education - as something you live, not just learn - it’s Valley Christian Schools in San Jose. As Silicon Valley functions as America’s home base for innovation and entrepreneurship, it makes sense that the schools here work to raise the bar on innovation in education. Just as Valley Christian guides its students toward bigger results and educational discoveries, this school influences other countries, all around the world, to aim for bigger and better results. Valley Christian has an I.S.S. teaching partnership with Finland, has helped launch a school in India, and has introduced transformative technology initiatives to Kenyan educational programs. Valley Christian’s amazing programs are getting noticed; they prepare Silicon Valley’s brightest students to lead lives of character, service, and influence to serve God and their families, and to positively impact their communities, and the world. Tomorrow’s innovators, inventors, engineers, entrepreneurs and thinkers - the leaders who will change the country and bring it into the next century are at San Jose’s Valley Christian. Like its iPad-armed students, the school reaches for the stars when it comes to technology - and it shows. Students here receive state-of-the-art educations that are, in typical Silicon Valley style, “calibrated to the students’ individual abilities”, according to President Clifford E. Daugherty, Ed.D. Over 160 different courses are offered just in the high school, allowing students at all levels to fine-tune their education and calibrate their learning experiences to achieve optimal results. While many students at other schools need to wait until at least junior high school to get hands-on science education, Valley Christian’s K-12 educational approach is such that important learning starts for the youngest grades. At Valley Christian Elementary School (VCES) computer science is offered alongside programs such as instrumental music and dance. Extra-curriculars are impressive and include the robotics club, chess club, lego club and the young author’s workshop. VCES students graduate to the award winning Valley Christian Junior High School (VCJH). Named an Intel School of Distinction and STAR Innovator, and “Exemplary High Performing - California Blue Ribbon School” by the US Department of Education, VCJH provides students with excellent preparation for college. Classes include community outreach leadership, computer science, logic and reasoning, theatre, and engineering.

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Valley Christian High School


ADVICE

Reinventing Education in Silicon Valley

Cont. It is commonly thought that if you do what you love, success will find you. For students with a love for the arts, Valley Christian’s Conservatory of the Arts offers courses in everything, from the cinematic arts and jazz band, to theatrical design and technology. Students interested in music benefit from access to classes through Boston’s legendary Berklee College of Music online while visual artists and photographers showcase their work in local galleries and have full access to the Conservatory’s photography studio. Beyond academics, Valley Christian honors a strong tradition of excellence in athletics. The schools currently have over 45 girls and boys sports teams, with an emphasis upon character and the pursuit of success. Valley Christian athletes compete at the highest level of high school athletics - with over 65 former VCHS athletes now in the NCAA or the NAIA. Valley Christian’s unique Human Performance Center, staffed with athletic professionals, provides yearround sport specific training to maximize strength, power, speed, and athletic performance for all VCHS athletes.

While clearly strong in all academic, artistic, and athletic disciplines, this Silicon Valley innovator is home to the highly-regarded Applied Math, Science, and Engineering (AMSE) Institute. With spectacular programs including the International Space Station (ISS) program, the Satellite Development program and Astronomy Research, AMSE is designed to take a student’s spark for a certain concept or idea and light it on fire. Forget science lab experiments that serve no actual purpose. AMSE takes experimentation to a whole new level: outer space. The (ISS) program gives students a chance to conceptualize, design and send experiments directly into space, through a collaboration with ISS astronauts. At the end of the program, students present their findings at the California Polytechnic State University each year. Joining the High School, Valley Christian Junior High is posed to become the first junior high in the world to send their student-built experiments aboard the ISS. The Satellite Development program pairs students with industry professionals to actually build, design, and launch a satellite. Students then track the satellite for one year until the satellite eventually decays out of orbit and back to earth. In addition to Valley Christian’s robust Academic Achievement, Artistic Beauty, and Athletic Distinction, a program recently rolled out at the high school offers students the opportunity to complete up to two years of college level coursework while pursuing their high school diploma! Just as Silicon Valley has tirelessly pushed past the limits to create new technology that has changed the country, Silicon Valley’s Valley Christian K-12 programs are pushing the limits and reinventing education to create the next generation of innovators, in all fields, who are well prepared to go out and keep changing the world.

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ADVICE

Pam Blanco Turning Real Estate Investments Into Great Business Decisions Volatility and low returns have everyone scrambling in search of safe investment havens. One bright spot in terms of investing is residential real estate. Pam Blanco, owner/broker of Professional Asset Management & Sales (PAMS) has the difficult job of making sure that investors, who have equity in the Dallas-Fort Worth Metroplex, realize both the profits and the added value that is anticipated in their ventures.

or potential for Return On Investment (ROI); also consider selecting a property based on how it will perform as a rental property, depending on whether you are investing for retirement or for immediate cash flow. In our current hot, low-inventory environment, you need in-depth knowledge in order to react quickly as opportunities present themselves.”

A 20-year veteran of the residential and multifamily sales and property management field, Blanco remains enthusiastic about the Dallas-Fort Worth area. However, she cautions potential investors that decisions made early in the investment process can have a big impact on future returns. She explains that, “Not only should you pick a property that has strong financials

A full-service real estate and property management firm, PAMS is made up of a talented sales and leasing team. It grew from managing 70 doors in 2009 to 550 in just five years and recorded over $12 million in sales in 2013. More important, the company tripled its value.

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ADVICE

Pam Blanco

Cont.

Blanco takes on the role of being her client’s eyes, ears, and feet on the ground. Most of her clients plan to own around 10 properties, but are seldom able to visit the area. “The average real estate investor rarely has the time or inclination to consider the many factors that affect the bottom line. And, if your goal is to build a portfolio of properties, the challenges multiply. It is our job to help investors identify, negotiate, manage and eventually divest rental properties when the timing is right,” says Blanco. In addition to locating prime properties, the PAMS team helps with every aspect of ownership. They take a customized approach to finding loan products that best match investor needs. They expertly take on the tasks of making improvements tenants are looking for, and liquidating the investment quickly and at the highest profit possible. During the ownership period, the focus is to maximize revenues and long-term value by actively managing the assets, visiting each monthly. Blanco’s company, which is family-owned and operated, has the ability to utilize both creative and personal approaches to help reduce the turnover of quality tenants, while ensuring that proper upkeep and response to new market trends as the occur. Blanco sums it all up by explaining how they take pride in treating “each investment as if it were our own, making decisions that will help clients reach their financial goals”.

Pam Blanco is the Founder and President of Professional Asset Management and Sales. Catering to investors, the company has developed into a turn-key solution provider to help investors grow and manage their portfolios of properties, both single and multi-family.

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ANALYSIS

OVERHEARD In The Field

by Geraldine Barry

Sometimes, you don’t need a lot of words to prove a great point. Dieter Rams, the industrial designer from whom Jony Ives and Steve Jobs drew much inspiration when first designing the iPod, believed ‘less is more’. The result? The iPod has just one, important button. At REI Voice, we bring you content-rich articles from the industry’s top hitters. Our new Overheard in the Field section is our version of “lite reading” - small statements that deliver big impact. The following collection of power-packed quotes are pulled from the current issue, past issue and other industry greats whom we admire. If you have a quote to add to the conversation, please do so: jump in and chat with us via social media! “People want to live, work and play in the same place, simplifying their lives... creating the rebirth of downtowns across the country.” Leslie Appleton Young, Chief Economist, California Association of Realtors “The Industrial Revolution took place over the course of 50 years, the Silicon Valley has seen the Internet Revolution take hold in a mere 14 years. This change is resulting in changing demographics. The “Young Affulents” are becoming the face of this revolution; with education and technical skills they are securing jobs in companies with large salaries and stock options that make them wealthy much faster than their parents. Carole Rodoni, President, Bamboo Consulting

“Once I realized I could only succeed through others, I made people the focus of the business.” Gary Keller, CoFounder, Chairman Keller Williams Realty

“Once I realized I could only succeed through others, I made people the focus of the business.” Gary Keller, Co-Founder, Chairman, Keller Williams Realty. “I consistently strive for superior customer service. When I do that, the sales follow.” Elena Johal, Alain Pinel “Don’t judge a book by its cover, but do judge a property by its neighborhood.” Pam Blanco, President at Professional Asset Management & Sales “Consumers need to be held accountable for their decisions, or a market-oriented economy does not function well.” Doug Duncan, Chief Economist, Fannie Mae “A serious investor never puts themselves in such a leveraged position they have to sell. We’ve all had investments go down, but speculators get killed because the only chance they had for a profit was escalation of price. They use leverage and throw caution to the wind. Investors don’t do that. An investor buys something that makes sense if they have to keep it, and they can keep it until another boom market appears.” Bruce Norris, President TNG. “Adopting the latest technologies is critical in staying ahead of the curve - and your competition.” Mark Thomas, Real Estate Technology Game Changer “The Internet is at the very early stages of driving the economic growth curve similar to what occurred during the Industrial Revolution.” Jeb Henley, Senior Investment Broker, Equity Transitions “Don’t buy online just looking at fundamentals. Online dating demonstrates that you don’t always get what you think you’re getting!” Kathy Fettke, Founder & CEO, Real Wealth Network

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“Consumers need to be held accountable for their decisions, or a market-oriented economy does not function well.” Doug Duncan, Chief Economist, Fannie Mae


ANALYSIS

“When looking at key economic indicators each segment of the real estate market is different. However, employment growth and trends are certainly a significant indicator of the health of the region or state and where it is heading. National trends are also important to help evaluate the amount of uncertainty in the markets. Vacancy rates and absorption are key indicators for the commercial markets.” Rick Merritt, Economist & President, Elliot D. Pollack & Company “Whatever happened to good, old-fashioned returns of 7-9%?” Chris Clothier, Managing Partner, Memphis Invest “Unfortunately, many of us stop thinking in terms of five-year plans once we move into a ‘grown-up career’.” - Jason Hartman, CEO of Platinum Properties Investor Network, “Millennials are so used to texting and not communicating by looking a person in the eye and talking directly to them - when you talk to them they hand the phone to their Mom saying ‘Here, talk to my mom.’” – Christopher Thornberg, Founding Partner, Beacon Economics “Like Warren Buffet, I want to buy when there is blood in the streets, and sell when everyone else is buying. I’m pretty tied into the DFW apartment scene, and right now is the best seller’s market anyone can remember. If people are willing to pay me a 7.5% cap on pro-forma numbers for 50 year-old Class C but I haven’t been able to find a good apartment deal to buy in nearly a year of looking, then I’m more a seller than a buyer right now.” Arthur Zwern, Physicist & Investor “Securing the 49er Stadium in Santa Clara, took teamwork, coordination, and focus. It is a great story in terms of collaboration between multiple parties, and a clear vision of how an empty parking lot could become a site for a stadium that beautifully, and naturally, fit into this community. No one person, or group can claim responsibility for this outcome. It truly required a sustained effort and courage of an entire community and its leadership - it was the greatest of team efforts.” Santa Clara Mayor Jamie Matthews

“Like Warren Buffet, I want to buy when there is blood in the streets, and sell when everyone else is buying. I’m pretty tied into the DFW apartment scene, and right now is the best seller’s market anyone can remember. If people are willing to pay me a 7.5% cap on pro-forma numbers for 50 yearold Class C but I haven’t been able to find a good apartment deal to buy in nearly a year of looking, then I’m more a seller than a buyer right now.” Arthur Zwern, Physicist & Investor

“A serious investor never puts themselves in such a leveraged position they have to sell. We’ve all had investments go down, but speculators get killed because the only chance they had for a profit was escalation of price. They use leverage and throw caution to the wind. Serious investors don’t do that. An investor buys something that makes sense if they have to keep it, and they can keep it until another boom market appears.” Bruce Norris, President TNG.

SUMMER 2014 REI VOICE

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Jeffrey B. Hare, APC 408-279-3555 jeff@jeffreyhare.com www.jeffreyhare.com

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Umpqua Bank Bryan VanHuystee Mortgage Sales Manager NMLS #669364 408-832-2195 BryanVanHuystee@ umpquabank.com www.umpquabank.com/ bryanvanhuystee

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The Entrust Group Gary Kowalski 800-392-9653 ext. 245 gkowalski@theentrustgroup.com www.theentrustgroup. com IRA Services Trust Company Michael McNair 650-593-2221 www.iraservices.com

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Accuplan Benefits Services Lamarr Baxter 916-708-0235 lamarrbaxter@accuplan. net www.accuplan.net

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Brighton Financial/ Farmers Insurance Vernon Williams 408-931-6582 vwilliams@farmersagent. com www.farmersagent.com/ vwilliams

Michael Ryan Mortgage Broker and Banker DRE License # 01090891 NMLS # 295351 408-986-1798 mike@michael-ryan.com

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Private Lender Michael Emens 408-580-6366 michael@PrivateLender. Pro www.PrivateLender.Pro www.PrivateMoneyRadar. com FREE source for finding Private Money premium service discount code: SJREI2014 Hard Money Broker Mark Hanf (800) 605-8050 Mark@PacificPrivateMoney.com www.PacificPrivateMoney. com for Borrowers www.PacificPrivateInvestments.com for Investors

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ACL Property Management Charles Lassey BRE # 01893837 510-786-9025 lassey@aclrealestate. com www.aclrealestate.com facebook.com/aclrealestate

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Thrasher Termite & Pest Control Inc. Janet Thrasher 408-354-9944 info@thrashertermite. com www.thrashertermite. com

REAL ESTATE INVESTMENTS

Equity Transitions Jeb T. Henley DRE License # 00608973 831-419-4200 jebhenley@gmail.com www.equitytransitions.com

Jason Hartman Platinum Properties Investor Network REAL ESTATE 714-820-4200 AGENTS jason@jasonhartman.com Sheryl Martinez DRE License # 01310103 www.jasonhartman.com 408-209-7674 Memphis Invest sheryl@sherylmartinez. Chris Clothier com 877-773-9998 http://about.me/ info@memphisinvest.com sherylmartinez www.memphisinvest.com Keller Williams Realty Silicon Valley Anna Maria Valenzuela 408-832-7727 amv@annamariavalenzuela.com http://about.me/annamariav

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Nick of Time Results Team Natalie Knowlton 831-402-5107 natalie@calssp.com www.nickoftimeresultsteam.com

TRAINING & EDUCATION SJREI Jumpstart Inverstor training Geraldine Barry 408-264-3198 sjrei.geraldine@gmail.com www.sjrei.org/jumpstart

OTHER SERVICES Taxes Gladys Jimenez Tax Preparer  Office: (831) 784-0163 Mobile: (408) 449-2646 gladysinmigracion509@yahoo.com Internet & Marketing Susan Hare Marketing Susan Hare 408-391-8068 susan@susanharemarketing.com susanharemarketing.com

INVESTOR RESOURCES June

October 2 :

June 5 :

SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM June 14 : JumpStart Real Estate Investing Basics Courtyard Marriott San Jose Airport @ 9am

July

November November 6 :

July 10 : SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM

August August 7 :

SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM Michael Pierce- President- Prodesse Properties

October

SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM Douglas Duncan- Chief Economist- Fannie Mae October 24: Save the Date! I Survived Real Estate - Black Tie Affair

SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM

December

Member Only Holiday Event TBD

September September 4 : SJREI Monthly Meeting Domain Hotel Sunnyvale @ 7PM Bruce Norris- President- The Norris Group

Events Calendar


By Geraldine Barry

Just recently, SJREI, the investing organization wing of REI Voice Magazine, celebrated 12 years of connecting, learning, investing and community. During this time, I have had the incredible privilege of witnessing fellow investors strategize growth plans, had the honor of hearing about big successes and have been a voice of reason in what can often be a noisy environment. So, what have I learned over the past twelve years since it’s founding? More than I could ever fit into this magazine, or several. I’ll highlight some key points, as I believe them to be useful to you our readers. This is a reflection, both on the markets and on investing. 1. Just When You Think… Just when you think the market is one way, it turns on you. Markets always turn – it ‘s just a matter of time. Real estate cycles are inevitable. When the market is down the majority tends to think it will never come back and, of course, when it’s on a roll people think it will never end - but it always does. Be on the lookout for telltale signs of the market taking a turn. Affordability, prices, inventory levels, and the job market are all metrics to keep in your line of vision. 2. When You Get Lemons… Know how to make lemonade. There are opportunities in every market: those poised to take advantage understand what a market is doing, and are ready to take swift action once an opportunity presents itself. Being attentive to detail, and having a solid plan of action – including: really knowing the neighborhood, being able to run accurate comparables, having a few exit strategies, being competent at team management, and getting a rehab completed on time and on budget. There are a lot of moving parts involved with this game, so be sure you know the rules of each, and how to navigate the environment. 3. Margin For Error Matters Using Other Peoples’ Money (OPM) is a serious business – the experienced investors I know are willing to put their money where their mouth is and not squander other peoples’ money. Have some skin in the game, or bring some other essential strength to the table. Inevitably, unanticipated expenses arise; remember tight deals don’t leave a margin for error. Avoid those like the plague. John Sobrato mentioned in an interview recently that three parking lots that they own down town San Jose cannot be developed as the “numbers simply don’t work – the rents don’t support the cost per square foot to build.” That is risk management the numbers tell you what to do. 4. Don’t Forget Where You Are The Bay Area market is a spectacular and different market to any other in the country - the innovation, the industry; the entrepreneurial energy all make this area special. The high cost of housing here may mislead you into believing that a $80,000 house in another locale is a steal when, in fact, you are over-paying. You cannot take your CA brain to another state as other states are like other countries - their economies differ, as do their housing markets. Even within CA there are multiple micro markets. 5. Don’t Try To Do It All Align yourself with experienced people – you cannot be an expert in every area. Keep an eye on the top pro’s in the field and listen to their take on the market, stay informed on emerging trends and how a market is developing and where it is in the cycle. Information is power. Our investing organization, SJREI, is an education-rich resource for area investors to get together, bounce ideas around with other like-minded people, discuss local and out-of-state markets, and forge life-long connections for sustained success in investing. If you have a real estate investor association in your area, I strongly recommend you join. For me, the last twelve years with SJREI have been powerful - and, transformational. Thank you to all of my fellow investors who have been there along the way. Tuigim is the traditional Gaelic answer to the question, “An dtuigeann tú?” (Do you understand me?) Tuigim means “I understand,” “I got it,” “I follow,” “I’m with you...,” and is the answer Geraldine Barry, native of the Emerald Isle, most loves to hear.

An expert at the crafts of real estate investment and business development, Geraldine Barry guides others to hone their skills and perfect their strategies. She founded and currently serves as president of SJREI Association, the Bay Area’s premier educational and networking platform for real estate investors. When she’s not busy with SJREI, Geraldine is publishing the award-winning REI Voice Magazine; she is also an active and skilled investor. Under Geraldine’s leadership, SJREI has advanced from an original half-dozen members to an active community that now boasts over 200 investors attending monthly meetings. A valuable resource for Bay Area investors, SJREI has been the recipient of the National Real Estate Investors Association Award for Excellence in numerous categories throughout its history. Geraldine regularly interviews the industry’s top players, many of whom have appeared as speakers at SJREI over the 12 years since the organization was first founded.

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In addition to her work at SJREI, Geraldine publishes the nationally recognized REI Voice Magazine. This multi-faceted print magazine – which has featured real estate giants such as Garry Keller of Keller Williams - keeps investors focused and ahead of the curve with fresh insights, powerful interviews and focused data. An accomplished entrepreneur and investor, Geraldine is a sought-after business strategist and real estate investing coach: she advocates a careful and strategic approach to building and sustaining success.


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Rei voice summer 2014